The U.K.’s financial watchdog says lenders need to make online loan applications easier to understand.
The Financial Conduct Authority (FCA) said Thursday (July 31) that a review found room for improvement to the online application processes to help potential borrowers make informed decisions on their finances.
“Online and app-based applications can make it easier for people to get the credit they need to navigate their financial lives,” Alison Walters, director of consumer finance at the FCA, said in a news release.
“But poorly designed applications could mean people bypass important information. We’re sharing examples of what works and what doesn’t, so lenders can better support their customers,” Walters added.
The review found that some lenders used shorter, simplified language and offered explainer videos that helped customer understanding. But some digital loan sign-ups were designed without “positive friction,” which slows decision making, the FCA.
These processes also left out information consumers needed on things like costs. In addition, the FCA also found that some lenders prioritize speed over customers interests.
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“Credit application journeys are sometimes marketed as being quick or taking a specific amount of time,” the report said. “This may influence customer expectations and could lead to them not acting in their own interests. Further consideration can be given to how the speed of journeys affects customer outcomes.”
PYMNTS examined the digital lending landscape last year in a conversation with Eric Lee, vice president of product at Amount.
As that report noted, while financial institutions (FIs) might feel like they offer a best-in-class digital experience in terms of putting lending products online, their customers might beg to differ.
Lee told PYMNTS that there “seems to be a disconnect between how FIs see their digital readiness and what the actual readiness looks like.”
The challenges, he added, range from attracting new customers and deposits to regulatory issues to the complexities inherent in collecting, maintaining and employing customer level data to streamline their lending efforts.
“Many of these FIs are looking for external help,” Lee said.
Joint research from PYMNTS Intelligence and Amount shows while most FIs would rate their digital lending processes as good or even excellent, just 25% of banks can actually fulfill their loan processes from application all the way to disbursement of the funds within the same day.
