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Thursday, August 22, 2019

Customer Retention: How to Become Their Lender for Life

By Mohammad Rashid
July 15, 2019

Topics:
Mohammad Rashid
Tavant
Customer Retention


MohammadRashidMohammad Rashid is Vice President of the Consumer Lending Practice with Tavant Technologies, Santa Clara, Calif. He drives strategy, offerings and revenue of the company's consumer lending business and was behind the design and engineering of Tavant FinConnect, which processes more than a million transactions every year and is widely used by the top 50 lenders. In 2017, he was honored with the HousingWire Vanguard Award.

Consumer lending competition is heating up, triggering lenders to remain vigilant at the threat of existing borrowers reaching the end of their initial introductory period. Like serial credit card customers who jump from one interest-free offer to the next, borrowers are more likely to consider refinancing options whenever their existing mortgage deal reverts to a standard rate, particularly amid a mortgage price war. Surprisingly, the lending business has some of the worst customer retention rates of any business and most lending companies fail to retain 93 percent of their customers when they decide to get a new mortgage.

Key statistics that prove the power of customer retention include:

--Attracting and acquiring a new customer costs 5 times more than retaining an existing one;

--Increasing customer retention rates by 5% boost profits by 25% to 95%, according to research done by Frederick Reichheld of Bain & Company;

--Research by Gartner indicates that 65% of a company's revenue comes from existing customers, and it costs five times more to attract a new customer than to keep an existing one satisfied. It is much easier to sell to existing customers as you have a history with them.

--According to Gartner, the old 80/20 rule holds true in this scenario; that means 20% of your existing customers bring 80% of your company's future revenue. Most businesses put all their marketing effort into getting new customers, yet it costs between seven and 20 times more to sell to a new customer than it does to sell to an existing one. Still, many lending companies do not realize how important retention is, focusing more on acquisition and often leaving their current-and loyal-customers disappointed. Customer retention needs to be the foundation which businesses are built; it should not be a revolving door for your customer.

How do you navigate your organization in today's new reality and retain your existing customers?

1. Illuminate Data
Business intelligence tools can be used to segment the customer database and identify those borrowers who meet the desired retention criteria, i.e., they are approaching the end of their introductory period, their loan performance is acceptable, and they fall within any demographic categorization that the lender may choose to apply for each campaign.

Companies need to use Artificial Intelligence to enhance significantly extensive data analytics, evolve algorithms with transactional data faster and combine data in new ways to discover trends. Having a 360-degree view of your customers provides valuable insights into what your sales can up-sell and cross-sell to your customers, what campaigns your marketing teams can run and how to best track them.

2. Redefine, Reimagine and Rethink Business Models and Practices
The digital transformation underway in the mortgage industry is undeniably not a fad. Digital solutions address numerous industry challenges. The technology and process transformation will provide a single view of the customer and personalize the customer experience, spur innovation within services and products offerings, increase compliance and reduce origination costs. Lending companies and mortgage servicers alike must embrace digital solutions to remain relevant.

Digital transformation is affecting the consumer lending industry drastically. Companies need to redefine customer experiences by reimagining business models and rethinking how to deliver better products and services. After identifying and rectifying flaws within company policies and processes, businesses can consider offering more personalized features and benefits. Online mortgage payments are a great feature that companies can offer. Another excellent medium is using testimonials to improve customer retention because people love hearing about other's experiences, and it works well for a company that offers no proof of previous service experience. Lenders may also consider designing products that can be variants on existing offerings but could be priced more aggressively or have unique and compelling product features.

3. Replace Technology with Human Touch and Empathy
Empathy plays a vital role in retaining your customer. The primary strategy for achieving customer retention through your direct mail marketing piece is to put yourself in the customers' shoes and show emotional intelligence. By providing proper knowledge and showing that you care for your customer allows you to gain the trust of the customer and subsequently; improve your customer retention. Moreover, you need to have a deep insight into their future needs to build and foster a constructive relationship.

4. Discover Innovative Customer Experiences that Build Stronger Relationships
New research by Gartner reveals that the Customer Experience Pyramid drives loyalty, satisfaction and advocacy. The fact that so many organizations fully understand the importance of CX to the brand; however, they still fail to deliver outcomes that meet or exceed customer expectations. Understanding how to build upon it to drive positive business outcomes is what can set the best brands apart from the rest.

Personalization is More Important Than Ever
Today's savvy customers expect personalized services, and it can be difficult for consumer lending organizations to deliver. Not because they do not have the desire, but because of legacy systems and regulations that restrict them to the traditions of the past. These constraints hold them back, even while they recognize that location and products alone are not enough to attract and keep empowered customers.

A Good CX Means a Loyal Customer
The customer is equipped with a lot of information before even making the first contact; they are not that loyal as they look for the best deal and are likely to maintain a relationship with more than one financial institution.

A recent report from Deloitte (Reshaping the Retail Banking Experience for the Customer of Tomorrow) reveals the importance of positive customer experience: 90% of customers trust a recommendation entirely; they are seven times more likely to trust a reference than an advertisement. If a customer encounters poor customer service, he or she may never come back and will advise their friends as well to do the same.

Final Thoughts
Customer retention is about building a relationship and building a relationship with a business is the same as establishing a personal connection. The premise of customer retention is to build trust and make them feel comfortable with the brand while enabling the customer to be loyal to you and your brand.

Digital transformation is the key to any organization's survival. Compared to other industries, the consumer lending industry is slow in the process of transitioning from legacy platforms to digitized environments, 87% of the banks still use legacy systems. Consumer lending and servicing is loaded with data, involves long process times and is driven by stringent compliance requirements.

(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA Insights welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at msorohan@mba.org; or Michael Tucker, editorial manager, at mtucker@mba.org.)

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