Blog By: Tushar Chitra, Senior Director, Product Marketing, Oracle Financial Services
They share their cars with unknown people, communicate every emotion through selfies, and their followers on social media define their stardom. They are radically different from previous generations. According to a research, nearly 40% American millennials interact more with their smartphones than they do with any human being. This generational shift is driving a monumental change in the way products and services are consumed across industries. Cab service providers are now digital wallet providers and telecom companies are functioning as banks that don’t expect their consumers to visit their branches, in fact most of them don’t even have any physical branches.
What do these socio-technological patterns mean for businesses? For one, they need to move away from the approach of perceiving gadgets as mere ‘channels’ to looking at them as quintessential elements of their consumers’ lifestyles.
Addressing the elephant in the room
Since millennials are the largest of all generations in terms of size and they embrace digital technologies as their second skin, digital platforms cannot just be one of the many outlets of lending solutions. Digitalization needs to become an intrinsic value to the way lenders interact with their audience. So how do they do it? What do their consumers want and how can lenders offer exactly that?
In 2015, the New York Times reported a surge in same day delivery orders. The digital native population is more comfortable paying extra for same day delivery than waiting longer for their orders to arrive. Speed is naturally one of the biggest drivers of their buying decisions.
Let’s say a millennial wants to apply for a loan. He can always use a P2P lending app or a marketplace site to find out what the best deal is. A regular lender with a traditional setup is not even there in the picture since it involves visiting a branch or calling a representative in order to negotiate: there are chatbots to do that work. Instant gratification is one of their most important factors while buying a credit product.
Loan origination systems need to talk to the consumers in their own language. This means that from credit decision making to the application processing, the entire procedure needs to be lightening quick- at least quicker than the closest competition. This is only possible if the underlying technology facilitates fast processing with smart business insights and real time reciprocation of consumer choices. The later stages in the lending lifecycle such as updates and payback also follow the same rules of the game: wait is not appreciated and instant servicing is the biggest differentiator.
Sharing platforms such as Snapchat, Facebook and Instagram are the primary touch points millennials use to connect with the rest of the world. In fact, the application of social platforms goes beyond just connecting: they now make their buying decisions based on reviews by others on these platforms. 68% of them say they won’t make a major decision until they have discussed it with trustworthy people on their social platforms.
Lending Club, the peer-to-peer lending platform, connects prospective buyers and sellers of credit products. All the borrowers need to do is post their requirements on the app and the befitting investors lend them money. This platform based social approach to lending is a more comfortable situation for the digitally savvy consumers. Investors on such platforms have a similar digital outlook as that of borrowers and hence are less intimidating than conventional lenders. It also makes more social sense because they are able to share their experiences and resources with the others.
Josh Dykstra in his blog on Fastcompany mentions owning something does not mean much now unless it is used for defining what people can do with it, what they can tell others about it, and what having it says about them. Millennials have grown up to a sharing economy where everything is less private than it was in the previous generation. Their lending solutions also need to reflect this very concept through their digital systems.
They have seen their parents over the period of the global financial meltdown and hence believe things are momentary and experiences are forever. Three in four millennials prefer paying for an experience over a product. They opine social and experiential value for money are more important than belonging to things or things belonging to them. This essentially means that a product sold is not a guarantee of a happy customer. Their satisfaction index transcends into the overall journey as a lifecycle rather than a transaction.
For lenders, this is an opportunity if they are able to convert every interaction with the consumers into a memorable experience. Providing variety of options is always one of the best ways to service. Whether it’s the frequency of installments paid or the channel of communication or the mode of repayment, the larger the number of choices, the happier the millennial consumers. According to a research, roughly three quarters of Americans now own smartphones and about the same proportion of them have broadband connections at home. Only the lenders who have capabilities to service loan consumers on digital platforms can monetize this situation. They not only need to offer the right mix of products and services at the right time, but also keep the customers informed about the entire process on their channels of choice while making the procedure interactive. This should be topped with the best prices based on the customer relationship and previous records.
Servicing customers via digital channels will not only help lenders bring down the costs drastically but will also position them as the forerunners of the new digital brigade of lenders.
Traditional lenders rule out millennials as consumers because they lack proper credit history. Fintechs however are poaching these consumers early on in their lives by looking at other credentials such as an education from a reputed institute and a promising career ahead. Zestfinance, for instance, uses non-conventional ways of underwriting. They employ machine learning to analyze thousands of variables and gain insights into the vast amounts of data they already have in-house, such as customer support data, payment histories, and purchase transactions. The platform can also add nontraditional credit variables, such as how customers fill out forms, how they navigate a lender’s site, and more. The effect is such that a lot of big banks and lenders are losing their prospective customers to such fintechs simply because their understanding of their customers is context based. Fintechs are making use of the fact that they know their customers well enough!
Digital technologies can also facilitate the minimization of delinquencies through better business intelligence and insights from consumer data gathered over the course of the relationship with the lender. Psychographic Conversion by AES Technologies, for example, is a solution that leverages user experience and behavioral psychology elements for making loan collections more intuitive. The solution takes into account the fact that loan collections is a crucial part of the lending and leasing business where knowledge of the customer base is extremely important: a badly managed call can ruin the relationship with the customers forever and a simplified transaction can build it for life.
The right use of customer information should occur at the right time and this is only possible with digitalization of processes. Any kind of negotiation, resolution or pay back can happen with the proper bucketing of customer data. This can potentially change a process that is perceived as painful and uncomfortable by many to a memorable brand experience that can increase the net promoter score for lenders.
Interactivity, intuitiveness and customization are the topmost criteria for most customers today. You cannot expect a millennial to walk to a branch when he has an option of clicking a button on the smartphone and downloading the statement. In fact, they now have access to apps that even tell them where their money could have been spent better than buying a credit product. The obvious derivation of these recent developments is the need for a robust servicing engine backed by futuristic technology. There is no room for lengthy processes and cumbersome offline protocols. There is a need to accept, process and decision credit applications in a paperless mode, with a single data entry process. Lending and leasing institutions should be able to provide seamless channel integration to ensure an application can be started and closed on different channels of customer choice.
Although a great lending platform is the one that makes use of relevant data to cater to the evolving requirements of the consumers, this should all be done in a manner that the consumer still sees things as if they were just one touch away.
Take the lead, the race is on
We are inevitably entering an age when there are apps to tell us not to use apps while driving. Millennials are so addicted to digital technologies that there is a new social recommendation surfacing the marketplace: ‘digital diet’ which essentially means a monitored abstinence from all things digital in order to bring people back to at least a minimum level of human interaction. When such a generation is a major part of your target audience, it becomes imperative to conform your products and services to their sense of consumption. A sturdy lending and leasing engine with a modern architecture can go a long way in this context.
My colleague Shalu Upadhyay and I co-authored this blog. We would love to hear your views. We are reachable at tushar dot chitra at Oracle dot com and shalu dot upadhyay at Oracle dot com