Despite this transformation, financial institutions are behind in modernizing the loan payment experience. It's time to take the payment choice, channel, speed and autonomy consumers are used to with making digital payments to the loan payment side. Whether that’s an auto loan, a credit card, or mortgage, the days of consumers using a coupon book have passed. FIs have an opportunity to take that same omni-channel experience consumers have come to expect from shopping or paying bills, and bring a variety of real-time payment options through a variety of digital channels to the loan payment experience.
The substantial costs of outdated loan payments
So why should FIs start rethinking their loan payment experience now? Consumers are catching on to the fact that their FI’s loan servicing payment options are incredibly dated. If the FI makes it complicated to accept and receive payments through coupon books or legacy loan payment systems borrowers may not consider them for their next loan — especially millennials, who are generally digital first. A 2021 J.D. Power study found that non-bank loan servicers saw a 17% increase in customer satisfaction, while banks only saw a 4% increase. What’s more, J.D. Power notes that FIs’ customer satisfaction scores were actually inflated by more modern services in other areas like bill pay and money movement — papering over their weakness in loan payments. What was once an area in which an FI could save is now costing them in two big ways: opportunity and overhead.
What’s more, this dated experience — in which non-deposit customers can’t easily pay their loan bill online, make payments using a variety of sources, and have their payments post in real time — is already adding up in overhead costs in the form of inbound phone calls. With a sub-optimal loan payment experience, FIs are practically inviting these costly interactions with their customer service representatives — a problem that only gets worse with scale. By giving the consumer more ways to pay, FIs avoid those costly interactions with their customer service teams.
How payment modernization drives consumer loyalty
In addition to saving on overhead costs by modernizing their loan payment experience, FIs stand to gain another avenue in which they can drive customer engagement and loyalty. Traditionally this is not a priority for loan servicing — your borrower is in debt to you, so it’s not like they can easily take their money elsewhere. But in today’s lending landscape, FIs that succeed in payment modernization solidify relationships with customers and position themselves to convert indirect borrowers into full-fledged customers, pursue more cross-selling opportunities and raise a customer’s total lifetime value.
Loan payment modernization is a huge opportunity for FIs simply because there is currently an unmet consumer demand. “Only 38% of customers say they found the desired information on their servicer’s website within the first two pages,” a J.D. Power study on mortgage servicers reports. “When customers had to visit more than two pages, overall satisfaction declined 55 points.” It’s no surprise, then, that among the top factors customers would consider when it comes to switching lenders, “better/improved customer service” and “easy access to help myself to information about my loan,” were right up there with competitive interest rates.
It’s time for FIs to start seriously rethinking their loan payment experience. Consumers have come to expect a greater degree of choice, simplicity, speed, and transparency in their financial lives. We’re in a rare window where banks and credit unions can see greater returns in customer engagement, reduced overhead, and market differentiation.
To learn more about how Paymentus can help your financial institution rethink your loan payment experience reach out and set up a time to talk today.