Closing a loan is more than just a transaction; it represents the beginning of what should be a mutually beneficial relationship between credit unions and their members. However, all too often credit unions fail to take advantage of the countless opportunities that currently exist. Credit unions need a set of practical strategies to help expand those opportunities into situations that feature a much wider set of financial interactions.
Historically credit unions have performed well in the auto lending arena. This has always generated a significant amount of interest income for the institution. However, over the past few years the business model has changed. Credit unions are now focused on developing additional member-friendly sources of income. At the end of the first quarter of 2006, credit unions less than $100 million produced a quarterly ROA of 0.21%. Without non-interest income, ROA would have been -0.09%, meaning that non-interest income accounted for 143% of net income. Credit unions generated $712 million more in non-interest income in the first quarter of 2006 than in the first quarter of 2002 so clearly the efforts are paying off.
There are inherent challenges that exist in the marketplace that affect a credit union's ability to earn income. One big impact is the fluctuation of the auto market. Auto sales were down 7.6% in April 2007–with giants like Toyota even posting a loss! There is also an increased level of competition from captives and banks, thus resulting in tighter margins for auto lending programs. Narrow margins continue to squeeze profitability.
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There is also an increased volume of indirect lending. This presents a challenge in that there is little or no face time with members so that results in less cross-selling opportunities. The increased use of Web applications adds to this challenge as it also limits member interaction and loans become very transactional based.
Strategies to Increase Income
One way to increase income is to offer a variety of point of sale products. Some examples include:
-Credit Insurance/Payment Protection
-Guaranteed Asset Protection
-Mechanical Breakdown Protection
Increasing the sale of POS products through deployment of a post-close marketing strategy is one sure-fire way to increase income for your bottom line.
Employ a C to B Strategy
A successful strategy to accomplish this is by employing a C to B marketing strategy. Explore consumer Web site quoting tools that are available in the marketplace. With 40% of American adults spending time online shopping, and online sales expected to reach $331 billion dollars by 2010–you have to make it easier for consumers to purchase your POS products. And with 88% of the consumers shopping online performing online research before purchasing a product, you need to make sure your site is as good as it can be. Examine your own Web site for potential improvements. For example,
-Is it user-friendly?
-Are you constantly updating the site?
-Are you looking for ways to drive members to the site?
-Are you providing consumer research articles on the value of your POS products?
A lot of credit union Web sites lack effective navigational links to position their POS products. This results in missed lending opportunities.
Solutions to Combat Missed Lending Opportunities
-Increase "curb appeal" of existing Web site
-Reduce the amount of copy or text
-Increase the use of visual sales aids and graphics
-Add Q&A's designed to increase consumer knowledge
-Integrate iQQ consumer Web site with the credit union's online loan application
-Allows members easy access to self quoting tools and online payment calculators
-Members will stay on your site longer; properly placed navigational links drive members to targeted tools and product offerings
-Our research shows that this tool can increase site usage by 37% in the 1st quarter following implementation
-Offer convenient premium or fee collection options
-Add to the loan and extend the term; no out of pocket for the member
-ACH from checking/savings accounts
-Credit card
-Create Post-Close Marketing opportunities by establishing automated follow-up customized marketing process.
Tips for Post Close Marketing Success
-Follow up immediately after the loan closing – time is of the essence with the marketing of products not elected at loan closing.
-Consider utilizing out-bound telemarketing–start the call by asking the member how satisfied they are with the loan service they received.
-Identify your members product needs–a common complaint from consumers is that they
receive solicitations for products that are not relevant to them.
-Personalize the message – consumers are much more likely to respond favorably to customized solicitations.
-Prepare statistics to include in the marketing material…how many GAP or MBP claims were paid for other members of your credit union.
-Be creative…package POS products. For example, GAP and MBP. Sell both products at a discount…or add in roadside assistance at no charge if both products are elected by the member.
-Most important–simplify payment process by extending loan terms!
As indirect lending continues to grow, deploying a post-close marketing strategy will help your credit union add significant dollars to the bottom line. Your credit union will improve financial results. And, most importantly, the credit union will significantly improve member retention, satisfaction and loyalty.
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