Fintech lenders on KYC and loyalty programme finance

As the lending environment is impacted by the global financial crisis, service providers are seeking new ways to retain customers

These days, most customers seeking loans are stuck between a rock and a hard place. The cost of living crisis has resulted in less disposable income and, in many cases, essential payments can only be managed with the help of understanding lenders. 


However, lenders – fully aware of the plight of customers and rising interest rates – have rolled back many of their affordable products and services, leaving fewer credible options in the marketplace for loan-seeking consumers.


Even when sound agreements are met between banks and consumers, economic instability is a constant source of stress. In the UK alone, inflation is at its highest rate in 40 years – and energy price rises show no sign of slowing down. These elements place additional pressure on businesses and lenders, alike. 


Furthermore, spending, as expected, has contracted and savings are also being depleted. So how can consumers protect their financial assets, maintain their savings and still manage a healthy relationship with their financial services provider? 


In an age of digitised, global finance, the humble Credit Union has one lending solution that could well preserve the pocket change of even the most financially challenged borrower – in the form of loyalty loans. 


How do Loyalty Loans work? 

According to the UK’s Wiltshire & Swindon Credit Union (WASCU), loyalty loans are a style of lending product that protects customers’ savings when they request finance for essential purchases or expenses. Rather than using their own cash to secure a transaction, the lender will provide up to five times the amount the saver has accrued, with the option to pay off the loan within a flexible time frame – and usually with lower interest rates than standard lenders. 


Considering the current financial climate, helping customers to maintain their assets while enabling flexible borrowing could well be a lifeline to protect consumer assets while giving them flexibility and spending power. The loans are also based on the amounts of cash the customer has saved on a regular basis, thus reducing risk for the lender while incentivising the customer to save more.

 

Steve Zimberg, Director of Marketing, North America at FintechOS, says market conditions will always fluctuate, and financial institutions must be agile enough to serve their customers and members in those moments of flux. “Loyalty and savings loans are products that can certainly be useful to support customers/members seasonally or for emergency needs.”


In either scenario, he says that a financial institution's ability to move quickly and be of service to its members is critical. “Organisations with a High-Productivity Fintech Infrastructure (HPFI) can quickly pivot to meet the needs of local and economic market conditions, and rapidly configure and personalise loan products and journeys at scale.”


This can be a real boon for financial institutions of all sizes, especially for organisations that want to enter new areas of opportunity but may not have the resources to execute such a move or are tethered to a legacy banking core and cannot move quickly. “Having the right HPFI helps financial institutions stay relevant in all economic climates,” Zimberg says.


Loyalty loans are also another option in a market where choice is critical to customer servicing. Zimberg points out that Customers should explore and examine the terms of each type of loan and decide with their financial advisor the right option for their particular needs.


Conversely, financial institutions need to be prepared to pivot in different economic climates and offer personalised loans – of all types – that meet the needs of their customers/members. “Financial institutions unifying their online and in-branch loan application process through a single digital experience can ensure that customers compare loan terms and make informed decisions.


“Furthermore, in most cases, by utilising a High-Productivity Fintech Infrastructure (HPFI), bankers can easily customise unique products and journeys, make loan recommendations according to their customer's creditworthiness, and automate decisioning in alignment with their lending criteria,” he says.

Caution must be exercised for borrowers as well as lenders

In light of the current situation, exercising caution when considering borrowing is paramount, says Richard Eagling, personal finance expert at NerdWallet. Not only should lenders be far more circumspect, but customers must also think long and hard before committing to additional monthly repayments that may well rise as a result of interest rate changes. 


“Borrowers will have to prepare themselves for the likelihood of increased repayments, such as higher mortgage rates. And, with inflation predicted to continue rising throughout the year – even with interest rate hikes – many consumers will be understandably concerned about how they can afford to make repayments on top of everyday bills.”


He continues: “Individuals must waste no time in taking measures to prepare themselves. Keeping track of all incomings and outgoings will be critical in helping them identify potential issues or pinpoint areas where savings can be made.”


Andrew Megson, Executive Chairman of My Pension Expert, agrees and says that rational decision-making is essential across all age demographics. "It is so important right now to refrain from making any rash decisions that could later damage a person's financial security. Where pension planning is concerned, in times of economic uncertainty, it’s crucial to first review your retirement strategy,” he advises. 


“Likewise, a sensible move would be to speak to an independent financial advisor to explore all options available, whether that’s annuities, flexible-access drawdowns, or riskier investments that could offer more favourable returns in the face of inflation. There is no one-size-fits-all solution; it's about finding the right approach for your circumstances and your needs."


Loyalty programmes retain customers

Finally, it's also important to consider the fact that good loyalty schemes, such as incentivised saving loyalty loans, create customer retention. A symbiotic relationship is forged between provider and customer, where both benefit from their mutual cooperation. In a time where marketplace choice of services is more competitive than ever before, creating an environment where customers feel safe and valued has never been more important. 


According to Andy Nemes of loyalty management platform Antavo, customer retention has become an increasingly large challenge for fintechs and banks. He writes that “the reason customer retention in financial services is a pain point for many companies in the industry is that their attention is divided between multiple pressing challenges”.

Nemes points to three key areas that result in customers being lost. They are; 

  1. A lack of digital presence
    To speed up the process of digital transformation, companies must offer solutions that incentivise online interactions.
  2. Increasing competition
    When fintechs lack effective customer retention tools, it’s too easy for customers to switch to a competitor offering better deals.
  3. Valueless loyalty programmes
    Customers need relevant benefits if a loyalty programme is to be effective. Loyalty programmes that don’t consistently add value result in poor retention.
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