During fall planning meetings for the past several years, directors and management have been wrestling with a couple questions that often go unanswered: How does the credit union attract younger members, and what do millennials want from credit unions, especially concerning loans?
It’s no secret that millennials—those ages 18 to 34 in 2015—are attracted to online lending. And with 53.5 million members, they are the largest share of the workforce, greater than the Baby Boomers, according to the Pew Research Center.
Millennials are the prime market for loans.
Millennials also place a premium on the user experience. As digital natives, they are used to going online and ordering what they want and when they want it—instant gratification.
Online lenders allow borrowers to complete an application and get an answer within minutes, and funding follows in a few days. Going to a branch and waiting in line for a loan is fast becoming a thing of the past.
An April 2015 LendKey survey of 1,727 young adults asked about important factors when applying for a loan. After interest rate, the most important factor was customer support (58%), followed by an instant decision (48%), and the ability to quickly apply online (41%).
When asked which financial institutions they would prefer to do business with, the top two choices were community and local lenders.
Credit unions, as the survey shows, have distinct advantages in serving millennials and other young adults. They have a lower cost of funds than the online lenders, who need to raise money from private equity investments.
This means, of course, that credit unions have an opportunity to offer better loan rates.
Credit unions are also local and community lenders with excellent member service. If millennials apply for loans online, as many do, they would prefer that loan to be from a local lender, as the survey indicates.
Even though millennials increasingly choose online and mobile channels to make purchases and conduct their financial business, they still want a branch in their community. They may not use it, but they want it there if problems arise and they need face-to-face help.
This notion also suggests that members want a local branch because it provides a sense of stability and security in their community.
Credit unions are also part of the rapidly growing sharing economy that is gaining popularity. Uber and Airbnb, anyone?
Many millennials would rather share than own, which is at the core of the credit union operational philosophy: members pooling their money together to make loans to each other.
A credit union’s marketing should emphasize that it is part of the growing sharing economy.
Opportunities for CUs
Although credit unions have some distinct advantages, most are not as effective at attracting borrowers through digital channels as their online competitors.
Millennials have unique financial needs and they are seeking advice and shopping for loans through online and mobile channels. Credit unions have an opportunity to meet the needs of these members by providing the products they need through the channels they prefer to use.
One of the most pressing needs for millennials is helping them deal with the $1.2 trillion dollars in student loan debt they have accumulated. With 45% of all high school graduates going to college and the average student debt after graduation rising to $35,000, there is a tremendous need to help graduates deal with student debt.
Credit unions have an opportunity to help millennials by enabling graduates to refinance and consolidate their student loans into one loan, reducing interest and monthly payments and making student loan debt easier to manage.
The student refinance market is currently being led by startups, many of which offer attractive rates with a polished desktop and mobile user experience.
Some of these FinTech startups use advanced analytics in addition to FICO scores to consider future earning potential. If a medical doctor, for instance, applies for a six-figure loan and has a six-figure income, that income will be considered carefully in the loan approval process.
Credit unions have an opportunity to offer competitive products in the student refinance market. Working with a third-party student loan provider can help credit unions in areas such as digital marketing, user experience, technology, scale, and liquidity to meet evolving consumer demands.
These loans can provide a vital consumer service for a market segment credit unions need to reach. They also free up funds otherwise earmarked for higher interest levels to use them to finance the next level of consumer purchases, autos, and mortgages.