When was the last time you called your bank to inquire on your account balances? Or used a phone book to find a local handyman? Most of us understand that the world no longer functions this way. The management of our daily lives, including nearly every transaction we perform, is done online. The same is true in the financial industry and online lending.
If it isn’t online, it didn’t happen
Young people entering the financial market (having recently turned 18) have never known a world without social media. To them, if it isn’t online, it didn’t happen. This helps to explain the growth of the online lending market over the past five years, but it isn’t only young people who are opening loans.
Consumers of all ages have become more proficient and comfortable conducting certain transactions online, including shopping for, and acquiring loans. But borrowers know that online lenders aren’t the only game in town. Alternative financial services can be accessed through online or storefront channels.
Is there such a thing as customer loyalty?
Data shows that, in general, online borrowers tend to be younger, while storefront customers are older. But if you dig a little deeper, you’ll see that customers don’t typically stay with just one channel or even one lender. If they switch from storefront borrowing to online or vice versa, odds are they don’t stay for good. Borrower behavior studies show fluidity between the markets.
Clarity analyzed a group of consumers who opened a storefront single pay loan between 2013 – 2014 and monitored their activity over the next several years. When they secured the storefront loan, many of them were simultaneously applying for online credit. This behavior continued and increased throughout the years that followed. By 2017, more than a third of these previous storefront borrowers had sought online credit.
The difference between online and storefront lending channels comes down to the consumer experience.
While storefront lenders are still in the game, recent trends show a large increase in the number and dollar amount of online loans. In 2017, 73 percent of loans to new customers were opened online. In the past five years alone, the dollar value of online installment loans increased nearly 500 percent.
Many consumers are drawn to the ease and availability of online lending. It allows them to remain relatively anonymous while shopping for a variety of financial services and can be done from the comfort of their couch.
However, there is still a consumer population that enjoys face-to-face interaction and a personal relationship with their lender, two things a storefront lender can provide. Because transactions are completed in person, storefronts also have a more generous underwriting strategy, which can help consumers with lower incomes secure credit.
What does this mean for lenders?
Consumers are flocking to the online market, seemingly more so each year. But just because more borrowers are going online, it doesn’t mean they won’t open a storefront loan in the future. Storefront lenders experienced increasing dollar amounts of both installment and single pay loans from 2016 – 2017, but this growth is modest compared to the online channel.
To learn more about lending trends and borrower behavior in the alternative finance industry,