What Do Millennials Really Want from Lenders?
Millennials, a generation of digital natives that grew up amid the fastest period of technological change in history are, according to new independent research, the age group least likely to borrow from alternative digital lenders.
Here Sarah Jackson, Director at Equiniti Credit Services, reveals some surprising stats about millennials’ attitudes to credit and explores with Finance Monthly what it all means for lenders targeting this demographic.
According to Equiniti Credit Service’s latest UK research report ‘A three part harmony: how regulation, data and CX are evolving consumer attitudes to credit’, despite millennial borrowing increasing annually by a healthy 8%, three fifths of this age group will still only consider borrowing from a traditional, well-established lender, or one that they had dealt with before.
Right. Particularly when it’s clear that alternative lending is gaining traction across other age groups and showing strong overall growth of 15% in 2018. The same report revealed that some 62% of all UK consumers would consider alternative sources of credit (I.e. a non-bank, such as a retailer or car finance provider) the next time they apply for a loan. While consideration does not equal action, the figures about take-up also support the trend: over a quarter of consumers who borrowed over £1000 in the last year did, in fact, use an alternative lender over a traditional high street bank.
If both millennial borrowing and alternative lending are on the up, why is there a disconnect between the two?
So, while non-traditional lenders are not yet competing with banks in loan volumes, they have certainly established themselves within the market. Which begs a question: if both millennial borrowing and alternative lending are on the up, why is there a disconnect between the two?
The story, as usual, lies in the data. Although 70% of UK consumers are comfortable completing loan application processes digitally, this figure drops to 57% for millennials specifically. Considering this age group’s well documented digital literacy, this can only be chalked up to financial inexperience. Older generations have not only had more time to become comfortable with the credit processes involved with a loan application, but most have also had more opportunity. External factors play a big part here too. House prices are such that for many millennials, unlike previous generations, the prospect of buying a house and applying for a mortgage at a relatively young age doesn’t even feature on the radar. As such, this group has less exposure to credit processes.
Financial inexperience creates a need for more careful guidance and reassurance. This likely explains why over half (58%) of millennials would only consider borrowing from well-known or previously used lenders.
A helping hand
For lenders, this is both a problem and a huge opportunity. With many millennials now in their mid-thirties, their collective buying power is set to increase substantially over the next decade, making this an increasingly lucrative target market.
That this knowledge gap exists is a chance for the smartest non-traditional credit providers to differentiate themselves as genuine and credible sources of information and guidance for these nervy borrowers.
A great user experience (UX) will undoubtedly help, but will need to be far more than a facility for fast and convenient access to credit.
A great user experience (UX) will undoubtedly help, but will need to be far more than a facility for fast and convenient access to credit. This notion is given further weight by the same report which indicates that one in seven applicants cite clarity of the product’s documentation as the most important factor when deciding between lenders. Persuasive and confidence inspiring UX goes far beyond origination – it must resonate throughout the entire loan lifecycle.
To successfully target millennials, this means balancing investment in a slick digital user interface and the development of clear and simple documentation. Since this group values one-to-one guidance, the contact centre will be a key battleground for business. Here, engaging a specialist outsourcing partner may well be the way to go. These providers are trained and skilled in supporting the kind of dialogue that younger generations need to confidently apply for credit.