Increasing Loan Revenue Generation
Using technology to increase revenue is vital to many credit unions’ business strategies – through either added fees or new income streams. However, for good reason, lending still commands the most attention.
“Some of our most successful credit union clients in terms of lending have really nailed a niche. It could be indirect lending, small business merchant lending, correspondent mortgage lending, etc., but they have become very profitable and efficient in their area of focus with excellent performance metrics.” Daryl Jones, director at the Scottsdale, Ariz.-based Cornerstone Advisors, noted.
“The primary lifeblood of every credit union is lending,” Barry Kirby II, vice president for the Islandia, N.Y.-based loan origination provider Teledata Communications Inc., said. Nevertheless, Kirby pointed out, these are challenging times for credit unions. Borrowers view all financial institutions as commodities. “The market is changing very rapidly; you have tons of competition.”
Technology can make the difference for credit unions, starting with the online space, which in many cases falls short of member expectations.
“People can apply for a loan online but it hasn't been a truly digital experience, it's almost like an email or a lead form. A member then applies two days later and somebody follows up on the lead,” Kirby added. Whereas, anybody can go to some big-bank sites, apply for a credit card and have it approved and issued in 15 seconds.
“How can a credit union compete with something like that when they are using outdated technology and less responsive platforms?” Kirby questioned. In many cases, there is also excessive overhead to process loans efficiently and profitably with many hands touching a loan application.
One opportunity TCI sees involves deploying a truly interactive experience where members send in their auto loan applications, are approved in 10 to 15 seconds, sign contracts on the website and have preapproval as they shop around.
Another increased opportunity is with indirect lending. “These are the bread and butter at credit unions, however it's become a very competitive market,” Kirby said. To be successful in the indirect world, credit unions need to be extremely nimble.
The Houston-based CUSO Credit Union Acceptance Corporation recently implemented TCI's cloud-based DecisionLender 4 for all loans, except mortgages. The CUSO expects the system to improve workflows, provide specific lending criteria, and help its 15 credit unions adhere to security and regulatory mandates. “Credit unions all over the country are facing pressure to process and underwrite loans more quickly, accurately and compliantly,” Kurt Howard, EVP for CUAC, explained.
The CUSO estimated DecisionLender would save tens of thousands of dollars over a year. In addition, the system connects CUAC credit unions with auto finance portals DealerTrack and RouteOne, further enhancing lending opportunities.
Electronic signatures can also help improve the lending process and revenue.
“E-signatures enable credit unions to close business more readily without requiring members to enter branches,” Pem Guerry, EVP for the Chattanooga, Tenn.-based SIGNiX, which provides cloud-based e-signature solutions.
E-signatures also reduce online application abandonment. “There is a significant drop-off rate when there is a delay between wanting to buy a financial product and being able to execute on it,” Guerry noted.
Credit unions can use SIGNiX through any system that creates signable documents or their website, or as a standalone product.
Once the document needs a signature, regardless of which process is used, the individual receives authentication through several possible checks, sets up a signing password, and reviews the documents for signature. Applicants can use an actual signature with a touchscreen device. If on a non-touchscreen device, the default is one of six fonts, but members can override using a mouse to sign. Some credit unions attach a signature pad within the branch.
“What really makes it legal is we are creating a digital certificate that we place in each and every signature field,” Guerry said.
In August 2013, the $111 million, Amarillo, Texas-based Access Community Credit Union began an experiment with SIGNiX for a year. “Now three years later it's turned out really well for us,” Access EVP and COO John Hays said.
Hays said the credit union started closing about 25% of its overall loan volume immediately with SIGNiX. Access has seen the total loans closing via e-sign grow to 35% since 2013.
“It is primarily used by the credit union for auto loans, both preowned and new, and a lot of consumer driven things,” Hays noted. Some 80% of the credit union's loans originate by phone. “About half of those 80% are closing using e-sign with their smartphone.”
Then there is removing the apprehension. “We have members scattered within a 200-mile radius of Amarillo, so there was a lot of mail and a lot of suspense. We funded loans on an open-end agreement before we actually had the vouchers signed and returned,” Hays said. Now Access does not fund until SIGNiX is completed. “It helps us manage the suspense documentation, outstanding loan files and calls to members to return their loan documents. It's made the whole process more efficient.”
The e-signature process also dovetailed nicely with the credit union's most recent strategy. In the last five years, the credit union got out of indirect lending and started focusing on recapturing auto loans, which now accounts for about 30% of Access's net loan growth.
The Brookfield, Wis.-based Fiserv hopes to help credit unions with CardVision from Fiserv, which provides cardholder and portfolio profitability analytics. “We work with them to understand the data including user and spend,” Angel Siorek, vice president, product management for channel experience and portfolio growth solutions for Fiserv.
Siorek explained Fiserv intends to move more heavily into consumer-facing products. “How do we get credit union members more engaged in using products that spur additional usage, additional feelings of safety from a fraud control perspective, getting them to adopt specific products more frequently?”
Data helps credit unions see the trends and stay relevant and competitive. “Especially as we move to digital and there are alternatives for them to use,” Siorek noted.
That capability helps credit unions such as the $130 million, Decatur, Ill.-based Staley Credit Union. “We believe in the principle, ‘what is measured and monitored succeeds,’” Kim Ervin, CFO for SCU, said. “The product they have brings it together in a way that is very useful for management.”
Ervin explained, “In credit unions, margins are very tight on our traditional product, which is lending to members. We have to look everywhere beyond traditional sources of income. We feel this revenue stream from our debit cards not only serves our members very well but also provides additional income opportunities for Staley.”
Through consistent measuring of metrics, growth and participation in monthly debit activation campaigns and twice-a-year usage promotions, SCU significantly increased its portfolio growth. Over the past three years, SCU has seen an 18% increase in point-of-sale active cards, 26.4% increase in transactions and two additional swipes per card.
Through CardVision, Fiserv keeps SCU's cards top-of-wallet for member transactions, as well as increasing its members’ loyalty and sustaining interchange revenue while driving deeper relationships and a better experience.
“Being the CFO, what's ultimately important to me is the revenue, the income it generates, and we are north of 8.7% in revenue increase over the last 12 months alone. That is a great indication of how successful this has been,” Ervin added.
Simply having the technology is not enough. “While a better loan origination system can have a direct impact to the bottom line, we will frequently find that clients have not kept their platforms current with enhancements to functionality, or the performance of the system is not well aligned with business processes,” Jones said.
Jones also held that new fintech providers have not drastically altered what credit unions are actually doing lending wise. “There are new vendors and new platforms out there, but they are not yet having widespread impact.”