Consumers dramatically increase their use of digital channels when engaging with lenders, according to a TransUnion LLC study released Thursday. This trend includes point-of-sale loans, which are increasing rapidly during the Covid-19 pandemic, according to the study.
Since the pandemic hit the United States in March, 40% of consumers are using digital channels more frequently. The increase comes at a time when 60% of consumers say the majority of their financial transactions are done through mobile apps, says TransUnion.
In terms of frequency of use, 33% of consumers, or one in three, interact several times a week with their favorite financial institution via digital channels; about 66%, or two in three, use digital platforms at least once a week, says TransUnion. Much of this information was discussed at TransUnion’s Future of Lending Roundtable at its Financial Services Summit last month.
“Since Covid-19 and the state-imposed lockdowns, consumer use of digital channels has accelerated faster than it would have otherwise,” said Liz Pagel, senior vice president of consumer loans for TransUnion.
This has made a digital presence a requirement for lenders and financial institutions. As a result, they deployed digital capabilities faster than they expected, Pagel adds.
Before the pandemic, Pagel says many lenders and financial institutions sent offers to customers and prospects that aimed to drive recipients to a branch to apply for a loan or open an account, for example. “Now these offers are sent digitally and customers respond through digital channels,” Pagel explains.
A rapidly growing digital payment option is what Pagel calls POS loan or installment loan. Online merchants are a great prospect to offer these types of digital loans because they can be promoted to consumers before they go to checkout. Being offered the option to apply for an installment loan before checking out can increase the amount a consumer spends on their purchase.
“Consumers are likely to spend more when offered this type of loan because they can fund the amount and see what their monthly payment will be before they hit the buy button,” Pagel explains. “This financing option exploded during the Covid-19. “
FinTechs are currently leading the charge by offering installment loans through digital channels, Pagel adds.
One of the reasons for the popularity of installment loans offered through digital channels is that lenders have streamlined the application process, reducing the friction that can deter consumers from applying. This approach made it possible to take out a loan in real time, instead of days.
However, requester authentication should always be a priority, Pagel says, to prevent fraud and assure applicants that steps are being taken to prevent an account from being fraudulently opened in their name, Pagel said.
Other offers that grab the attention of consumers are credit offers tailored to their financial needs. Thirty-three percent of consumers found personalized credit offers very important and 33% said they are more important, according to the TransUnion report. “Consumers are now used to receiving highly personalized retail offers through online channels,” explains Pagel. “As a result, they now have higher expectations for their interactions with lenders. Lenders who integrate at the time of purchase, or who offer personalized and relevant credit offers, are experiencing disproportionate growth.