Proven Techniques to Increase Loan Balances

Here are the main takeaways from the article below:

Start with current customers

Equity acquisition programs have always been challenging when targeting prospects. In fact, getting a response rate of .1% (yes, the decimal is correct) can be considered a success… especially in these competitive times of financial institutions being flush with cash and wanting to lend. To ensure being as efficient as possible with your marketing dollars, all initiatives to increase loan balances need to start with current customers.

Focusing on equity, the best place to start is with your mortgage customers. Assuming your financial institution keeps mortgages on the books, the amount of the loan balance remaining is known. Using this to calculate how much equity is available can help in selecting who is eligible and aid in the messaging (discussed more below). In today’s rate environment, it is possible that an equity offer may result in a refinance of the mortgage, but it is better that the customer refinance with you versus a competitor!

Many institutions have a separate system that houses mortgage data, so marketing may need to work with the mortgage department to obtain the data and make it useable. If your institution sells the mortgages, maintaining a database of sold customers to “stay in front of” for future equity offerings is beneficial. If the mortgage customer has other accounts with you, flagging the customer record can help compile a list of customers who held a mortgage with you.
Another area that is often overlooked for increasing loan balances is existing equity line customers with under-utilized lines. These customers already understand the need for an equity line and don’t need to be convinced to open the account. They may have forgotten they even have the account! A simple review of the equity lines already on the books and the utilization rates can provide insights into the opportunity and provide direction on who to target with a reminder message.

Existing mortgage and equity line households usually make up a small percentage of an institution’s total customer base but there is plenty of opportunity with the remaining households. If you had an unlimited budget, you could communicate to all customers without a loan. Since that isn’t a reality for most institutions, steps can be taken to further refine the audience for a lending message.

A great first step is appending external demographic data to your customers. This is important in determining if a person is a likely homeowner and most data companies also have information regarding the current mortgage for the household. Information like mortgage date, amount and current home value can help estimate the probable equity available in the home. Adding those variables to demographics that imply the life stage of the household (age, presence of children, etc.) can help identify the likelihood that the household will be in the market for an equity product.

Ideally, the appended data will then be used to build a model to quantitatively determine the likelihood of borrowing as opposed to guessing. The standard process is to build a profile model using the existing equity customers and then score the rest of the customer base on the likelihood of needing an equity loan. Then a communication campaign (mail, email and digital) will be executed and the responses are fed back into the model to develop a response model that continues to improve over time.

Targeted Prospects Get Results

The added benefit of using data append and modeling to refine the audience within your customer base is that the same model can be used to refine a prospect universe. It is good practice to utilize the same data source as the original data append to rent the prospect list, ensuring the quality of the data is the same as the data the model was built upon. This will not be an issue if you outsource the modeling and the data append to the same company. If you build the model in house, you can either use a profile of the ideal audience to order the list or get a much larger list of prospects in the area and run the model to narrow the list. Just make sure the list provider allows for a “net record” arrangement so you don’t have to pay for records you won’t use.

If you have not created a profile model for your existing customers and do not want to go through the expense of creating a custom model, many of the reputable list providers have “off the shelf” models. Sometimes called propensity or intent models, there are many data companies that create them (or source them) from data sets with millions of records. Since there may be nuances in the type of customer your institution brings in, these models will not be as robust as using your actual customer data. However, they are still fairly predictive and much better than using a basic demographic profile.

Utilize Trigger Data for Relevant and Timely Messaging

According to Speedeon Data, approximately 36 million people move each year — and these movers spend, on average, more than $9,000 within the first three months. What’s more, it’s estimated these movers engage with 71 new brands during their transition.

Movers have a lot on their plates initially but, within a few months, they often make home improvement projects a priority. Some of the smaller purchases may involve new appliances and other home upgrades where a new credit card could come in handy. Larger investments like remodeling or adding a swimming pool are likely to pop up after 6 to 12 months of living in the new home. Additionally, people buying a new home probably delayed buying a new car before the move to save money and help qualify for the loan. Now that the purchase is in the past, buying a new car may be on the horizon.

The act of moving itself can be a signal about life changes as well. It is possible the move was initiated because the family is growing and they need more space, which can indicate many financial needs. Conversely, the new mover may be downsizing as children go off to college or in preparation for retirement. This could mean travel or a retirement home may be coming next.

Research shows that new movers are five times more likely to become long-term customers if you reach them first. Although some of the opportunities may not be immediate, the different stages of needs means it is important to be in front of them early and stay in front of them so you are top of mind when the need arises.

New movers represent two opportunities… deepening the relationship with current customers and acquiring new ones. For current customers, you can “monitor” your customer base and identify when your customers move… sometimes even before they tell you! Combine this with other Life Stage triggers like newly married and having a baby and you can be ahead of many potential financial needs, which helps the customer feel like you are looking out for their best interests.

Traditionally, using new mover data to gain new customers has revolved around the checking product. However, as demonstrated above, there is a lot of opportunity around credit card and lending 6 to 12 or even 24 months after the move. Combining the New Mover information with additional demographics and intent data can lead to very specific— and relevant—targeting and messaging.

People Want to be Seen and Heard

One thing that can be forgotten with all of the focus on data intelligence and communication channels is the message. You can create the perfect target audience and employ every channel available to be in front of the ideal prospect over and over, but if the message does not “speak” to them, they will never act.

First, it is important to be conscious of the current environment. A year or two ago, it was common to see a “take a vacation” theme in equity advertising. That was before the pandemic. That theme may become relevant again as restrictions get lifted, but the current focus is on home improvements. A study from Porch.com shows home improvement spends are at an all-time high and Google searches for home improvement were up 50% in the third quarter of 2020. People spent a lot of time at home over the last year and have found many projects to make their home a better place. In addition, the current real estate market has made it hard for people to get new homes so they are resorting to major additions to their current homes.

The other area of focus when it comes to the message is who you are speaking to. When doing the profile of existing equity customers, you may find that the typical borrower is between ages 35 and 65. That might seem like a narrow band, but the 35-year old borrower will be at a different stage of life than the 65-year old borrower and will probably be borrowing for different reasons. Creating personas within the target audience can greatly enhance your ability to craft the message and images that will most resonate with each specific group.

Basic demographics like age, income, marital status, and presence of children will allow you to create your own personas. However, there are many segmentation systems like P$ycle, Symphony and Tapestry that allow you to get very granular in the groupings (if you so desire), and they are professionally built. Just using the top-level segments will provide more than enough differentiation in messaging for a typical campaign.

The best part is that with today’s technology, it is very easy to alter the text and images for each of the personas with very little additional cost… even with direct mail! Digital printing allows for images and text to be personalized to every recipient. Of course, that can be carried over to the email with very little effort and the customization of the digital ads is only limited to the number of files you want to create. Studies show that depending on how it is implemented, personalization can increase response rates anywhere from 50% to 300%, so it is well worth the effort on a campaign such as equity.

Omni Channel Messaging for Increased Response and ROI

Direct mail is the least cluttered direct channel with the average household receiving three to six marketing pieces per day, although it comes at a higher unit cost. Email can be sent at a much lower cost, but since the average office worker receives 121 emails per day, it is harder to get your message seen. Digital ads are a good option, yet many browsers have built-in ad blockers and your ad is competing with the information on the page the person is actually reading. While it may seem like common sense to use multiple channels, too often marketers pick one or two channels for their communications because they are “the best” or most cost effective. The fact is, the most cost-effective campaigns are the ones that bring in the most responses—and the best way to do this is through multiple channels.

The “best” customers prospects should be communicated to through all channels. New technologies allow for household level targeting for social and digital advertising so utilize the same modeled list used for direct mail and target them on their devices as well. For customer segments, email is a great additional channel. Retargeting ads should also be used for everyone who comes to the landing page through the campaign so they continue to see ads after their visit.

You (or your agency) can use the same platforms used for the “full” campaign and to communicate to the next level of prospects. Traditional digital and SEM tactics can be used to provide broad reach. Certain platforms allow for more granular intent targeting that uses past search to cultivate audiences for display ads as well as OTT advertising through connected tv devices. These channels don’t have the “trackability” of full campaigns with address level targeting but are cost-effective ways to get the message in front of a broader audience
Below is an example of an omni-channel campaign that works well for an equity program after a targeted list of customers and prospects has been created: