NEEDHAM, Mass. — Rising interest rates, escalating delinquencies, compressed margins and increasing regulatory demands are all forcing consumer lenders to rethink how they extend credit to borrowers at a time when they are still expected to grow their portfolios and provide continuing revenue streams to their organizations.

These factors were identified in a proprietary study conducted by TowerGroup earlier in 2007 among US, UK, Irish and Canadian financial services institutions. Institutions responded to questions exploring the future direction of consumer lending, including home equity, first mortgage, personal lines and loans, and automobile and student lending. Seventy-one percent of those responding ranked market volatility and 43 percent ranked regulatory compliance among their top concerns for 2007.

Faced with a more difficult operating environment, lenders are refocusing their business strategies to maintain revenue streams. Innovation in products, services and channels is top of mind for these institutions, with 57 percent of respondents ranking innovation among their top three strategic initiatives. Business process automation came in a close second, with 50 percent of respondents ranking it in their top three.

"Market volatility is forcing consumer lenders to revise their business objectives and strategies if they want to be successful in the coming years," said Bobbie Britting, the senior analyst in the TowerGroup Consumer Lending practice who led the survey project. "In order to create a more secure lending environment for both consumers and lenders, financial institutions must properly assess prospective borrowers' credit and collateral, as well as their own regulatory risks, to ensure that they offer the right product to the right consumer at the right time."

TowerGroup also found that lending institutions are prepared to invest substantially in technology initiatives that will enable them to support the new products consumers need and want in fluctuating economic times — as well as the organic growth institutions need and desire to fuel revenues:

•Consumer lenders are estimated to spend over $5 billion on IT in 2007.

•Seventy-nine percent of respondents ranked core systems transformation and upgrades as their top IT priority.