Solutions by Text and Datos Insights Reveal Disconnect in Consumer Lending Practices

Second annual industry research report reveals generational shift in lending behaviors, financial institutions slow to adapt to Gen Z and Millennial preferences

Solutions by Text (SBT) announced the release of its second annual industry research report, “Digital Denial: The Hidden Cost of Lending’s Communication Gap” in partnership with Datos Insights. As the leading platform for compliance-first messaging and payments for consumer finance, SBT’s report sheds light on how financial institutions are slow to adapt to evolving consumer communication preferences, particularly as younger generations take on more loans.

Providing business-critical insights to lenders and consumer finance organizations, this new research comes amidst a fundamental transformation in the lending industry driven by digital innovation and shifting consumer demographics. This rapid evolution of communication technology finds consumers favoring instant, convenient communication, particularly amongst the younger generations, and financial institutions facing an increasingly complex regulatory environment.

With 64% of surveyed consumers reporting that they’ve applied for either an auto loan, a credit card, or a personal loan in 2023, “Digital Denial: The Hidden Cost of Lending’s Communication Gap” captures how this important moment in digital transformation impacts loan marketing, origination, servicing, collections, and payments. It also provides crucial insights on the role that younger generations are playing in this shift as they enter their peak purchasing years and the need for financial organizations to leverage these preferred communication channels to capture and retain Gen Z and Millennial customers.

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This latest research builds on the findings from SBT’s 2023 “The State of Bill Pay” report, which uncovered that despite 88% of Gen Z and Millennials stating that they are likely to use pay-in-text options, only 14% have been presented by billers with a pay-in-text opportunity.

Key findings from the report include:

• Consumers increasingly prefer text messaging across the lending journey. This year’s report points to a significant disconnect between consumer preferences and current lending practices. While 79% of consumers consider mobile loan applications important and 80% want text communication capabilities with their lenders, 41% of loan applicants receive no text communications during the application process. And despite strong consumer interest in payment reminders (85%), only 32% received them.

• The text channel has the power to increase loan applications, particularly for younger generations. A frictionless loan application experience is important to consumers and 94% of applicants say frequent updates on the status of their applications are important. In fact, 63% of consumers believe that receiving text updates on the progress of their loan documents could help them finish the process. This percentage climbs to 74% for Gen Z and Millennials.

• Text messaging integration positively impacts the customer experience. Over two-thirds (69%) of consumers who received text messages during the origination and booking process would recommend their lender. And notably, consumers that used text during the application and origination process reported a 15% increase in customer satisfaction versus respondents that were not offered communication via the text channel.

• Text security and compliance are top of mind for consumers. Nearly all consumers (98%) believe it is important to have confidence in the security of relaying personal information to the loan/credit card company via text. Further, 85% of consumers expressed concern about potential fraud via text messages from unrecognized numbers. However, when texts come from a short code or include their lender’s logo, trust increases, signaling a clear path forward for lenders to establish trust and credibility via text messaging.

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“Our new industry research shows us that consumers want to be able to handle their loan applications, payments, and inquiries on their terms—quickly, securely, and with minimal friction,” said David Baxter, CEO of Solutions by Text. “Consumers have a clear preference for payment reminders and payment-related notifications via text, in addition to pay-in-text options. And with that preference even more distinct amongst younger generations entering their peak purchase years, it’s crucial that consumer finance organizations bridge the gap between the communication channels they currently offer and what consumers want.”

With younger generations now holding more loans than older generations, Gen Z and Millennials show distinctly different expectations for their lending experience as they take on more debt. SBT’s report points to clear opportunities for lenders and financial institutions to better serve these customer segments:

• Nearly half (49%) of Gen Z and Millennials are willing to leave their financial service provider if they don’t have the capabilities to resolve questions over text.

• Being able to complete the entire loan process using a mobile device is most important among Gen Z (91%) and Millennials (89%).

• 60% of Gen Z and Millennials are more likely to select a financial service provider if they offer communication via text messaging.

“The generational shift in lending behaviors cannot be ignored. Younger borrowers, particularly Gen Zers and millennials, are not only taking on more loans but are bringing fundamentally different expectations to the lending relationship. Their lives are significantly shaped by digital-first experiences – in all aspects of their lives. The fact that 49% of Gen Z and millennial consumers would consider switching lenders if they didn’t have the option to resolve a question over text underscores the need for a modern approach to lending,” said David Albertazzi, Director, Retail Banking and Payments, Datos Insights.

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Source – PR Newswire