Ideas & musings about consumer behaviour

Banks in competition as households pay an extra 7.5% for personal loans

Author: Suzy Coulson

The results of a recent survey conducted by the Reserve Bank of Australia on bank fees has revealed a 2.3% rise in the product fee income banks have received from households during 2013. Personal loans had the biggest fee income increase compared to all other banking products, going up by 7.5% from the previous two years. As we move closer to feeling the impact that the Government’s proposed budget plan is promising, we suspect households will be keeping a closer eye on their finances, including the interest rates they’re paying.

With this in mind, now is the time for banks to consider how they will capture and retain customers as they go on the hunt for the best personal loans deal.

In February 2014, we ran a study to assess the sales effectiveness of some of the bigger players in personal loans to see how they perform across the customer decision journey.

What we found was that relative to the sales journey of other major banking products, the journey for personal loans performs quite well. However, there are a couple of key stages where the journey falls a little short; ‘evaluating (product) options’ and ‘facilitating (customer) decisions’. If we consider the stages of a typical sales journey, then these are two key stages before people are likely to even want to ‘act’ on their decision.

Personal loans graphEvaluating loan options and making a decision on which loan to choose are likely to be key areas of focus for households now given the results of the RBA study and release of the new budget. Failing to adequately support customers through these stages could prove to be of great disadvantage to the banks as we continue to see alternative loan providers such as Cash Train and Nimble flooding our TV screens.

As part of being able to evaluate their loan options, customers will look for products offering specific features, such as low interest rates, of course.  They will also often rely on borrowing power calculators and loan repayment calculators to assist them with their decision making.

In the range of tasks we asked consumers to complete, the task of matching a product to the customer’s needs scored the lowest with an average success rate of 45%. This average was primarily brought down by Westpac (25%) and CBA (10%).

On a scale of importance from 1-10, consumers rated ‘having a tool to help select a loan based on personal needs’ as an 8.3 in importance and the ‘ability to easily view account features and benefits’ an 8.9 in importance. Given these high rankings of importance and low performing task success rates, brands need to pay close attention to how they are going about displaying their product options.

In addition to the low scoring task, the industry averaged just 45% for the category of ‘calculating options’. ANZ topped this list with 86% (89% for borrowing power calculator and 81% for loan repayment calculator), 30 points ahead of CBA who was in second place with 67% (60% for borrowing power calculator and 72% for loan repayment calculator). Citibank, who was in last place with 19%, and St George, who was second last with 21%, fell short in this area as they don’t provide borrowing power calculator for customers. Consumers rated online tools such as borrowing calculators 8.6 in importance, showing just how important it is that personal loan providers provide these elements on their website to support decision making.

If customers are unable to calculate how much they can borrow, they are likely to go elsewhere to find out!

With the interest rates on personal loans typically sitting at the same value regardless of the provider, brands need to not only sell their products, but also need to sell themselves. Where offers are near identical, brands need to sell themselves alongside their products to give customers a reason for picking them over their competitors. The industry overall fails here, with most companies neglecting to educate prospective customers on their value proposition. If the banks can’t tell consumers why they should be chosen, how can they expect these prospective customers to pick them over somebody else offering the same product?

As consumers begin to take more notice of their budgets, banks need to take more notice of their customer experience journey in order to keep consumers on side. If they can’t improve in aiding customer with evaluating their options and making a decision, then other loan providers become as worthy a competition as the banks themselves.

For more information about the Personal Loans Digitial Sales Effectiveness Study, download our free report or please contact:

Ché Carbis
Senior Commercial Director
T: +61 3 9982 3419
M: +61 411 962 857


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