The lending and finance industries have seen radical change over the last decade, spawning from the global economic crisis. Fintechs have flooded the market and stolen so much share from traditional banks and lenders that 15 years ago, consumers would have relied upon. The biggest changes have been noted in the consumer credit market, in which personal loans used to occupy 5% in 2014. Today, at the end of 2019, personal loans from direct lenders are expected to control almost 40% of the market.
These incredible changes are the reason that direct lenders are booming, reshaping how businesses and consumers think and work within the landscape of consumer credit. Applying for personal loans online is quicker and easier than ever before, but in a saturated market, it is still confusing and a little daunting for your customers. This could be why consumers are developing an over-dependence on price comparison tools, which could be dangerous but could also work to your advantage.
Today we are taking a look at the comparisons market in relation to the financial industry. Sophisticated price comparison software is readily available, regardless of the market you operate in, even for the most innovative and creative of Fintechs. There are so many benefits for both your business’ competitive edge and the service you can provide to your consumers.
Price Comparison For Direct Lenders – Why It’s Important
Price comparison software is a digital tool that you can buy or develop yourself, depending on your capital and individual business conditions. Installing this software as a direct lender will mean that you can emphasize to consumers how transparent you are as a business.
It is now a requirement for lenders to be transparent with their customers. The regulators in the consumer credit industry set out that all lenders must publish information about their operations and endeavor to inform their customers about the products they provide. This is the only way that their customers can make responsible and knowledgeable financial decisions.
This has never been more important, as the consumer credit market continues to come under fire from customers and complaints companies because of miss-sold products and a lack of due diligence which is establishing even more distrust between direct lenders and customers. This is happening while consumer financial literacy is at an all-time low. As a result, consumers are skeptical about those who can provide them with credit but can be misled by complaints companies who are looking to earn a commission off of unfair and frivolous complaints. Price comparison software, integrated with your direct lending business, could be the antidote to customer’s distrust and regulatory requirements.
It is vital that businesses display their transparency to their customers. However, communicating integrity can sometimes come across insincere, but price comparison software allows customers to feel like they discovered a business’ authenticity and reliability much more organically. Customers go through a much more conscious journey when they manually enter their information into a price comparison tool. This could help reduce the risk of miss-sold loan claims, wherein they are more aware of the information they are being told and you will be able to highlight the risks of loans to your customers.
Furthermore, price comparison tools for direct lenders should present comprehensive information for customers. This means that even if a competitor is better priced, your company should show that to consumers, especially if you are able to act as a broker to connect the consumer with the alternative lender. Your business will still earn from the transaction, but your company and reputation as a lender will benefit from your genuine service of trying to help your customers. In a time in which customers are distrusting of creditors and direct lenders, this could be invaluable in the future and contribute to your longevity as a company. You will also be ensuring you’re an FCA-compliant, by providing detailed information to all customers about their financial products.
How Customers Comparing Loans Could Benefit Your Business
Utilizing price comparison technology isn’t just beneficial for the consumer, keeping up with the times also has a unique set of benefits for your business. Firstly, you are able to dynamically and efficiently evaluate competitors within your market. As we have already established, the personal loans and consumer credit arm of direct lending is booming and extremely competitive. This means that’s you will need to utilize the technology that allows you to gather as much up to date information about the competitors in your market in order to adapt and survive. Price comparison software means that you can adjust your pricing strategy to ensure you stay agile and competitive, too, by evaluating your position in the market.
In turn, as a direct lender, your only access to unique data (without price comparison tools) is when customers directly apply with you. Whereas providing a tool that allows those who need credit to understand the market and assess their options means that you will have a better and more thorough understanding of what consumers are really looking for. Analyzing this kind of data sets means you can evaluate which financial products to push on, where to focus marketing efforts for the best ROI. Moreover, you could develop new ideas based on this information and new ways in which you could capture the market and propel your business.
What You Need To Communicate To Your Customers About Comparing Loans Online
Price comparison websites are not impartial –
When we are looking for information about a financial product, it is likely that consumers will use ‘impartial’ price comparison websites. However, these websites are still businesses that are designed to turn a profit. In order to do so, they could accept money for adverts placed around their website. Alternatively, and perhaps more concerningly, these platforms accept money for sponsored lenders, wherein competitors within a market pay to be the top result for certain enquiries to credit. This can be tailored for each set of data input into the comparison tool.
This kind of advertising or sponsorships could be considered unethical or irresponsible because they are presented to customers as the best option for their circumstances just because they are at the top of the list of lenders. As a result, economists and experts in the industry recommend that consumers shopping for loans look at least two comparison websites.
Direct lenders could promote this information to consumers. It is important to not be disparaging to other lenders or competitors, but this data could be used to encourage customers to use your own data software and highlight your transparency.
Credit inquiries with price comparison software will not leave a mark on your credit score –
It’s well known by consumers that inquiring or applying for a personal loan will affect their credit score. As you may be aware, credit inquiries typically make up around 5 – 10% of an individual credit score. When a consumer applies for a personal loan directly with a lender, they used to have to run a full, ‘hard’ credit check which would mark their profile and indicate to other lenders that they are in need of finance.
However, price comparison software does not perform a hard check on consumer’s profiles. This means they can get a fuller and better understanding of the options available to them, without decreasing their score or making loans more expensive just because they are looking for a good deal, which is an outdated and unfair practice.
Comparing loans online now makes affordable financing more accessible than ever before, especially to those with bad credit who previously would have applied for a loan and accepted the offer out of fear of damaging their credit score with multiple inquiries.
It is also worth emphasizing to customers that credit scores are not calculated the same way, wherein lenders and credit bureaus utilize different formulas to work out a consumer’s creditworthiness, which means there is no perfect score. Comparing loans online with price comparison software will be able to show you all the financial products that are available to you, with one credit score calculation.
Be aware of an over-dependence on price comparison tools – Consumers should conduct independent research –
Although this is not a prevalent concern in the loans industry yet, research shows that consumers are becoming over-dependent on price comparison websites because they provide us with convenience and a quick solution to our problems. This is problematic if these tools we depend on are not impartial because customers are likely to select the first search result or the one with the lowest monthly repayments. The lowest monthly repayments for a loan does not necessarily mean that the loan is the cheapest option overall. Consumers should be aware that a loan is likely to work out much more expensive when spread over a longer period of time and it could be more cost-effective to make higher monthly repayments over a shorter period of time.
Of course, this will depend on the sophistication of price comparison software being used. Some tools allow you to select your desired repayment term and customize other variables, too.
Furthermore, the other risk with price comparison tools is that consumers are likely to opt for the name they recognize because it makes them feel safe. However, this is not always responsible for financial decision-making, especially if the consumer is not well versed in the industry. It is important that customers know that they should be conducting their own research into a lender if they have used a price comparison website. This could prevent consumers from using unstable creditors, especially in light of several major consumer credit companies operating in the payday loans industry going into administration in recent months, this is more important than ever before.
How Is Comparison Technology Changing?
Interestingly, some experts believe that the biggest challenge price comparison websites face is consumer’s financial literacy. If our customers become better educated about the financial products they seek, they are less likely to depend on consumer websites and more likely to head direct to a lender they know will be able to help them. However, this would have to be some kind of radical education as we still live in an on-demand society, which means we want access to all the data we need in one place, as quickly as possible and price comparison tools are able to provide us with that.
Price comparison websites are continuing to develop, to become more sophisticated and to keep up with the changing metrics for creditworthiness, introduced by fintechs. This is the only way they are going to remain valuable to consumers.
In turn, comparison software will need to start investing heavily in data protection, as experts warn one breach of information could put the entire industry at risk. As consumers are already skeptical about data protection and trusting lenders, we could expect to see changes in the sophistication of this software.