It’s tough out there for lenders. Whipsawing interest rates, lingering eviction moratorium hassles, and a general malaise within the broader economy has led to a situation where many lenders are losing borrowers at a fast clip; or at least not seeing the growth they’d like. But it’s not all bad. Savvy lenders can attract more borrowers and increase business with several simple solutions they can implement immediately.
In most industries, the cost of retaining a customer tends to be lower than the cost of acquiring one. According to a study by the Harvard Business Review, acquiring a new customer can cost somewhere between 5x and 25x more than keeping an existing customer. Private lending is no exception, with the cost to acquire a single borrower sometimes reaching as high as $3,000. In general, it’s harder for lenders to measure customer retention compared to other industries.
This is due to the fact that the average person only buys or refinances a home a couple of times in their lives — with the average homebuyer expecting to remain in their home for at least 15 years. Many borrowers can go years or even decades without seriously interacting with a mortgage lender outside of regular loan payments and loan maintenance. In fact, one estimate showed that customer retention in the mortgage industry is at its lowest point in decades — with most lenders retaining just one out of five customers at the point of purchase or refinance.
Keep in mind that the initial mortgage transaction is, by nature, a high engagement process usually full of touchpoints. After all, it’s the single largest transaction most people will ever make. However, after the initial onboarding process and closing, engagement and communication tend to fall short, and many lenders fail to maintain long-term relationships with their clients.
This disconnect has been exacerbated by the rise of fintech and digital solutions, transforming a very personal, very involved process into something more akin to signing the terms of service for the latest and greatest iPhone app.
A dedicated customer retention program is critical for lenders that want to make the most out of their existing client roster. This will also help to keep customer acquisition costs to a minimum. There are several benefits lenders stand to gain from an effective customer retention effort, including:
-The ability to retain the full value of the original mortgage loan instead of losing the loan when a customer refinances with another lender.
-Getting future purchase or refinance business from the same client.
-Creating other ways to generate revenue, like cross-selling other products or services.
-Improved referral business.. By regularly communicating with borrowers, your firm is in their thoughts when asked about a way to get a purchase or refinance loan.
Customer retention describes a wide range of activities — from constant contact and regular borrower engagement, to appropriate upselling, cross-selling, and referrals. It’s important that your customer retention strategy works in concert with your overall customer experience strategy. This is because both efforts are seeking to accomplish the same goal: speaking to borrowers in a relatable way, creating value for them, and fostering meaningful borrower relationships.
Lenders can help improve retention and create better connections with their borrowers by:
-Understanding customer needs
-Determining key triggers and behavior
-Reacting quickly and connecting with clients at their convenience
-Offering engaging content that adds value to the borrower’s life
-Ensuring that customer retention efforts are tracked, either through a dedicated department, CRM, or another method to track failure or success
These tips will enable any lender to earn and retain more borrowers than ever before. However, if you want to maximize your earning potential and market reach, it’s imperative that you create efficiencies wherever you can — including when it comes to protecting your loan portfolio from bad loans. See how AXY WrapTM can strengthen the health of your loan portfolio and make your life easier.