The digital race – How automation can improve efficiency and customer experience around lending

The digital race - How automation can improve efficiency and customer experience around lending

Improving the customer experience has become one of the biggest priorities for financial services. In fact, 63% of firms place customer experience as their number one focus as they try to meet the evolving demands of their customers. Lending is one area of finance where the fight to provide the best customer experience is really heating up. Many have even dubbed it as the next major battlefield.

With this in mind, it is no surprise there is a major opportunity for FinTech companies helping to transform digital experiences for lenders. Just this week, development lender Atelier teamed up with software company HubSpot to launch a customer experience platform that can streamline and personalise each borrower’s journey. This is just one of many similar developments that show the drive from lenders to improve their customer experiences.

Lenders see the push for digitalisation to better connect with customers and provide them with personalised products. While demand for this has gradually grown, the current financial landscape has only accentuated this. People are struggling and many are worried about their financial stability, which is why personalisation can go a long way to bolster a relationship between a lender and client. This opportunity has even been noted by banks and lenders, with 88% seeing the current era of uncertainty presents the best opportunity for banks and lenders to regain customer trust since 2008’s financial crisis, according to a study cosponsored by Smart Communications and Salesforce.

To capitalise on this, banks and lenders are seeking ways to streamline their workflows so staff can focus on important tasks. A fundamental pillar of this is automation. The Smart Communications report stated that most respondents see self-service automation, and automated personalised outbound communications that pre-empts customer engagements, will be vital for improved customer experiences. To that end, 90% of respondents said the ability to scale automated processes when the volume of customer inquiries rises – without increasing fixed costs – will be critical to their success over the next three years.

Why automation is a cornerstone for improved customer experience.

Improving the customer experience through automation is clearly a must for lenders, not only to keep customers happy but to also stay relevant.

Karen Oakland, VP of Industry Marketing for Financial Services at Smart Communications, explained that traditional lenders continue to face growing competition. Not only do lenders have to worry about their existing bank competitors, but the influx of non-traditional lenders, such as FinTech companies like Best Egg and LendingClub, or the Buy Now, Pay Later (BNPL) services that offer quick access to appealing fixed-term loans. The rise of Super Apps in China has also inspired more technology companies to expand beyond single service offerings to provide customers with a variety of financial services.

On top of this, the mobile-friendly processes of tech companies have helped them gain interest from consumers, particularly younger generations that prefer to interact through an app rather than a physical branch. In fact, a report by Accenture claimed that 75% of customers who switched to FinTech services did so because of the convenience, ease of use, and personalised experience offered. The fight for market share in finance has never been fiercer.

Mamta Rodrigues – global president of banking, financial services and insurance at Teleperformance – said, “It’s becoming more important for traditional lenders and collectors to find safer, faster and more effective and efficient ways to engage with their customers to create a resilient lending ecosystem – to be at par with the new-comers.” The way to do this is by using automation and AI to pinpoint customer needs and empower lenders to capitalise on this.

While it may seem that traditional lenders are on the ropes, Oakland believes they have the chance to overtake this fresh competition if they leverage their history and build innovative, highly personalized digital experiences. She said, “Traditional lenders have the advantage of being more recognized brands, especially among local community banks and credit unions. They need to use their communications effectively across every channel to build and keep the trust they’ve built with their customers.

“According to the J.D. Power 2023 Consumer Lending Satisfaction Study, 34% of consumers say they have at least one other product with the company that made their personal loan, so cross-selling remains a key goal. Engaging borrowers cross-channel across the credit lifecycle drives long-term customer satisfaction and customer lifetime value.”

She added that customer satisfaction and loan conversion rates are closely tied to real-time engagement of engaging with applicants during the loan processing, underwriting and contract signing stages. However, to do this they need to leverage automatic outbound messages sent via digital channels. “Too many lenders still lean on traditional print and mail correspondence to provide updates. The explosion in the number of communications channels and the increasing number of customer decisioning touch points across the credit lifecycle make it critical that lenders have the tools to facilitate these real-time, anytime conversations with customers.”

The importance of engagement was backed up by a recent Benchmark study from Smart Communications. It found that 81% of financial services customers see communications as important to the overall customer experience and if expectations are not met, 51% of customers would be likely to switch providers. Furthermore, 53% of customers said they were likely to abandon an interaction if the provider’s process to collect information was too difficult.

As the generational wealth transfer continues over the coming years, capturing millennials and Gen Z is going to be increasingly important for financial services and poor communications is a major issue for the generation. The Benchmark report found that 62% of younger generations are likely to switch providers based on poor communications and 63% would end an interaction with a bank or financial services company if the information collection process was too arduous.

According to Chirag Shah, founder and CEO of Nucleus Commercial Finance, one of the best ways to ensure customers get the type of communication they want is through a shotgun approach. “The more channels that they can provide their customers with to communicate with them and carry out their applications, the more likely they are to use one or more of them. It also means that they can serve the customer 24/7, anywhere and at any time, as well as gain insight into and anticipate their future behaviours and activities, and developing products and services that meet their needs, market to them and send them notifications or updates.”

How can automation help?

Having established automation’s importance within lending, what is the best way to utilise it? Oakland explained that many lenders have already done a great job leveraging automation within their loan processes, particularly around loan origination for easier decisioning and underwriting. Some of these enhancements include data collection, credit risk assessment, and document verification tasks, as well as loan applications, loan disbursement and collection of repayments. However, while there are plenty of use cases for automation, she said there are still plenty of untapped opportunities of automation and ways that it can transform the customer experiences.

Oakland said there are two areas lenders are focused on, the first of which is reimaging traditional loan applications and servicing forms through digital/mobile-centric approaches that guide borrowers through the process quickly. Not only is this technology providing customers with a better experience, but it is also reducing inefficiencies and operational risks.. A report from Celent highlighted that 32% of consumer lenders manually retype loan application data into a system from a paper application or static digital document. Not only does this hinder decisioning and underwriting, but it can also cause errors, such as incorrect data entry.

The second area attracting investment is automating the processes and associated communications related to better exception management, such as adverse action notifications and declination letters that need to be produced according to regulatory standards. Oakland added, “Too many lenders are still manually creating these communications, instead of including document generation in an automated process.”

From the customer’s point of view, one of the biggest gripes they have is having to answer the same questions cross applications or service request forms. The Celent survey stated that only 50% of lenders offer prefill for loan applications with known information about the customer and 52% said they could auto-fill applications using data from a scanned document, such as a driver’s license. Having the ability to prefill data goes a long way to improve the customer experience, saving them time and can lower the chance of them dropping off from the process.

Oakland added, “In addition to origination, many lenders are focusing in 2023 on streamlining processes to improve loan servicing, which is especially key for default management. Rising interest rates, especially around adjustable mortgages, mean an increase in customer requests for help, from “skip a pay” and deferrals to loan modifications / changes in terms. The slowdown in origination volumes presents an opportunity for lenders to focus on ways to handle this increase in service volume while keeping staffing flat.”

Leveraging automation as a way to improve loan servicing was echoed by Mamta Rodrigues. Rodrigues stated that lenders are looking to 24/7 AI-powered chatbots that can provide faster, accurate and customer centric services to users. A major boon of these tools is it allows the consumer to get quick responses whenever they need it.

She added, “Robotics software can also help lenders reduce inquiry and application processing times at greater scale, and reduce processing errors. This makes the overall lending experience faster and with less pain points for the customer.  As open banking and the usage of APIs between financial institutions proliferates, the ability to Assess, Decision and Service via automation and custom solutions becomes increasingly critical.”

One area that Todd Latham, CEO of retail finance network Divido, sees as the next step for automation and customer experience is in personal finance. He said, “As the cost-of-living crisis starts to bite, we’re using automation to support customers in applying for the right level of finance, to maximise the chances they’ll be approved.”

Latham added that many consumers are declined credit because they apply for the wrong loan, but new tools can reduce the decline by letting a lender complete soft credit searches to offer finance options that meet the customer’s affordability. This lets the borrower adjust their deposit total or extend repayment terms to reduce monthly repayments.

“This responsible approach means consumers can complete purchases without overstretching their monthly budget. After passing the soft search the first time, consumers can easily see if they can save money on interest payments by repaying faster, and still be accepted for finance.

“Our research has found that 58.3% of consumers see checkout finance as a tool for helping them manage their finances, so employing this sort of automation gives merchants a competitive edge, boosting sales and tapping into a new customer base, and retaining customer loyalty.”

He added, “It’s a better experience for everyone.”

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