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The human brain treats money as a finite resource. People are hardwired to avoid losses and are naturally cautious about who they trust with this money. So, of course, if borrowers trust you with their money, they want the best experience; but this isn’t about them. The same money-is-finite theory holds true for lenders - they’re on a tight budget to decide how much money to spend on which customer to ensure optimal conversions.
To put it simply, conversions are complicated and expensive. 97% of online banking applications that are started are abandoned - effectively leaving the conversion rate at 3%. Considering 52% of customers prefer using digital banking options, the 3% conversion rate can be daunting.
Broadly, ensuring a higher conversion rate is about attracting the right customer and getting them to the point of disbursement. This can be achieved by optimising each step of the lending funnel -
While the viability of lending is far more complicated than conversions, we’ve tried to simplify the what, why, and how of conversions in lending at each stage of the funnel.
One of the most obvious interpretations of the representation above is that the cost of conversions decreases as we move down the funnel. That leaves acquisition at the most expensive part of conversions. On an average, small-to-medium sized businesses (as well as lenders) spend $9000- $10,000 per month on google ads. And that’s just one platform for acquiring customers, there are other social media platforms, web pages etc.
Drop-off at this stage could be due to multiple reasons -
Exogenous factors - phone battery dying, distracted by other notifications, etc
Indigenous factors - Prompts for details that isn’t readily accessible like PAN card details, company details, etc in the first step
Visitor is interacting via multiple platforms/devices
Lack of knowledge of the product
The overarching structure for optimising conversions, especially at this stage is the User Interface (UI)/User Experience (UX) - goes without saying that if you’re not making your application mobile friendly, you’re going to be missing out on tremendous opportunities.
Some UI/UX best practices for a a seamless experience at the acquisition stage -
Pre-populate fields where you can
Buttons and form fields should be bigger than other fields
Minimise typing by using checkboxes, dropdowns, auto-selected answers
Keep the questions clear and concise. This is important especially for mobile devices as they don’t have as much screen real-estate as desktops.
Keep tooltips handy for the complicated questions
Turbulence in the loan application journey is damaging to lenders just as much as it is to borrowers.
If the journey time is too long, visitors might get frustrated and drop-off.
Prompts for the sensitive questions (email id, PAN Card, Aadhar card details) upfront will lead to a potential leakage in the journey
Customer might be new to credit/thin-file borrowers with no credit history
An information architecture that allows for minimal effort from visitors is pivotal for fewer drop-offs and effective evaluation
Include pre-populated fields like employment type, purpose of loan, income cap, location, in the first few steps of the application
For potential borrowers with no credit history, use alternate data-based scorecards from mobile devices. Finbox’s DeviceConnect, for instance, uses AI and ML-driven underwriting suite to leverage alternative data to generate a FinBox Inclusion Score (FIS) tested on the largest new-to-credit (NTC) customer base in India. It reduces delinquency rates by 30%, and covers more than 92% digitally acquired customers, as opposed to the credit bureau coverage of just 50%
This is a critical stage where both conversion and abandonment hold a 50-50 chance. Conversions because borrowers have invested enough time at this point, abandonment because it’s -
Cumbersome with multiple touchpoints
Lengthy application forms, photocopies of identity and address proofs, bank statements and utility bills
Complicated compliance procedures with little to no guidance from representatives.
Most customers require an experience like Netflix or Uber — where efficiency as well as time coalesce.
It’s one issue to ensure the process doesn’t unduly burden the customer, it’s an all-together greater issue to deliver compliance in a way that is cost-effective and scalable.
A Thomson Reuters survey of 800 Financial Institutions (FIs) revealed the cost of running a comprehensive KYC process was $60 million on average, with some firms spending up to $500 million. In the past, lenders have treated every potential borrower as a potential threat and subsequently put lengthy on-boarding processes in place. This causes more friction - drop-offs can be as high as 75% during onboarding.
An Aadhar-based e-KYC, for instance, reduces both paperwork and time spent. A 2018 World Bank report estimated that e-KYC reduces the average cost of verifying customers from $23 to $0.50.
Some other best practices at this stage include -
Automated data capture - A picture of your customer’s ID instead of prompts for manually entering the details
Easy-to-understand, simple language to avoid intervention by a representative - the cost of implementing an outstanding business phone line can be hefty. A business phone line can cost you anywhere between $20-$30 per user per month
Conversational chatbots could help lenders save up to 30% in customer support costs - having to contact a customer service representative can break the digital journey.
Customer loyalty is changing, it’s never been easier for people to switch loans in seconds. Proactively offering customers better value for money before they knew they were looking for a better deal can go a long way in creating customer loyalty. In a highly competitive market, it’s impossible to avoid cancellation calls.
Here’s where it’s important to leverage the good experience you’ve built so far in the journey and help them stay. When dealing with inbound termination calls, you need to quickly establish the rationale behind it - have they seen a better deal elsewhere, have they come into some money and don’t want the loan, or has the experience been bad?
This might sound obvious, but a well-resourced team is essential to handle retention - proactively and reactively.
The underlying principle of optimising conversions is understanding consumer behaviour. The ease, speed, value-add, novelty you showcase as early in the digital journey as early as possible, will be the cornerstone of conversions.
Here are some overriding fundamentals to keep in mind across the funnel -
Drop-offs could happen for multiple reasons, as we’ve established. Persuading “fence-sitters” to go through the process is a skill that will largely determine the growth of your business. The nudges could be push notifications, SMSes, emails and offers could range from discounts on the processing fee to fully waiving it off; every stage of the funnel requires a different approach. At Finbox, we help lenders with a nudge driven conversion kit that improves conversions by 50% through automated, cross-platform nudges/offers.
Customers expect streamlined digital experiences across platforms, across the journey. Combine this with the fact that people worry about their money and personally identifying information (PII), and refining every touch point in your UI becomes crucial. That’s where A/B testing can help. This quick and inexpensive way can be used to test different versions of a product, service, nudge, offer, to see how small changes can have an outsized impact on behaviour. In essence, with A/B testing, you can choose different aspects of a digital lending product - like layout, content, incentive schemes, marketing material - for fast and rigorous testing.
This is the most important aspect of continuous improvement. The typical lender is now digitised and pulling out data by the terabyte. Real-time data - number, texts, voice, images and thousands of other data points - now exist for literally every action that customers make, every product that lenders sell, and every process lenders use to deliver those products and services. Whether it’s making changes to the size of the buttons or identifying ‘high potential’ prospects/customers, spending resources on deep analytics will improve the ability to target products and enhance specific elements of your offering.
It’s 2022 and over 700 million people in India are using their mobile devices to access the internet. That’s a huge number that will potentially want to borrow from you. So it’s entirely in your best interest to track, test, and optimize your loan applications.
This is where Finbox can help. With our end-to-end credit management infrastructure, you get end-to-end funnel tracking, a nudge-driven conversion kit, adaptive features, and much more.
To learn more about how we can help transform your digital journey, get in touch here.