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Digital Lending. Ok, You’re Fast & Convenient – but Can You Be Trusted?

Life doesn’t stand still, especially not in 2016 when trying to compete in a market like lending. Expectations continue to be raised, and although lenders’ determination to innovate and bring new technology to market may be partly responsible for that rise, this time it’s more to do with behaviour and customer experience than having an app or getting funds over instantly.

In December 2015, Nostrum’s Attitudes to Digital Finance Report found that customers increasingly value trust and transparency. With 84% of interviewees stating its importance, transparency now stands above low weekly/monthly payments and speed. In fact, today it is second only to low interest rates as a factor in choosing a loan.

That might surprise some people, but it is a clear indication that speed is now considered a given, while having an app is no longer newsworthy.

So what does this mean and what’s at stake here for lenders?

Being trusted has always been vital in financial services but at Nostrum we see trust as an enabler to better and more responsible lending decisions. It can also create loyalty, which allows for repeat business, generally considered to be lower cost for lenders.

Social data is an increasingly hot topic in lending. Nostrum has been saying for some time that the proliferation of social data and the accuracy in underwriting that it offers (if used correctly) makes it a no-brainer for lenders to use. Lenders could see whether a customer has a large family, so Christmas could be an expensive time of the year, or whether the customer is an influential Twitter or Instagram user and incentivise them to share positive experiences – but the customer needs to be assured that data is safe and not being used to their detriment.

While 49% of our interviewees said they would be OK with their social data being used in underwriting (an increase from 40% in 2014), universal acceptance is a long way off, so lenders need to be extremely sensitive in their handling of this data and prove that can be a force for good – for the customer.

In order to create trust and then retain it, we believe the lender must demonstrate to the customer that it cares about their financial wellbeing.

There are several ways this can be done:

Financial education.

Our research discovered that Millennials particularly have had limited exposure to credit products and are generally wary about their consumption. This could be because they’ve seen the downsides of too much credit with their parents’ generation, or because they lack the understanding of credit. Helping young people develop a detailed understanding of how a loan operates is an important element of their financial education and this would seem to offer forward-thinking lenders the opportunity build a ‘first lender’ advantage.

Payment difficulties.

In every product there is margin and we all feel better about someone in a position of authority who appears to be reasonable. Customers will miss loan repayments and circumstances change that severely impacts their ability to repay. Where in the past lenders might have taken a heavy-handed approach, there are ways to deal with this that will recover the money, but also build rapport with the customer. If it results in a referral to other customers, the lender has played the situation extremely well. Our virtual collector tool allows customers to ‘negotiate’ their repayment of a loan, putting them in control and building trust.

Invest in customer experience.

Becoming a lender that educates and allows customers to negotiate their repayments makes a lender transparent and will build trust. However, this only holds together if the terms and conditions are written in plain English and costs are really clearly explained. Similarly, if a customer does have an issue, responses from the lender need to mirror the tone used in the acquisition stage.

It sounds simple, but in trying to implement features rather than a comprehensive strategy, lenders risk missing the point – transparency and honesty are cultural and the customer wants the companies he/she interacts with to share their values.

[author title=”Richard Carter” image=”http://thefintechtimes.com/wp-content/uploads/2015/12/Richard-Carter-CEO-Nostrum-Group-1.jpg”]CEO of Nostrum Group[/author]

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