According to Deloitte’s 2025 Banking and Capital Markets outlook, US banks are navigating a complex landscape marked by macroeconomic and geopolitical challenges, with economic growth projected to decelerate to 1.5% in 2025. While lower interest rates may boost mortgage demand, sectors such as credit cards and auto loans are likely to struggle due to rising financial pressures on consumers. As credit quality is expected to normalise, banks can also expect to see a rise in delinquencies among these loans, highlighting the pressing need for effective risk management strategies.
Amidst these challenges, artificial intelligence (AI) is emerging as a game-changer in consumer lending, driving financial inclusion and reshaping how banks assess creditworthiness. By leveraging AI-driven solutions, financial institutions can not only improve access to credit for underbanked populations but also enhance the personalisation and fairness of their lending products—a trend that is expected to gain momentum as we head into 2025.
The global regulatory landscape, including the UK’s Consumer Duty and US regulations on AI usage in financial services, has a profound impact on this process, steering how AI and data analytics are applied to ensure both innovation and consumer protection.
Regulatory Landscape and Consumer Lending
The FCA’s Consumer Duty in the UK, effective as of 2023, is a regulatory shift designed to raise the standards of consumer protection in financial services. It demands that financial institutions act to ensure good outcomes for their customers, including making sure that lending products offer fair value, provide clear information, and are easily accessible. This regulatory move pushes lenders to prioritise consumer needs, with AI being a critical tool in achieving this goal. By applying AI and data analytics, banks can assess individual borrower profiles more accurately, reducing bias and improving access to fair credit terms for a broader range of consumers.
Similarly, in the US, regulatory discussions around AI and consumer lending focus on transparency, fairness, and data protection. The US Equal Credit Opportunity Act (ECOA), alongside regulations like the Fair Lending Laws, ensures that AI-driven lending algorithms do not discriminate against protected groups. Regulatory agencies such as the Consumer Financial Protection Bureau (CFPB) are closely monitoring AI usage in lending, ensuring that it enhances, rather than restricts, financial inclusion. These regulations have sparked conversations about how to use AI responsibly to maintain fairness while driving financial innovation.
AI’s Role in Expanding Financial Inclusion
AI’s transformative potential lies in its ability to make lending more accessible, equitable, and personalised. Traditional credit scoring methods, often based on limited data points like income or credit history, can exclude individuals who do not fit within standard profiles, such as gig economy workers, immigrants, or those with thin credit histories. AI-powered systems, however, can integrate a much broader array of data, from transaction patterns and utility payments to digital behaviour and social data. This approach enables lenders to assess risk more holistically, opening up opportunities for underbanked populations who might have been rejected under conventional systems.
AI-driven automated underwriting is a critical component of this evolution. Machine learning algorithms can analyse vast datasets in real time, delivering more accurate credit assessments while reducing processing time. With faster, data-driven decision-making, banks can offer more dynamic products, such as personalised loan terms or interest rates, tailored to each individual’s financial situation.
This level of personaliastion fosters inclusivity, ensuring that customers who may have been overlooked by traditional models can access the financial services they need.
Moreover, AI helps lenders mitigate risk more effectively by detecting fraud, predicting defaults, and enabling real-time monitoring of financial behaviours. This increased precision in risk management reduces the cost of lending, enabling institutions to lower interest rates or offer more favourable terms to borrowers who may have otherwise been considered too risky.
Enhancing Transparency and Fairness
One of the significant challenges of AI in consumer lending is ensuring that the algorithms remain transparent and unbiased. Both the FCA in the UK and regulatory bodies in the US emphasise the need for AI systems to be interpretable and fair. This is particularly crucial for ensuring compliance with fairness regulations like ECOA in the US, which prohibits discrimination in credit transactions.
By using explainable AI models, banks can provide clear justifications for their lending decisions, building trust with consumers and regulators alike. Moreover, AI can help financial institutions comply with regulatory demands for fair and transparent communication with consumers. The UK’s Consumer Duty, for instance, requires banks to provide clear and timely information to help consumers make informed decisions. AI-powered tools can analyse large amounts of consumer data to predict information needs, sending personalised and proactive notifications that guide customers through their financial journey.
Powering Financial Inclusion
In this evolving landscape, AI stands out as a pivotal force in driving financial inclusion, aligning with regulatory initiatives like the UK’s Consumer Duty and the US’s Fair Lending Laws. The integration of AI into consumer lending practices can empower banks to navigate the anticipated low-growth, low-rate environment in 2025, while ensuring compliance and fostering transparency. By harnessing AI’s capabilities for improved data analytics and risk management, financial institutions can lower barriers for underserved populations and offer more equitable access to essential services. As we look toward 2025, the successful adoption of AI-driven solutions supports a fresh perspective on lending practices and will play a crucial role in building a more inclusive financial landscape that meets the needs of all consumers.
About the Author
Giovanni Oppenheim has nearly a decade of experience with global financial institutions, enhancing analytical capabilities for pricing and product personalization. As a senior partner at Earnix, he previously led the Professional Services Banking Team, overseeing implementations for various financial products and managing analytics for over €10bn in contract originations monthly.
