Onboarding for Alternative Lenders Is Like a First Date, It Pays to Get It Right

Your primary goal as an alternative lender is to maximize portfolio profits, and the first critical step in the process is onboarding. It’s like a first date. It sets the stage for the entire relationship. You can use automation software to gain process efficiencies, but it takes enthusiasm and creativity to truly engage the new borrower. Finance industry analysts say it’s an investment that pays back in spades.

Onboarding is more than just an activation exercise. It’s a time to establish brand trust, drive customer satisfaction, and promote product usage – while meeting all applicable regulatory compliance requirements for identity verification and anti-money laundering. This article provides an overview of the onboarding process, as well as its impact on portfolio profitability, current best practices, and technology requirements in today’s digital environment.

Benefits of seamless onboarding

Harvard Business Review conducted global research on onboarding procedures, challenges, and program benefits. 80% of the respondents reported that their onboarding activities increased product and service renewals, sales revenue and customer loyalty. Melanie Wing, Vice President for Strategic Marketing at Equifax, agrees wholeheartedly. She is quoted in the study saying, “If you mess it up, you can do irreparable damage to the relationship.”

Old school bankers tend to think of origination and account servicing as two distinct stages in a linear lending process. They separate the individual functions, assigning each one to different teams with different skill sets. Unfortunately, this approach creates a dangerous gap, where your hard-won (and expensive) new accounts can fall through the cracks. A good sports analogy is the relay race in track-and-field where four runners carry one baton. The fastest time is based on the speed of the baton, not the speed of the runners. Which means that winning is all about an effective handoff. If you rush, then you could cause the next runner to drop the baton. If you move cautiously, then you could lose time to your competitors. Neither scenario delivers a winning outcome.

Alternative lenders use this analogy as the basis for a more holistic approach. One that delivers a superior brand experience based on overall customer satisfaction. Their onboarding strategies and tactics combine the last important step in the origination process with the first important step in the account servicing process, creating a seamless user experience.

A successful onboarding process delivers two positive outcomes for your lending operation. On the business side, you maximize lifetime value, by jumpstarting the relationship and making sure new clients are using their products and services. On the compliance side, you avoid a disruptive regulatory agency audit that could lead to penalties and monetary fines.

Regulatory compliance issues impacting new accounts

Law enforcement and banking regulators have been waging a war against money launderers and cybercriminals. These mission-critical initiatives are driven by the fact that money laundering is known to fund terrorist groups, and financial database breaches are becoming more frequent and more severe.

The United Nations Office on Drugs and Crime tracks and reports on global money laundering. Their best estimate is somewhere between $800 billion and $2 trillion on an annual basis. The elusive nature of money and cryptocurrency in the digital age makes it impossible to develop a more accurate estimate. These staggering statistics show that law enforcement is fighting a losing battle, which explains why regulators have decided to make lenders accountable and criminally liable when prevention programs don’t work. It’s a situation that has caused onboarding programs to become more onerous, more time intensive, and more expensive.

Financial services organizations paid the price in 2018. UBS was fined $5 million, Morgan Stanley $10 million, and Capital One Bank $100 million – all for inadequate compliance systems related to anti-money laundering (AML) and know your customer (KYC) processes. These amounts barely scratch the surface when we look at the worldwide situation. Global regulators have imposed $26 billion in fines over the past 10 years for AML and KYC issues. Laura Glynn, Director of Global Regulatory Compliance at Fenergo, was quoted in a recent corporate study, “Up until now, the focus of regulators had been on the US and European markets. However, regulators in the Asia Pacific and The Middle East markets are becoming more proactive.”

Alternative lenders are required by federal law to verify the personal identity and business details for each new account, and to check the information against government lists of terrorists, terror organizations, and known money launderers. Under new compliance regulations, this information must be collected during onboarding and confirmed at regular intervals over the life of the account. The TurnKey Lender LaaS platform is pre-programmed with regulatory compliance features specific to your local jurisdiction, and it’s compatible with add-on regulatory technology (RegTech) software packages that automate AML and KYC procedures.

Onboarding best practices

There are plenty of process manuals for onboarding new clients, and many include downloadable workflows and checklists.

Our approach at TurnKey Lender is to focus on quality, human connections. We like to think in terms of relationship building, instead of account servicing, because it shifts our mindset from impersonal process to personal connection. We believe it’s best to use technology, automated operational processes, and software systems as tools to maintain these connections more efficiently, and cost effectively than manual methods.

Our best advice is to become a super servant, instead of a superstar. Go the extra mile to create an exceptional customer experience. Engage new users with the product and the brand to overcome any buyer’s remorse. And encourage them to connect with your organization, using the communications channel they prefer. When you create a sense of trust with your brand and your product – you’ll reduce churn, improve LTV, and maximize portfolio performance.

According to Harvard Business Review, the top four reasons for a poor onboarding experience were:

• disjointed functional teams within the organization – 54%
• inadequate communications with new customers – 51%
• lack of understanding of customer needs and wants – 44%
• outdated technology – 38%

We can use this Harvard study as a blueprint for building an effective onboarding program. The trick is to implement tactics that address each of these four areas.

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Start by defining success, and establishing KPIs

Determine the key performance indicators (KPIs) you’re going to track and set achievable goals for each indicator. This exercise will help you quantify the value of the onboarding program, by calculating the return on investment.

The two most common onboarding KPIs are the number of accounts activated (plus conversion percentage), and the number of accounts actively using their credit line (plus conversion percentage). Ultimately, you’ll want to measure the churn rate, LTV and incremental profit for accounts that passed through the onboarding program, compared to a control group. In addition to behavioral KPIs, you can use customer surveys to gather both quantitative results and qualitative feedback on the onboarding process.

Get every department on the same page

An effective onboarding program doesn’t rely on a few tweaks to the operational systems or marketing messages. It’s grounded in an organizational mindset that puts the customer first. You need to make onboarding an organizational priority at the highest level. A good way to get everyone behind a touchy-feely program is to demonstrate monetary value, by sharing case studies and dollars-and-cents examples. Announce your overarching strategy at a companywide meeting, and engage every department prior to launch. Get their feedback on implementation detail, and include onboarding KPIs in their annual evaluation criteria.

Understand what’s important to your borrowers

Use market research, competitive analysis, and customer satisfaction surveys to understand what’s important to your borrowers. Don’t be surprised to see interest rate taking a back seat to brand trust or fast, easy customer service problem resolution.

In addition to outside information, you can mine internal corporate data. Your sales and customer service people are a secret weapon because they’re gathering customer feedback with every interaction. Consider it a missed opportunity if your organization is not actively collecting and analyzing their intelligence. Review caller reason codes on a regular basis, and hold monthly team focus groups to gain texture from what the reps are hearing directly from prospects and customers.

This process provides an extra bonus. Individual productivity often increases when employees feel like they’re making a bigger, more strategic contribution to the organization, in addition to closing sales and resolving customer complaints.

Delight borrowers by exceeding their expectations

Successful alternative lenders run customer-centric organizations. You’ve used a variety of methods to understand what’s important to your borrowers. Now it’s time to use these insights to delight your customers and differentiate your brand in the marketplace.

• Keep your promises. This core value will build trust, overcome buyer’s remorse, and help you avoid regulatory hot water. Make sure all account terms and conditions align with marketing and advertising messages. An honest mistake could trigger a customer complaint along with a regulatory agency audit.
• Deliver product value right away. Don’t just send an avalanche of new member materials packed with legalese that’s too dense to decipher. An amazing first member communication is a confirmation note saying you’ve initiated a digital funds transfer. Think of how your borrower will feel getting this message within 24 hours of submitting an application.
• Make them feel welcome. Initiate a live outreach call from a customer service rep to ask if their account is up-and-running, and meeting all their expectations. Don’t wait for them to contact you with a problem. Your customer service reps will enjoy these interactions as they surprise and delight the new borrower. It’s an energizing break from irate customers with problems that need to be resolved.
• Offer to customize their account during this outreach call. Something as simple as changing the payment due date can make a big difference to a customer. Or offer to fast track their account for a credit line increase review. This is a great chance to set-up their online account together. It may sound like a time-consuming and expensive exercise, but your operation could enjoy substantial savings when more customers migrate to the online channel for quick questions.
• Implement omnichannel communications choices. Give customers the ability to choose their channel. Today’s borrowers tend to prefer digital communications with the option to talk to a live representative when an issue requires a complex conversation.
• Implement a strategic communications stream. Target new customers with a sequence of activation and usage incentives, because dormant accounts quickly become attrition statistics. If there are any outstanding forms required to activate their account, then pre-populate as many data fields as possible with the information they’ve already provided. Streamline the process to improve activation and usage.
• Deliver acquisition offer premiums automatically. Don’t force new members to take action to redeem their bonus. They’ve already earned it. Too many lenders fall into the breakage trap, where they use short-term savings to measure long-term program success. The cost of the bonus is well worth the return on investment because it creates a positive first impression.
• Surprise them with state-of-the-art safety features. For example, request permission to capture a security voiceprint when they call the customer service number. Then use the print to verify caller identity during any future calls. This tactic eliminates time-wasting PIN requests, and annoying security questions.
• Reassure them their personal information is kept safe, even if there’s a security breach. Let them know the system uses advanced cybersecurity techniques, like hashing and salting, to obfuscate data. Hackers might get in, but they still can’t access their personal information.
• Be careful not to upsell or cross-sell too quickly. Make sure any early upsell offers provide a true benefit to the customer. For example, offer to schedule a balance transfer that will lower their interest rate on another loan. Or offer to activate free services. These extra links create a stronger brand connection, pre-empting the competition from luring them away with short-term, discount pricing. Wait until after a solid relationship has been established to start promoting fee-based product extras, or any additional services not related to their primary product.

Using technology to improve the onboarding process

38% of executives who participated in the Harvard Business Review study, said outdated technology was negatively impacting their onboarding process.

With today’s FinTech options there’s no need to invest the time and expense required to build a proprietary platform from the ground up. Alternative lenders can replace their obsolete technology easily and cost-effectively with a comprehensive LaaS platform. These fully managed, turnkey solutions support a cutting edge onboarding process, including special features that bridge the gap between origination and account servicing.

A basic package will include these plan features:

• automated origination and account servicing processes
• regulatory compliant with regular updates

• leading edge cybersecurity
• digital transfers for account funding and monthly payments
• omni-channel communications options
• consolidated cross-platform monthly reports.

The operating platform will include these types of advanced functionality:

• cloud-based system (easy to deploy, easy for your team to master)
• rules-based processes customizable for individual requirements
• superior technical and customer service support.

In addition, you may want to leverage a specialized RegTech software package to automate AML procedures and identity verification programs like KYC and CIP. The package should include secure, off-site document storage. Many compliance experts say that RegTech software can pay for itself by preventing a deep dive regulatory review. They believe that compliance auditors will give the benefit-of-the-doubt to lenders who pay for outside support plans.

Next Steps

An amazing first date is the best way to start a healthy, long-term relationship. One that improves customer retention, borrower LTV, and corporate profits. 82% of executives who monitor onboarding program metrics, reported improved sales revenue that could be tracked directly to the onboarding program.

TurnKey Lender understands how to create an outstanding onboarding experience that will delight your customers as well as the banking regulators. We take pride in partnering with so many lenders worldwide – and supporting their organization with the most intelligent, end-to-end lending automation software on the market.