One of the unspoken truths all lenders recognize is that the loan origination process is often more predictable than managing receivables and cash flow. That’s because modern loan origination systems are efficient, highly automated and data-driven, removing much of the human element when it comes to information acquisition, scoring, decisioning, fulfillment and reporting.
Once a loan is booked and transitions into the account servicing realm, the inconsistencies and unknowns associated with human behavior re-emerges, usually manifesting itself in payments activities. Where lenders rely on consistency and certainty to manage cash flow and maintain liquidity, customers have their own priorities in terms of how and when their auto loans get paid. The realities of managing household budgets and living paycheck-to-paycheck has serious consequences for customers who have every intention of paying their auto loan on time, but may be distracted by family life, work issues or cash flow constraints.
In addition to economic uncertainties, lenders must also address the wide range of options today’s consumer can use to pay their bills. Where checks were once the near-exclusive method of payment for auto loans, the introduction of new payment technologies has empowered consumers — especially those in younger demographics — to use a variety of mobile and digital options to pay their loans. While checks will still be a prominent method for the foreseeable future, there are a growing number of consumers who love the convenience of digital wallets and mobile apps.
Intersection of lending, payments
As the trend to digital payments continues to trudge along, lenders would be well advised to embrace and accept these new modalities. The digital age is impacting all facets of financial services, from lending to purchasing to payments. It only makes sense to integrate payments with lending to create a seamless experience that makes consumers happy, while also improving cash flow and liquidity.
This concept was reinforced by Richard Kopman, chief executive of Pllenty, a provider of embedded payments solutions for enterprise. Customers want a seamless experience in all facets of their engagement, and this includes payments, he said.
“Today’s consumer expects convenience and simplicity in all aspects of their business relationships. They want to pay their bills in the manner that is best suited for their specific needs,” Kopman said. “These expectations aren’t going to diminish, so offering flexible payment acceptance options will keep customers happy as well as improve receivables.”
Integrated payment acceptance capabilities are becoming essential to lenders, said James Price, vice president of sales at payments innovator Repay.
“Giving customers payment options is critical,” he said. “The lending space is so competitive that providing progressive payment channels will attract new customers, manage cash flow and allow lenders to stay on top of collections. When lenders provide a full product suite, retention rates will increase and business will be able to scale.”
One effective method to accomplish this is to identify a comprehensive payments solution that can integrate directly into a cloud-based loan management system (LMS). These services should support the popular digital wallets that consumers use, as well as connect directly to banking and credit union automated clearinghouse systems. The latter approach is ideal for consumers who are comfortable with the lender debiting the payment from a checking or savings account on a fixed schedule, which also gives the lender more certainty regarding liquidity.
The embedded payments approach is also effective in improving receivables in the wake of delinquent payments. The system can automatically track every payment received and, if a customer falls into arrears, the LMS can send a reminder with embedded links to accelerate the payment process. If further action is necessary, the LMS can then provide a loan officer or representative with the pertinent account history and personal contact information to expedite a resolution.
Automating a portion of the collections process frees up overtaxed personnel to focus on addressing the most egregious cases, improving efficiency of the lender. While no one can argue that booking loans is vitally important for any lender, maintaining consistent cash flow is vital for the economic health of any lender. Embedding the payment options that consumers prefer into a cloud-based loan management system is a low-cost, effective method that satisfies customer expectations, while also injecting far more certainty into a traditionally uncertain part of lending.
Sam Heath is the chief revenue officer of Inovatec Systems, which provides LOS, LMS and direct systems that seek to eliminate friction in the lending process and automate much of the manual work of originating and managing loans.
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