Loan servicing was previously a core function within banks. Traditionally, banks would issue loans and handle the administration until the borrower fully repaid. However, with time, loans and mortgages were repackaged into securities and can now be handled by other players – loan servicing companies.
Today, most banks offer new loans and pass the loan life cycle and servicing process to different financial companies. The loan servicing market is growing and is projected to hit $1.43 billion by 2028 from $680.8 million in 2021. As the intermediary between the banks and borrowers, they need a payment processor to enhance their services.
Let’s explore the benefits of payment processor partnerships for loan servicing companies and how they help improve their services.
The Benefits of Payment Processor Partnerships for Loan Servicing Companies
Loan servicing companies can use payment processing partnerships for these benefits:
Improved Payment Processing
Loan servicing administration involves tracking payments, sending monthly payment statements, processing payments, and responding to queries. Processing these payments can be complicated because every loan has a unique repayment structure, payment dates, and amount.
Therefore, loan servicing companies partner with payment processors to improve the process.
Enhanced Services
Every loan servicing company should provide a wide range of services. For instance, you can set up recurrent billing for borrowers that send monthly repayments. Partnering with a payment processor will boost your efficiency and service delivery because you can serve more customers from one portal.
Increased Revenue
No two loan repayment structures are the same. Because of this, your company needs to partner with payment processors that allow you to handle more clients. Some customers prefer to make payments via SMS payments or ACH billing. If you provide multiple payment options, you can work with more clients.
Reduced Costs
Since loan servicing companies act as an intermediary between the bank and the borrower, they retain a small servicing fee between 0.25% to 0.5%. They can use complementary technologies from a payment processor, such as a hosted payment portal, to process payments online without incurring additional costs.
Common Types of Partnerships for Loan Servicing Companies
- Payment Processing Partnerships: These partnerships provide secure payment options to help process recurring, subscription, and one-time payments.
- Financial Institutions: Loan servicing companies partner with financial institutions like banks to ensure that all mortgages and loans have been processed and recovered from borrowers.
- Software Providers: This partnership provides the technology required to process loan repayments, primarily if your company uses loan servicing software.
Key Factors to Consider When Forming a Payment Processor Partnership
Although there are several payment processing companies in the market, you need to choose one that aligns with your company’s needs. Here are the key ponts to consider:
Compatibility
The loan servicing software market was valued at $2.3 billion in 2021 and is expected to reach $9.5 billion by 2031. Most loan servicing providers rely on this software to enhance their services. Therefore, you must choose a partner with technologies that easily integrate with your existing business systems.
Cost Savings
It would be best if you work with a payment processor that allows you to save money. For instance, automating your loan repayment collection can save your company processing fees that you would incur if using paper checks.
Ability to Meet Regulatory Requirements
When dealing with finances, you must work with a PCI-compliant company that follows Nacha’s regulations, like iCheckGateway.com. This ensures that customer information is protected.
Real-World Examples of Successful Payment Processor Partnerships
A company like Rocket Mortgage uses a third-party processing service, Plastiq, to allow clients to repay loans via check or ACH transactions. Borrowers can pay back their mortgages using MasterCard or Discover via this partnership.
This enhances the services because borrowers can make payments in multiple ways. Additionally, it lowers the costs, especially the transaction fee that would be charged if the client pays back the mortgage payment directly via a credit card.
How Do Loan Servicing Companies Determine If a Payment Processor Is Right?
Before picking a payment processing partner, you must examine key points that will help you determine the right choice:
- Review your business goals: Your partner should align with your company goals. If you plan to increase revenue, the company should provide services to help you achieve this goal.
- Processing needs: You should confirm whether the payment processor has the right technologies to meet these needs.
- Current operations: You must also determine if the payment processor works with similar businesses in your sector. Examine their existing processes to see if they can handle your company’s services.
Best Practices for Improving Service Quality with a Payment Processor Partnership
A payment processing partnership should be beneficial to both parties. Here are the best practices to improve service quality:
Implementing Automation
Automation makes payment processing much easier and faster. You can receive multiple forms of payment on one platform, making it easier for clients like loan servicing companies to process repayments.
Enhancing Security
In this day of digital payments, security is very important. To curb and prevent fraud, the payment processor should have security measures such as tokenization and encryption that protect sensitive customer information.
Providing Additional Services
Customers are looking for partners that provide enough services. To keep clients happy, a payment processor should offer additional services, such as multiple payment methods, to make it easier for everyone to access the services.
Partner With iCG
If you want to enhance your services, increase revenue, and reduce costs, you must partner with a reliable payment gateway like iCG. As a Nacha-Preferred Partner, iCG will help you achieve your goals. In addition, we provide excellent partner and customer support; therefore, you can contact us for any assistance.
