The credit union industry has significantly increased its volume of personal loans to near-prime and prime members over the last three years.
But online peer-to-peer lenders and other fintechs have dramatically outperformed all lenders for this market segment, according to a 2016 TransUnion analysis.
As a lending specialist and a credit union member for many years, I was impressed with my recent peer-to-peer lending experience. Within a few minutes of submitting the easy online application, I was approved for a personal loan at a 5.39% rate with flexible payment options.
The funds were in my credit union checking account the next day.
Even with Lending Club’s recent difficulties and with impending regulatory oversight of fintech lenders, it’s dangerous to concede this niche to fintechs.
Huge investors and banks are allying with fintechs to get a foot in the door with these personal loans. Your other core products will be in the crosshairs next.
For credit unions to compete, we need to incorporate our brand of a personalized, consultative financial check-ins into our technology solutions.
Competing with fintechs for millennials is critical for most retail lenders’ growth. Fortunately, credit unions appear to be attracting more of that generation recently.
According to TransUnion, 25% of credit union members in Q1 2016 were millennials, compared with 20% in Q1 2013.
Millennial growth for non-credit unions grew less during that period, from 23% to 25%.
But attracting millennials isn’t enough. Retaining them and earning a higher share of wallet will be the true challenge.
While credit unions increased their volume of personal loans to near-prime and prime members (VantageScore between 601-720) from about $6 billion in Q3 2013 to more than $7 billion in Q3 2015, such loans made by online peer-to-peer lenders and other tech-based lenders, or “fintechs,” have catapulted during that same period from $1.95 billion to $10.14 billion.
CU members more engaged
A 2016 Gallup report indicates that credit unions have a key advantage in meeting this challenge—if they’d just ask for the business.
According to a 2015 Gallup survey of more than 19,000 consumers:
• 52% of credit union members are “fully engaged,” compared to 37% of community bank customers and 17% of national bank customers.
“Fully engaged” is a measurement Gallup designed to indicate a strong emotional connection to a business. Gallup estimates that in retail banking, a fully engaged customer generates 37% more revenue than “actively disengaged” customers.
• 88% of the credit union members surveyed said they’d initiated an account discussion with their credit union. That was true with 86% of community banks, but only 61% of national banks.
• 19% of credit union members reported having a sales conversation with their credit union, which resulted in a sale 57% of the time. For community banks, 15% had a sales conversation that converted into a sale 52% of the time.
For national banks, those results were 17% and 47%, respectively.
The numbers that jump out are 19% and 88%. Why do less than one in five members have sales conversations, and why did the credit union initiate that conversation only about 10% of the time?
The conversations can be as simple as asking a few questions about your members’ current life stage and their financial needs and goals.
And if your credit union’s products and services can potentially save members money and/or put them in a better position to protect their financial futures, you have a huge opportunity to inform them about it.
That’s the foundation of a sales-as-service culture.
The Gallup report concludes that credit unions and community banks have done the hard work of building trusting relationships with their members/customers.
But to better serve them and expand their business with them, these institutions must expand their definition of what constitutes good customer or member service.
Meeting the technological requirements of the future lending market is necessary simply to stay in the game for credit unions. Many credit unions are stepping up to provide the remote channels millennials prefer.
However, having purposeful, consultative discussions with members remains our key advantage in the lending marketplace.