Turning credit declines to approvals at scale with digital financial coaching automation

The economic crisis, triggered by the pandemic, has left millions of people needing credit at a time when financial firms are simultaneously tightening lending standards. The result? A lose-lose situation, where the consumer gets a credit decline and a horrible experience, and the financial firm loses a potential customer.

The credit decline experience: Invite and insult

Let’s break the credit decline experience down.

Ironically, the consumer is made to feel like a king and encouraged to apply. The application process, though, involves baring one’s economic soul (your income, key expenses). For some credit products, such as home loans, the application and documentation are highly invasive and involved, requiring time and thoughtful inputs by the applicant.

The credit decline process, on the other hand, feels blunt and insulting. The applicant receives a form decline letter with little to no advice on actions the applicant can take to improve their credit strength.  It is no wonder that credit declines receive a rock-bottom Net Promoter Score (NPS) score of 50 or worse from consumers! This creates an  opportunity for forward-thinking credit unions to turn credit decline experiences into positive ones to differentiate themselves from larger financial institutions and create a win-win for the customer and themselves. In fact, where financial advice is offered at the time of the decline, consumers are very happy, boosting NPS scores by a big margin, according to credit union executives.

Converting declines to approvals is a business case winner

Wells Fargo’s 2018 annual report highlights the business potential for post-credit decline coaching. The bank spotlights how its team of financial health coaches worked with a customer, whose application for a secured credit card was declined. By the end of the coaching process, the customer’s situation had improved so much that the family realized its dream of home ownership, utilizing a Wells Fargo mortgage (of course).

Consumers want financial advice but it is scarce

Did you know that 64% of credit union members are struggling financially (Source: Financial Health Network)? While wealth clients get personalized advice, retail banking customers are left to fend for themselves. A J.D. Power study noted that of 58% of customers who desire digital advice from their financial institution, only 12% receive it. Yet when consumers do receive advice (and are satisfied), 91% report a high level of trust. Needless to add that these consumers are likely to become members!

The benefits of converting credit declines to approvals is clear. However, the cost to do it has been the roadblock. AI-powered coach bots, described below, change the equation.

AI-powered coaching: Quality advice at scale

Today’s AI-powered digital financial coaching technology can create an advice experience that rivals what the best credit union counselor delivers. AI is now powerful enough to create personalized advice for consumers, laying out the exact steps needed to improve credit scores. Since the advice is automated, it is scalable, always compliant, and costs only pennies per interaction, which cannot be said about a human advisor.

These AI solutions can be made even more powerful when they follow best practices for financial coaching.

• Bite-sized action steps: Advice is most effective when offered as baby steps to gradually nurture members and avoid overwhelming them. This approach gives the member the confidence to keep going on their long-term financial journey.
• Plain language:Conversational AI tools work best when they deliver advice in friendly, easy-to-understand language that’s free of financial jargon.
• Behavioral nudges: AI solutions can include an arsenal of A/B tested best practice nudges that help members make progress on their action plan. These nudges make a coach bot more like a human coach, providing motivational reminders and celebrating progress. For example, a digital coach could hold the member accountable to take an agreed action, e.g., reminder to pull their credit report, and make it easy to follow through by sending a quick access link.
• Gamification: A digital coach can incorporate motivational fun challenges and rewards like contests, badges, gift cards and other strategies.