Why consumer finance companies should go back to the basics
Everyone knows that financial services consumers shop on price – the lowest interest rate always wins, whether it’s a mortgage, a credit card, or any other loan, right?
According to survey data compiled by PricewaterhouseCoopers, an average of 53 percent of consumers value service above the interest rate when it comes to selecting lenders for auto, mortgage, personal and educational loans. In some categories – such as student loans – service was the more important factor by a whopping 70 percent.
What does this tell us?
For starters, it reminds us that there’s both a rational and emotional side to winning customers. The rational side would have you believe that the most cost-effective product always wins. The emotional side would have you believe that the competitor delivering the best, most delightful experience wins. The truth is a mixture between the two and, according to the data, the emotional side appears to be dominant.
Just do basic things extremely well.
Business gurus love to regal us with stories about how going above and beyond in customer service is one of the keys to success. While an over-the-top, singular experience is great — imagine the consumer finance equivalent of a hotel concierge getting a torn jacket stitched in half an hour — a study by Harvard Business Review suggests that customers put more value on how easily and invisibly companies execute the most common everyday functions.
That’s because consumers are more likely to punish a company or brand for botching the basics than rewarding them for a one-time extraordinary effort. According to study authors Matthew Dixon, Karen Freeman and Nicholas Toman, “Our research shows, loyalty has a lot more to do with how well companies deliver on their basic, even plain-vanilla promises than on how dazzling the service experience might be. Yet most companies have failed to realize this and pay dearly in terms of wasted investments and lost customers.”
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Put maximum emphasis on minimizing effort
Yes, customers want their problems solved quickly and easily. But what really contributes to customer loyalty and retention is working to reduce the customer’s effort in every way possible. Reduce the calls they have to make, the emails they have to send, and the time they spend frustrated. The Business Review found that, “Acting deliberately on this insight can help improve customer service, reduce customer service costs, and decrease customer churn.” The best way to ensure loyalty, repeat business and recommendations, then, is to do as much as possible to reduce the effort customers have to put into dealing with your company.
Put simply, the research found that it isn’t satisfaction that builds loyalty, but the lack of hassles, unnecessary effort, and time.
Everyone’s had this experience
You call your bank with a simple question.
First, you are politely asked to dial in (or say) an account number and possibly a password.
Then you patiently wait through an announcement that calmly and robotically states that you really should hang up, find and computer, and visit the bank’s website.
If you need more than basic information (such as your account balance) you’re finally shunted to a representative whose first question is to ask for the account information you already painstakingly dialed in (or read off) at the start of the call.
Only then are you allowed to ask a question – knowing full well that the bank’s aim the entire time was to push you off to a cheaper automated system to save money rather than give you the personal assistance you knew you needed in the first place. Sigh.
Make it quick to get in and get out
Consumer finance companies are notorious for these kinds of inefficient customer interactions. Redesigning the call center, website and mobile app to be convenient, multi-functional and easy to use with just a few clicks would go a long way to earning customers’ advocacy and loyalty.
In one survey of United Kingdom bank customers, only 45 percent of respondents said their primary bank’s website lets them do everything they need, or is easy to use.
Take a lesson from the tech giants
Because it’s such a disruptive and hyper-competitive space, tech companies have had to perfect the art of delivering simplicity and now have the playbook for success: digital prowess, large customer bases, and organizations that have reinvented the online customer experience.
In China, for example, Alibaba started online bank MYbank, which approves loans instantly, using automated processes based on consumers’ financial history with Alibaba.
In the United States, consider the Rocket Mortgage mobile phone app from Quicken Loans, which cuts down on paperwork. The app verifies borrower information directly from online databases and bank accounts, and then lets applicants know within minutes if they’re qualified to borrow, how much, at what rate, and what it’ll cost. One beneficial side-effect discovered by the National Bureau of Economic Research is that such online mortgages had default rates about 25 percent lower compared with traditional, brick-and- mortar lenders.
Similarly, Experian has a new feature that pushes finance offers to consumers who are essentially already pre-approved for those offers. The technology then pulls data from the applicant’s Experian profile to pre-fill portions of the application fields. The approval process is nearly instantaneous.
Because it’s so rare in the consumer finance industry, speed and ease-of-use provides a major opportunity to differentiate your products and services. This can include offering an all-digital loan application process that touts multiple loan product options, pre-approvals, automated sign-ups, fast decision results, and many other possibilities.
The good news for consumer finance companies is that customers have developed relatively low expectations. So any and all efforts to improve their basic functions and experiences will likely be warmly received. All you need to do is get started.
For more, check out our free eBook, “BEYOND INTEREST RATES – Five ways to stand out in consumer finance by improving your customer experience.”