There was a time, not too long ago, when consumers who had limited access to credit but needed a loan—to buy a car or to pay an unexpected bill—would make their way to a local lending store, stand in line and talk to a person behind a counter. The stores were hard to miss, characterized by eye-catching LED signs promising fast approvals and quick cash.
It was a business built on personal relationships, as lenders relied on repeat customers to make referrals for new business.
But that was before advancing technology, changing regulations and a shift to online transactions led to profound changes in the way the industry operates. Now, those transactions are more often than not conducted digitally.
For customers, it has meant more convenience, a wider array of choices among lenders and less time driving to a loan shop.
For those businesses, it has opened up a much bigger potential market to serve and has fostered a more satisfied and loyal customer base.
The days of the plaid-jacketed pitchmen in those hard-sell TV ads are quickly fading.
“These changes are creating a much more digital experience for the customer,” said Brandon Hollis, a senior manager in assurance at RSM US who specializes in serving clients in the specialty finance industry. “Every part of the lending process is going online.”
The digital transformation includes not only the application process, but also the underwriting and scoring of loans and the servicing of these loans. This shift has only accelerated as the effect of the coronavirus pandemic has made consumers wary of one-on-one contact.
Call it contactless lending.
In the end, the digital customer experience in specialty finance has heightened expectations among consumers and forced lenders to improve their customer experience.
One dynamic behind this change, Hollis said, has been changing state regulations that have reduced profitability and forced lenders to look beyond their traditional geographic footprint to other states and regions in search of new customers. But this requires a shift to a digital demand generation and web-enabled loan servicing. After all, when a customer is a thousand miles away, there is no choice but to provide these loans online.
Hollis gave an example of a lender adapting to this new environment. In this case, it was an RSM client from Ohio who faced tighter lending regulations that made it less profitable to operate in the state. In response, the lender partnered with a bank to offer a different product that met the new regulations and then focused on the servicing of the loan, as opposed to its origination.
None of these solutions would have been possible without a substantial investment in technology that provided an improved customer experience.
Charting a course for change
How do lenders, particularly those in the middle market, adapt? Hollis listed six ways that specialty finance companies can improve the customer experience:
Strengthen your cross-platform capability. Customers want the ability to engage with lenders where they want, when they want. This means that lenders must develop multiple digital channels, especially in their mobile platforms, where consumers are spending increasing amounts of their time.
“Creating these multiple platforms allows for vastly improved communications with customers,” Hollis said.
Offer different payment options. Customers want convenience when they are paying their loans, and businesses must offer multiple ways to make those payments. There are any number of apps that facilitate payments, and lenders need to embrace them. It’s not about driving to the store to hand over some cash anymore.
Be more available. The specialty finance customer often has a high need for service in managing their loan. They have concerns that traditional banking customers do not have. Lenders who respond to these needs will build a more loyal customer base. One way to do that, for example, is to improve the online chat capability that can provide person-to-person service during more hours of the day.
Be more responsive and transparent. Today’s consumer demands transparency in pricing. If they don’t get it, they will go somewhere else. So, for lenders, this means a faster response time after the application is made and being transparent once the offer is made.
Maximize the use of data. Once the digital channels are established, lenders will have volumes of data at their disposal. Analytics are the modern-day Rosetta Stone for understanding customers. The benefits of analyzing customer data include more effective customer targeting, managing internal risk with non-collectable loans and charge-offs, and better loan scoring. Lenders who invest in harvesting and interpreting their data will be in a better position to serve their customers more effectively, which makes for a more loyal customer base.
Bolster fraud detection. A more robust technological infrastructure that includes better cybersecurity can only improve margins and customer service. Hollis gave an example: One RSM client can detect when a customer is actually typing in a social security number as opposed to cutting and pasting it—a potential red flag for fraud. Other detection techniques involve sensing the pressure on a smartphone when entering their information, which can indicate if a bot—as opposed to a person—is trying to access account information.
“Investing in fraud detection programs to ensure that the data being submitted is not some rogue actor pays for itself in the end,” Hollis said.
Specialty finance companies have historically never been known for their digital savvy. But that is rapidly changing as their customers demand an improved customer experience. Those lenders who provide it will be able to capitalize on the significant opportunities that this disruption to the industry is offering.