Making Applications Processes Customer Friendly - Part 1

Most customers find applying for credit difficult and confusing. Institutions get accused of asking for too much information for a ‘simple answer’ and often application forms are full of ambiguous and seemingly unnecessary information. Customers also complain that after going through all the pain of applying that they often get declined without an adequate reason.

Asset based products have the worst reputation for confusing application processes. This series of tips will explain how you can make your home loan applications processes less onerous for you and your customers. The adoption of three key principles can lead to increased sales as well as lower process costs.

Principle 1 – Separate the process into customer friendly stages
The purchase of a home is generally approached by a customer in three stages. First of all, a customer attempts to narrow their search to a set price range for which they think they will qualify. Secondly, a home is found and the customer signs an offer to purchase. Finally, a bond is raised and the transaction is completed. Most home loan applications processes do not follow the customer approach. Applicants have to fill in a complicated form requesting all the information needed for the full process. Often this is linked to another series of expensive internal processes which are wasted if the client does not take up the loan.

These problems can be overcome if the following three natural stages are used.

1. Customer qualifying amount
In this stage, the customer simply wants to know how much the institution would be willing to grant them, if anything. All that a credit grantor generally needs to know to provide this is:

• Application scoring model – potentially using a credit bureau score and/or an internal behavioural score.
• Income
• Policy exclusions
• Contact details (telephone, email and fax numbers).

This information can usually be obtained using less than 20 questions which is considerably less than a standard application form.

The value of this step is that the client’s expectations are met immediately. If the client is declined at this stage, the customer and the grantor have saved extra hassle and expense. Otherwise, the customer is given an amount which can be used as their basis for ‘house shopping’.

2. Approval subject to final valuation
Once the customer has found a property, they know what the exact price tag is, as well as the deposit that they are prepared to pay. Generally speaking, a client is now required to sign an offer to purchase with the seller to proceed with the process.

At this stage, with just the addition of the property price and deposit amount, the bank can issue the customer with an approval subject to valuation. There is generally a strict time frame associated with this step from a customer perspective, so only having to process this extra bit of information will ensure that the time frame is kept to a minimum.

3. Loan granted
Once the offer has been accepted by the seller, it is appropriate to commence the expensive processing steps like property valuations, employment and fraud checks, passing files to conveyancers and so on.

Customers are generally far less impatient with this part of the process than with the other steps. They are more willing to provide the information required for the application to be finalised. Also, since there are ‘drop-offs’ in applications in the up-stream process steps, this part of the process has lower volumes than the other processes and is therefore far less costly for the credit granting institution.

Next month’s tip will explain how to improve the customer experience and reduce processing costs even further, by using each principle to prepare the customer for the following stage.

Paul Shortridge is a Senior Consultant at PIC Solutions, the largest customer management solutions company based in the Southern Hemisphere. He has over 5 years experience in the financial services industry. Previously with Nedcor as manager – innovation in retail credit, he headed up a team that successfully rolled out projects to reduce risk, increase revenue and reduce costs across all credit and transactional products. In this role, he implemented initiatives that increased revenue by R100 million and introduced their 8-second home loan pre-approval process. As lead consultant at London Bridge Group, Paul was responsible for the business lead in large scale project implementations as well as assisting the sales team with expanding their market in South Africa. He holds a BSc and MSc in Chemical Engineering from the University of Cape Town.