Consumers are flocking to the convenience of modern payment methods. For instance, you can use PayPal to pay for a new outfit purchased on an ecommerce site, knowing it will draw directly from your bank account if you lack funds stored in the app. Later in the day, you can receive reimbursement on Venmo for a friend’s share of vacation expenses, and then turn around and use those funds to pay an electric bill.
So why can’t loan payment be this easy?
A recent study on loan payment practices found only 8% of surveyed financial institutions allow borrowers to use modern payment types like PayPal, Venmo and FedNow, and few to none accept ApplePay, GooglePay or Cash App. That’s out of line with customer demand. More than half (51%) of consumers now use digital wallets and payment apps more often than traditional payment methods, according to a 2023 Forbes survey. That trend gets even stronger for younger consumers: 78% of Gen Zers said they’d stop shopping at a merchant that didn’t accept digital wallets.
Where the Loyalty Lies:
More than half (51%) of consumers now use digital wallets and payment apps more often than traditional payment methods.
Banks that accommodate customers’ payment preferences and make loans easier to pay — not just through competitive rates but also premium customer experience — will rise to the top in today’s mobile-pay environment.
How should banks meet that goal? First, by understanding why mobile payment types have attracted a following beyond simply P2P transactions, then following a few rules of thumb to expand payment offerings intentionally, but wisely.
Convenience Is King When It Comes to Payments
The primary reason digital wallets and payment apps have gained traction for both e-commerce and bill payment is no surprise: convenience. With a few taps on their phone, consumers can complete payment using the payment app or wallet on their mobile device, whenever and wherever it’s convenient – not unlike the mobile experiences they have every day, such as ordering takeout or purchasing concert tickets.
Contrast that with one of the two payment types currently allowed by 100% of financial institutions: checks. Checks require several steps to use, from ordering blank checks to carefully writing them out to the biller and mailing them – using a stamp, no less. No wonder paying by check is becoming a rare event, especially for younger generations. According to a Washington Post study, less than half of those age 45 to 64 — and less than a third of 25- to 44-year-olds — have written a check in the past 30 days.
The Dying Payment Method:
Less than a third of Gen Z and Millennials have written a check in the last 30 days
There’s nothing wrong with banks keeping checks as one payment option, but they must simultaneously prepare for the future by expanding to payment types that are on the rise in popularity, rather than heading to extinction.
It’s also worth noting that an inflationary economy has impacted the use of payment apps. With many people struggling to pay their bills, they appreciate being able to tap into all the places they store their money, including payment apps and digital wallets. In a recent PayNearMe bill payment survey of 1,206 adults, nearly half (48%) said having the ability to split bill payment between multiple payment types, including mobile payment apps, would help them pay bills on time.
Read more:
- Bill Pay: How to Revive Digital Banking’s Neglected Product
- How to Unleash the Full Potential of Digital Wallets
The preference was highest among 18- to 29-year-olds (55%) and 30- to 44-year-olds (58%), and those in the lowest income bracket of $10-25,000 (56%). About half (51%) said they store money in a mobile payment app or digital wallet that could be used for bill payment.
Financial institutions that make payment as flexible and convenient as possible will achieve higher rates of on-time, self-serve payment and, in turn, improved customer satisfaction.
A Thoughtful Path to Expanding Payment Types
Banks that embrace new customer payment preferences will thrive in today’s mobile-pay environment. Here are three essential best practices for financial institutions looking to expand payment options for their customers:
1. Expand in phases.
You don’t need to add all modern payment types at once. Rather, pick a few of the most commonly used options and expand in phases. For instance, you might aim to offer Venmo this year, PayPal next year, and Apple Pay, Google Pay and Cash App in year three.
An extra tip for success: A great way to decide which payment types to rollout is to simply ask your customers. Conduct a survey or social media poll asking your customers for feedback on the payment types they’d be most interested in having an option for bill payments and use the results as your product rollout roadmap.
Be sure to prepare a series of communications to inform your bank customers of the expanded payment options with details on how to begin using them to pay their loans.
Dig deeper: Paze Digital Wallet Launch Delayed Until Early 2024
2. Consolidate all payment types on one, integrated platform.
In our financial services study, we learned that 77% of financial institutions manage multiple payment platforms, essentially layering payment types on top of one another. That’s an ad hoc approach that can put both your bank and your customers at a disadvantage. Dispersed platforms increase your risk of data breaches and compliance issues and, ultimately, negatively impact CX by adding friction to the payment process.
Maintaining multiple payment platforms also makes the collection and consolidation of payments data difficult. Conversely, when all payment types and channels are consolidated on a single platform, data can be more easily collected for comprehensive reporting and analysis that supports decision making.
Additionally, a single, integrated platform is required for banks that want to leverage artificial intelligence (AI) and machine learning (ML) to improve and streamline operations in new ways, such as suggesting the best collections strategy for each individual customer based on personal factors and industry data, or determining which days of the month and times of the day are optimum to process autopay transactions.
3. Partner With a Payments Technology Provider With AI/ML Expertise
Financial institution executives may know they have an abundance of data that could be useful but lack the in-house data science expertise and investment needed to take on these types of tasks.
One way to overcome this obstacle is to partner with a modern payments technology provider that has an integrated platform and a team of AI/ML experts.
This approach enables banks to seamlessly turn on and off payment types, deploy personalized customer engagement messages and benefit from data analysis services such as comprehensive reporting with insights around payments, like which payment types result in successful payment most often.
An extra tip for success: Look for a technology provider that can apply AI/ML models to your data to automate certain functions, hyper-personalize the payment experience and improve self-service functionality.
Stand Out in The Crowd
Consumers have tasted the convenience of payment apps with e-commerce and mobile banking. Now they want that same ease of use with their loan payment.
Here’s good news: If your financial institution is among the 92% that don’t yet offer that option, you have an opportunity to get ahead of the competition and offer customers something they want—and that will benefit your business at the same time.
In an inflationary lending environment, banks need something other than interest rates to attract new borrowers. Giving them a wide variety of payment options should be part of the package. Proceed thoughtfully and enlist the right payments technology provider so you can meet your customers where they are in this fast-changing, mobile-minded market.
Roger Portela is the senior director of Product at PayNearMe, where he leads customer-facing product development teams. With more than 25 years of payments and product experience, Roger ensures PayNearMe’s solutions lead the market by reducing consumer friction and offering the widest range of payment options and channels, all while staying focused on security and reliability, to ensure clients collect every payment, every time.