As satisfied consumers will tell you, there are numerous benefits to utilizing digital credit. However, one huge drawback for some has been the interest rates. Unfortunately, some digital lenders extend their credit with exorbitant interest rates that turn potential borrowers completely off. Why?
Many digital credit providers have found themselves in the high-interest category due to losses from risky borrowers, the high price of gathering and analyzing data on their current borrowers, and lending such small amounts that charge associated with completing transactions are barely worth it. So how can digital credit become profitable again? Here are five ways to make it happen.
#1 Make applying slightly more difficult. It sounds terrible at first. After all, we’re not trying to drive customers away, are we? No, but we do want to discourage people who borrow on a whim; they’re more likely to default. If a borrower means business, they won’t think twice about sticking with a more rigorous application process.
#2 Verifiable identification. Keeping tabs on customers has been a huge impediment driving up interest rates. Fortunately, the increasing prevalence of smartphones is making it possible to strengthen the lines of communication between lender and borrower, as well as more thoroughly prove the borrower’s identity. In doing so, lenders will eventually be able to affirm the trustworthiness of a borrower and support a system that may facilitate accurate credit reporting.
#3 Bolster collections. We all love the idea of products like ePayLater – Buy Now Pay Later. But what happens when “later” never comes? Many digital credit lenders do not have a strong course of action when it comes to proceeding to collections. Lenders need to forge a stronger connection with their customers, and should ideally be able to reach them through multiple avenues in the event they do not repay. For instance, setting up a simple call center to go beyond SMS contact could reap huge rewards.
#4 Rewards. Say a borrower does repay a small loan. If the company rewards them, they’re going to be more likely to borrow from them again. Give good customers incentive to take out larger loans by reducing that interest rate, offering some type of points system, or a more flexible repayment schedule. Making this rewards system known can attract new borrowers as much as it can secure the ones you have that take repayment seriously.
#5 Improve marketing. Of course, you want your marketing to target the right audience. But in addition to that, does your marketing explain the product well enough? Furthermore, are you marketing too broadly? Narrowing it down might sound like a poor strategy for general business purposes, but in the digital credit arena, it’s a great one. When you pair aggressive marketing with the easy, no-fuss loan procurement process addressed above, you’re undoubtedly inviting unreliable borrowers in.
Digital credit definitely has a future in many areas, but the past several years have made plain where we need to improve. To avoid jacking up interest rates which further increase the risk of default, we should consider a few more strategies.
Make the application process more resistant to impulse borrowers, offer perks to those that do repay, confirm the identity of and target marketing toward your most essential customers, and invest more into collections efforts.