By Sharla Godbehere, AltFi and FinTech Leader at Equifax
Your storefront lending business has likely slowed down under COVID-19 stay-at-home orders. You’re looking for new ways to continue to serve your community and drive portfolio growth—now and when consumers re-enter the world.
Online lending presents an attractive opportunity for everyone from small-dollar lenders to specialty financiers. Having a digital storefront gives you the agility and speed to decision and fund loans faster, at the level of risk you want. You also can reach more borrowers outside of your service area, modernize the customer experience, and easily cross- and upsell products.
Going digital may seem daunting, but it can be simple with the right technology, data and partners. Whether you’re a retail business or branch looking to expand online or are considering becoming a lender, but don’t know where to start, here are five easy steps that will get you started.
1. Choose a trusted technology platform
It’s easier than you think to jumpstart your online lending business. Turnkey technologies can have you up and running in a matter of weeks. These solutions let you test the online waters without having to spend the money to build your own platform.
For an end-to-end experience, go with a Lending-as-a-Service platform backed by the Online Lenders Alliance, a trade association that advocates policy and promotes best practices for companies offering loans online. A LaaS provider like Alchemy can build your website, underwrite and manage the loans, and process payments.
Another model to consider is Decisioning-as-a-Service or DaaS. Rather than handing everything over to a third-party provider, a DaaS platform, like GDS Link’s Modellica, provides you with a flexible data access, aggregation, decisioning and underwriting solution along with risk analytic capabilities. You implement your risk policies and data access rules and perform your own underwriting through the Modellica platform and then service the loan on your Loan Management System (LMS) of choice, be it homegrown or third party. Some DaaS providers may take on certain aspects of the underwriting processes such as verification of ID and income.
A white-label, as-a-service solution is cost-efficient and keeps your brand front and center while doing most of the hard work behind the scenes for you.
2. Partner with a data marketer to find customers
Every lender hopes for customers who are perfect for their offers. The trick is where to find them. This is where data-driven marketing gives you a leg up as you move online.
Look to partner with a marketing services provider that has high-quality and reliable data to help you activate your audience.
You can define, develop and inform the right target market in line with your value proposition. Try segmenting different profiles of consumers and sending them multiple impressions based on what they’re looking for. As you engage through prescreens, ITA, direct mail and other audiences, you’re also building the brand recognition you need to succeed.
Marketing partners can also help you connect customer identity and get a 360-degree view of a consumer’s financial behavior by standardizing and linking the data from different credit and debt sources. When you have a complete customer profile, you’re in a better position to offer the right products and increase your chance of conversion. And if you’re not ready to make an offer, you can use the insights to nurture customers with credit advice, education and credit-score building programs.
You can also leverage the relationships your marketing partner has with social platforms, like Facebook, to engage customers when and how they want across the right channels and with the right message.
Having data-driven insights across the customer lifecycle gives you a competitive edge and lets you avoid wasteful spending.
3. Look beyond credit scores to optimize your offers
Digital lending is an extremely competitive environment. If you’ve got a customer with an 800 credit score, she is likely entertaining several offers offline and online.
More interesting, perhaps, is how you can try to understand your 720 credit score customer in order to present an offer. It may not be as risky as you think.
Credit history is one important set of data, but it’s not the only data that helps paint an accurate picture of credit. You can leverage differentiated and alternative data sources to get more granular with your risk strategy or go after new market segments. Data that goes beyond the traditional credit file can help you reach millions of unique consumers.
Not all customers with the same credit score are alike. Additional data can tell you which of your 720 customers have stable jobs, steady incomes and pay their utility bills on time. Further round out the picture with data that estimates a borrower’s wealth, such as their assets, as well as household spending capacity.
If you are lending to subprime, thin or no file customers, you’ll want data that helps you better understand them. For example, you can look to alternative credit and payment data, analytics and identity solutions on underbanked consumers in the installment loan, rent-to-own and lease-to-own markets. Such data can help you decision offers to the nearly 30% of Americans who have a 650 FICO Score or lower.
In a 24/7 online environment, alternative insights delivered with efficiency and speed enable you to make optimized offers quickly and close the deal.
4. Automate identity verification to prevent fraud
When you lend online, you’re held to the same Know Your Customer standards as offline providers. Still, online identity verification has very different challenges than those of a storefront lender.
For one, online lenders are dealing with customers electronically, which dramatically raises the threat of fraud. Also, the higher level of scrutiny required to validate a borrower online can impact customer acquisition.
Most online lenders use modern tools to meet complex regulatory requirements and protect their business from potential fraud. Sophisticated solutions automate the job and help lenders identify most if not all of their user populations.
High-quality verification and risk-assessment solutions check loan applications against multiple sets of public and proprietary data, including Social Security numbers, dates of birth, addresses, employment records and more. These solutions can also detect linkages and suspicious patterns to determine if the applicant is a real person, while significantly reducing false-positive rates.
Identity verification also goes beyond compliance and risk. It’s seen as a strategic business component for customer experience and business growth. The onboarding process must be fast and frictionless enough to convert your customer. This is only possible when you have the right identity tools, eliminating the need for your customers to do extra work—and funding the loan fast.
5. Wise up to account management
The repeat customer is very valuable in the online lending space. You will want to keep your website and offers updated in case a customer is ready to borrow once more.
Again, a credit score may not be the ultimate deciding factor. You could have a 650 customer who you see is paying on time regularly and has a good job. You can use this alternative data to decide whether to remarket to him.
You can also monitor your customers’ data to be proactive in your collections activities. Effective Account Management review solutions sends real-time alerts and triggers around changes in employment or income so you can keep your loan portfolio healthy.
Once you’re up and running online, you should analyze your portfolio frequently. Doing so enables you to discover cross- and up-sell opportunities as well as budget for the future. For example, if 50% of your customers are unemployed and 25% are starting to get delinquent with other lenders, you may need to increase your loss reserves.
Here’s a final thought for would-be online lenders. Banks and traditional lenders are tightening their standards to serve only their most credit-worthy applicants. Demand for short-term credit and credit within the near-prime space will rise as Americans work hard to cover personal expenses while getting back on their feet financially after COVID-19.
Now is a good time to consider taking the digital plunge. With the help of trusted platforms, partners and insights, you’ll become a faster and smarter lender with the ability to easily reach more customers than you ever could offline.
