Fintech Lenders on KYC and Loyalty Program Funding
However, lenders – fully aware of their customers’ plight and rising interest rates – have rolled back many of their affordable products and services, leaving fewer credible options on the market for loan-seeking consumers.
Even when good deals are met between banks and consumers, financial instability is a constant source of stress. In the UK alone, inflation is the highest it has been in 40 years – and energy price rises show no sign of abating. These elements put extra pressure on both companies and lenders.
Furthermore, expenses have contracted, as expected, and savings are also being used up. So how can consumers protect their financial assets, maintain their savings and still have a healthy relationship with their financial services provider?
In an age of digitized, global finance, the humble Credit Union has one lending solution that can preserve the pocket money 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 that protects customers’ savings when they request funding for important purchases or expenses. Instead of 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 timeframe – and usually at a lower interest rate than standard lenders.
Given the current economic climate, helping customers maintain their assets while enabling flexible borrowing can be a lifeline to protect consumers’ assets while giving them flexibility and purchasing power. The loans are also based on the amount of cash the customer has saved at regular intervals, thereby reducing the risk for the lender while also motivating 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 these moments. “Loyalty and savings loans are products that can certainly be useful to support customers/members seasonally or for emergency needs.”
In both scenarios, he says a financial institution’s ability to move quickly and serve its members is critical. “Organizations with a highly productive Fintech Infrastructure (HPFI) can quickly pivot to meet the needs of local and economic market conditions, quickly configuring and customizing loan products and travel at scale.”
This can be a real boon for financial institutions of all sizes, especially for organizations that want to move into new areas of opportunity but may not have the resources to make such a move or are tied to a legacy banking core and unable to move quickly. “Having the right HPFI helps financial institutions stay relevant in any economic climate,” says Zimberg.
Loyalty loans are also another option in a market where choice is crucial for customer service. Zimberg points out that customers should explore and research the terms of each type of loan and work with their financial advisor to determine the right option for their particular needs.
Conversely, financial institutions must be prepared to fluctuate in different economic climates and offer personal loans – of all types – that meet the needs of their customers/members. “Financial institutions that unify their application process online and in the industry through a single digital experience can ensure that customers compare loan terms and make informed decisions.
“Also, in most cases, bankers can easily customize unique products and journeys, provide loan recommendations according to the customer’s creditworthiness and automate decisions according to lending criteria,” he says. .
Caution must be exercised for borrowers as well as lenders
In light of the current situation, it is important to be careful when considering borrowing, says Richard Eagling, personal finance expert at NerdWallet. Not only must lenders be far more cautious, 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 need to prepare for the likelihood of increased repayments, such as higher mortgage rates. And with inflation forecast to continue rising throughout the year – even with interest rate rises – many consumers will understandably be concerned about how they can afford to pay back on top of everyday bills.”
He continues: “Individuals must not waste time taking action to prepare. Keeping track of all inputs and outputs will be essential to help them identify potential problems or find areas where savings can be made.”
Andrew Megson, executive chairman of My Pension Expert, agrees, saying that rational decision-making is essential across all age demographics. “It is so important right now to refrain from making any hasty decisions that could later harm a person’s financial security. When it comes to retirement planning, in times of financial uncertainty, it is critical to first review your retirement strategy,” he advises.
“Similarly, a sensible move would be to speak to an independent financial adviser to explore all available options, whether annuities, flexible access draws or riskier investments that may provide more favorable 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 programs retain customers
Finally, it is also important to take into account that good loyalty schemes, such as incentivized savings loyalty loans, create customer retention. A symbiotic relationship is established between supplier and customer, where both benefit from their mutual cooperation. In an age where the marketplace’s choice of services is more competitive than ever before, it has never been more important to create an environment where customers feel safe and valued.
According to Andy Nemes from the loyalty management platform Antavo, customer retention has become an increasingly important challenge for fintechs and banks. He writes that “the reason why customer retention in financial services is a pain point for many companies in the industry is that their attention is divided between several pressing challenges”.
Nemes points to three key areas that lead to customers being lost. They are;
- Lack of digital presence
To accelerate the process of digital transformation, companies must offer solutions that stimulate online interactions. - Increasing competition
When fintechs lack effective customer retention tools, it’s too easy for customers to switch to a competitor that offers better deals. - Worthless loyalty programs
Customers need relevant benefits if a loyalty program is to be effective. Loyalty programs that do not consistently add value result in poor retention.
