The face of lending is changing noticeably. Since the credit crisis of 2007, managing risk is high on the agenda and banks are rightly tentative about extending credit. New regulations imposed by the Financial Services Authority (FSA), mean that lending has to be even more responsible with greater focus on affordability and selling the right products. The multitude of alternative lenders on the scene means that customers have more choice in their borrowing – they’re easily provided with quick decisions and flexible products to bridge short-term gaps. Traditional lenders may not be making the most from customers because their service may not be geared towards the changing behaviours of consumers and the speed and convenience they expect when looking to meet their immediate requirements.
Make a better connection with customers
How can lenders stay ahead in an ever changing competitive landscape? Innovation in data management could be the answer, as it allows a deeper connection with customers and their financial situation. Questions can be answered that support better customer management and retention. What do they need? What can they afford? Can we offer it to them? Are they getting it elsewhere – and, most importantly, why? With newer systems and technologies, newer lenders are built to offer better customer service. It’s vital that traditional lenders take advantage of the data innovations available to them and offer an equally personalised and rapid service to that of their younger competitors.
Develop a more informed view
To stay competitive, lenders will need to re-evaluate their portfolios and lending decisions. Pay day lenders in particular, have received a bad press, as have some of their customers; but it’s not right to assume that people using this type of credit will struggle to pay it back. Some consumers turn to alternative lenders because they want a decision in a matter of minutes; it’s a faceless system, less intimidating, easier to access and there’s an ownership attitude developing towards banking, particularly among the eighteen to twenty-five-year-old age bracket – which means consumers are looking for more convenient methods of borrowing. They want to feel more in control. Not to mention that people aren’t as brand loyal as they used to be – they’re looking for someone to fulfil a need. Taking a detailed look at current customer profiles is likely to reveal more lending potential before they seek credit elsewhere. Lenders, armed with a more informed view of customers, don’t have to miss out on the opportunity to provide credit to both existing and new customers.
The bigger picture
Essentially it comes down to an effective way of collating, managing and viewing customer data to enable quick and easy assessment of a person’s situation. We need to look at the traditional credit scoring system and ask ourselves how we can enhance it to support a more effective and accurate decision making process. Adding property rental data (in lieu of mortgage repayment figures) and information on instalment repayments of other large sums, such as insurance; are financial commitments that can add to a bigger, more positive picture of a customer’s financial state. The Enhanced Customer Indebtedness Index (ECII), provides a more detailed view, and The Rental Exchange is something that’s on the horizon to target this very issue: an incomplete view of a customer that is potentially inhibiting lenders.
Innovate to meet changing needs
As a solution to the problem of incomplete or inaccurate data, we have developed ExPin – Experian’s innovation for data pinning throughout a customer’s entire lifecycle. Its unique way of keeping every piece of financial data together, offers an instant single customer view and will enable financial institutions to comply easily with the seven day account switching system coming into effect in September 2013. From a customer point of view, simpler account switching makes the process less daunting and could lead to increased shopping around for better rates and service. The need for providing the best, most appropriate products and service on the market, will be greater than ever before.
Conduct, compliance and competitive edge
Data management and customer innovation will work hand in hand with new regulation that aims to put the customer firmly at the centre of decision making; particularly as compliance will be under increasing scrutiny from the Financial Conduct Authority (FCA). Clearer understanding of customers, means selling an appropriate product with affordability in mind will become second nature to any organisation providing credit; both to minimise risk from a profit point of view and to look after the customer’s interests.
Ultimately, innovation to this end will mean lenders are able to sustain safe, long term and profitable relationships with their customers, making them a better choice than their competitors.
Sean is Head of Product Management for Experian’s consumer bureau products.
During his career at Experian, Sean has worked in delivery, sales and consultancy before moving into product management; where as well as managing our originations and authentication propositions, he also led the business team responsible for the bureau development programme, resulting in the ExPIN database.