How to identify profitable cross-border opportunities that other banks miss?
A guide for banks on understanding the size of their foreign customer base
A major European bank recently analyzed their loan portfolio and found that foreign customers represented just 0.45% of applications. The conclusion seemed clear: foreign residents simply weren't interested in borrowing. Yet when the same bank examined their current account holders, they discovered that around 15% were foreign residents.
This measurement paradox reveals a fundamental problem across European banking. Financial institutions are systematically underestimating a premium customer segment because their data collection methods create blind spots rather than accurate market pictures.
The measurement problem
Traditional loan application processes inadvertently filter out foreign customers before they become visible in bank data. Application forms that require local citizenship or lengthy residency periods at step one create immediate barriers. Foreign residents, anticipating rejection based on these requirements, often abandon applications before completion or avoid applying altogether.
This creates a self-reinforcing cycle of invisibility. Banks track completed applications and see low foreign participation, reinforcing the perception that demand doesn't exist. Meanwhile, current account data typically shows foreign resident participation rates of 10-25%, depending on the market and bank location. Banks measure success using the wrong denominator - comparing loan applications to total market population rather than to their existing customer relationships.
Strategic discovery methodology
Forward-thinking banks are developing comprehensive approaches to reveal this hidden segment using multiple data sources and analytical methods.
Customer base analysis involves comparing the demographics of current account holders with loan applicants. Significant gaps between foreign resident account holders and loan applicants indicate potential underserved demand. This analysis often reveals that foreign customers are well-represented in transaction accounts but largely absent from lending portfolios.
Macro data analysis uses national statistics and Eurostat migration figures to size the local opportunity. Understanding how many foreign residents live in your market provides context for internal findings. If census data shows 200,000 foreign residents in your region but your bank sees minimal foreign loan applications, the gap becomes quantifiable.
Internal data mining leverages existing information sources that banks may not have connected to lending decisions. Regulatory reporting often contains nationality data, while transaction patterns can indicate customer stability and income sources. Historical application outcomes reveal how many rejections were based on data gaps rather than creditworthiness concerns.
Application journey tracking examines where potential customers drop off during the application process. Many banks discover significant abandonment rates when citizenship or residency requirements appear early in digital applications. Exit surveys and customer outreach can provide insights into why foreign residents don't complete applications.
Systematic rejection tracking creates new measurement protocols to capture the invisible demand. Rather than only counting completed applications, banks begin monitoring partial applications, customer inquiries that don't progress to applications, and rejections specifically due to insufficient credit data. Based on Mifundo's experience, even a two-month tracking period often reveals that foreign customers represent 10-15% of potential lending volume across various markets.
Pilot programs test what happens when barriers are reduced. Some institutions create streamlined application processes for existing foreign customers or invest in cross-border credit data access through platforms like Mifundo. These pilots can reveal dramatic increases in both application volumes and approval rates when proper risk assessment becomes possible.
Team preparation ensures staff can effectively serve this customer segment. Training programs help relationship managers understand cross-border credit assessment and integrate new data sources into lending decisions while maintaining regulatory compliance. This operational readiness proves crucial when application volumes increase following barrier removal.
The barrier effect
This phenomenon has historical precedent. Before the Schengen Agreement, travel data suggested limited demand for cross-border movement within Europe. Once barriers were removed, travel volumes exploded, revealing that the previous data reflected restrictions rather than actual demand.
European banking faces a similar situation. The European Banking Authority's 2019 report found that only 7% of consumers used financial services from another EU Member State, highlighting systemic barriers to cross-border financial services. Current application data reflects the friction of cross-border credit assessment rather than genuine market appetite.
What banks discover
Banks that implement cross-border credit capabilities discover that foreign customers often represent 10-15% of potential lending volume. More importantly, this customer segment frequently demonstrates strong credit performance, sometimes outperforming domestic borrowers in terms of default rates.
The customer profile that emerges challenges assumptions about foreign residents as higher-risk borrowers. Many appear to be established professionals who relocated for career advancement, bringing substantial incomes and conservative financial habits. They often seek larger loan amounts for mortgages or business investments, contributing meaningfully to portfolio growth.
Early adopters gain significant competitive advantages. While most banks continue rejecting foreign applicants due to thin domestic credit files, institutions with cross-border assessment capabilities capture premium customers that competitors cannot properly evaluate. This market position becomes increasingly valuable as European mobility continues growing.
Strategic implications
Most European banks continue operating with measurement systems that systematically undercount cross-border opportunity. The institutions that recognize and address this blind spot first will establish market leadership positions while competitors remain unaware of what they're missing.
The opportunity isn't small - it's simply invisible to traditional measurement methods. Banks that invest in revealing this hidden segment through better data access and streamlined processes will discover that the cross-border market is both larger and more profitable than their current metrics suggest.
