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With exceptional customer experiences they have derived from giants such as Apple and Amazon, consumers expect choice, speed, and control in the methods they use to pay. And they’re looking for these very features from their financial institutions.
FIs, steeped in legacy systems, are simply not geared up to offer these features, which should be table stakes. Not offering these features could mean a loss of customers and an impaired ability to attract new ones. This discussion—between Marcell King, Product Innovation Officer of Banking and Fintech Solutions at Paymentus, and Brian Riley, Director of Credit and Co-Director of Payments at Javelin Strategy & Research—delves deeper into what FIs can do to give customers more convenience and control with a modern loan experience for customers.
What Customers Want: Convenience, Control, and Speed
Payment innovation and consumer demand drive the need for choice, speed, and efficiency of payments. Businesses and FIs alike must continually keep their finger on the pulse of what is happening within the payment landscape. This will ensure that banks offer what consumers want when it comes to payments.
Millennials, for example, expect more when it comes to their digital experiences. They’re less patient with organizations that don’t give them the control, convenience, and autonomy to make their own decisions.
“It is about giving consumers control over how, when, and what they pay with,” King said. “Millennials are entering their prime spending and borrowing years. The demographic studies show they’re less patient. They want more convenience. They want more control, and so they have different expectations than an older demographic.
“It’s about how do you give them what they want. They’re really looking for the payment options that they prefer, whether that’s their debit card, their PayPal account, or paying it through a retail store. It’s about giving consumers more human optionality and the ability to pay through whatever channel they choose, giving them the convenience to control that experience as much as possible.”
Payment options should match what everyday consumers deal with, such as when they get paid and when their bill payments are actually due. Therefore, flexibility is a key.
“When you think about how pay periods come, people get paid once every two weeks, and that doesn’t always stack up if I have a recurring payment to pay, like a car payment on the third of every month,” Riley said.
“That doesn’t always perfectly align with how the consumer’s budget goes. Rather than just setting it and forgetting it, it’s the ability to allow people to navigate that. If I’m a consumer, I can make that on the paycheck that precedes it, or I could make it really close to the end. That flexibility is an interesting opportunity.”
“As you think about how workers are traditionally paid, the payroll tends to be weekly, biweekly, semi-monthly or monthly. But with the on-demand economy, gig workers don’t have that same recurring frequency or predictability in terms of how they’re earning their income,” King said. “You want to be flexible enough to allow those consumers who have much more variance in their payment cycles to pay when they want and as quickly as they want.
“An Uber driver with earnings going to their PayPay account might work for 12 hours for the next couple of days to make their car payments. You want them to be able to pay with their PayPal account as quickly as possible. Give them the opportunity to receive a payment or text and pay immediately with that text. Or go right into their mobile app in between rides and pay it from their mobile app. Giving them the flexibility to pay whenever they need to and where their income flows support their expenses.”
As the highly anticipated FedNow launch approaches, faster, real-time payments will become more mainstream. FIs must prepare for the implications.
“You’ve got real-time payments coming to fruition,” Riley said. “You already have The Clearing House RTP network online version. FedNow is coming up on July 1. So, this really bolts into having faster funds in your account and then being able to deal with them effectively. That’s something that’s really needed.”
FIs Are Falling Short in Payment Innovation
Neobanks and fintech companies have long filled the gap for banking customers by offering more affordable and personalized financial services. These organizations have done much to disrupt the traditional banking system as their focus has been on delivering what customers really want from services.
“Think about consumer expectations today, whether it’s Amazon or Apple, everything is very convenient,” King said. “It’s all about low friction, and these companies give consumers the ability to execute on whatever they want as quickly as possible so that they can get on to other things.
“When you think about the competition from a banking perspective, of all the non-traditional banks that are providing services to consumers for payments, whether it’s a mortgage or auto loans, there’s the expectation of convenience, of control, and of speed.”
“Traditionally, legacy technologies don’t support all those components. You may be limited to only the website because there’s no mobile app, or you may only offer an ACH payment to your loan from a checking account when you know a lot of consumers may not have checking accounts. I think that’s where the FIs are falling short.
“Giving the consumers those three things that are most important to consumers; together, not one or the other, but all three consistently.”
It’s not only about giving customers convenience, control, and speed. FIs must also fine-tune their offerings, providing innovative services that customers actually need and differentiating themselves from the competition.
“It boils down to account retention,” Riley said. “At the end of the day, that’s an expensive thing to manage. In the credit card business, you lose about 15% of your volume, and in the retail banking world that’s a consistent number also. It’s not just keeping the customers you have; it’s creating an offer that’s compelling to new customers that you bring in.”
Reshaping the Loan Payment Experience
With the wealth of innovative payment methods and the growing gig economy, FIs should put flexibility and choice of payments at the forefront. Payments must be fast and from customers’ preferred methods.
“Going back to the three buckets: Number one, it’s convenience,” King said. “How do you make it as easy as possible for consumers to pay their loans through any channel they want, as quickly as possible? You may have a consumer who banks with you but has an external account that they want to make their payments from.
“You may have a consumer whose primary income is from driving Uber or Lyft. How do you make it convenient for them to make payments from their mobile phone quickly? How do you give them the ability to pay with whatever payment method they want, where they’re keeping their dollars? It may not be at your institution; it may be at another institution.”
“It could be PayPal, Apple Pay, or Google Pay. They may want to pay with one of their digital wallets. They may want to pay with cash. Maybe they’re a service worker and use their tips to pay their car loan. We want to be able to give them the choice of how they want to pay. And then … control. How do you give them the ability to control where they’re paying from? It ties back to convenience. It comes down to giving them as many payment options as possible to pay their loans. And giving them the channels that they want to pay from.”
“The third one is around speed. Consumers expect real-time (payments) now. How do you make it real time so that when you make that payment, it is being posted immediately, not two or three days later and now I’ve got a late fee?”
With all these critical needs from consumers, how will FIs deliver? It will be a tricky hurdle to overcome.
“Orchestrating all this gets interesting,” Riley said. “You have installment-type loans that have set amounts every month. Or you have bills to pay like your electric company, water company, and those vary every month. So, it’s not one-size-fits-all. Do you want to push in the payment? Do you want to pull out the payment? Orchestrating that really takes a very strong solution to make this all fit into the ecosystem.”
“That’s the challenge,” King said. “There’s a lot of legacy payment technology infrastructure that’s been in place for 10 to 15 years based on legacy payment methods like ACH when there are so many more payment options. Now you must deploy newer technology, more modernized technology that allows you to take advantage of all the new payment capabilities that the market has created and built over the last 20 to 25 years.”
Driving Value from Payment Modernization Efforts
Customer satisfaction scores reveal that fintech companies are doing something right for their customers, and banks should take notice.
“Number one is customer satisfaction,” King said. “There’s data out there that shows that banking NPS and customer satisfaction scores for making repayments are lower than some of the newer nontraditional bank fintechs, whether it’s Rocket Mortgage or other organizations that are deploying modernized technology and interactions with consumers.”
“Customer satisfaction and NPS scores is one way to think of it. If you have strong NPS scores, that means that your customers or members are willing to refer other customers to your institution. Reducing late payments and delinquencies create economic impacts on the business model. The cost to serve. Consumers want to do things themselves, and therefore providing as many self-service channels to those consumers to make their payments has a strong economic value from an operational efficiency.”
“So being able to reduce your cost to serve those customers with information that they need and that they can access over their mobile phone or their desktop drives ROI as well. Reducing PCI exposure, that’s another value that can be brought when you’re modernizing technology for payments.
“We have a product called Secure Service and instead of a member or customer providing their debit card number to a customer service representative over the phone, we can send a text message link to the consumer. They open the link and there’s a secure page that allows them to enter their card information directly into that page, which mitigates and eliminates the PCI requirements that you’ll need to maintain internally, reducing the number of vendors. We talked to many institutions and they’re running multiple systems to support loan payments. There are some capabilities at the core, but then there’s third parties that offer silo solutions like just web or just IVR or just collections.”
“Some institutions have three or four systems that they’re operating to manage collection of repayment on loans. Being able to consolidate into one platform, creates operational efficiency.”
“There’s a cross-sell opportunity. That’s a big area of focus for institutions who provide indirect auto lending. The customer may not have a banking relationship with you, but they have a loan with you because they bought a car at a local car dealership. If you provide great service interactions, and you give that consumer the convenience, choice, control, and speed, there’s opportunity to upsell and cross-sell.”
“You look at those buckets and you start holistically looking at the ROI. It becomes very strong when you’re providing things that the customer needs to manage and repay their loans.”