By JOE FITZPATRICK
The last 12 months have brought a great deal of change to our industry.
While the road ahead is sure to bring more challenges, it is more important than ever to ensure that we are offering the consumer a product that best services their lending needs. Here at TranDotCom, we have seen these needs evolve tremendously over the last 14 years that we have been providing services to the market.
In the not-so-distant past, the customer would go into a storefront operation and secure a small dollar loan that would allow her to pay a bill, buy groceries or fix the car.
She would offer a post-dated check or access to a bank account and walk out with cash in her pocket. On her next pay date, you would cash the check and recover your loan amount, fees and interest.
Simple and uncomplicated.
While this simple solution remains popular with many consumers, others need additional lending options to satisfy their financial requirements.
Thus, many lenders are reimagining the customer in today’s marketplace. They are looking for a stronger, long term relationship with the consumer — one where the lender and the borrower are partners in the process, and customers are able to pick the product that best satisfies their needs.
New Customer Desires
The customer is applying more scrutiny in their lender-of-choice decision-making process.
The consumer in the new age is looking for longer term loan options that will allow access to more credit and expanded loan repayment timeframes.
He likes the convenience of the traditional “pay day loan” process, but wants to redefine what the loan looks like. Now is the time to listen to your customer!
In today’s competitive lending marketplace, you must adapt to survive. While that has been a fact since the beginning of our industry, it particularly rings true today. The traditional short term lending model has recently lost favor, not only with the regulators, but also with the consumer.
Today’s customers desire access to more money and the ability to pay over time. This desire has driven competitive lenders to add an open ended or traditional installment model to their portfolio. These options can be beneficial to everyone involved.
Both the open ended and traditional installment models have a sense of familiarity about them.
Regulators know these models well. Any consumer who has ever had a credit card understands how these products work. Anyone with a car loan understands the basic principles of installment lending. These facts make the models more accepted by the mainstream.
The truth of the matter is that there is no document in existence that is easier to understand than a pay day loan lending agreement. But an open ended loan or an installment loan is synonymous with “traditional lending,” and therefore it is widely accepted.
The open ended line of credit and installment lending models give more choice to the consumer. She can better control the amount of money that she borrows and can figure out repayment terms that best fits her needs. When more control is put in the hands of borrower, everyone wins.
One consumer may be looking for a traditional, single pay loan that comes due on the next payday. If so, we can provide that. We always have.
That being said, another consumer may be looking for access to a larger sum with the ability to receive funds only when he needs it. The LOC product provides this flexibility.
There also are borrowers who are looking to pay back their loan the same way they do their car or house, with a fully amortized loan that is paid off in equal payments over an extended period. The installment product fits all these requirements.
As we look at these alternative products, we must realize that the ability to repay the loan is a critical factor in not only the underwriting process, but also in the long-term health of the industry. Who better to assess the ability to repay than the consumer himself?
LOC and installment loans give access to credit in new ways. The consumer can back into a payment amount that suits her budget and can access available credit lines in real time, when she needs it most.
These types of innovative lending advances in the subprime to mid-prime space will only help to mature our industry. They also will allow critics on the outside to understand that we thrive because we provide our customers with options that they cannot get elsewhere, and we do it in a way that benefits all involved.
The customer in the new age interacts with the lender in a new way as well. While the ability to walk into a storefront operation will always be important to many consumers, more and more borrowers are going about the business of credit acquisition in a new way.
Online research of lenders prior to stepping foot in the storefront is on the rise. The customer is looking at reputation and lending rates and then making more educated choices regarding where to obtain credit.
In addition, more and more consumers are choosing to borrow from the comfort of their browser. Online lending has seen tremendous growth over the last five years, and more and more store-front operators are looking seriously at building their online presence.
The customer in the new age wants total convenience and expects lenders to operate online as efficiently as in their stores. While extending your brand online often can be a challenge, the additional convenience that you offer your current clients is undeniable.
What’s more, your ability to expand into unchartered markets with limited overhead can be as big a win for you as it is for your customers.
Way of the Future
The bottom line is that the future of our industry is all about offering the consumer control of the lending environment. New product offerings that allow the customer to customize their loan solution coupled with the ability to secure the funds and make the payments all from their laptop or smart phone will be the winners in the rapid growth race.
The open ended line of credit and installment options offer this comfort and flexibility. Pair it with the ability to not only find and thoroughly research your brand online, but also complete the entire loan process without having to leave the couch, and it becomes an all-around win/win situation as you can grow with a reduced capital investment.
There is more change on the way. Those that can reimagine their customer now and react with innovative lending solutions will attract the new-age consumer and will forge a longer, more mutually beneficial relationship with them.
The need for the products will not disappear. The options that we provide our customers and the way that we service them will continue to evolve. Adaptation is key in the new age of lending, and those of us that offer innovation to the consumer will become stronger than ever before.
Joe Fitzpatrick has been a pioneer in the consumer lending space since founding TranDotCom Solutions more than 14 years ago. His vision has been the driving force behind the growth of TDC into a premiere provider of loan management systems and solutions to the consumer financial services industry. He frequently speaks as a subject matter expert at financial services conferences and trade shows around the country.