Näktergal blog

5 Effective nudging techniques to grow your consumer lending business

16th May 2023 - 10 min read

TL;DR

Five powerful nudging techniques to enhance conversion rates for online consumer lending businesses. The techniques explored include anchoring, tunnelling, social proof, multistep forms, and powerful copy. By incorporating these techniques, lenders and banks can guide customers towards informed decisions, simplify the application process, build trust, and optimize their website’s performance, resulting in improved conversion rates and a better user experience.

Understanding nudging in consumer lending

As an online lender or bank, you want to do everything possible to encourage potential customers to take the plunge and apply for a loan. What if you could nudge them in the right direction without being pushy? In a previous article, we explored the concept of nudging in consumer lending and its role in responsible lending. Below, we discuss 5 popular techniques of how you can incorporate nudging into your site, providing examples and practical advice for each.

As a refresher, nudging is a behavioural economics concept coined by Nobel prize-winner Richard Thaler that aims to influence people’s decisions by providing subtle cues. In the digital world, nudging can guide users to take a desired action, such as filling out forms or clicking on buttons.

Incorporating nudging techniques can improve conversion rates and increase revenue, so it may well be worth adding one or several of these techniques to improve your consumer lending site if you have not already done so. We will explore 5 specific techniques to incorporate nudging into your site: anchoring, tunnelling, social proof, multistep forms, and powerful copy. Let’s dive into the specific techniques.

1. Anchoring for your consumer lending site

Anchoring is a powerful technique used to influence decision-making by providing a reference or starting point for the customer. The idea is that by presenting an anchor, such as an example loan amount or a typical loan statistic, customers can more easily evaluate the options presented to them. This is because it reduces the cognitive load on the decision-making process and makes it easier for customers to progress.

In the world of consumer lending, anchoring can be very effective. Customers want to feel like they’re getting a good deal or saving money, and anchoring can help provide that sense of relative value by having a number to compare to.

Even the way terms are worded can have an impact on the chances of success: researchers found that borrowers were more likely to accept higher interest rates on loans when the rate was a round number (e.g., 7% rather than 6.97%). The data suggests that the round number serves as an anchor, making the higher rate seem more reasonable, even though it actually cost slightly more to the customer.

Here are some ways to incorporate anchoring into your lending website:

Providing an example loan amount to give customers a starting point for their own loan request
Giving statistics on typical or average loan amounts to help customers understand what other borrowers are choosing
Showing loan rates from competitors, and showing how yours compare and any advantages you can provide

By incorporating anchoring into your website, you can guide customers towards choosing the best loan for their needs, while also increasing conversion rates.

2. Tunnelling for your consumer lending site

Tunnelling is an effective UX design technique used to guide users through a process by focusing their attention on one step at a time. It works by limiting the number of options available to customers, thereby reducing decision fatigue and instead focusing on critical loan features such as interest rates, loan term length, and fees. A study from Forrester Research across various industries suggests well-designed UX can boost yield conversion rates up to a staggering 400%. Tunnelling is a great technique to align borrowers with their respective goals. For instance, lenders can offer loan options with shorter repayment periods or lower interest rates, if borrowers are looking to save money in the long run. Alternatively, lenders can provide information about loan options with lower fees, helping borrowers reduce their overall loan costs. By limiting options and guiding borrowers towards more favourable loan terms, tunnelling can help lenders ensure that borrowers make better-informed decisions and avoid unsuitable loans, which in turn helps lenders. Here are some ways to incorporate tunnelling into your lending website:

Removing links that lead users away from the application process, to ensure they remain focused.
Simplifying text and colours to draw attention to important elements.
Simple and clear instructions on each page of the application process to reduce cognitive load and help focus on the task at hand.

3. Social proof for your consumer lending site

Most of us are familiar with having social media share links on articles, blog posts and websites, with figures on how many shares or ‘likes’ a piece of content has. This is a good example of social proof, a psychological concept that refers to people’s tendency to conform to the behaviour or opinions of others in order to fit in or make the “correct” decision. In the world of online consumer lending, social proof can be a powerful tool to build trust and credibility with potential customers. In a study by Trustpilot and London Research, more than a third (35%) of companies surveyed said that ratings and reviews are ‘critical’ for converting prospects into new customers, and a further 57% said they are ‘important’ or ‘quite important.’ Social proof can go a long, long way in growing your business. Here are some ways to add social proof to your business:

Share testimonials and reviews from other customers. Include specific details and statistics that highlight the benefits of your products or services, for example, “This loan helped me pay off my credit card debt and save over $500 in interest charges.”
Use “most popular” tags or badges to highlight products most likely to meet customers’ needs
Incorporate social proof into your marketing campaigns by featuring user-generated content or testimonials in your ads or email newsletters. This can help build trust and credibility with potential customers who may be sceptical of traditional advertising.
Add social media links to encourage customers to share your content or products on their social networks. This also helps increase brand visibility and credibility.

4. Multistep forms for your consumer lending site

Loan applications can be time-consuming, with many steps and a lot of data input required. This results in many users abandoning applications halfway through. Multistep forms are a smart way to incorporate nudging into online applications to make it easier for a user to complete and reduce abandonment rates. Research by Conversion Fanatics found introducing multistep forms can increase conversions by nearly 53% on average. They can also be really useful for error checking: by prompting borrowers to double-check their input before moving on to the next step, multistep forms can reduce the risk of errors that could impact the lending decision. By breaking up the data gathering process into smaller, more manageable steps, users can feel a sense of accomplishment as they complete each step, motivating them to ultimately finish. This is also a type of gamification to help users stay engaged throughout the process. Each step completed gives the user a little ‘win’, making them feel like they are making progress and removing the overwhelming feeling of one, long, time-consuming form. This is true even if it has the same questions and takes the same amount of time to complete. Some ways to include multistep forms:

Breaking up the loan application into multiple steps, with each step focusing on a specific set of information
Adding a progress bar or step tracker to help users understand where they are in the process and how much more they have to complete
Providing clear instructions and guidance for each step to make it easier for users to understand what information is required
Testing and optimizing the form layout and design to ensure a smooth and user-friendly experience.

5. Powerful copy for your consumer lending site

The last technique is leveraging impactful text. Writing and using effective copy is a powerful tool in online lending to nudge users towards completing loan applications by strategically adding the right text in the right place. For example, by providing helpful tips and guidance at key stages where users tend to get stuck, copy can help reduce barriers to conversion. This might be a pop-up or a highlighted piece of text you can hover over with your cursor. The wording itself matters a lot too. A simple change in wording from “Request a quote” to “Request pricing” helped software company Veeam gain a 161.66% increase in click-through rates to their lead generation page. Simple changes in text can all of a sudden become very powerful. Copy can be used to establish trust and instil confidence in users, too, by striking a balance between a friendly and professional tone. Here are some tips for using text smartly:

Use clear and concise language that is easy to understand
Add reassuring notes to address common concerns that users may have, such as worries about security or privacy
Use a strong call-to-action to encourage users to complete the application

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How you can incorporate nudging into your consumer lending site

Take a look at your website and research which areas cause the most friction on your site, and consider if any of the above 5 techniques can increase conversion rates. For example, if you find potential customers frequently abandon an application at the same stage in the process, see if there are any nudging techniques you can use to simplify the process. Or if users get hung up on the pricing page, you can add techniques such as anchoring or different types of social proof to the page.

Additionally, A/B testing can be a really useful way to determine how to incorporate nudging to your site and discover where small changes can have the biggest impact. Utilising beta testing and other tools such as Naktergal’s end-to-end testing can help you fine-tune your approach and achieve optimal results. With the above 5 techniques in your arsenal, together with a thorough testing strategy, you can make a big improvement to your website’s performance while providing a better experience for your customers. It’s a win all round.