Consumers Want Greater Flexibility In Loan Payback Options

In a lending marketplace filled with large and small competitors, it is important for financial organizations to find a differentiator that resonates with consumers in multiple demographic segments. One of the strongest product options may involve payment flexibility.

Over the last decade, the banking industry has explored the importance of marketing to each generation (Millennials, Gen Xers, Baby Boomers, and now, Gen Z), pointing out that organizations miss out on opportunities when they focus exclusively on only one generation. For instance, you can’t market mortgage loan products to only Millennial first-time home buyers. What about Baby Boomers who are downsizing? Taken a step further, we’ve also recognized that marketing approaches must be different for each generation. What works for one group may or may not work for the other.

But, what if there was a way to identify and market your loan products to not just each generation, but the very best of Millennials, Gen Xers and Baby Boomers? Having the right insight about each market within your community is critical to determining your ideal borrowers and what products, features and benefits will be most appealing.

This is especially critical as the lending atmosphere changes and rates continue to rise. For instance, auto sales are projected to be down slightly compared to last year, while personal lending is expected to grow. Knowing exactly who to target and how to frame each product is necessary to compete with both traditional and alternative lenders.

Breaking Down the Borrower

To identify and market lending products to the ideal consumers who are looking for loans right now, financial institutions must understand each generation. In research done by Kasasa, each major segment was analyzed to determine ‘pockets of opportunity’ that banks and credit unions should pursue. The research designated the target audiences as ‘Moving Up’ Millennials, ‘Upward and Onward’ Gen Xers and ‘Established and Educated’ Boomers.

The research determined what types of experiences each segment expects and which products that will best serve their needs. This insight should help financial institutions of all sizes increase their competitiveness, and more intelligently market their loan products.

‘Moving Up’ Millennials

Who are they?

Educated, young and driven professionals, this 18-34 group tends to have good credit, though sometimes limited. With a household income between $50k-$100k, ‘Moving Up’ Millennials are able to make higher payments.

What is important to them when selecting a lender?

Less concerned with interest rates, this group makes decisions based on experience. In fact, 65% of ‘Moving Up’ Millennials will choose a lender based on the experience, versus just 35% on interest rates. Not surprising, this group also prefers an all-digital process and appreciates loan management tools and being rewarded for loyalty through point based rewards or referrals.

When targeting this group, convenience and speed are key. An easy, fast process and a slick user experience outweigh the importance of interest rates. But keep in mind that Millennials are currently unsatisfied with the typical loan application process, since it does not match the experience across other industries. The largest generation in history, Millennials will soon become the majority market, making it imperative to provide a digital experience they are used to and want.

What types of loans should financial institutions offer them?

Young and ambitious, ‘Moving Up’ Millennials are exploring higher education and graduate school. They are also in the early stages of adulthood, which includes life events like weddings and home improvement projects, so consider marketing personal loans to this group. Auto loans are secondary for them, followed by refinancing student loans.

‘Upward and Onward’ GenXers

Who are they?

Well educated, employed and financially savvy, this 35-54 group has great credit and a household income between $75k-$125k, which means they have access to preferred interest rates and loan terms.

What is important to them when selecting a lender?

Unlike Moving Up Millennials, ‘Upward and Onward’ Gen Xers base lender decisions slightly more on interest rate rather than experience. This group likes the convenience of a digital lending application but prefers in-person interaction for closing. Reach them with a compelling in-person experience, referral incentives and exclusive offers.

What types of loans should financial institutions offer them?

For the ‘Upward and Onward’ Gen Xers, offer them auto loans. Buying and replacing aging vehicles is a priority for this group, followed by refinancing student loans, then home loans.

‘Established and Educated’ Boomers

Who are they?

Well educated, employed but nearing retirement, this 55-72 group likely has dependents for which they take out loans. They are financially stable with household incomes between $100k-$150k, have excellent credit and sizable savings.

What is important to them when selecting a lender?

This group makes decisions based on interest rate. In fact, 82% will choose a lender for the rate versus 18% who might be swayed by the overall experience. ‘Established and Educated’ Boomers will take the time to research and submit documents online, but similar to the ‘Upward and Onward’ Gen Xers, they prefer an in-person experience to close the loan. Reach them with best interest rate offers and provide points based rewards programs to help them pay down the loan faster.

What types of loans should financial institutions offer them?

Similar to the ‘Upward and Onward’ Gen Xers, this group prioritizes auto loans, followed by refinancing student loans. They are less focused, however, on home loans and more interested in consolidating personal loans.

Reaching All Generations with Flexibility and Transparency

While each targeted audience varies, there is a way to attract all three and deliver the lending experience all generations want and expect.

In a report released by Cornerstone Advisers in conjunction with Kasasa, “Reinventing Consumer Loans: How Community Based FIs Can Win the Millennial Lending Market,” Ron Shevlin, Director of Research at Cornerstone, emphasizes the need for community financial institutions to find new strategies to better compete with large banks in the lending markets. Specifically, Shevlin explained that while many financial institutions believe they have superior rates and service, Millennials, as one example, are often selecting the megabanks and large regional banks they already bank with for their borrowing needs.

This means that community institutions must find ways to better compete. But, if community-based FIs can’t differentiate on price, and can’t compete on experience, what’s the alternative? Competing on product quality.

Financial institutions must examine their loan offerings to see if they offer the benefits and features that consumers actually want. To build their product offering with a borrower-first mindset, financial institutions can offer loans with superior flexibility and the ability to access future funds. In fact, Cornerstone’s report cites that roughly 85% of Millennials would select a bank or credit union that offered loan flexibility or faster payback capabilities on a loan, assuming that interest rate was comparable to other loans.

By putting consumers’ wants and needs like transparency, control and flexibility first, community banks and credit unions can focus on providing borrowers within each generation exactly what they’re looking for.

This article was originally published on July 31, 2018. All content © 2018 by The Financial Brand and may not be reproduced by any means without permission.

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