Customer Experience: The Next Battleground in Digital Lending

15 min readDec 22, 2021

The banks and lenders today face a stern test of how they can reduce the customer attrition rate for their institutions. Today’s borrowers expect the onboarding and lending process to be fast and convenient — more and more customers now expect it to be done digitally without an actual visit to the lender’s premises. It is the driving factor behind lenders going through a digital transformation for their services to provide the best of the customer experiences.

Digital Lending has been an exponentially growing global phenomenon over the past few years. It may have been initially dismissed as a ‘buzzword’ with no universally articulated definition, but the bold foray of Fintech startups and tech giants into the grey space has resolved all market doubts.

And the result has been spectacular:

The global market size of digital lending platforms is now expected to grow from USD 5.1 Billion in 2018 to USD 12.1 Billion by 2023. This translates to a Compound Annual Growth Rate (CAGR) of 18.7% during the period.

Increasing consumer demands and expectations have created new markets for alternative methods of borrowing money. And businesses have been quick to understand the importance of customer experience as a differentiating factor. They are proactively leveraging the opportunity to drive efficiencies, cut down on costs, and expand.

The competition in the post-pandemic digital lending market is intense, especially for the prime Millennial segment. With a plethora of such players in the market today, it is indeed becoming increasingly difficult for companies to differentiate their offerings. This is precisely where customer experience takes precedence. A great digital customer experience involves understanding user needs, creating a strategic design framework, creating design with emotion and empathy among others. With all other key variables being in a level field, customer experience in digital lending is set to be in the driving seat.

Digital lending: primary drivers of growth

Here’s a close look at the primary factors that are driving this revolution and contributing to superior customer experience in digital lending today:

Market Impact of Millennials and Generation Z

An influx of tech-savvy Millennials and Generation Z consumers into the financial markets have brought a fundamental shift in consumer ideologies and behaviors. ‘Instant gratification’ is the key for them and digital habits such as online food delivery, cab booking, and grocery/essential shopping has only reiterated this mindset. They have a stronger emotional connection with technology and new-age brands such as Apple, Uber, Amazon, and Google. The perceived ease of use and delight of digital-only products (e.g. Dropbox) is sought to be emulated across all digital experiences.

Hence, this is both an opportunity and a threat for financial organizations. To stay relevant in the market and fend off competitors, there was a dire need for both short and long-term financial instruments that fit into the profiles of such consumers.

Data Collection and the Associated Analytics

The proliferation of smartphones in consumer habits is driving more than half of the traffic on the Internet today. With access to a number of digital services, engagement is being driven like never before. The result is an accumulation of data points that can be smartly leveraged by financial companies.

The silver lining? Lenders have the ability to actively analyze the spending habits and repayment schedules of users and profile them with unprecedented accuracy. With such abundant data sets, significant value in the financial sector can now be driven.

Added capabilities in their arsenal include:

Generating new revenue streams via data-driven offers and recommendations.
Extending better services and security features to customers, such as the detection of card frauds.
Managing the risk of lending to customers by determining the probability of repayments.
Leveraging Machine Learning techniques to connect relevant card members with the right merchants.
Offering market insights to customers while boosting engagement and trust.

Introduction of Innovative Business Models

The inception of multiple digital lending business models to meet varying customer needs and regulatory requirements has only made the case stronger. With niche operations, companies are now able to reach customers who were not able to access financial services in the past. Innovation in the space has fended off challenges related to geography, higher transaction costs, and transparency.

Primary digital lending models today include:

Online and Mobile Lending Platforms: Offer end-to-end digital lending products via purely mobile or web-based platforms. The entire workflow of lending ranging from customer acquisition, loan distribution, and customer engagement is digital.
E-commerce and Social Platforms: Lending is not the core value proposition of such platforms. They instead leverage it as an engagement strategy to boost customer retention and sales.
Marketplace Platforms: A typical marketplace where specific algorithms are used to match borrowers and lenders. An initiation or subscription fee is usually charged from lenders.
P2P Platforms: Such platforms use profiles and data to match borrowers with institutional or individual lenders. They often include support for repayment and collection processes.
Supply Chain Lenders: Short-term and digital working capital loans for SMEs for various needs such as purchasing inventory from distributors or pay-as-you-go financing.
Tech-powered Lenders: Traditional lenders with digitized lending processes that include digital acquisition channels and repayment options.

Enablement of Regulatory Environments

With the economic benefits of digital lending now evident, governments around the world have been embracing the shift. In fact, they have been coming up with regulatory frameworks that protect the interest of all the involved stakeholders. Prominent motivators in the sector by global governments include:

Issuance of BitLicenses by the US Government for businesses that deal in cryptocurrencies.
Drafted rules for digital lending, such as the ‘Guiding Opinions on
Promoting the Healthy Development of Internet Finance (GOPHD)’ by central regulators in China.
Implementation of India Stack, an open architecture platform for authentication and data access in India.
European Union’s PSD2 (Second Payment Service Directive) regulation enables customers to share sensitive financial data through secured third-party APIs.

With a legal and officially recognized framework of operations, market inhibitors have been efficiently combated. For instance, due to the legal, regulatory vacuum in China, ‘shadow banking’ participants prevailed in the market. This often led to funding mismanagement and liquidity issues for key stakeholders.

Better Speed of Operations and Lower Costs

Digital lending is backed by technologies that eliminate operational bottlenecks and significantly speed up the process of loan approvals and dispersals. An ideal tool can automate the underwriting and approval processes. As a result, lenders are now able to:

Execute real-time data assessment for application approvals or rejection.
Undertake quicker loan decisions and maximize customer engagement.
Constantly monitoring the creditworthiness of borrowers.

At the same time, digital lending business models are much more cost-effective than traditional banking models. Lenders do not have to maintain brick-and-mortar structures or pay for expensive legacy IT systems. Hence, with a significantly lower cost structure, customers receive more affordable loans and access to new financial tools.

How to build a great customer experience in digital lending

The first step to building a great customer experience in digital lending begins with the onboarding process. The very first contact with your website, company and services need to leave a lasting impression. You need to prove why your lending terms are good for users, how they can get money, and which services might be in their scope of interest. The whole interaction should make the potential customers familiar with your services. It inadvertently increases the chance of them wanting more and coming back often to you. Below are 5 ways you can enhance the customer experience to lower the churn rate.

5 Ways to Enhance Customer Experience in Digital Lending

#1. Analytics aided data collection

Successful businesses are those who understand the needs of their customers and discover opportunities for improvement at a very early stage. They achieve this by gathering constant feedback across all points of their customer interaction. Lending companies map out the customer journey and the touchpoints across all channels.

The successful lenders have a centralized and integrated system to capture and retrieve customer information, eliminating data redundancy. Data analytics can then help lenders deliver a superior customer experience at a fraction of the cost. It gives them the ability to use customer analytics to drive contextual experiences. According to Oracle research, 68% of consumers say tailored experiences based on their tastes and preferences are important to them.

Most companies use customer analytics to personalized offerings with the flexibility and agility to easily configure loan options.

#2. Allow customers to self-service

Lenders can provide a good customer experience by eliminating excessive or unreasonable document requests or the submission of multiple applications for multiple products. They can include provisions for easy-to-use and quick processes such as eKYC, e-sign and digital locker with intuitive third-party integrations. Also, easy access to credit scores from the relevant credit bureaus and the subsequent verification of documents in real-time enhance the experience.

A borrower will need more than just necessary product information to make an educated choice. A website or app that can provide support related answers to all their queries across the platform is what every customer requires. Allowing such self-service capabilities improves consumer satisfaction levels, customer retention, and increases conversion rates. User-friendly design, cohesive domain, and consistent web design show customers that they can trust you.

#3. Maintain consistency across all touchpoints

Modern borrowers expect an omnichannel experience from their lenders.

People using digital lending services often switch between devices before completing the activity. Today lenders need to understand the importance of cross channel journeys and the need to extend innovative cross-channel integrations. Also, frictionless digital experiences with near-real-time accountability and continuity across digital and in-person experiences go a long way.

Successful digital lending customer experiences are the ones that deliver a truly seamless multichannel experience.

#4. Adopt financial technology

The time is now for lenders to catch up with the latest technologies to find great opportunities to improve their customer experience. Enhanced security of platforms using biometrics such as voice identification and eye scanners is a great example of how digital is improving the lending business in appeasing customers. Not only this, lenders now have provisions in place for detecting frauds and integration with payment gateways for quicker decision making and disbursal.

Old obsolete banking systems are one of the major attrition factors for lenders as customers now have multiple options to choose from. Good-architectured mobile apps, statistically, have lower churn rates after customer onboarding. This is because the majority of users download an app following the reviews in the Play Store or App Store or recommendations of friends or relatives.

However, when developing an app, consider making it easy to navigate. Solutions with everything at hand are highly appreciated among customers.

#5. Curate personalized customer experience

Personalization and segmentation of messaging and services using marketing automation tools such as CRM systems help a lender stay relevant in this highly competitive market. Successful lenders offer relationship and loyalty pricing tiers and exclusive benefits in a bid to boost retention. They also extend real-time visibility into the status of applications and deliver effective customer-centric communication.

Lending institutions need to leverage customer data to capture untapped opportunities for personalization. According to HubSpot, 59% of customers value the personalized banking experience approach over response speed when it comes to customer service.

4 strategies to boost digital lending in a red hot market

The economic downturn experienced due to the pandemic has offered the lenders major opportunities to bring in more business. But a hot market also means a significant increase in competition. At such a high rate of competition, it is becoming clear that customer experience is the key to guaranteed success.

Digital lenders need to start focusing their efforts on digital mortgage marketing strategies. Let’s look at five that have the most potential to drive new business.

#1. Devices that are flexible with newer technology

People have become reliant on their smartphones would be an understatement.

Consumers spent the whole pandemic communicating and doing business digitally. This over-utilization of digital platforms raised the expectations of customers for a seamless, convenient digital experience more than ever.

Now, consumers expect to engage with their financial institutions through their smartphones to do everything from open accounts to borrow loans. If you haven’t already invested in a convenient mobile lending app, this would be a good time!

#2. Social media is a powerful medium when used correctly

Social media has evolved into more than just a social connection platform. Businesses nowadays build their social profiles and interact with their customers like never before. It has given a huge platform for lenders to engage their customers and keep them up to date with the latest offerings.

Social media also helps in humanizing the brand. The more human a brand looks, the more trustworthy it becomes in the eyes of the customers. This approach can help your business to set a foundation for strong relationship building with your customers. As the digital direct lenders’ space becomes more competitive, the human element is a strong differentiator for lenders today.

#3. Complement organic efforts with paid advertising

Social media platforms may be a very powerful medium to connect with your customers. But it mostly works for you if they are your direct followers. It is becoming extremely difficult for brands to reach new customers with organic posts. The social media giants have made the algorithm such that paid posts limit the visibility of brand-related posts.

However, putting some budget behind a paid social media strategy can help you reach the right audiences at exactly the right time. The advanced targeting capabilities provide additional capabilities to pinpoint your target customers and experiment.

#4. Drive-up your conversions with constant engagement

Putting across the message is just the half job done. The other half consists of bringing your customers to appropriate landing pages or apps. Create target-oriented landing pages on your website for better relevancy. Keep adding and sharing valuable content for your customers.

Publish an e-Book or some other collateral that helps your customers and get their email details in return. Share a monthly or weekly newsletter with them having relevant content.

A constant connection with your current and potential customers ensures your brand positioning and keeps you upfront whenever they think of online borrowing.

Consumer credit market trends in the USA and India

The immediate effect of the COVID-19 pandemic saw a dramatic slowdown of unsecured credit products such as personal loans and credit cards when compared to previous quarters. However, after the reopening of America and the expected addition of jobs and wages may help turn around the declining trend and enable consumers to manage their debts going forward. In 2021, TransUnion sees Q2 playing another big role — this time in the form of new originations returning to pre-COVID levels with credit card and personal loan volumes expected to rise at the greatest rate.

Source: TransUnion

*Mortgage origination projection based on figures from the Mortgage Bankers Association.

Mortgage borrowers hold the key in how quickly the consumer credit market rebounds in 2021.

A similar uprising trend could be seen in India as the demand for short-term loans related to purchase and spending grows. This could be derived from the CAGR of 24% (2014–2019) of credit cards in India. According to inc42 Plus, we are witnessing more and more credit-based purchases becoming common practice in semi-urban areas of India.

And if we talk about the B2B lending market scenario, it dominated VC funding in terms of the amount from 2014 to Q3 2020 with a 54% share. Compared to B2B lending from 2014 to Q3 2020, B2C lending startups have dropped between 2019 and 2020.

Venture capitalists are looking at growth-stage startups for investments as they are rapidly growing owing to their innovative ways to capture consumers.

Digital Lending: many players, many intents

Let’s take a quick look at the existing digital lending ecosystem and look at what global market players are offering in the space:

U.S Bank: Recently launched a digital lending platform that automates the process from application to funding. Applications can be submitted and reviewed on any device and borrowers can even review loan terms remotely and electronically sign documents. And with an integrated ecosystem, customers can initiate application processes on one channel and pick them up on another.
The Halo App: This is a peer-to-peer digital lending platform that leverages an intuitive mobile application to connect borrowers and lenders. It has been specially created to cater to the small-dollar loan requirements of users. It is borrower-centric in the sense that they can slice their payments into smaller pieces. Lenders are available round the clock and borrowers can receive instant cash.

Kabbage: Dedicated platform for entrepreneurs and small businesses that provides them access to up to US$250,000 in loans. It takes users just 10 minutes to verify their eligibility. A highlight of the platform is the elimination of origination fees and prepayment penalties. And with an integrated interlinking of business-related information, users can drive automated financial reviews.
Faircent: a P2P lending platform that ‘connects individuals in need for credit with individuals and institutes willing to lend their access funds’
TurnKey Lender: Intelligent and all-in-one lending automation platform that leverages AI and big data to streamline the elements of a lending process. This ranges from origination to underwriting and servicing to the collection.
Better: Better provides mortgage lending, real estate, title insurance and homeowner’s insurance while removing lender fees and commissions. Better’s lenient lending policies and large agent network resulted in acquiring more than $400M in funding and providing $7.9B in home loans to date.
Blend: Blend uses automation and artificial intelligence in its lending process for thorough application analysis and prediction. This speeds and simplifies the whole approval process of loans and mortgages. Blend has been used globally by banks and customers that include Wells Fargo, U.S. Bank, Assurance Financial and Affinity Federal Credit Union to process more than $2 billion in loans in a single day.

Open Lending: Open Lending serves automotive loan borrowers using big data and high finance to provide risk modelling and decision-making software. The company’s Lenders Protection solutions help lenders utilize proprietary data and advanced decision analytics to increase near and non-prime auto loan volumes, leading to higher yields with less significant risk.
SALT Lending: The unique feature about SALT is that it lets borrowers leverage their cryptocurrency for loans. Borrowers can agree to terms ranging from one to 36 months on loans available for Bitcoin, Ether, Litecoin and Dogecoin. It uses blockchain evidence-based, chain-of-custody smart contracts to ensure the crypto is safely transferred. After its huge success in the US, SALT is now expanding its business to countries like New Zealand, Brazil, Switzerland and the U.K.
OnDeck: OnDeck is a B2B digital lender which provides personalized loans and lines of credit to small and midsize businesses. Businesses can identify the type of business they operate (restaurant, retail, tech company, etc.) and even define the purpose of the loan (expanding business, hiring employees, etc.). OnDeck accordingly personalizes the payment structure that best fits the situation.

The Verdict

As we venture into a bold new era of digital lending, customer experience is set to play the lead role in the story of financial empowerment. Lenders that can smartly manage the ever-changing customer expectations, emerging technological capabilities and shifting market conditions will always be a step ahead of their competitors. As sources of consumer data grow every year, lending institutions will be able to increasingly focus on consumer needs.

Author — This article is written by Srinidhi Rao. He is our Senior Vice President — Solutioning and Account Management. He also leads a group that focuses on end-to-end Product Life Cycle Management — from product conceptualization to delivery for a host of global clients. With nearly 20 years of experience — his techno-managerial background is an asset to our clients, as he brings both business and tech perspectives to crafting digital solutions.

This article was originally posted on Robosoft Technologies Blog. You can read the article here

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About Robosoft Technologies

Robosoft is a full-service digital transformation company with a vision to Simplify Lives. A subsidiary of TechnoPro Holdings, Japan, we offer end-to-end solutions in Product Advisory, Design, Engineering and Analytics. We craft intuitive digital experiences that drive brand preference for enterprises. Our industry experience is diverse including Banking & Financial Services, E-commerce & Retail, Media & Entertainment, Healthcare & Pharma. We have played an active role in the ever-changing world of digital products — from app development to emerging technologies. Visit https://www.robosoftin.com/ to know more.