[Editor’s note: This is a guest post by R. Tyler Smith and Mark Lusky. See the end of the post for their bylines. The views expressed here are their own.]
While marketplace lenders use advanced technologies to determine applicant suitability and administer loans, most continue to use traditional direct response marketing to get borrower prospects, ignoring virtually limitless ways to brand and differentiate themselves in the marketplace.
Such direct response marketing techniques as direct mail, search engine ads (Google AdWords), email/marketing automation, and cell phone text messaging focus communication on a target market or database of prospects and/or customers. Typically, there is an offer, call to action, and means to track response.
These methods work, but at what cost? Rising popularity of marketplace lending and the number of industry players are leading to direct response saturation, driving up per-conversion costs. Many players are already at net zero (no profit from paid conversion) or relying upon a future potential conversion for profit. Instead of asking themselves how many dollars are spent getting a deal, most marketplace lenders are concentrating on transaction volume as a measure of success or failure.
The industry loves to talk about the total addressable market. While the current market has essentially doubled every year since 2009, the number of players has tripled or quadrupled. This raises the question of how these additional players will compete, a particularly poignant concern for Lending Club and Prosper, which for eight years have had limited competition.
What’s missing from the equation
New and current players should focus heavily on building a consumer brand. Image, branding and reputation will serve as key marketing elements, complementing the continuing role of direct response marketing.
Far from being a new strategy, consumer brand building has perennially occupied an important position in marketing, and ultimately, sales success. Channel types and scale have grown exponentially from the “Mad Men” era. For example, traditional marketing relied extensively on mainstream media to enhance image, reputation and brand recognition. Today, social media has put brand building and reputation management on steroids, creating vast viral ways to address company offerings, performance and challenges. Everything from blogposts and forums to Google+, LinkedIn, YouTube, et al is fodder for revving up the buzz.
Marketplace lenders need to play long ball instead of continuing to eke out bunts. Social media and aligned forms of communication are longer-term, slower-building processes, especially when deployed organically (non-paid search) versus such paid avenues as Google AdWords.
Even such “traditional” businesses as carmakers (Ford and Lexus especially) are embracing longer-term brand building instead of focusing solely on direct marketing to sell cars.
In contrast, marketplace lending currently is all about the short-term race to sell a commodity (a loan) where pricing is the primary criterion. This is not a novel phenomenon. In 1998, it was ecommerce. For example, a ton of people rushed in to sell books online, grabbing the market because there wasn’t much competition. Then Amazon came in, built a brand, and started to corner the marketplace. People today aren’t starting bookstores online because the space is almost impenetrable.
Evidently, major established and upcoming marketplace lenders believe they have this space cornered. There are plenty of investors, so there are no problems funding loans. And, types of loans—for homes, students, and other narrow verticals—are popping up left and right.
But there is no appreciable branding anywhere. A new player named Payoff.com, however, will disrupt that—using every digital avenue in play versus a single-minded direct marketing focus that has characterized the Lending Club and Prosper approach. Payoff.com may blast the marketplace with long-play channels and building of a reputation. They will become known by their brand, not just become another undifferentiated competitor scrambling for their piece of the pie among a growing list of contenders.
EAU: How marketplace lenders will gain competitive edge
To get ahead of the present curve, marketplace lenders must build a brand, with much of the focus on education of prospective and present borrowers about this newer form of loan, as well as cultivating awareness and understanding of the company offering it.
This Education, Awareness and Understanding (EAU) initiative—popularized by Prosper President Ron Suber—emphasizes long-term marketing and branding. It incorporates reputation management, aligned social media channels at all levels, and a true attribution model (a reliable way to measure who is responding to what, and when). Not only does the borrowing community become well-informed about marketplace lending in general, and the company in particular, the entire program can be reassessed and re-geared to ensure that the most influential channels are used the most.
EAU is popping up more and more. For example, American Express produced a presentation called “Spent: Looking for change” to highlight the financial plights of many consumers and ways to circumvent predatory lending. While the company’s branding and influence is evident, it is also a valid educational tool for consumers. Discover includes free credit scores with statements, another educational initiative to help people better understand their financial circumstances.
How about a marketplace lender offering financial classes to prospective borrowers? Successful completion would entitle the borrower to more favorable loan terms based on being better informed and therefore less risky.
Attribution assessments can provide valuable intel about why and how a deal closed, if it doesn’t mislead. Many models identify the first touch (initial impression) or last touch (the clincher), but don’t include all the assistive exposures that may truly have driven the sale. A company might conclude that social media isn’t working well, cut it down (or even off), then wonder why their direct mail response has gone down 20%.
Implementation of the most robust attribution technology on the market is critical. (However, even it may falter when evaluating non-digital media such as radio or TV; by nature digital lends itself to more accurate tracking.)
In a long-term branding and reputation management environment, social media and associated digital channels will focus on creating buzz and brand recognition, not directly converting prospects to sales. In many ways, social media is today’s super-powered image-building platform that can educate, generate awareness, and promote understanding.
Marketplace lenders embracing a longer-term branding commitment now will still be viable and relevant when it comes to fruition.
Tyler Smith is the Managing Director of Loftopia, LLC, a Detroit, Michigan-based Digital Marketing Agency specializing in Marketplace Lending. Primary focus is helping marketplace lenders achieve conversion in several critical areas, including conversion to a brand, conversion of traffic to leads, and conversion of leads to customers.
Mark Lusky is President of Lusky Enterprises, Inc., a Denver-based marketing communications company specializing in content development across a variety of digital and print platforms—including expert advice columns, news/feature stories, websites/blogs, brochures, case studies, whitepapers, sell sheets, information packets, and newsletters.
Peter Renton is the chairman and co-founder of LendIt Fintech, the world’s first and largest digital media and events company focused on fintech. Peter has been writing about fintech since 2010 and he is the author and creator of the Fintech One-on-One Podcast, the first and longest-running fintech interview series. Peter has been interviewed by the Wall Street Journal, Bloomberg, The New York Times, CNBC, CNN, Fortune, NPR, Fox Business News, the Financial Times, and dozens of other publications.