Every lender faces the same issue today, marketing. Most of the lenders start with “leadgen”, online lead generators that send traffic to lender’s call centres, websites or form fill. These online lead generators have been around for a decade now and they have been struggling in the face of outright bans by Google and Facebook. Direct Mail on the other hands has been successful in performance marketing for the past 5 decades.
Reason #1 – Control
If you are a lender and one of your number of costs is marketing, then you should always have control over your marketing. Most importantly control over how you acquire your customers. Often, direct mail starts with acquiring a mailing list from one of the credit bureaus. There are 30-40 million customers at any given time looking for credit. Be it a Lending Club style consolidation loan or a short-term emergency personal loan, there’s always someone looking to consolidate their debt or getting over a life emergency.
Getting your own list from the credit bureaus is the only way to control your own marketing. The names and address of your potential customers are not shared by anyone else. Unlike online lead generators, the lead that was sold to you is also sold to your competitors. The chances of you getting that customer to convert into one of your credit product are very low. This behaviour promotes bad behaviour amongst some lenders, and that they will do anything to convert their purchased leads due to this artificial competition infiltrated by online lead generators.
Direct marketing is different, you are targeting customers that you aren’t competing to convert. It builds brand loyalty, stickiness for a second or third loan and ultimately a great lender and customer relationship for the future.
Lenders often don’t know that leads they have bought don’t belong to them. Online lead generator sees these leads as their leads and reserves the rights to market to them indefinitely. This practice is not healthy or good for lenders. Their customers are being lifted to their competitors daily.
Reason # 2 – Targeting
When you invite someone to apply for credit, you are also acquiring a list from one of the big credit bureaus such as TransUnion, Experian or Equifax. These bureaus provide not only names or addresses, they also provide a wealth of credit information for lenders to target their potential customers.
This financial information of credit attributes are critical for lenders to gain insight into potential customer’s debt load, default potential and propensity for additional credit. These credit attributes are universal for personal lenders, auto lenders or mortgage lenders. A customer’s credit profile tells you whether it is time to start offering credit to your potential customers. As the U.S. economy grows and consumer spending is at an all-time high, it is more important for lenders to utilize high-end analytics such as artificial intelligence and machine learning to churn through thousands of credit attributes to target potential customers.
Behaviours such as stacking and ability to repay also play a major part in direct marketing. These attributes are not available if you are using an online leader generator. These online lead generators do not have the permissible purpose to gain any insight into consumer’s financial life. Most likely when an online lead generator sends you traffic, clicks or leads, the customers on the other side is probably not the customer you want to lend to.
Lenders often employ analytical models or rules to figure out whom to lend to. These analytical technicals help lenders lower their defaults and decrease their Cost Per Funded Loan by a wide margin.
Reason #3 – Customer Intent (will they convert?)
There is a subtleness that no one talks about in performance marketing, which is whether the customer is actively looking for credit (online lead generators) or they are being passively advertised to (direct marketing).
What are the differences? In a classical risk management sense, those that are actively (desperately) looking for credit are those that don’t need additional credit. These folks are often in debt already and looking for additional credit to cover their old debt. However, there are those already in debt that truly need short-term credit and looking online for options. Those are far and few in-between, and lenders are having a hard time differentiating if someone is stacking themselves or truly looking for emergency cash, worse, they are borrowing to pay off their old debt.
Direct Mail or Direct Marketing avoid situations where customers are already heavily in debt or lack the ability to pay. Credit and income attributes are available for lenders to discern whether or not to advertise to customers with high ability to pay and aren’t stacking themselves.
The fact that customers are being notified of the lender’s option by direct mail lowers potential for default or charge off, and increases the likelihood of conversion and a long-lasting relationship.
Reason #4 – Customer Complaints
The number 1 reason for customer complaints is customer’s privacy concerns. Online lead generator often sells customer’s identity to as many lenders as possible. The lender that ended up offering their loans is the first to blame when it comes to customer complaints.
Online lead generator often hides behind innocuous websites that leads them to believe that they are applying directly with the lender, but in fact, these ubiquitous lead generator online forms have nothing to do with the direct lender. But customers do not know this fact. They believe it is the lenders that sold their identity to the universe and thus cause a lot of friction and unpleasant complaints.
This is not the fact with direct marketing. Because lenders aren’t interested in selling their customer’s information to the universe, the level of complaint is a lot less than those that use online lead generators.
Customer complaints are the number 1 killer for a lender. To protect lender’s reputation and built a long-lasting relationship with the customers, Direct Marketing or Direct Mail make sense and should be used as lender’s first choice when it comes to marketing.
Reason #5 – Defaults, Defaults, Defaults
Lenders second biggest issue is controlling for defaults. Leads bough from online lead generators is inherently problematic for some of the reasons already mentioned. They are prone to stacking, inability to pay and most importantly (perhaps the nastiest reason) is that the customer’s identity is then sold to all other lenders in perpetuity. This behaviour by the online lead generators work against lender’s interests because both parties business models are completely misaligned.
When lenders use direct mail or direct marketing as one of their main channel of advertising, we see defaults drop dramatically paired with prudent underwriting. We see subprime lenders deploying millions of dollars monthly and still maintain a low teen first payment default rate month after month.
These lenders using direct mail are also seeing a huge uptick in terms of reactivation rate or reap rate. This is because their customers aren’t being advertised to buy online lead generators over and over again.
If lenders desire high reactivation rate, low default rate, high conversion rate, consider direct mail as your main marketing channel. You will have control, able to deploy high-end analytics to this approach and direct mail is the only way to access millions of consumers in need of credit.
