Back in the day, financial institutions like banks lured businesses and individuals to their branches offering lending services to provide for expenses. Later on, this would change to a more relationship-based affair.
When technology stepped into the scene, the lending process changed. Financial institutions went online through websites and mobile applications offering their services. This led to a decline in revenues generated from physical branches. The digital platforms took over.
In addition, lending has become more commodity-oriented, with terms and rates coming before any other engagement. Also, the lending scene has seen an introduction of specific online lenders, catering to a specific market.
This is due to a combination of various factors such as data analysis, online marketing and digital platforms geared toward attracting customers. With such high success through online lending, traditional lenders are in high gear trying to incorporate digital lending in their processes.
This leads us to a review of how the lending space looks at the moment.
1. The Lending Space at this Point
Americans have a large borrowing appetite with the average debt standing at about $90,000 for a single household. A huge portion of this debt is due to the student and personal loans. The interest rates are generally low for these types of loans, thus adding on to the already huge appetite for borrowing money.
This has piled lots of pressure on lenders to add to their loan portfolios in order to meet the growing demand. With such pressure on them, lenders are devising new ways to interact with existing customers, while also attracting new ones.
One such way is by taking advantage of digital platforms where lenders can engage their customers one-on-one. This is in an attempt to enhance trust and loyalty between the two parties.
2. Does Digital Engagement Matter?
As a matter of fact, any type of engagement matters. However, since lending has moved to the digital space, financial institutions should focus on digital engagement.
What is digital engagement you might ask?
Digital engagement focuses on how customers interact with a financial institution’s mobile and online platforms. With the increased use of smartphones, many consumers are making their decisions based on a digital experience.
For example, according to a study, about 94% of online users’ first impressions were based on the user experience of a certain digital platform.
Therefore, it’s important for financial institutions to come up with user-friendly interfaces that suit consumer needs. Some of these products include educational content like finance tutorials and personal finance guides which enhance the overall customer experience.
Platforms that focus on the user - enhancement have a great chance of retaining existing customers while also attracting new ones.
3. What to expect when you enhance digital engagement
- Consumers will pay off their loans. With a consumer-oriented engagement, consumers will feel attached to the financial institution, hence they’ll feel obliged to repay their nation 21 loans. This can even be true if they are in a financial crunch.
- There’s a borrowing lifecycle for every borrower. First, there are student loans to cover tuition fees. Next, they may take out a personal loan to take care of a myriad of issues and finally, there will be a need for a mortgage loan to acquire a first home.
With this borrowing cycle, lenders can cash in by starting an early engagement with their consumers.
- Consumers are likely to accept cross-selling. This includes loan refinancing and consolidation. By engaging with the consumers, they will see such options as financial advice rather than a scheme to get their money without any real results.
It’s the financial institution’s obligation to ensure they provide their consumers with an informative and engaging material. With this knowledge at their fingertips, consumers will be in a better position to pay off their debts while continuing to take out more loans in the future.
4. What Should Financial Institutions Do?
They should incorporate technology into their processes for lending. They should also make sure they pay special attention to design and interactivity between their customers and other digital platforms.
You see, customers are of the opinion that such institutions should have a digital presence. These digital platforms should provide quality and up-to-date services which meet the needs of the borrowers in terms of lending.
With such exclusive services, financial institutions can increase their revenues through digital platforms. However, the design of these platforms should focus on making the users feel at home. This is what they can do:
i. Provide Financial Education
One way to engage with consumers is by adding financial education on digital platforms. This can be in the form of articles or short tutorials which provide personal finance tips. In return, the consumers will feel that the lender cares for them financially.
Apart from this, consumers are likely to improve their finances which also means they’ll be able to repay their loans.
ii. Use Analysis for Profitability
Technology has evolved in the recent past making it possible to collect customer data to increase profits. For example, financial institutions can analyze customer data to find out which customers can benefit from the rollout of a new product.
In addition, these institutions can use other means to determine the creditworthiness of their customers. Social media is one such way many lenders are able to determine the risks posed by potential customers.
Overall, It’s an Important Factor for Scale Skill of Both Costumers and Lending Company
Digital engagement is a crucial element in today’s lending. That’s why online lenders and other financial institutions are taking a bold step to enhance their digital platforms.
Customers, on the other hand, expect their lenders to provide digital avenues where they can take out loans while also receiving a personalized financial education. With such digital engagement, the benefits are numerous for both parties.
Consumers get personal finance management skills and the like—and in return, the lenders get loyal customers willing to try out more products.
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