The economic crisis, triggered by the pandemic, has left millions of people needing credit at a time when banks are tightening lending standards due to economic uncertainty. The result is a lose-lose situation – the consumer gets a bad experience ending in a credit decline and the bank loses a potential customer. How can this be turned into a win-win for both the bank and the customer?
Let’s start by breaking down the credit decline experience, which often comes after the consumer is encouraged to apply, which makes the rejection more jarring.
For some credit products, such as home loans, the application and documentation are highly invasive, requiring a significant time commitment and thoughtful inputs by the applicant. The credit decline process, on the other hand, feels blunt and insulting. The applicant typically receives a form letter with little to no advice on actions the applicant can take to improve their credit strength. When I talk to banking executives, they tell me that credit declines receive a rock-bottom Net Promoter Score of -50, or even worse.
Why is credit decline advice such an important opportunity for financial institutions?
Simply offering personalized coaching improves customer satisfaction scores. I meet with dozens of bank and credit union executives each month to discuss their sales and advice customer experiences. One executive recently told me that simply offering personalized coaching to customers, regardless of whether they use it, increased his group’s customer satisfaction score by double digits.
Converting credit declines to approvals is a business-case winner. Wells Fargo’s 2018 annual report highlights the business potential for post-credit decline coaching. Its team of financial health coaches worked with a customer who was declined for a secured credit card. By the end of the coaching process, the customer’s situation had improved so much that they realized their dream of home ownership.
Provide experiences to increase competitive advantage. That means building relationships that include financial advice. A J.D. Power study noted that, of the 58 percent of customers who desire digital advice from their banks, only 12 percent receive that advice. Yet when customers do receive advice (and are satisfied), more than 90 percent report a high level of trust in their bank.
If you don’t provide advice, someone else will. While wealth clients get personalized advice, retail banking customers are usually on their own for managing their financial journey. According to an insightful report by business consulting firm CGI, “With 93% of people looking elsewhere for financial advice, there is a huge untapped market for banks to provide advice using digital channels as consumers need it.”
Today’s AI-powered engines can create an engaging, personalized advice experience rivaling what’s delivered by human bankers. AI is now powerful enough to create personalized advice for consumers, laying out the exact steps needed to improve credit scores. Since the advice is automated, it is scalable and always compliant.
AI-based solutions can be made even more powerful when they follow best practices for financial coaching, including:
Bite-sized action steps. Advice is most effective when it is refreshed with brief steps to gradually nurture customers and avoid overwhelming them. This approach helps the customer build momentum and confidence to keep going on their long-term financial journey.
Plain language. Conversational AI tools work best when they deliver advice in friendly, easy-to-understand language free of bank jargon.
Behavioral nudges. AI solutions can include an arsenal of A/B-tested, best-practice nudges that help customers make progress on their action plan. These nudges make a coach bot more like a human coach, providing motivational reminders and celebrating progress. For example, a digital coach could hold the customer accountable to take an agreed action (e.g., reminder to pull their credit report), and make it easy to follow through by sending a quick-access link.
A digital coach can incorporate motivational fun challenges and rewards like contests, badges, gift cards and other strategies.
An AI-powered coach bot represents a business opportunity for today’s economy and beyond. AI can offer the potential to exceed customer expectations and help financial institutions differentiate and expand market share. Transforming the current credit decline experience is a perfect starting point.
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