Guest blog by Richard Carter, CEO of Nostrum Group:
We were interested to read some recently published research from Ofcom about consumers’ use of and attitudes towards different types of media, and couldn’t help but draw the parallels between the media trends and how the lending industry works.
Operating online is attractive to lenders because of efficiencies gained through automation, easily scalable operations and fixed overhead reductions. But of course there are challenges too, namely technology, increased competition, and traction with customers, all of which we’ll discuss here.
Increasing adoption of the internet
A key factor in the surge in online financial services businesses has been the desire of lenders to be found where their customers are most likely to be looking.
According to the Ofcom Adults’ Media Use and Attitudes Report 2014, over 83% of adults now go online at any time, using any type of device, in any location. Nearly all 16-35 year olds are online (98%) while use in over 65s has increased with 42% now going online at any time, versus 33% in 2012.
Of course, it’s not just internet at home use either. With 6 in 10 adults now owning a smartphone and 55% sending and receive emails, mobile web use has increasing traction across all age bands.
The largest growth demographic is the over 65s. Now 20% own a smartphone compared to 2012, while tablet adoption trebled to 17% in just a year. Although typically not a core part of most lenders’ target audience, this market may become of more interest because people are working and staying healthy for longer. They are also now able to lead more active and aspirational lifestyles, factors which may trigger an increased demand for credit services.
One third of mobile users now say they buy things via their phone (33% vs. 23% in 2012) or use their phone to check their bank balance (34% vs. 25% in 2012), so operating a mobile channel places a lender in a competitive position. Adoption of apps for smartphones is also on the rise and crucially, consumers view apps as secure.
Being successful online
While consumers might be online and looking for loans, the level of competition and increasing sophistication by lenders in building a desirable customer experience makes it hard to retain customers. Retention is an area that is under ever more strain today, as consumers are easily distracted and lured elsewhere by attractive offers. Customer loyalty (or inertia, depending on how you look at it) is not as prevalent as it used to be. This is much to the dismay of those lenders who are seeing their average customer life span reduce, and of course, the associated yield.
Great customer experience can come down to simply only asking for information that consumers are happy to disclose – this can be key in avoiding attrition at an early stage in the online process. The Ofcom Report revealed some interesting trends about how consumers view and interact with websites:
- 86% internet users say they give only the minimum amount of personal information required online, but 42% say that they are happy to provide personal information online to companies as long as they get what they want in return.
- In 2013, 55% of internet users said that they made a formal judgement about a website before entering personal details, compared to 61% in 2012
- More than half of internet users (54%) think that people who buy things online put their privacy at risk
There are also some interesting insights about media consumption and trust:
- 56% of people who buy things online say they often read user reviews
- 60% TV news viewers agree with the statement “When I watch TV news I tend to trust what I see”
- 34% of adults who read newspapers agree with the statement “When I read newspapers I tend to trust what I read”
So combining all of these, online lenders should be looking to create an experience that requires minimal customer data input (online checks should fill in the blanks). Creating trust to get a customer to that stage is arguably more difficult, but a content-led marketing approach with emphasis around data security and privacy will help. Similarly, embracing customer feedback and contributing to public forums where user reviews are left will create personality around the brand, and at the same time accommodating user media preferences.
Transient consumers
We live in a culture where repeat custom is often due more to inertia and convenience than loyalty to a particular brand. This is particularly true of financial services, which has been disrupted by the comparison site model. There is also the concept that new customers get better deals than repeat customers, so people are compelled to shop around.
Many loyalty programmes are starting to be viewed as outdated, so financial services brands are looking at more personable and data-driven rewards for customers. The old adage about being cheaper to retain than recruit continues to be valid, though too many of the lenders are transactional in that they lend once and then forget to remarket to the customer. There may be lessons to be learnt from other sectors. For example a major insurance company is currently proactively offering enhanced rates to existing customers who increase the number of products they take out with them. The concept of offering to reduce your existing margins to win more share of a customer’s wallet makes for good theory but is still rarely seen in practice, with most attention still tending to be placed on new customer acquisition.
An effective route to market
Given the opportunities and challenges around attracting and retaining customers in the online lending market, many lenders prefer to concentrate on tackling those proposition related challenges effectively rather than developing the technology to implement them.
Many lenders are now choosing to partner with organisations that truly understand the online lending process, and are fully bought into automation and how it supports effective management of borrowers. Technology and services can now support the whole lifecycle of lenders operations from front end lead capture and application processing through customer servicing to delinquency management, across a number of different consumer and commercial financial products.
In an increasingly omni-channel world, it’s essential that your customers can be served whatever their chosen contact method; mobile, internet, branch, call centre, introducer or direct.
We advocate investing in understanding the customer of the future and looking for ways to meet their needs via technology. That’s because we work on the simple principle that knowing what consumers want today and what they’re likely to want tomorrow enables us and our clients to transform the lending industry.
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Richard Carter is Chief Executive of Nostrum Group. This blog is based on a post which appeared on the Nostrum website in August 2014. You can read it here.