This post is an excerpt from Lean Into Lending, Vol. 1: Rise of the Borrower, the ebook we wrote and published in 2022. Looking back, it seems we were thinking in the right direction—these ideas have only grown more relevant since it was published. We’ll post excerpts from the other two volumes over the next few months, but you can also read the whole ebook, free of charge.
Changing the Negative Connotations of Financing
It’s no secret that loans and credit cards have a negative reputation. Many borrowers are cautious about getting into debt, and some view the entire industry with suspicion. And even if a loan has good terms, people aren’t really excited about them, at least any more than they would be excited about tax season or their phone bill.
If lenders want to change the way borrowers look at financing, they need to change their marketing and user experience. These aren’t just two disparate areas that both happen to need fixing, though; they’re intrinsically linked. Your marketing sets the tone for the entire life of the account, and borrowers’ experiences then shape public perception of your company. If their experience doesn’t live up to your advertising, they’re going to share about it. Most potential borrowers are going to start looking for a loan with an internet search. If the first thing that comes up when they search your company’s name is a list of complaints to the Better Business Bureau, you can bet they’ll be looking elsewhere. What’s more, social media platforms can (and regularly do) rocket negative consumer experiences to the forefront of national conversation. They say any exposure is good exposure, but that might not hold true if a company is trending because they spammed their customers with collections calls on Christmas Eve.
You, of course, have no direct control over what borrowers say about you. (Although you can do a lot to make their experience something they’ll want to rave about, which we’ll cover below.) What you do have control over is your own marketing. We’re not just talking about a catchy slogan or a jingle that gets stuck in your head. When we talk about changing the negative connotations surrounding financing, we mean rewriting the whole story.
The best example from the past decade is the Buy Now, Pay Later model. In essence, these are zero-interest, point-of-sale loans that are typically issued by a retailer or one of their partners. The selling point for borrowers is that if they make payments on time, they’ll pay no more than they would using cash up front. The lender makes money from the customers who miss payments and then end up paying late fees and interest, or from deals and discounts with the retailer. What’s interesting about the Buy Now, Pay Later model is that they’re seldom called ‘loans’. Borrowers agree to all the same terms, but just calling it a ‘payment plan’ or ‘financing option’ circumvents the knee-jerk reaction they would have to getting a ‘loan’.
This isn’t just rebranding, either. Buy Now, Pay Later and other new lending models are only able to drop the ‘loan’ label because they’re distinct products that borrowers are excited to use. The point isn’t the name, but the underlying change in user experience that merits a new name.
Elevated Customer Expectations
With countless businesses improving on the quality of their services and technology, borrowers are starting to expect more from the lending experience. Borrowers expect to easily access their data and track account and payment information. They want to see their current balance and the payments they’ve made. They want intuitive websites and apps that make it clear where they should go next.
As with other industries, customers probably won’t see a vital issue with the way things are done until someone points out that it could be done much better. As for the application process, that day is already here: borrowers know how fast online lenders can approve them, and will probably think twice about signing up with anyone whose application will take even a half hour of paperwork.
When it comes to servicing and collections, borrowers’ expectations will vary. Some will accept a mediocre experience, but others have seen how tech companies have transformed customer experience in their industries, and will expect similar service from their lender.
We can only expect their standards to rise. Some borrowers are comfortable with the way things have always been, but before long, tech-forward lenders will open their eyes to a better way.
The Power of User Experience
Although unique credit programs exist, most will look similar on paper to dozens of others offered by different lenders. What distinguishes one lender from the next is a strong customer experience, and as we established in the last section, that experience makes up a huge part of your online presence through user reviews and the things people say on social media.
In the digital age, your user experience is your marketing, for better or for worse. So how can lenders turn that to their advantage? Consider this: In an ideal world, what would your borrowers say about you? This varies from company to company, but there are definitely some consistent answers out there.
It’s important to put thought into how you shape your borrower’s experience. If you want them to talk about how you expanded their financial options, you need to follow through by putting those choices in the borrowers’ hands. You could let borrowers choose from multiple payment plans, giving them an option between paying their balance off quickly and with less interest, or over a longer period with more interest, or any comfortable place in between. A decade ago, offering customizable payment plans may have been a technical headache, but modern software can handle those calculations with ease.
Suppose you want to cultivate a reputation as borrower-friendly. In recent years, we’ve seen an uptick in the number of lenders offering hardship relief programs, letting borrowers delay payments while they handle an unplanned change in jobs or a family crisis. For the lender, these programs just cost a bit of patience (and they may pay for themselves if interest continues accruing while payments cease), but for the borrower, it’s an act of goodwill that gives them much-needed financial breathing room. With a customer portal that’s integrated with your servicing platform, you could let borrowers select those options themselves, like a button to skip a payment or lower the payment amount for a few months. Many lenders already offer these options to borrowers who repeatedly struggle to make payments, but why not improve user experience across the board by giving every borrower the power to make that choice?
Whatever you want your borrowers to praise you on, the loans you offer need to deliver. That might mean taking a hard look at your product, putting yourself in the borrowers’ shoes and asking if you’d be a satisfied customer. It might also mean taking a hard look at your tech stack and software to determine if you have the resources you need to build and service the products you want to put on the market. If you do, then you’re one step closer to innovation. If you find your tech and software lacking, then you should look into upgrading.
A vital way to improve your user experience is to leverage available data about your prospective borrowers. If you gather the right data from the right furnishers, your customers will spend less time filling out applications, you can improve many aspects of your servicing and collections, and you can even expand your market. The old mindset said a credit report was the gold standard of underwriting information. Now data is readily available to help lenders understand an applicant’s buying behavior, bank account history, work history, payroll cycles, address permanence and much more.
Instead of asking your applicant for a lot of data, get the minimum and use data furnishers for the rest. Pull the data you need in order to paint a real picture of who the borrower is. When do they spend, where do they work, what is the best way to contact them? Beyond this, use data to expand your customer base. Don’t just pull U.S. credit data, use a service that provides international data to find qualified borrowers who are new to the U.S. Don’t totally rely on the same old credit score, pull alternative credit information to find those with a thin credit file who are eligible for a loan.
Data should be used far beyond making the original loan decision. While servicing the loan, wouldn’t it be nice to know the best phone number and time to contact a borrower? Would it improve your collections to know what day of the month the borrower typically has the highest balance in their bank account? It’s surprising what data is available, and it may be even more surprising what you can learn from properly analyzing it. There are great options out there that will help you keep up-to-date borrower information, tell you who they are, predict their behavior, and better encourage them to make loan payments.
The age of complacent borrowers is drawing to a close, and yet there’s never been a better time to be a lender. Since time immemorial, banks and lenders haven’t needed to worry about a top-tier customer experience. Borrowers couldn’t imagine a better system, and even if they could, those options weren’t on the market. But the advent of more powerful technology has empowered a new wave of lenders to build better user experiences, attracting customers by making it easier than ever to get a loan and pay it back. These lenders have brought excitement and disruption to the market, and borrowers are eager for more.
Whether you’re a fintech, a financial institution, or a greenfield lender considering entering the industry for the first time, now is the time to invest in more powerful tech and build a better user experience. Modern, adaptive software can turn your ideas into products that will delight your borrowers, make you money, and revolutionize the marketplace.
We’ll be the first to admit that it’s a little bit easier said than done. It’ll take an investment of both time and resources, as well as a commitment to new and innovative ideas. From our vantage point in the industry, we’ve seen the exciting things lenders are doing to secure funding and build out their products. We’ve learned enough that we’re writing two more ebooks on those specific topics, working with new capital and creating innovative products.
If you’re hungry for more, you can read the full ebook, free of charge.