Do you know what your lending customers really want?

Over the last decade, the lending landscape has undergone a dramatic transformation. In response to new regulatory requirements and a total shift in consumer expectations, financial institutions have changed their approach – but not enough.

Interest Rates No Longer Enough to Compete On, Focus on Giving Customers More Control

Today, most banks believe they cannot compete with personal or auto loans because credit unions, on average, offer lower rates. While interest rate continues to be the primary deciding factor for consumers when shopping for a loan, it is no longer the only factor. What consumers really want is a better experience and more control over how they manage their finances, including debt. Fintech companies know that experience is what drives consumer emotion and therefore consumer choice. This is where banks should focus.

Let’s face it – consumers aren’t racing to get into more debt. However, that is exactly what most fintechs and banks offer. Banks must evaluate what they are providing beyond just instant lending decisions and great front-end experiences hyped by alternative lenders. Instead, banks need to take a hard look at how much control they give customers to help them manage debt, as this far outweighs the importance of interest rates.

Obviously, each generation expects something different from the lending experience, but what does that look like? Here’s a breakdown.

Baby Boomers: Interest rate a primary factor, but don’t ignore their experience  

Baby Boomers prioritize interest rates above all other factors; however, they still want a good experience that includes unique features that grant more control. In fact, the majority – 74 percent – said in a recent survey that having the ability to withdraw money that has been paid ahead of their loan schedule would be valuable. Additionally, Baby Boomers take their time to research and submit important documents online, but they still appreciate a solid in-branch experience when it comes to borrowing money.

Gen X: Interest rate not a big deal but still a factor, along with digital conveniences

Gen X does not care as much about interest rates as Baby Boomers, but it’s still a factor. They also expect a great in-branch experience but value the option of online. They enjoy a sleek, digital platform and the ability to apply online, but they are still skeptical when it comes to loans. In response, banks should provide straightforward loan terms.

Millennials: A user-friendly experience wins their favor    

Not surprisingly, Millennials are different. They base most decisions, including loans, on the experience. In fact, according to PwC, only 35 percent make selections based on rates. Millennials expect easy, fast processes, similar to other experiences like rideshare apps or booking lodging through Airbnb. In response, banks must offer a high-quality user interface design that is simple and quick to use. There is also an expectation for on-demand with Millennials and a strong fear of debt. This group grew up during the Financial Crisis. They watched friends and family lose jobs, couldn’t find jobs themselves right out of college but took on an unprecedented amount of student loan debt, moved back in with their parents due to financial woes, etc. Research is even showing that Millennials are behind in earnings compared to other generations. As a result, this group is less about ownership (high upfront cost) and more about on-demand services (pay for what you use).

Gen Z: What about us?

With so much analysis around Boomers, Gen X and Millennials, banks still cannot ignore Gen Z. The oldest of this group have hit their mid-20’s and looking to finance large purchases. But unlike any generation before them, they do not know a world without the Internet or smartphones, making digital experiences critical. Similar to Millennials, however, this group is also more vigilant with their finances. In fact, a recent study by American Express revealed that 77 percent of Gen Z carefully track their finances and most have a checking or savings account. This group is all about control.

All Generations Expect a Superior Lending Experience with Greater Control

While each generation is different and their lending needs vary, they are also the same. More important today than ever before, greater control and a better experience can make or break a bank, making it absolutely critical to reinvent the lending process. It’s time for a major change – here are three areas key to that:

1. Features That Offer More Control to Better Manage Loans

Consumers want more control and better tools to manage their loans. In response, banks must begin offering mobile apps and dashboards that enable borrowers to see the impact of payment changes prior to actually making them. Think, Credit Karma. With their “Simulate My Score” tool, consumers can instantly see how paying down debt can potentially impact their credit score. Banks should consider similar tools.

2. Transparent Tools to Pay Off Debt Faster

Most consumers have a very limited understanding of how debt works. Plus, they don’t really understand how quickly paying off debt impacts their financial security and credit score. By offering greater transparency, borrowers have a better idea of where they stand. And with an easy-to-use interface, managing debt is easier.

3. Flexible Options to Accommodate Life Changes

While most consumers typically do not understand the impact of paying down loans quickly, they do want to pay extra towards their balance, however, they tend not to because life happens, like unexpected medical expenses or needing to replace a broken household appliance. To cover these unexpected costs, consumers tend to hold on to extra cash because traditional loans do not offer flexibility. Once a borrower pays extra towards a loan, that money is locked away – they lose control. Instead, banks should offer greater flexibility and allow borrowers to access those extra payments in times of need. This eliminates that fear of parting with ‘extra money’ while also enabling the customer to make better financial decisions like paying down debt faster.

Across all generations, greater control is what counts. Rates are still important, but there is an opportunity to break away from competing on rates alone and instead offer customers a superior experience. Those that don’t will lose to megabanks and alternative lenders. 

John Waupsh is Chief Innovation Officer of Kasasa, an award-winning financial technology and marketing technology provider, and author of Bankruption. For more information on Kasasa, visit www.kasasa.com, or visit them on Twitter @Kasasa, @KasasaNews, Facebook, or LinkedIn.