Despite the fact that consumers do most of their banking on their phones these days, one core banking function remains largely underutilized in the digital channel: lending. Many banks have yet to fully explore the possibilities of embedded lending, including transaction-based refinancing prompts, goal-based loan assistance, and installment options for card purchases.
A report from Javelin Strategy & Research, Internal Embedded Lending: The Digital Opportunity FIs have in Their Own Backyard, explores why banks have been slow to embrace this opportunity. The key is delivering the right messaging and relevant guidance, making lending offers available at the right time and in the right context without compromising customer trust.
Breaking Down the Silos
Banks have several opportunities to embed lending into their digital channels, including the transaction ledger, bill pay, and personal financial management tool, where customers set and track their financial goals. These are highly visible touchpoints that also give banks access to valuable customer data.
Yet one reason banks have not fully capitalized on these opportunities is that data remains siloed, as do the departments responsible for managing it. As a result, there is often little coordination across different areas of the institution.
“The digital banking folks would very much like to find new opportunities there, as well as the lending folks,” said Dylan Lerner, Senior Analyst of Digital Banking at Javelin and a co-author of the report. “But how do you bring those two folks together to bring lending opportunities into authenticated digital channels? The financial institutions themselves are not putting these integral pieces together.”
Banks aren’t necessarily using the wealth of information at their disposal to identify the right moments to present lending offers. Yet there are clear points in the customer purchasing journey when such offers could be relevant. Buy now, pay later (BNPL) providers, for example, have become adept at presenting financing options at the point of sale, prompting banks to consider how they might offer similar conveniences within their channels.
“You can be much further in the customer decision purchasing journey,” said Lerner. “A lot of consumers log into their mobile banking app and look at their balance—maybe that’s the right opportunity. Maybe the way you can disintermediate those players at point of sale is by being there earlier.”
However, banks must be careful not to undermine customer trust, especially within their authenticated digital environments. An overly aggressive lending offer could catch customers off guard, particularly when they’re simply exploring their options. Approaching a customer with a loan offer at the wrong moment could feel intrusive, raising privacy concerns and ultimately damaging the relationship.
“We’ve known for a long time that generally consumers have high trust in financial institutions,” said Lerner. “But we also know that trust rides on foot and leaves on horseback.”
Figuring Out Who Is Ready
Lending is highly regulated activity, even when offers are made within a bank’s own digital channels. Bank must be mindful of how they use customer data and avoid targeting individuals in ways that could be considered predatory. So how can they identify when a customer might actually be receptive to a lending offer?
“You look at the customer’s daily balances and you see where are they falling short when it comes to paying bills,” said Disha Bheda, Digital Banking Analyst at Javelin and co-author of the report. “Are they using their overdraft facility? Are they overdue on their credit card bills? And then we try to connect all this data to their life events. Have they recently had a new addition to their family? Does the transaction history point to any life events as such?”
“You monitor all the signals and you monitor the digital behaviors,” she said. “For instance, are they looking at the loan section of the website? These are some of the signals which banks can take into account.”
One possibility is offering customers the option to break a sizable bill or purchase into smaller payments. But making that option appealing requires a seamless experience. Customers shouldn’t have to leave their authenticated banking environment or re-enter information the bank already has on file. Asking them to provide duplicate information creates unnecessary friction. Instead, banks should leverage existing customer data and limit the application process to information that is genuinely new.
Expectations for frictionless payments are higher than ever. Consumers are increasingly accustomed to being offered the option to split purchases into four installments over several weeks, often with little or no additional costs. Banks need to deliver a similarly convenient experience if they hope to compete.
“If I wanted to go to my bank as a source for lending, unless I see a banner ad at the time that just happens to know what I’m looking for, I have to probably go to the public site or to the product page, figure out what the right loan is for me, go to the dropdown of lending services,” said Lerner. “That in and of itself is friction.”
Finding the Opportunities
Every transaction a customer makes through online or mobile banking generates valuable data. Used thoughtfully, that information can help banks identify opportunities to offer relevant lending products while addressing customers’ financial needs.
“It’s an opportunity for FIs to say we know you as a customer and we’re a serious financial institution,” Lerner said. “We are a trusted source of borrowing. We’re here to help you make those decisions and facilitate your financial life. And to me, debt and loans, they’re just as natural a part of financial life as any other banking product or service.”
Many consumers still view their primary financial institution as a place to hold deposits. But banks have the opportunity to play a much more active role.
“We’re a source of lending, and we’re going to remind you of that when you log in at the right place, at the right time, with the right message,” said Lerner. “This is to position the financial institution as a trusted lender, as a source for borrowing. It’s not about throwing lenders at the customer at every possible moment. It’s about how to make this a part of the digital experience.”
