Analysis Featured

Why Direct Mail is More Profitable For Lending Companies Than Email

direct mail marketing

Despite the emergence of digital marketing, direct mail still has a lot of steam. In fact, it’s hard to believe any product or service can not be promoted through strategic direct mail marketing.

It is still important in marketing to be personal. According to a recent study, 70 percent of Americans feel direct mail is more personal than email, and 39 percent of customers try a business for the first time because of direct mail advertising. Another study by Epsilon shows that nearly half of U.S. consumers prefer direct mail over email. These stats suggest that, if properly targeted and planned, direct mail still holds substance in the market, and one company that specializes in direct mail is DM Analytics (DMA).

DM Analytics was founded in 2015 and is headquartered in Phoenix, Arizona. Founder and CEO Senthil Ramanath is a credit risk veteran. Before venturing into his ambitious entrepreneurial voyage, Ramanath worked as director of credit risk management for Capital One then moved to vice president at EZCORP, and then finally to Balance Credit where he was chief operating officer. The idea for DM Analytics struck Ramanath after looking at the rapid success achieved by companies like Enova, Rise Credit, Landmark, and Loan Depot in contrast to the majority of big traditional lenders who have struggled over the years. According to Ramanath, the reason so few of the online lending companies grew so fast was because they spent a reported 99 percent of their marketing budget on direct mail and not on other marketing tools like PPC and online advertisement.

The reason companies are hesitant to use direct mail is because of the costs involved. A national campaign might involve sending 500,000 to a million pieces per month. Even then, the company needs to keep sending them for at least five months to get optimum results. With each piece of mail costing 60 cents, that works out to $3 million for a direct mail campaign. It’s always easier to start a keyword pricing war on Google, pay through your nose for a lead, and still be happy because you got results in a week.

DMA comes into the picture to help small start-ups figure out a strategy for direct mail. Every customer and business gets its own customized model. The strategy is structured to the type of the product (loan installment, line of credit, etc.). This helps startups control spending. DM Analytics helps reduce upfront costs in starting a direct mail campaign. If the customer has an existing portfolio, information is extracted from the credit angle accordingly and DM Analytics builds a custom model for the future.

The reason direct mail is still prevalent in the U.S. is because:

  • The regulatory environment in the U.S. does not allow companies to access credit information about an individual until the company is ready with a concrete credit offer. An address can only be retrieved once the company decides on a firm offer. Online marketing is an add-on option. Legally, a company can only do online marketing with direct mail.
  • DM Analytics shortlists customers it wants to send mail to (on the basis of credit characteristics), and once it is pre-approved by the client, the list is submitted to the credit bureau to obtain the name and address. If the customer has specifically opted out (only 1 percent has done so), then the company would not be able to retrieve the data.

Depending on whether the company has credentials with TransUnion, the campaign launch period may vary. It usually takes 4-6 weeks for a company to get TransUnion credentialed. After that, it is a two-week process.

Customer Acquisition Cost (CAC) is directly correlated to product APR: The higher the APR, the higher the CAC. For instance, a product with 500 percent APR will cost about $200. The CAC will be lower for products with APR of 80 percent to 100 percent.

Another deciding factor is loan amount. If the loan amount is higher, so too will be the cost per funding. Ramanath predicts that for a loan amount of $13,000 at 13 percent APR, the client will have a CAC of around $40. Business loans work on a similar track with CAC at 5 cents per dollar funded.

The FinTech scene is littered with companies who could not make direct mail work. A cardinal mistake is using only demographic data, which doesn’t work. The key is to gather the credit data and fine tune the model around it. It’s surprising that old school direct mail trumps online marketing. But Think Finance, and even Lending Club and Prosper, have been able to leverage direct mail for massive growth. DM Analytics has identified a major pain point for young lending start-ups and has the right combination of credit chops and direct mail expertise to succeed in this brutally competitive market.

(Interview recorded in October 2016 at LEND360 in Chicago )


Allen Taylor
Allen Taylor
lauren twardy
Lauren Twardy


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