What Can Online Consumer Finance Teach Us?
by Colin Bruce, Head of Invoice Finance
Niche Commercial, March 2004
Consumer finance is nearly always several steps ahead of the commercial finance market and quite rightly so: there are over 60 million people in the UK and only between 2 and 3 million business. By looking at trends in the consumer market and spotting the relevant ones it is possible to gain a picture of a more mature commercial market.
Differentiation is Key
The first key aspect of the online consumer market is the degree of transparency offered to the customer. Moneysupermarket allows its customer to compare over 300 credit cards, 400 loans and 7000 residential mortgage products. From such a choice, making your product stand out from the crowd creates a challenge for marketers, underwriters and product developers. If there is no product differentiation the result will be the biggest company will triumph due to achieved economies of scale. How can this problem be solved?
In both the consumer and commercial markets brand can be a key differentiator. The internet has allowed many lenders to test the strengths of their brand by listing identical products under different brands to different markets. One of the key elements of this channel is the ability to test and immediately apply learnings.
If you do not know who your target customers are you cannot communicate with them in an appealing manner. Offering a product differentiated by additional complimentary low cost product lines will allow core product margin levels to be maintained while providing a service to the customer which they are prepared to pay for.
In addition to this, knowing more about the target customer will allow better underwriting models to be constructed allowing the risk aspects of a product to be differentiated depending on the target market. Esure has done this very well in the car insurance market targeting very low risk drivers.
Higher degrees of transparency will be achieved in the commercial market. If service or products are not differentiated, margins will be destroyed for those without the scale to allow for this.
Killer Applications
As this is an electronic medium the better your software is, the better you will be able to meet the requirements of your customers. The consumer market has addressed this in different ways. Aggregation and "screen scraping" technology mean that whenever a lender updates a rate on their own website, that rate is instantly updated on the aggregator's website.
When a customer decides to move forward and apply for a product this step has been made as simple as possible. Credit card companies can give instant online decisions, meaning credit cards can be sent the following day. In addition to this. multi-channel Customer Relationship Management (CRM) software allows brokers and lenders to communicate with customer through every channel conceivable in a coherent manner all managed by the same CRM engine.
The difference between most consumer and commercial products is the level of obligatory complexity in the sales and underwriting process. This will mean that the software developed for the commercial market must be used in a more selective and less fastidious manner. For example, the chances of a customer applying in full for an invoice finance product online and the lender making a committing underwriting decision is very unlikely. But the channel can be used to generate high quality leads and manage communication reducing the overall time for the transaction to close by a significant amount.
Cross Selling
Many consumer brokers and lenders have found that the internet is the best channel available to cross sell other products if done in the correct manner. Mortgage products can be bundled with term life insurance, building insurance and content insurance. It may even be the case that the mortgage product is a loss leader into the provision of other high margin products.
The internet allows this opportunity to cross sell due to the level of information which can be collected stored and manipulated allowing the automated sales cycle to begin via email. Websites such as Egg.com send out highly customised regular emails to registered customers which are carefully constructed to offer the right products to the right demographic subset. Frequently this type of cross selling is the most lucrative market channel.
Cross selling in the commercial market is not currently a proactive exercise. Many lenders underutilise the data they collect and miss opportunities to provide additional products while many brokers focus on one core product and sacrifice revenues from cross sales.
What You Don't Know You Can't Manage
The internet throws off data like no other channel. Consumer finance websites collect from the last site a customer was on prior to them coming to their website down to what type of browser they used to access their website. In addition to this, all the data which is collected in answering forms and how the customer responded to messages or quotes which they were given provides a striking insight into better tailoring customer experience and maximising returns.
Many consumer finance websites even have self regulating real-time systems where, based on collected data, their software will send the customer to one lender or another depending on that days conversion rates.
While this type of tracking maybe unnecessary for less commoditised product lines, it asks the question: is enough data being collected and, more importantly, in it being analyses and acted upon?
At the recent Business Money Facts awards luncheon Keith Heron, CEO of the NACFB, stated that, in spite of initial market fears, NACFB members have benefited greatly from this channel already. With pragmatic analysis of the consumer market additional potential will be realised for lenders and brokers.