Lending has been reinvented over the past several years, as regulatory demands have substantially increased the expenses and operational requirements for doing business.
As a result, the cost of originating mortgages has tripled over the past decade, according to the Mortgage Bankers Association’s Quarterly Performance Report.
Despite additional requirements and oversight, there are still significant opportunities for credit unions right now. According to market data highlighted in a May 2015 report by Raddon Financial Group (part of Fiserv), there is an estimated $1.2 trillion market for mortgage originations this year—a 7.1% increase over 2014.
This growth can be attributed to a positive outlook from consumers, which may also drive demand for an array of other loan types, such as home equity, auto, and business.
In order to capitalize on the strong consumer demand, credit unions need to align their products to meet borrowers’ unique needs. Additionally, as consumers are increasingly embracing the “do-it-yourself” approach to financial services, credit unions must also have the technology in place to enable self-service options for loan shopping and applications.
Having the right systems and processes in place generates a winning combination: An innovative lending experience for members while staying ahead of the curve in preparedness for upcoming regulatory mandates.
The Consumer Financial Protection Bureau (CFPB) requires access to an easily audited chain of all loan origination and servicing undertakings, including data and documentation, as part of its consumer protection mandate.
At the same time, borrowers also expect expedient and transparent service throughout the lending lifecycle. To meet these requirements, credit unions need to effectively govern a “big data” ecosystem spanning from origination to servicing and all points in between.
There is also some good news here: Technology can enable credit unions to streamline and aggregate data across all internal departments. This reduces costs and errors while maximizing compliance and accelerating loan approval times.
Satisfying member demand
Growing loan portfolios is essential to profitability, and it requires detailed knowledge of target members.
As a rising generation, millennials (those born between 1979 and 1999) currently represent more than 75 million adult Americans who by 2022 will purchase 40% of new vehicles, according to Deloitte projections.
These promising metrics do not mean that other major demographic groups should be abandoned, though, especially for home purchase and home equity credit opportunities.
Based on its research, Raddon Financial Group recommends targeting the three member segments:
1. Credit driven (ages 18 to 34 with more than$50,000 in annual income). This is a net borrowing market.
This segment's income level qualifies members for a wide variety of credit products, making them a key segment for lending.
2. Middle market (ages 35 to 54, earning $50,000 to $125,000 per year). At this stage, members have built up enough in household balances to offer the industry good profit potential from both savings and borrowing.
3. Upscale (age 35 and over, earning more than $125,000). The upscale segment provides the highest level of profit potential to credit unions. These members exhibit the greatest product use.
Credit unions must provide an enhanced member experience to successfully connect with these groups. Members of each group will have unique preferences and will need to have access to an array of engagement options: online, mobile, and in-branch.
For online engagements, credit unions should provide portals which enable instant two-way communications and can provide additional features, such as bill payment and person-to-person payments. These services enhance the member experience and generate cross-selling opportunities for growing wallet share and long-term profitability.
It is also important to note that newer technology is not only for targeting millennials. The use of mobile devices, such as smartphones and tablets, also is increasing among retirees and seniors, suggesting their level of comfort with e-commerce may also be rising.
For credit unions, this means that members of all ages can be effectively targeted with the option of digital- and mobile-driven engagements, where self-service transactions can be performed seamlessly.
Having the right technology in place allows credit unions to deliver an enhanced member experience that satisfies all key stakeholders, including regulators.
On the lending front, integrated solutions can streamline compliance requirements for mortgages and home equity, business, and consumer loans. This adds great value in the process of managing all loan originations while providing enhanced efficiency and more opportunities for cross-selling.
Further, such technology can ensure that loan files are consistent and complete, enabling greater profitability from loan servicing and providing the needed transparency for both consumers and regulators.
Mobile and digital lending channels and apps can simplify the process of loan shopping for members. In addition, allowing for e-signatures on loan documents can accelerate closing times and drive increased satisfaction.
In the end, credit unions can leverage innovative lending technology to meet the strict demands of all stakeholders, from regulators to members to credit union management.
Such technology also enhances the member experience and can help drive the future growth and sustainability of credit unions of all sizes.