5 Best Practices for Lenders in 2022
In any given year, many lenders are concerned with regulatory changes that the lending industry may face. Regardless of what new regulations come about, there are foundational best practices that every lender can readily implement. We’ve compiled a list of five pillars of lending that will always be relevant to the industry.
If you would like to learn about loan management software that helps you follow these pillars, check out Vergent LMS.
Pillar 1 – Identity Verification
With identity fraud a constant threat, the ability to identify your customers remains key to any lender’s success. Your loan management software should equip you with established data providers that can quickly alert you to potential fraud. Collecting a customer’s personal information–without the software to verify that data–puts you at risk.
As omnichannel lending takes root in the industry, lenders are finding difficulty in customer verification, especially if their volume of online customers has greatly increased. Your employees will never actually interact with online customers face-to-face. This can make identity verification harder. Loan management software that pairs seamlessly with data providers can solve this dilemma.
Loan management software can help you know your customers. Systems that have access to reliable, real-time data can take the guesswork out of underwriting while ensuring your process is compliant with state or national regulations. Successful lenders equip themselves with the tools to know their customers.
A loan management system can not only help you know your customer but also save you millions of dollars over time. With the right tools, you can keep your percentage of defaulted loans down and spot potential fraud as soon as a questionable loan application is submitted. Protect your business while improving the quality of your portfolio with a robust lending solution.
Pillar 2 – Marketing and Communications
At the core of the lending industry is service. As customers transact through the loan lifecycle, ask yourself:
- How do I interact with current customers?
- What is my marketing strategy for reaching new customers?
The first step to take before any direct marketing can take place is offering your customers the ability to Opt-In to receiving your texts or emails. The Telephone Consumer Protection Act (TCPA) regulates most automated telemarketing, so familiarize yourself with what is prohibited.
Once you’ve established communication with the customer, use this to build rapport. Whether it’s a holiday or their birthday, set up automated triggers that regularly reach out to them for these occasions. Although this is a simple strategy, personalized automated triggers can set your business apart in the minds of your customers. Your customer wants to know that you value their business.
Automated messaging not only builds rapport but can also remind customers of your services. Bank holidays are a prime example of days in which customers may need your services. Therefore, set up an email trigger to remind them of your business on days where banks and credit unions are closed.
Account servicing is another avenue for engaging your customers. Loan management software can enable you to set automated reminders for customers who have payments due. Not only can you place reminders, but you can also provide quick solutions. Loan management software can offer customers the ability to pay through text or email with ease.
With lending software, you can also stay connected with new customers. Through the software, you can set triggers to help walk new customers through the entire loan origination process. Loan management software gives you the ability to automatically communicate with customers to remind them of needed documents, give counteroffers, or guide them through any other step in the lending process.
When considering these points, decide what other days marketing communications should be sent out or how they will be triggered.
- Will you send them a product offering after being inactive?
- Will you send out notifications when customers have available credit?
- When will you decide to stop sending emails to inactive accounts?
Questions like these will help you establish your marketing triggers, which is a fundamental step to communicating with your customers. Never underestimate the power of a timely email or text.
Pillar 3 – Performance Audit
A great way to improve your lending practice is by conducting regular audits of your portfolio’s performance.
An easy way to start auditing your portfolio is by asking yourself some questions:
- Is the rate at which loans are defaulting growing?
- Which key performance indicators are my business struggling with?
- Does my underwriting process need to be adjusted?
Key Performance Indicators are another way to check the health of your portfolio. Some important ratios to be mindful of include…
- New vs repeat customers
- Delinquency percentage
- Conversion rate
- Net charge-off rate
Once you have identified the key performance indicators important to your business, you can create the basis of how to judge your company’s growth. By regularly surveying your portfolio, you can take steps to improve each process within your business and correct issues that could have generated more problems in the future.
Ensure that your management solution can help improve your company every step of the way. You need a lending solution that makes managing your portfolio frictionless. By taking the steps to partner with a comprehensive loan management software, you save your company time and stress.
Pillar 4 – Handling Customer Complaints
Customers do not leave a business because they have complaints. Customers leave because of how the business responds to their complaints. That’s why having processes in place to collect and address complaints is crucial for developing a loyal customer base.
First, give your customers a medium for them to submit their experiences. Whether it’s a physical form or a digital application, make sure that customers have a place to voice their grievances. Once that is in place, decide how your business will process and review the submissions. This is extremely important because a customer’s loyalty may be determined by how you respond to their situation.
Questions you need to ask yourself are:
- Who will review the complaints?
- Who will determine if a complaint is legitimate?
- Are customers having similar recurring issues?
Your employees also need internal training to handle these complaints. If these customers are directly in contact with your employees, support your team by giving them training and scripts so they can address the customer appropriately.
Address the submissions you receive with the intent to determine the root cause. An easy response may be to offer a rebate of a fee, but the more important step is eliminating the problem the customer encountered.
Solving problems the first time they occur ensures a better experience for future and returning customers. An efficient and effective response to complaints can yield a strong and faithful customer base.
Pillar 5 – Employee Handbook
An employee handbook should be the cornerstone for every activity in your business. Handbooks should guide your employees’ day-to-day activities. The more thorough and up to date this handbook can be, the more confidently your employees will know how to operate. Employee handbooks reflect how you want your business to be run.
- How will your employees interact with customers?
- What processes are in place for the organization?
- What are your employee interaction standards?
- Are repercussions clearly defined?
Look to educate your employees through your handbooks as well. Ensure that every employee knows the financial products and services you provide. An employee handbook guides your enterprise towards success.
At VergentLMS, we understand what it takes to grow your success. We were once lenders like you. That’s why we’ve built software that not only improves your efficiency but assists you in following the foundational best practices of lending.
We’ve partnered with the brightest in the industry to offer you loan management software like none other. From loan origination through servicing, your entire business is managed in a single platform. If you’d like to learn more about how VergentLMS can transform your business and be a long-term partner, request a demo.