Lenders: Assess Your Firm’s Customer Diversity Goals

The demographic composition of current and prospective customer bases is changing. And, most financial providers recognize that. Consumers are becoming more ethnically diverse. Younger consumers have different financial behaviors and preferences than older generations. Both of these factors have an impact on how firms approach and measure customer diversity initiatives, as well as plan for the future. Let’s take a deeper look at these changes.

The U.S. population is shifting to “majority minority”

The U.S. population is in the midst of a significant ethnic shift. Today’s population is majority white. Yet, it is expected that between 2040 and 2050, the population will shift to “majority minority.” Between 2040 and 2050 49% of the population is expected to be white. (1) 

This transition in diversity is currently seen in younger generations. It will soon be seen amongst the working class:

• The Gen Z population is approximately 55% white and 45% minority. Boomers are 75% white and 25% minority. (2)
• For the 66% of the working population that is part of the working class (working people without a college degree), the minority to majority transition is expected to take place by 2032. (3)

Younger consumers have different financial behaviors than prior generations

Today, consumers have more options available to help assist with their financial needs. Younger consumers  often have relationships with many financial firms. A recent survey revealed that 57% of Boomers are likely to do their banking with just one institution. This is compared to 40% of Gen Z consumers. (4) 

On top of that, younger consumers are less loyal than previous generations. Over 60% of Millennials and Gen Z consumers said they would switch financial institutions for a better mobile app or digital experience. This compares to 22% of Boomers. (4) 

What do these demographic shifts mean for lenders?

Financial service firms and lenders are focused on understanding customer diversity and generational trends. Some organizations have implemented specific goals to promote a diverse customer-base. They then compare these goals to internal, industry, or market benchmarks. Other firms are just getting started in setting up a framework for understanding customer diversity.

Lenders are right to get ahead of the game. As the population shifts, consumers will alter their financial services needs and expectations. 20 to 30 years from now may seem like a long time - but younger, ethnically diverse consumers that are starting out their financial relationships will by then likely be in need of a whole range of financial services that they don’t hold today. Financial marketers and diversity officers need to pay attention. They need to plan for these upcoming demographic shifts.

The real challenge is accessing relevant diversity and generational lending data

To assess diversity goals and stay on top of customer expectations, lenders need access to current and detailed demographic data. Demographic data includes insights on ethnic and generational segments of their lending customers. Yet much of the available data is dated or not useful. For example, data by tradeline and geography can be hard to find. 

To overcome this dearth of useful demographic data for lending customers, financial institutions can take advantage of an online application that allows them to gain insight on the ethnicity and generational makeup of their lending customer-base. This interactive visualization tool – fueled by U.S. consumer credit data, a comprehensive ethnicity dataset, and additional demographics – can help lenders answer tough questions, such as:

• What is the ethnic and generational breakdown of new and current lending customers?
• How is my firm performing compared to peers in terms of capturing an ethnically and generationally diverse set of new lending customers?
• What is my firm’s share of lending customers by ethnic and generational segments?
• How do ethnic and generational breakdowns differ across tradelines and geography?
• How does my share and distribution of lending customer demographic segments change over time

Better understand customer diversity to benchmark performance and plan for the future

With access to recent and detailed diversity and generational insights, firms can better gauge performance against lending diversity goals and benchmark against competitors. Plus, they can inform marketing campaigns to boost diversity and generational inclusion by identifying underrepresented or under-penetrated customer segments and geographies. 

Also, they can layer in the financial profile of ethnic and generational segments in terms of credit risk, affluence, financial durability, and other metrics to better understand customers’ likely ability to meet financial obligations.

Embracing diversity initiatives and instituting programs to enhance customer diversity can be a differentiator for financial services firms that are seeking to attract younger audiences. While just 16% of Boomers said they would switch financial institutions based on their commitment to Diversity, Equity, and Inclusion (DEI) initiatives, more than half of Gen Z and Millennials said they would switch. (4) 

By expanding insights on customer diversity and generational differences across lending products, firms can enhance their framework. This allows them to assess their diversity performance and better respond to the needs and expectations of a diverse customer-base.

For more details about how to leverage our Diversity Insights click here.  

1. U.S. Census, Brookings Institution
2.Pew Research Current Population Survey 2020
3.Economic Policy Institute
4. BAI Survey, The Financial Brand, April 2022