In last few years, with the advent of digitization, the dynamics of lending have evolved and changed quite drastically. Historically, lending has always been a one-on-one experience, but the emergence of online lenders has led to a paradigm shift. Nowadays, borrowers prefer online lenders as compared to their brick-and-mortar contemporaries because of the comfort and ease it offers. This is the reason why traditional banks have witnessed declining growth in these segments as compared to online lenders who are going from strength to strength.
Marketplace lenders (MPL) have disrupted the traditional lending practices and created their own niche in the lending sector. MPL extensively uses data-driven analysis, online marketing channels, and customer-oriented technology platforms to attract and fulfill the financial needs of their customers. With the emergence of technology-driven marketplace lenders, traditional lenders have had to engage with the borrowers on multiple platforms to ensure they do not lose a big chunk of their customer base.
The intense competition in the Fintech world is one of the most important reasons behind the high cost of customer acquisition (CAC) and has become an Achilles heel for most of the companies. Google Ads has usually been the first port of call for startups looking to generate traction. Though such ads help you generate immediate results, the efficacy of such efforts is generally extremely low. The below list illustrates the cost of advertising based on a keyword strategy. The most important thing to understand is that these are cost per clicks and not conversion rates.
So if you have a 1% conversion rate, you are looking at a CAC of $1100, which is unsustainable.
In order to bring down their customer acquisition cost, players are toying with a lot of different options to increase their customer base. Fintech companies are engaged in targeting their customers through social media platforms, improving online presence by using multiple digital marketing channels to attract a wider audience at a much lower per user cost. Along with reducing their cost of acquisition; companies are recognizing the opportunities through digital channels to target Low FICO customers who are mostly neglected by traditional banks.
Well-established online lending platforms like Lending Club have to spend almost 2% of the loan ticket size on sales and marketing to attract borrowers; thus, for a $15,000 loan, that translates to roughly around $300. Younger startups have been known to pay out almost $500-$750 for a similar ticket size. Thus, one of the biggest differentiators between startups is the ability to create cheaper sales funnels for attracting borrowers. VCs have moved past the initial euphoria and massive cash burns for borrower acquisition is history. How you size up on CAC versus your peers is now one of the most important metrics in whether you will get that next round of funding.
Social Media Changing the Fintech Landscape
Social media is changing the overall dynamics of fintech. With a focus on real-time responses to customers, lending startups are integrating Facebook and Twitter pages into Customer Relationship Management. Just like customer service, social media cannot be isolated from marketing and run in silos. Companies are even using social media in their algorithms to evaluate borrowers and their credit worthiness. For instance, companies like FriendlyScore have created an alternative credit technology focused on social media and big data. This creates an opportunity for lenders to evaluate millennials with little or no credit history.
Mobile, Mobile, and More Mobile
Nowadays, the nerve center of any marketing plan is mobile marketing. As per the Federal Reserve survey in 2015, 87 percent of the US population above 18 years of age owned or had regular access to a mobile phone. In another survey by ICBA, 74 percent of millennials feel mobile banking is very essential, and 53% of smartphone owners with a bank account have used mobile banking in the last year. All the mentioned statistics go to show that not only millennials but even older generations are starting to rely more and more on mobile for their financial needs.
As per Pew Research, there are approximately 75.4 million millennials in the US, and they are expected to earn 46% of all income by 2025. Thus, having a mobile strategy is a no-brainer. According to CUNA Mutual Group Statistics, 550 credit unions on the back of the company’s online lending platform receive $2.4 million worth in mobile loan requests every day, and have applied for 6 billion dollars in loans. This highlights that players have already started catching onto this trend.
Following are a few techniques used by fintech companies to lure borrowers via mobile marketing;
- Mobile apps and web portals are developed in a way to provide two-way communication, meaning any queries or doubts borrowers have is sorted out right away by 24/7 available online help. Considering most of the borrowers are young with limited financial knowledge, this feature is a real clincher.
- Another new trend used by financial marketers these days is in-app marketing, in which product- or service-related content and messages customized for every individual are sent directly to the prospective borrower’s smartphone.
Introducing a special offer or trial offer exclusively for mobile users and eferrring a lender’s services to your social media circle or friends is now just a click away. Word-of-mouth advertising goes on steroids when used in conjunction with mobile.
Direct Mail Still a Force to Reckon With
All is not lost for direct mail, once the backbone of traditional marketing. Many of the biggest players in the fintech industry (Lending Club, Prosper, and On Deck) still rely on direct mail to capture new customers.
As per a Mintel Comperemedia survey, Lending Club mailed 33.9 million personal mail offers in July 2015, which is more than double the amount it sent in the same month in 2014. Prosper’s mail volume also increased to 20.2 million offers. The average monthly volume of personal loan offers sent through direct mail is 156 million YOY (July 2015).
More important is how direct mail is being married with big data analytics to ensure higher conversion rates. So you might have logged online to check out a loan offer, but you are still receiving physical mail. This dual platform strategy is ensuring the best of both worlds and allows for targeting a prospective borrower on multiple levels. Thus, digital marketing in the fintech industry has graduated to the next level, and it is also incorporating traditional methods for a more comprehensive marketing campaign.
Written by Heena Dhir.