The Next Frontier for FinTech Lenders is Their Own Customer Base
There’s no denying it: we’ve all become addicted to personalized, immediate, and friction-free experiences via our favorite channel. And that has created the new competitive landscape in financial services. Our expectations have been fueled by rapid technology adoption and our experiences with the likes of Apple, Facebook, and Amazon.
FinTechs stoked the fire, disrupting traditional financial services models—including consumer lending—by offering convenience, mobile/digital access, and lower costs, consequently grabbing significant market share. According to Accenture, FinTechs and players like Google and Amazon could impact 80 percent of existing banking revenue pools by 2020. In fact, according to Accenture’s analysis, FinTechs future growth valuation is 40 percent, compared to just 20 percent of digital bank leaders and -11% to bank laggards.
Still, FinTechs face stiff competition. In a fast-changing market defined by multiple brands, disruption, fluid customer expectations, and fleeting loyalty, the fight to attract and retain customers is only going to get fiercer. The playing field is crowded, and includes traditional lending institutions with deep pockets, digital banks, and tech behemoths like Google and Amazon. To retain the customers they worked so hard to woo in the first place, FinTechs are going to have to find meaningful differentiators that build loyalty. Stickiness is the name of the game.
Financial Literacy is a Competitive Differentiator
Consumers are facing the most complex credit landscape ever, and they’re looking for information and trusted answers. Financial education and identity programs are an excellent opportunity for FinTechs to provide a more personalized experience that boosts interest and engagement.
According to the National Foundation for Credit Counseling, four in five U.S. adults want professional advice about fundamental financial issues, like how to tackle credit card debt or improve their credit score. This is particularly true for millennials, the largest generation with the most spending power in US history. The Experian Millennial Credit & Finance Survey found that half of millennials have no idea whether their current credit score is good or bad. This leaves a significant portion of this demographic at risk for poor financial decisions. In fact, more than half reported having an issue with credit card spending or late payments.
Engagement and Loyalty
Consumers today are motivated to tackle their future financial health proactively and want to be empowered to do so. Customers who have found the FinTech value proposition so compelling are also drawn to self-service educational tools that provide actionable insight and an effective way to take control of their own financial wellbeing. Giving customers visibility and control into the best ways to manage and leverage credit helps make your company a trusted financial partner and your customers’ brand of choice.
A More Creditworthy Customer Base
Credit education can drive growth and improve customer credit scores, opening doors to new opportunities to offer expanded credit services to prequalified customers. Financial education and identity protections like score monitoring are proven ways boost credit scores just by the customer routinely checking their scores. Customers can set goals for a target score, and by doing so can improve their credit so they can qualify for more offers. A recent study conducted by Experian found that credit scores were 14 points higher on average for consumers who received credit education, including their risk scores. Additionally, the number of credit inquiries and external collection trades for these consumers were down 9 percent and 21 percent, respectively.
Monetizing More Profitable Customer Relationships
Credit literacy programs keep customers borrowing and spending responsibly, which in turn helps reduce fraud risk, benefiting the bottom line. With a growing pool of creditworthy customers becoming prequalified for extended credit and additional offerings, the value potential of the lender’s customer base increases and can grow over time. In addition to “graduating” prequalified customers to lucrative credit products, credit education services create additional customer touch-points and new cross-sell and up-sell channels for FinTechs and their partners.
Consumers recognize the value of strong credit scores, and financial education tools that help customers navigate credit reports builds trust, engagement, and loyalty. Just as important, they can be part of an effective strategy to generate additional revenue and build more valuable and profitable customer relationships.
Ask About Our Credit Education Products
Experian’s turnkey solutions are available via a white-label platform, making it easy for FinTechs to offer a comprehensive set of branded educational tools that help their customers manage credit wisely.