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Like many credit unions of its size, $354 million asset AgFed Credit Union in Washington, D.C., had struggled to compete for loans, says CEO Margie Click, citing growing competition from both nontraditional lenders and larger institutions.
“LendKey was one of the first third parties we worked with,” she says. “A small credit union peer mentioned their LendKey relationship. When we spoke with them, we discovered we’d be able to serve as a lead lender in the participation pool.”
LendKey’s flagship product involves student debt refinancing. It began operations in 2007 using a peer-to-peer lending model before pivoting in 2013 to credit union and bank partnerships, continuing to market to student borrowers but relying on financial institution partners for the financing.
“My board was skeptical about student loans and the potential risk, but taking 10% of a loan through a refinance/consolidation participation pool made it comfortable for them,” Click says. She clarifies that the initial hesitancy involved “headline risk,” and that those concerns dissipated as data rolled in. “We had great volume, and delinquency rates were good.”
AgFed soon realized an additional benefit was the borrower profile. “The members LendKey brings in are from the younger generation, giving us a more diverse field of membership,” Click says. “It also helped our loan growth and improved our yield with acceptable risk.”
‘How we define our core channel is changing.’
Margie Click
She emphasizes this is hardly a “set it and forget it” solution, however. “You can’t just do it and never look at it again.”
LendKey provides ready access to individual loan records for ongoing risk diligence, Click says, adding “you can’t just close your eyes; you need to spot check.”
With student lending having served as a proof of concept, AgFed turned to third parties for other types of loans as well. Upstart generates personal loan demand. After switching auto loan providers two times—AgFed noticed profiles becoming riskier over time, reinforcing Click’s point regarding the need for ongoing diligence—Caribou has now established itself as the partner for that channel.
LendKey also provides home improvement loan candidates for which AgFed retains 100% of the balance as opposed to the syndicated student loan model.
At this point, roughly half of AgFed’s origination volume comes through these partner channels. This is a welcome development as it’s become increasingly challenging to generate loan applications in the branch.
Foot traffic is down markedly at AgFed’s main location in the U.S. Department of Agriculture headquarters since 2020, as many of the anchor tenant’s employees continue to work remotely. This makes online visibility all the more important.
What many credit unions consider a supplemental channel has become core to AgFed’s business. “How we define our core channel is changing,” Click says. “We include some of these third parties in our core now as we continue to deepen these relationships.”
NEXT: Process improvement
While fintech partnerships may provide substantial benefits, enter into these alliances with eyes wide open, advises the CUNA Lending Council white paper, “Fintech Partnerships Improve Operational Efficiency, Asset Growth, and Member Experience.”
Before signing on, consider these steps from the report: