TAKE A PAGE FROM ONLINE RETAILERS’ PLAYBOOK TO CONNECT MAIN STREET WITH THE RIGHT CREDIT PRODUCTS
May 2, 2017
Keith Catanzano is co-founder of 2River. 2River’s LIFT data analytics platform helps lenders integrate their customer information file with data-science to simplify business decisions. Keith is also a small business owner.
Shopping for small business loans has become an online activity. Like other online activities, customers expect convenience, security and service. In addition, customers expect the same quality experience whether applying for a loan in-store, on-line, or mobile.
For small business lending, consistency across channels is particularly challenging. Small business owners are a unique borrowing customer. Neither credit scores nor cash-flow analysis are clear indicators of risk:
• Credit-scores: Often small businesses mix personal and business credit together making it appear the business owner is carrying higher than normal debt.
• Cash-flow: While small businesses have cash-flow, their ability to show cash-flow is related to how much the business owners pay themselves.
Therefore many small business lenders focus their in-store lending processes on learning about their client, understanding cash flows, and ensuring that the requested loan makes sense.
These activities require due-diligence and time. This drives up the unit cost of the loan. Given limited staffing, this also takes away from other business development services and activities.
Small-business lenders need to think more like retailers. They need to embrace the changes in their customers’ behavior. They need to use technology to combine the flexibility of being small with the scale of being big.
Operations. It should be no surprise that over the past decade, FinTech players have created technology to streamline business loans for on-line customers. Big banks are now creating or adopting this technology for in-store and online customers. Small and mid-size lenders are also exploring ways to use similar customer relationship and credit decisioning technologies to streamline their operations.
Customer Journey. The next step is to recognize that the customer journey is neither linear nor limited to a single channel. Customers expect that their lender is where they are. For example, a small business owner starting an application online will expect to be able to come into a branch or contact a call-center and pick up where she or he left off.
Personalization. In addition, small business owners expect their lender to personalize recommendations. An in-store experience with a lending officer will identify the right loan products for the small business. Small business owners expect that online and mobile experiences will also dynamically recommend loan products and identify prices that appeal and work for the individual business.
Technology. Vendors have created technology products right-sized for lenders of all sizes. Technologies exist to integrate the customer information file with data-science to gain customers and improve customer lifetime value. This allows lenders of all sizes to focus on the right customers, at the right time, with the right message and loan product.
Small business lenders can learn from retailers’ playbook – but there is a historical difference. Retailers initially transformed their strategy in response to competitor’s activities. Small business lenders must transform themselves in response to their customers’ activities.