Don’t let me down: rethinking credit declines
Sarah Jackson is director of Equiniti
Rarely do lenders focus their attention on applicants to whom they have declined credit. This is a mistake.
With the right technologies, an attractive and affordable alternative product can be quickly found, so both customer and lender can walk away happy.
No-one likes to be told ‘no’.
Even the word itself is irritating. Dressed up in diplomacy, it doesn’t get any better: ‘Your application has been unsuccessful’, ‘Your credit application has been declined’. Both annoying.
And not just for the customer, either. A ‘no’ means the lender has also wasted their time.
What’s more, for a credit institution that depends on customer relationships, saying ‘no’ isn’t just damaging – it can be terminal. ‘No’ means ‘no revenue’, and no lender likes that.
So why are customers and lenders taking ‘no’ for an answer?
At the point at which a customer is declined credit, lenders have a real opportunity to turn a negative into a positive, for everyone involved.
Agile lending technologies can now connect lenders to alternative loan products at the point of decline.
Turning a ‘no’ into a ‘not that loan, but how about this one?’ is surely a more attractive and commercially viable proposition.
Playing out current scenarios reveals the true value of this idea.
When the customer is declined, they go elsewhere.
Even if they do reapply with the same lender (a big question on its own), they often need to find the alternative product themselves, before going back and re-applying all over again.
Frustrating to say the least.
When the lender declines an applicant, they turn away a potential customer about whom they have already collected a wealth of information.
Commonly, this data is abandoned and the lender’s attention is redirected to new applications, the viability of which cannot be determined until the lender has committed resources to processing them.
This is inefficient to say the least. The lender is voluntarily putting itself back to square one.
What’s more, for the customer, multiple credit declines can leave an indelible mark on their credit report, damaging their credit score.
This damage can be far reaching and cause them to be viewed less and less favourably each time they apply, meaning that they will no longer qualify for the lowest rates, despite their financial circumstances remaining unchanged.
TSB estimates that the practice is costing consumers up to £400m every year.
So, instead of losing the customer, lenders should focus on identifying alternative loan products, ideally from their own portfolio, but also from other lenders as needed.
Doing so will enable them to maintain their customer relationship for the future and, at worst, leverage an introducer’s fee.
At best, they will achieve a full conversion with a different product of their own.
Data from ‘Great Expectations: The Demanding Market for Credit’, a report examining consumer credit attitudes published last month by Equiniti Credit Services, confirms this theory. 68% of those surveyed indicated that they would likely accept an alternative loan offer at a higher interest rate, if it was offered to them immediately after they had been declined by the original lender.
Creating an effective declines management process could help established lenders to defend their market share and reduce customer defection to lower-cost alternative lenders.
Agile technologies are key to unlocking these revenues.
Specialist outsourcers enable access to extensive whole-of-market lender panels, matching declined customers with alternative, affordable products that they are likely to qualify for.
‘White labelling’ products in this way is a real-world example of how a next generation financial outsourcer can deliver immediate measurable revenue for all types of lenders.
This is also a useful glimpse of the future, where technology specialists collaborate with lending institutions to increase their agility and drive innovation, the results of which are manifested in a better customer experience and a hike in profitability.