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Tips for Choosing a Loan Payments System

By: Phil Spradlin

Today, consumer loan payments run the gamut from traditional paper checks to online and mobile, increasing the demands on banks to efficiently manage multiple forms of payment. As consumersí payment preferences continue to evolve, financial institutions must stay ahead of the curve and be able to successfully meet them to thrive. Simply put, without the right system in place to accept loan payments, a financial institution severely limits its growth. When selecting a system to accept loan payments two of the key considerations are satisfying consumers and setting up a system that is flexible enough to meet the bankís changing needs.

Consumer Satisfaction Is Still King

In a June 2012 report, Aite Group surveyed 57 organizations that issue recurring bills and collect payments from consumers. The results were revealing; consumer satisfaction was their top priority. A full 61 percent of respondents cited customer service in facilitating various payments as the most important factor in selecting a payment system. To satisfy consumers, financial institutions need to address consumersí preferences for debit cards, mobile payments, consistency and the ease of resolving late payments.

Paper checks and ACH are the primary ways that consumers pay loans today, but they are demonstrating a penchant to pay with debit cards. A recent survey by the Federal Reserve found that debit cards are consumersí preferred method of payment due to convenience and ease of record keeping. Historically, financial institutions were reluctant to accept debit cards due to the higher cost per transaction, but the implementation of the Durbin Amendment lowered the cost of accepting debit cards, making it more affordable to offer consumers the option to pay with debit. The use of cards for payments is expected to increase as the overwhelmingly preferred consumer payment method in coming years. Ultimately, a bankís ability to cater to these loan payment needs will dictate whether individual consumers remain loyal long-term customers.

Increasing adoption of the smartphone, along with the explosion of apps on the iPhone, iPad and Android markets are driving more consumers toward the mobile phone to help manage their lives. Given this ongoing shift toward mobile, consumers are expecting to pay their bills from their mobile phones anytime, anywhere. As usage of mobile devices become more ubiquitous, banks should integrate methods to accept loan payments sooner, rather than later. Some of these methods include:

In large part, the challenge to bankers is in accommodating the convenience demands of customers while also providing a sense of familiarity and continuity. Electronic payment enrollment and recurring loan payment programs, as examples, can strengthen or hinder the bank/customer relationship based on the payment systemís ability to consistently maintain and present each customerís existing account information on a month-by-month basis. Failure to do so can easily frustrate a customer leading them to consider the bank down the street next time they are considering a new loan.

When a customer is late in paying or misses a payment entirely, a systemís ability to support the quick resolution protects the long-term viability of the bank/customer relationship while simultaneously streamlining operations for the bank. Allowing customers to set up text alerts for when they want to be notified can cut down on unnecessary delinquencies and tardiness. Customers who fall behind on their payments have shown a preference to resolve their delinquencies on a website, as opposed to speaking with someone on the phone.

The Importance of System Flexibility

When selecting a system for receiving electronic loan payments, the overall flexibility is equally as important as the consideration of customer satisfaction. Banks look for a flexible loan payment system to ensure their business rules are applied consistently through a customizable business logic and data model. Another sought-after feature is flexibility in being able to use a preferred originating depository financial institution and merchant acquirer. The lending business can change very quickly as loan portfolios are purchased or new types of loans are offered. A flexible payment system makes setting up these new loan portfolios to receive payments quick and easy.

How well technology supports the pressures of constant market change is another key factor for banks in the selection of a payments system. It must satisfy customers and must also meet the bankís demands. A flexible payments system not only does that, but also positions the bank to evolve with those constant market changes over time, establishing it as an all-inclusive institution that highly values relationships with its customers along with the service it provides.

The Final Decision

Payments systems are not one-size-fits-all solutions, and banks must be thoughtful in the evaluation of their existing platformís ability to meet and exceed borrowersí expectations. With change as the only true constant in todayís market, the flexibility of a bankís payments system will enable it to successfully adapt to changes in consumer preference and the bankís own business. Consumer satisfaction and system flexibility are the ultimate determinants of success when it comes to electronic bill payment.

Phil Spradlin is senior market analyst of Online Resources Corp., a provider of digital financial services. For more information visit

Copyright (c) October 2012 by BankNews Media