Your Biggest Lending Competition? Look to the Nonbanks

Banking & Fintech

It wasn’t long ago that the local bank or credit union was the default option when you needed an auto loan or mortgage. In each branch, a friendly lending specialist would greet you, walk you through the process and work to get you approved.

My, how times have changed. That lending landscape has been ground into the digital dust, forever transformed by the rapid growth of nonbanks and fintechs. This was highlighted in a recent white paper produced by Paymentus and The Financial Brand.

If you had to guess how many banks cracked the top ten mortgage lenders by loan volume in 2021, how many would you say are on the list? Five? Six?

The answer is two. Only Wells Fargo (#4) and JP Morgan Chase (#6) made the list. At the top was Rocket Mortgage, a digital platform built in 2015 that just two years later, became the nation’s largest residential mortgage lender.*

The story is the same for auto lending, where Ally Bank checks in as the top auto lender with a 5.75% market share.** That Ally Bank is a pure digital financial institution with a single branch in Utah is of no concern to today’s borrowers. Their competitive rates and superior borrower experience far outweigh the need to potentially visit a branch.

And just to put a very fine point on it, Forbes lists OnDeck, Lendio, and Kabbage — all nonbanks — as the best small business lenders.***

The question is not so much, “Who?” It’s, “Why?” The short answer is that these lenders are delivering on the three Cs coveted by today’s borrowers: convenience, choice and control. As Brian Riley, Director of Mercator Advisory Group’s Credit Advisory Service notes, “The top reason that consumers choose to get a loan from an online lender instead of a bank is that lenders offer a better, more convenient experience than going to a bank.”

How can today’s FIs fight back against these digital competitors? First, they must prioritize the loan payment experience. Loans should be viewed as not just a chance to collect interest, but to win over new customers.

To do this, real-time functionality is becoming increasingly necessary. Instant payments are a great start, but immediate notifications that a payment has been made can also drive satisfaction. Timely alerts are yet another way to increase borrower satisfaction by reducing the stress of having to remember due dates.

Finally, the payment experience itself must fit the lifestyle of today’s borrowers. ACH and checks may be tried and true, but debit cards and digital wallets are the way of the future. Plus, the ability to make payments online, by mobile, text, email or interactive voice response (IVR) ensures that borrowers will always have access to their favorite ways to repay.

The good news is, the battle is not lost. Products such as Paymentus Loan Payments offer the omnichannel capabilities that enable top payment methods and channels. It also allows for a superior guest pay experience, adding further convenience for borrowers looking to make a quick and easy payment. This is both a great way to satisfy borrowers and grow lifelong relationships.

For more information on how you can modernize your loan payment experience, download the full white paper

**The Top 10 Auto Finance Companies of 2022 Best Car Financing Companies, BizVibe, May 30, 2022.
***Best Small Business Loans Of October 2022, Forbes Advisor, October 1, 2020.