COLUMBIA, S.C. – Online lending is seen by many in credit union land as a crucial new tool in retaining members and growing new business. But it doesn't occur in a vacuum, and a new report from a coalition of credit union trade groups argues that developing that channel as part of a strategic approach to increasing online business in general is a key to a CU's success in the years to come. While the number of credit unions offering online lending has not increased significantly in the past year, more are providing enhanced functionalities such as instant online loan approvals. For instance, four out of 10 credit unions responding to a recent Callahan & Associates survey now offer this enhancement, an increase of 40% from last year. These are members worth keeping. They tend to be multi-channel users who utilize the credit union as a primary financial provider and are more profitable, concludes the report released by CUES, CUNA and CUNA Mutual Group. Their report (available at each of the organizations' Web sites) was the result of a six-month study they commissioned from the University of Wisconsin's Consortium for Global Electronic Commerce. It found that members had not yet adopted home banking or online lending in high numbers and that the most successful applications of such e-commerce occurred when credit unions "recognized this electronic medium as an alternative channel to reach members." The project's focus groups and case studies found that immediate response, less than 60 seconds, to online loan applications is crucial. It also found some problems. For instance, online lending results in an increase in application volumes but the quality of applications tend to be lower than in offline applications. (Telephone applications have the highest loan denial rate, CUNA research shows.) VyStar Vies Online One institution emphasizing online lending is VyStar Credit Union in Jacksonville, Fla., which last fall went live with the LoanCenter for Consumer system from APPRO Systems and is in the process of deploying a similar APPRO system for online commercial lending. VyStar averaged 425 online loan applications a month in 2002 and now is getting about 800 such requests a month online, says Kathy Bonaventura, senior vice president of lending at the $2.5 billion, 291-000-member CU. And that's without heavily marketing it yet. That emphasis will be coming, though, as part of VyStar's core strategy. "Previously we did everything manually," Bonaventura says. "We felt like we needed to improve our processes and automate our decisioning so members get instant approval even if we're not there. "We also wanted to be consistent in our decisioning. We're very decentralized. We don't have a group of loan officers sitting in a back office. It was a very strategic decision for us to implement this kind of system, and so far it's been very well received by our staff." VyStar is hardly alone in exploiting the online channel. "In the first quarter of 2002 we installed more systems than we had in any one year before, and we're ahead of that nearly 40% now," says Steve Uffman, CEO at APPRO Systems in Baton Rouge, La. "What we're finding is more and more people are interested in using us for their bricks-and-mortar systems as well as over the Internet and by phone. They need to be able to serve their members seamlessly as they move about in those channels," Uffman says. He says he also sees an increasing interest in indirect and small business lending. "It's integration of loan documents all the way from the application to the funding, all online. That's within our grasp. And it's great way for credit unions to keep existing members and gain new ones." Meeting Member Demands That's the idea at NASA FCU, which sees about 25% of its loan activity (about 350 applications a month) arrive via computer. "Our strategic aim is to allow members to do as much business with us online as they can," says Doug Payne, vice president of marketing at the $580 million, 66,400-member CU in Bowie, Md. "It's less expensive for the credit union and, in many ways, much more convenient for the member." NASA FCU promises answers in less than an hour once an application is complete and aims to implement immediate funding for approved applications soon. Another way of encouraging more use is by using technology to make things simpler for consumers, Payne says. "We're working to populate as many of the Internet loan fields for the members as possible, with whatever information we have on record, to make the application process much quicker and easier, enticing members to always choose us for their borrowing needs," he says. Payne did note one drawback to online lending that the joint CUNA-CUES-CUNA Mutual report also found: About 50% of its online applications are denied either because of non-qualification for the loan or for membership. "In all fairness, Internet loans to tend to have a higher rate of denial than the other types and also have a higher rate of abandon," the NASA FCU marketing chief observes. One way to relieve that problem is pre-approval when possible, and that's something industry leaders also report seeing on the increase. "The biggest trend I see developing is the opportunity for borrowers to accept pre-approved offers online," says Yulandria Pearson, senior vice president of lending at $3 billion Kinecta FCU in Manhattan Beach, Calif. Kinecta sees about 700 to 800 online consumer loan apps a month from its 235,000 members, and another 40 or so mortgage loan requests. "Online lending is extremely important to our growth strategy," Pearson says. "We understand that the Internet is the great equalizer in the lending industry and that more and more members are using the Internet to research and locate loan products that suit their needs." Fast approval and funding of loans will be the key to continued growth and success against the competition, industry participants agree. "The worst thing we could do is have a really slick loan application on our Web site and take days to acknowledge the members' requests and fund their loans," she says. How To Compete? What can a credit union do to compete with the banks, thrifts, car dealers and myriad other providers of instant online credit? "What I would tell a CU that wanted to grow its online business is the same thing I tell all our clients," says researcher/analyst Christine Pratt, who studies online lending for TowerGroup in Needham, Mass. "Wells Fargo and Countrywide are good examples of best practice: Develop an attractive Web site with loan-processing technology behind that site, provide immediate, real-time automated decisions, use advertising, branding and aggregators if you can afford it and are allowed to, and do your best to provide the same experience for members across all channels," Pratt says. From less than 10% in 1999, Pratt sees online loan originations increasing by 2005 to 35% for credit cards, 15% for home equity, about 13% for mortgages and about 8% for auto loans (where much of the action still takes place at dealerships, although credit unions have their largest share of the market in that area, about 13% at year's end according to AutoCount data.) -

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