This post was originally featured on CEO.com
The financial industry is in flux. Until recently, getting a loan was highly difficult for people with less-than-stellar credit. Traditional products are designed for borrowers with 700-plus credit ratings. It’s a standard that penalizes the 56 percent of Americans who have subprime scores and completely excludes the 45 million who don’t have credit scores at all.
Traditional thinking justifies these gaps by arguing that consumers with high credit scores deserve favorable treatment. It places the blame for poor scores on the indebted borrowers themselves. But that mentality doesn’t account for the range of circumstances that could lead to subprime or nonexistent credit standings. More importantly, it doesn’t address the problem of how to include these people in the loan economy.
In order to capture and retain customers in this unfortunate financial space, it may be time to look outside traditional forms of lending. If the price of your offering causes concern for some of your audience, opening up your business’s financing options could potentially bring in a large, untapped pool of loyal brand advocates.
The Current Credit Challenge
The Great Recession ended in the summer of 2009, and the economic skies are sunnier in 2016. But the scars of previous years remain, and many people are still struggling to regain their financial footing. Even back in 2005, personal savings stood at 1.9 percent, compared to 17 percent three decades earlier. Consumers aren’t saving, and they’re credit-strapped. And if you don’t believe this affects your business, think again.
Credit allows people to make purchases they couldn’t otherwise afford. When customers walk into your store with the plan to buy, you want them to make good on that intention. But if they realize they can’t afford what they want and don’t have credit cards with which to finance it all, they’ll walk out — and you lose those sales. Relying solely on traditional credit systems, while a safer route in many cases, could potentially cut your business off from potential customers.
Credit-challenged consumers can’t improve their scores if no one gives them lines of credit. And with many businesses denying financing options to this group, the problem can only persist.
The Alternative Edge
Most business leaders wouldn’t extend credit to customers simply out of the goodness of their hearts, and you may be among them. After all, you have a responsibility to both your employees and your bottom line. However, offering financing and making good business decisions aren’t mutually exclusive.
Alternative lending platforms include any kind of financing that happens outside of bank loans and credit cards. Companies that utilize these platforms often take a customer-centric approach, marketing products to a wider range of consumers — not just prime credit borrowers. They make it easier for more people to secure financing for personal needs and purchases. Companies such as Affirm partner with merchants and offer loans to their customers.
As a business owner, it may be time to get creative to meet customers’ needs. Thinking outside the box can be a great way to attract and retain customers. With such a largely untapped market base in play, even a more frightening prospect — like breaking the lending mold — could actually be the best decision for your business.
A Better Customer Experience
It’s extremely embarrassing for a customer to be denied credit when he or she is applying for an in-store card or payment plan. And with technology giving customers so many options for where and how to buy, a business that allows them to circumvent this embarrassment could be an enticing new possibility.
Alternative lending can provide a much-desired option for people who don’t meet the standards of traditional credit lines. They do not have to replace your current system; rather, they’re complements to it. Your usual credit offer might work for some customers, while others could qualify for a micro-payment arrangement that makes large purchases more achievable. By showing your customers you understand their needs, you can prove to this underserved population that you’re interested in helping them reach their goals.
Not only can this approach win you more business, but it can also earn you brand loyalty. The customer who was denied by traditional lenders will remember you offered an alternative when he or she needed the help. Options such as micro-payment plans and recurring subscriptions help customers avoid embarrassment, and they ensure you get the sales today instead of losing business.
Use the following guidelines to establish a mutually beneficial alternative financing system within your company:
1. Understand the services you’re offering.
You should be able to explain the alternative lending setup to your customers. The more educated you are about these services, the more comfortable you’ll be when pitching them. Don’t put your potential customers through a process you don’t understand yourself.
2. Educate customers on their payment options.
Help people understand the payment choices you’re offering. Hang posters throughout the store, set up information tents, and task staff members with engaging customers as they walk through the door. Let people know that financing is for everyone and that they don’t have to use their credit cards to buy from you. Even people with exceptional credit scores understand the value of making micro-payments instead of putting big lump sums on their cards.
3. Partner with a reputable financing company if needed.
Lending and borrowing should be easy for both the customer and your business. If handling alternative financing yourself would be too much of a burden, consider finding a lender to help provide those services for customers who need them. Make sure the lender uses top-of-the-line technology that creates a frictionless customer experience. Research the firm’s customer service as well. How those representatives treat your customers reflects on your company — and will affect your brand’s reputation.
Many companies dismiss alternative lending platforms because they think their current offerings work just fine. If it ain’t broke, why fix it, right? But these businesses may not realize the competitive benefits of micro-payments and other alternative systems. Breaking out of the traditional lending mold could be the key to a prosperous future — both for you and the customers you serve.