Consumers can be a finicky bunch. Whether they’re shopping for the ripest tomatoes on the shelf, the new car with the right trim package, or a credit card that offers cash back, air miles and a free pony, they expect the absolute best for their time and efforts.
Companies are playing right into those expectations, too. Amazon makes intelligent recommendations to complement recent purchases. Netflix uses sophisticated algorithms to make new show recommendations. Bank of America has a robotic personal assistant, Erica, to help consumers get the most out of their money.
But sometimes, those consumers want to walk their own paths, particularly when it comes to making financial decisions. They want to take control, get into the driver’s seat and set the course. This isn’t surprising; psychology tells us that people exhibit cognitive bias and place a higher value on something when they feel like they were a part of the process of creation (known as the IKEA Effect).
So it stands to reason that an individual would feel an especially profound sense of pride and happiness when they are the architects of their own financial growth. And leading financial institutions (FIs) can give their customers that option by implementing prequalification.
Saying Yes When They Ask
FIs have a variety of ways to acquire new customers, including personal interactions with tellers, websites, mobile apps and more. One time-honored approach, the batch prescreen/direct mail tactic, is still happening despite low offer acceptance rates. (For a more thorough look at batch prescreen versus digital acquisition tactics like Prescreen-of-One, check out our recent infographic).
The commonality with those approaches is that they are all initiated by the organization. Companies are investing time and money into proactive outreach, serving up offers to customers who look like good candidates. That can be a great start to a conversation, but those organizations might not be presenting offers when customers are really looking for the products.
Nor do these approaches do anything to empower the customer to take control of their own financial future. To do that, prequalification rises to the top and puts control squarely in the hands of the customer.
Prequalification is the process of presenting consumers with an opportunity to see the products they qualify for, without having to present a firm offer of credit. An FI that employs prequalification can present a simple scenario, such as “See what offers you qualify for” on a website, mobile app, kiosk or other channel.
A consumer can choose to walk through the prequalification process on their own, in the channel of their choosing. No high-pressure sales techniques, no awkward conversations and no need for an organization to say no. Using the information that comes from the consumer, FIs can present an offer that is tailored, relevant and personalized to the individual applicant.
Prequalification: Another Great Tool in the Toolbox
Giving consumers the power to see exactly what they qualify for is not a new idea, but it has not been as readily adapted in the credit card market as it has in auto loans and mortgages. I’m not sure why that is the case, but it does mean that companies who employ prequalification have an advantage over their competitors who rely strictly on outbound marketing to bring new card holders into the fold.
Prequalification does offer significant benefits. Organizations that use this consumer-initiated approach can see increases in offer acceptance that range up to 80x higher than direct mail. Companies can use it to improve digital channel experiences, and prequalification doesn’t have any negative impact on an individual credit score until the consumer actually applies for a product.
That said, prequalification is not a panacea for customer acquisition. It does open up the FI to an “at-large” population, rather than a more narrow and targeted segment of potential customers. That at-large group may not meet the appropriate risk criteria, debt-to-income ratio or other items that could prevent them from qualifying.
But by providing consumers with an option to find out for themselves what products are a fit, FIs are continuing to demonstrate their commitment to their customers and their experiences. They are also showing their leadership in digital transformation, while bringing revenue to the table.