The business case for cross-border lending: What CFOs and risk officers need to know
Jaak Erm, Mifundo’s Chief Credit Risk Officer, explains why cross-border customers deserve serious attention
For decades, banks across Europe have relied on domestic customer bases to drive lending volume and portfolio growth. But today, that strategy is showing its limits. Economic growth is slowing, many domestic markets have reached saturation and margins on traditional lending products are tightening. In this environment, the question is not whether banks should seek new growth avenues, it’s where.
One often overlooked segment with untapped potential is cross-border European Union customers. Despite their growing numbers and strong credit profiles, these clients remain underserved by many banks. Treating them as risky unknowns is not only outdated but also bad business.
This article explains why CFOs and Risk Officers must rethink cross-border lending and how improved access to verified credit data can transform this opportunity into a strategic advantage.
CFOs: Cross-border customers can strengthen your margins
Cross-border EU customers tend to be mid-career professionals, entrepreneurs and skilled workers relocating for better opportunities. They are not seeking basic or entry-level banking products; instead, they demand mortgages, business loans, investment vehicles and premium banking services.
According to Eurostat data from 2023, Germany and Spain each welcomed over 1.2 million immigrants within the EU alone. (See Eurostat’s graph on intra-EU migration flows here). This influx represents a significant, underserved pool of potential customers.
Even capturing a modest 10% share of qualified EU movers could translate to tens of millions in additional revenue for banks. These customers tend to:
- Demand larger loan amounts for home purchases, business financing, or investments.
- Maintain higher average account balances compared to younger or entry-level segments.
- Use a broader mix of higher-margin products, from wealth management to specialized credit facilities.
This mix not only grows topline revenue but also enhances Net Interest Margin (NIM) and non-interest income streams. For example, a bank that successfully serves cross-border customers may see greater product penetration per client and increased loyalty, fueling long-term profitability.
Ignoring this segment means leaving significant revenue on the table in a market where domestic growth is increasingly hard to achieve.
Risk officers: Verified data is the key to unlocking cross-border lending
A widespread myth is that lending to cross-border customers is inherently risky. In reality, risk profiles improve dramatically with access to verified credit histories.
Mifundo’s partner banks have observed that lending to cross-border customers without verified credit data results in default rates up to seven times higher than domestic borrowers. Yet when risk officers have comprehensive and standardized credit histories, these default rates fall below domestic levels.
One anonymized example from a Northern European bank showed a 40% reduction in non-performing loans within 12 months of integrating cross-border credit data into underwriting models.
In addition to technical complexities the banks face when integrating new data sources, the core challenge lies in Europe’s fragmented credit data landscape. Credit bureaus across countries use diverse scoring models:
- Some use numeric scores from 0 to 10000 (e.g. Germany).
- Some rely on letter grades, from A to F or AAA to C (e.g. Finland).
- In some countries, credit scores are expressed on other numeric scales or proprietary formats, reflecting local standards and practices (e.g. France’s Banque de France credit reports).
Additionally, terminology, color codes and reporting standards vary significantly. Without harmonization, it’s nearly impossible to compare creditworthiness consistently across borders.
Mifundo solves this by verifying and standardizing credit data into a single, comparable format allowing risk officers to assess applicants anywhere in the EU using consistent parameters. This federated approach mitigates information asymmetry and supports data-driven decision-making.
Operationally, verified credit data reduces the need for manual KYC exceptions and follow-ups, accelerates loan approvals and improves compliance with evolving regulatory standards, saving time and reducing costs.
Diversification and resilience
From a portfolio management perspective, cross-border lending offers critical benefits in geographic diversification. Eurostat’s data on regional economic performance illustrates how local downturns are often offset by growth in other regions (refer to Eurostat’s regional GDP growth map here).
Serving only domestic borrowers is akin to investing all capital in a single stock - high concentration risk. Incorporating verified cross-border professionals is like building a balanced fund, distributing risk and reducing exposure to local economic shocks.
Moreover, diversified portfolios tend to improve regulatory capital efficiency. Under Basel III frameworks, risk-weighted assets decrease with better geographic risk spread, enhancing capital ratios and reducing the cost of regulatory capital. This translates into stronger balance sheets and more stable earnings.
Such portfolio robustness is crucial in an increasingly uncertain macroeconomic environment.
The strategic decision: Are your systems ready?
The key hurdle for banks is not the customers but the systems that handle their data. Without data federation and interoperability, banks cannot reliably access or interpret cross-border credit information at scale.
Investing in data integration, partnerships and modern credit assessment platforms positions banks to capitalize on growing EU mobility. The European Commission’s digital finance agenda and upcoming regulations are accelerating moves toward standardized credit data sharing, making early investment even more critical.
Banks that act now will unlock:
- Access to an untapped premium customer segment
- Higher margins through larger, diversified loan books
- Greater portfolio resilience and regulatory benefits
Cross-border lending presents a clear business case for CFOs and Risk Officers alike. It offers a path to sustainable growth by unlocking revenue from premium customer segments while enhancing portfolio quality through verified credit data and diversification.
The shared challenge is clear: building the data infrastructure and risk frameworks needed to serve cross-border clients confidently. Those banks that embrace this change will gain competitive advantage, stronger margins and more resilient portfolios.
The question is no longer whether cross-border customers are worth pursuing, but it’s whether your systems are ready to recognize their value.
