Data and Audience
Lending competition has never been more fierce.
Like every industry, the COVID-19 pandemic and the economic fallout drastically transformed banks and credit unions. As many bank customers and credit union members stayed in and saved their earned income and federal stimulus checks, personal deposits and savings skyrocketed while credit demand outside of mortgages tumbled. But a vaccine-propelled recovery and economic reemergence could start reversing this lag in borrowing. This requires risk-averse traditional institutions to stay one step ahead of cash-rich tech giants and nimble fintech upstarts that are expanding and defining the competition.
Research from consumer credit reporting company Experian found that the average personal loan balance is more than $16,000 and that average loans carry an annual percentage rate of 9.4 percent. There is tremendous opportunity in this space for banks and credit unions to grow their share of the market—and their bottom line. Financial institutions need to provide an easy and convenient customer experience, both in-branch and in the digital space if they want to reach primary financial institution status. Research from BAI shows that older consumers prefer physical bank branches, but 85 percent of Millennials would bank with a nontraditional bank, while 79 percent have opened a deposit account online.
The traditional financial institutions’ tendency to prefer a passive, branch-focused account holder mentality leaves banks and credit unions exposed to new disruptors. To get ahead, they must improve their ability to target profitable account holder segments and personalize their message in the lending space with the following strategies.
1. Streamline Processes
The main differentiator between traditional financial institutions and the current breed of digital disruptors is the ease of use. So banks and credit unions need to make sure that they do their homework, that they’re able to compare their lending processes to the processes that these digital lenders have laid out, and make them as streamlined and accessible as possible.
If traditional financial institutions can’t make the experience as comfortable and easy as the digital lenders and are not operating on a level playing field with those new but lucrative disruptors, the account holder experience is going to be negative. Simply put, they’ll lose much-needed account holders. While turning around outdated processes and technological foundations is an essential barrier to entry, it only goes so far without the next steps.
2. Find the Right Account Holders
Banks and credit unions aren’t segmenting effectively, meaning upstart organizations tend to lean on technological efficiency to win business. To make sure that account holders don’t go to those digital lenders, banks and credit unions need to be one step ahead.
Certainly, the advantage that banks or credit unions have over digital lenders is that they know their account holders through and through. Traditional institutions have personalized, first-party dataiFirst-party data is information about a consumer collected directly from that person's online habits. It is an important piece of information that can help you understand your customers because it is based on actual interactions with your brand. In other words, it's not hypothetical trends but actual habits by a real consumer. This data can include everything from purchase... Read More available to an extent that digital lenders do not, so they need to find the right account holders and take advantage of that connection. By successfully harnessing data to identify banking customer habits and propensities, financial institutions can strategize on proactive ways to engage those potential lending opportunities.
3. Get Personal
Acquiring loans for digital upstarts may seem easy, but they don’t have that level of personalization that banks and credit unions can have. In fact, a majority of Americans want traditional institutions to proactively reach out with a personalized and relevant messaging strategyiA company's messaging strategy is simply how it positions itself in the market and establishes brand awareness. This message should always be consistently communicated across all channels including web copy, advertising messaging, and in-store signage. An effective messaging strategy communicates a brand's voice and purpose in a succinct and clear manner. For example, when... Read More on how to manage complex financial matters like borrowing. Despite COVID-related restrictions, many people want to go to a local branch for their financial needs and learn more about what’s available.
It’s up to banks and credit unions to target and engage those profitable audience segments with a level of personalized messaging. By emphasizing the human connection they offer and reputation as trustworthy locations for account holders’ finances, they can more easily make account holders aware of loan opportunities to meet their lifestyle needs and get the best overall experience.
The opportunity for traditional financial institutions to find their spot in the digital lending world remains strong. But they must let data work for their bank and credit union branches to stay on top of what account holders are looking for, as well as use partners to segmentiSegmentation is the process of dividing a company's entire target audience into smaller segments by shared characteristics to permit more specific, personalized marketing options. A high-end, luxury car may have segmented audiences based on income or demographics such as location. That luxury car might be marketed to the income segment for its high-end finishes and luxury ... Read More banking behaviors of certain demographics to help indicate lending needs. With a solid foundation of customer loyalty and new processes, they are perfectly positioned to meet the loan demands of the current economic climate.