Fintech lenders stumble while banks and credit unions win
In many ways, the pandemic year has played into the hands of digital-only banking providers, as has been said about a million times already. But here’s a little glitch in this story that just released new data:
In the consumer lending space, customer satisfaction with fintech lenders in general fall, while satisfaction with traditional lenders Pink.
The size of the respective drop and rise wasn’t huge, that’s true, but the fact that the trendline moved in opposite directions for the two groups tells an important story.
The swing was discovered in a consumer study conducted in early 2021 by JD Power for its 2021 US consumer loan satisfaction study. study focuses on unsecured personal loans and home equity lines of credit. Both categories have seen demand drop in 2020 due to the impact of the pandemic. In fact, the long-term decline in HELOC use has accelerated to the point that Chase and Wells Fargo have suspended the product, notes Jim Houston, general manager of consumer loans for JD Power.
But consumers still borrowed, and those who mostly did went online to do so. Houston says that even for those who normally prefer to go to an agency to apply for a loan, the digital experience has been positive overall.
“The channel was not difficult overall, and fintech and traditional lenders scored high for ease of use, as well as for browsing their websites and mobile apps,” Houston said. The financial brand. However, this is only part of the story.
After-sales maintenance and handling
The study, like most of JD Power’s satisfaction surveys, ranks the major players based on the company’s proprietary 1,000-point index. For 2021, the top four lenders in terms of overall satisfaction with their consumer loan programs were all traditional institutions: American Express, Discover, Citibank and US Bank. The highest-ranked fintech lender – number five – was LendingClub Bank, now a fairly established player, and a banking holding company due to its acquisition of Radius Bank in 2020.
The pandemic has exposed some flaws in the fintech model that have lowered customer satisfaction.
“Overall, fintech lenders weren’t used to customer service,” says Houston. As he explains, most of their service and loan management was built during the pre-pandemic lending period, where they had “everyone on the automatic payment without conversation.”
( Read more: The bank must digitally transform consumer credit)
Traditional lenders had long developed capacities in this area. “That’s why you see lenders like American Express and Discover at the top,” says Houston. “They built this customer interface on the credit card side and extended it to the personal loans side.
The study found that from 2020 to 2021, overall satisfaction with personal loans and HELOCs increased for traditional lenders and declined for fintech lenders.
FinTechs still have an advantage at the application and approval stage, where their technology platforms have performed well, but in the areas of ‘offers and conditions’ and ‘loan management’ they have not. not been able to react like traditional lenders.
As the report states: A simple app gets people in, “but the aftermarket will play a big role in determining whether the customer stays loyal to that lender.”
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Satisfaction is both an opportunity and a challenge
For traditional institutions, the satisfaction gains from after-sales support are an opportunity they can build on, says Houston. Especially since they are not that far behind in ease of application and approval. Larger institutions in particular now have roughly the same technological capabilities as fintechs, the analyst says.
The degree of satisfaction reflected by consumers is crucial. Even a “satisfied” personal loan client (one of four satisfaction categories used by JD Power) is a challenge in terms of future loyalty to the lender, the report says. However, more than four in five (46%) “happy” customers intend to use their lender again. They can also be reliably relied on to promote the lender, based on the promoters’ net scores, according to the report.
It’s important for future business, but satisfaction also has a big impact in the present. The percentage of clients who have other products with the lender steadily increases with overall satisfaction with the personal loan product / process.
Houston sums up the message for fintech lenders this way: “You can build an acquisition-driven model, and then once you have it on your books, continually try to give it back. But, if you can’t serve them in a downturn or when they have questions or problems, they won’t give you good publicity. You can keep that customer, but you won’t get three more from this interaction.
Communication expertise is a plus
The survey confirmed that email, already the dominant communication channel with loan clients, saw increased use during the pandemic year, both among traditional lenders and fintechs. This gave the incumbents another advantage.
( Read more: How Financial Institutions Can Launch Their Lending Engine In 2021)
As the report states, “When difficulties arise and customers need additional engagement, traditional lenders have a history of customer communication skills that fintechs may not fall for.”
Houston adds, “Lenders who had a good messaging system tended to have higher satisfaction scores than those whose communications were strictly built around phone and text alerts.
Outside of the context of pandemic-related communications, however, not all lenders – traditional or otherwise – are successful in establishing contact with customers. Here’s an example of why Houston shared:
“You would be surprised at the number of loan clients from financial institutions who are on automatic payment where the only way they know when the payment is coming out of their account is when they see it on their bank statement. The lender does not send them any further notification.
While the seasoned consumer loan analyst sees no reason why traditional lenders can’t keep up with the fintech crowd, they shouldn’t be complacent. Service is clearly essential, as the results above show, but consumer loans, he says, will continue to become more digital and more personalized.
“Consumers will have a wide range of options for shopping, many of them online. “