The term “text loans” came into use after companies began to offer loans via text message. However, you can also use text messages to reduce your default rates and communicate with your customers more efficiently.
While working with short-term loan providers before joining TextMagic I could say default rates have always been the biggest concern for businesses offering consumer credit.
But by keeping the lines of communication open with clients, risk management and careful planning, the default rate can be dramatically reduced.
Here are some tips how you can reduce your default rates using text messaging:
1. Verify your customer’s contact details
The level of fraud in the UK is growing and short-term loan providers are one of the easiest targets for fraudsters. To avoid fraudulent activity in your business, make sure you verify each customer who signs up on your website is a genuine customer in search of a loan.
When customer signs up on your website, make sure that you have all the correct contact details that are unique and belong to the specific customer who is applying for a loan. This includes all contact details, including a home telephone number and mobile number.
When the customer has signed up, you can offer the option to activate an account by sending a text message to your customer’s mobile. The text message should include a unique code that the customer needs to enter on your website to confirm that the mobile number provided belongs to the applicant and is an active number.
By verifying your customers mobile number you make the first step towards reducing your default rate and preventing fraudsters from signing up on your website.
2. Send customer reminders before the due repayment date
It is very important to remind your customers notification of the repayment date of the loan before the actual due date elapses. It shows that you are a responsible lender and you do not want your customers incur penalty charges for late payments. It will also reduce the possibility of the customer inadvertently defaulting through being ignorant of the due date, or simply forgetting.
Your customer might not remember the exact repayment date of the loan, especially if it was an installment loan with multiple payments, or a loan spread out over a longer period of time.
Sending a reminder email is one option, but it is worth bearing in mind that only 22% of emails are actually opened and read, compared to the 98% of text messages that are seen.
There is also the risk that your emails might go directly to your customer’s spam folder, which reduces the possibility of them opening the email even more. So, send your customer a polite reminder by text message, just to let them know that the repayment date of the loan is approaching. It might be a little bit more expensive than a free email, but a defaulted loan will definitely cost you much more.
3. Send a text message after your customer has missed the first repayment date
If you have not received the payment from your customer on the due date, contact your customer immediately. Send them a text message to make sure they are aware of the outstanding debt, but make sure that you follow the Debt Collection Guidelines by OFT when pursuing your debts.
In practice sending a text message to customer’s mobile works a lot better than email and the response rate is at least 70% higher compared to email. Make sure you put your contact number and company name into the message, so that customers can call you when they need to discuss the payment.
Remember that with a text message, space is limited to just 160 characters. So ensure that your message is succinct and contains only the most important information. You can also use your company name as the Sender ID instead of the number to make sure your customer knows that the message is from you.