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Going Online?

One of the perennial discussions for many lenders with a branch network is how to go online. However, the critical question is whether brick and mortar lenders should go online? We meet with many brick and mortar lending executives and everyone tells us that their personal interaction with their clients is key to their success. Their stores are the love of their lives and their store employees are the engine that drives their machine.

And, not going online also doesn’t mean that there’s a lack of technology. Many storefront lenders offer employees a lot of technology in their stores to verify identity, scanning for documents and a store centric loan management and customer relationship system. It’s a well-oiled machine.

There are many very successful storefront lenders all across the country and most of them have done very well.

FOMO?

However, sometimes we hear these executives also talk about the lost opportunity or online competitors taking their clients in droves. FOMO or Fear of Mission Out sets in and they start thinking about how to get online and also doesn’t cannibalize their storefront traffic.

Taking your lending business online is hard. So, today we will share a few things to watch out for when you’re considering going online. We’ve amassed these topics over years of experience in technology, risk management, and operations to help you get there.

#1 – Legal and Compliance

Many laws that apply to storefront lenders also apply to Online lenders. One of the biggest differences is your lending license. Lending licenses are regulated and issued at the state level. All fifty states have lending licenses and some states have multiple lending licenses governing a variety of different personal lending products. Most of the states have lending licenses that are designed for personal installment loans, however, you should consult with law groups such as Hudson Cook if you want to venture into a line of credit products without a bank charter.

Speaking of a bank charter, partner up with a bank is a great alternative to the state by state lending licenses. The hurdle to get a bank partnership is high, however, it will allow you to enter all 50 states with a uniform product (meaning you can charge the same APR or Interest Rate in all fifty states).

Keep in mind that there are a variety of different banks out there. State-chartered banks follow their state usury laws when they offer products to other states. Federally charted banks do not have to follow their domicile state usury rates and they can charge whatever they want, however, most banks stay below 24% or 36% annualized interest rate.

There are some banks that go above these rates and into triple-digits. But there has also been a lot of discussion around this topic and we will keep it light and simple for now. The best way to dive into this critical item is to consult with a law firm like the one suggested above.

#2 – Centralization and Automation

We hear our politicians talk about how automation is taking away jobs. This is certainly true when you are thinking about going online. Where a storefront lender might decentralize their underwriting and origination efforts. An online lender will centralize and automate many of these tasks utilizing technology that’s connected to search engine and mass offline marketing campaigns to drive traffic to their website.

When you centralize your decision-making process. You are able to utilize technology that can consistently make the same underwriting decision over and over again using a Decision Engine. This is just technical jargon for computers to help you make these decisions constantly without fatigue and it runs 24/7 and doesn’t take a break.

Instead of having front-line branch personnel to help each client one at a time, an online decision engine can pull credit, banking information, analyze the clients’ history and execute complex mathematical models in a fraction of a second, simultaneously.

However, a machine can’t replace a warm conversation and take queues from a client’s body language during a store visit. Technology is awesome at automating many of the tasks, but it can’t (at least not yet) truly digest and appreciate the wealth of data produced between a face to face conversation.

This topic is massive and we can’t possibly dive into all of the pros and cons of going online or building a hybrid approach, but we hope you get a sense of the technology you will need to get online.

#3 – Marketing and Origination

Storefront lenders often utilize TV, radio and direct mail to drive traffic to their stores. However, stores aren’t open 24/7. Unlike a website which can take applications from anywhere at any time. Online lenders utilize online lead generation leveraging affiliates or conduct their own search campaigns and social media efforts.

Online lenders often bid for key terms on various search engines such as Google or Yahoo. How it works is that when someone searches terms such as “Loan” or “Personal Credit”, online lender’s advertising will appear before the search results. Hoping that someone will click on that link to learn more about their offering.

This is a direct way of connecting your potential customers to your services. Just like online lender’s website’s are up 24/7, search engines are on all the time to entertain potential users whenever they are thinking about borrowing money or applying for credit.

Direct Mail is another method online lenders use to reach out to millions of consumers in one shot. Online lenders can scan through hundreds of millions of consumers and their credit profile. They run their A.I. or Machine Learning models against this population and pick out the potential consumers they want to market to.

Personalized letters and landing pages help to reach millions of consumers and make them feel welcomed with a custom offer when they land on their page. Everyone will get their “custom” store.

It’s hard, if not impossible to reach out to millions of consumers unless you have a national footprint with stores in all major metropolitan areas. Direct Mail makes an efficient way for online lenders to reach out to everyone and create a custom experience online.

#4 – Real-Time Experience

Online lenders and their customers enjoy a real-time application experience, underwriting which leads to a real-time offer. Consumers consent, agree and sign their agreements all within a few minutes.

The algorithms used by online lenders incorporate multiple credit bureaus, banking transaction bureaus, plus identity and fraud detection technology all run in a fraction of a second that delivers consistent decisions every time without fail. Having a robust decision-making tool, online lenders can quickly test, verify and deploy new generations of algorithms without the overhead of training your entire branch staff.

These online lenders also utilize technologies to stay connected with customers via email, text messaging and in-app notification (for those that use an App to onboard clients).

Customers can also login to their portal online and make payments, upload documents and interact with online lenders from anywhere in the world at any time. The customer is able to reapply without having to submit a brand-new application. The system knows that they are a returning customer and their previous loan has been paid off.

Payments are also automated. The system reads all of the processed, settled or returned payments automatically and the loans and payments statuses are updated in real-time so your centralized call center can act immediately.

#5 – Mobile Experience and Apps

We are getting consistent feedback that over 60% of visits lenders receive on their website is from mobile devices. Making your online experience mobile-friendly is crucial to capture your potential client’s attention and trust.

Online lenders are taking advantage of this new trend and are making their website(s), online applications and customer portal experiences mobile-friendly. In some instances, lenders are launching Apps to attract more consumers through Google Play and iTunes Store. Apple’s iTunes Store and Google’s app store brings another layer of credibility to your product and services. Having an app available to use also lowers the cost of acquisition and brings a new class of customers to your product.

Depending on whether your app is Apple or Android friendly, Apps brings other information that’s critical to your underwriting process. For example, with end-user consent, you can ping a user’s GPS device and take a snapshot of the actual location of the consumer. This will help online lenders to positively verify that the location of the customer is either close to their workplace or their residence. It helps you reduce fraud and give you greater confidence when you’re underwriting this customer.

Are you online ready?

Going online is a big decision, but it all depends on your business strategy. If you want to broaden your markets, provide an online experience for your existing clients and take advantage of automation, maybe going online is the right decision.

Having an open dialog with your compliance, technology and risk management vendors will be a great starting point to get yourself educated and make an informed decision.