HOLLYWOOD, Fla. — A CUNA Mutual Group pilot project found that credit unions that call indirect borrowers to offer other services and build relationships can reap promising results.

In an effort to help credit unions turn indirect borrowers into long-term, profitable members, a CUNA Mutual Group pilot project yielded promising results and several important findings from which credit unions can build strategies, according to a recently published white paper.

Results of a four-month pilot and a white paper were presented at CUNA Mutual's Discovery Conference last week. “Developing Members from Indirect Borrowers: Lessons Learned” provides details on how 13 credit unions went about building multi-product relationships with indirect borrowers through a dedicated call center.

Indirect auto lending has long represented both an opportunity and a problem for credit unions. While it has been a source of membership growth in recent years, the members who join credit unions via indirect channels usually are reluctant to purchase additional products. They are overwhelmed by the car purchase and the monthly payments, the CUNA Mutual white paper said. “The thought of a checking account or credit card is the last thing on their minds. In some cases, they are unaware that they just joined a credit union.” Many of these new members become “one and done” members who are rarely heard from again.

“By investing resources to help credit unions deepen relationships with indirect borrowers, CUNA Mutual sought to address one of the industry's biggest lending challenges,” said Heather Thiltgen, CUNA Mutual vice president of consumer programs. “The pilot identified ways credit unions could engage indirect borrowers by introducing other credit-related products to meet their needs and save them money.”

The most successful product offered to indirect borrowers in the pilot was a line of credit, which had a 28% sales rate. Credit cards netted a 17% sales rate, and auto refinances had a 15% rate. The average line of credit was $2,098; credit cards $5,005 and auto loan refinance $16,140. In cases of auto refinances, the call operators also cross sold credit insurance. And this part of the pilot achieved a 30% cross-sale rate.

One key finding from the pilot was that the indirect borrowers-members welcomed phone calls from their credit union, according to CUNA Mutual. Outbound call representatives received positive responses from members when they identified themselves as representatives of the credit union. In addition, the study concluded that the new members viewed the calls as a personal touch.

Amplify Credit Union, one of the pilot's early adopters, derives 50% of its new membership through indirect borrowers. The Austin, Texas-based $465 million credit union has 42,000 members.

“The pilot was very well done in that CUNA Mutual devoted proper resources, time and energy that delivered a program from which we could all benefit,” said Pierre Cardenas, Amplify's senior vice president for retail. “The most interesting outcome for us was that call center personnel, who weren't our employees, were just as effective as our employees. Our members responded very positively, which indicates outsourcing this in the future might be worth considering.”

The CUNA Mutual white paper said that as the economy weakens, credit unions need a reality check concerning indirect lending. “Credit unions have unrealistic expectations of turning indirect members into profitable members at the time of vehicle purchase. It is often a matter of bad timing since the member is preoccupied with obtaining a vehicle and doesn't want to be bothered with decisions about additional products,” the report said.

In deepening relationships with indirect borrowers, Thiltgen recommended that credit unions implement some of the best practices CUNA Mutual incorporated into the pilot. These include dedicating resources to make the program successful; verifying regulatory compliance surrounding use of credit data; obtaining necessary technology and systems support; and pricing for the relationship.

“The pilot produced some interesting results on what appealed to indirect borrowers, such as, the success of an auto loan closing was best when the member saved at least $20 a month,” said Thiltgen. “Also, those with higher credit scores were least likely to accept card offers, and line of credit offers were the most successful, which might be related to the sense of security it creates just in case something happens.”

“Above all, the pilot validated that our outbound-calling strategy to rein in these new members was on the right track,” added Cardenas. “This proactive approach to onboarding indirect borrowers is the wave of the future. Credit unions can't afford not to engage these members, or any other new members coming from other channels for that matter.”

Indirect Borrower's Pilot Project

The CUNA Mutual Group pilot project was designed to identify the next best credit union products to cross-sell to new indirect borrowers; help credit unions deepen relationships with new indirect members; execute additional product sales on behalf of credit unions using specially trained call center representatives; and increase credit union loan balances and noninterest income.

The project began with due diligence in April 2007, followed by research to design the pilot. The first credit union partner, Amplify Federal Credit Union of Austin, Texas, joined in October 2007.

CUNA Mutual conducted additional research to identify best practices with credit unions and the financial services industry for enhancing relationships with indirect borrowers. The research indicated those practices that enhanced relationships with indirect borrowers included outbound calling, calls linked to recent automobile purchases, and mining of indirect borrower information to identify the next best product to sell.

The outbound phone representative called and welcomed the member to the credit union, verified information about the indirect loan and cross-sold the appropriate credit union product–an auto refinance on another auto in the household, a credit card, or a line of credit. Payment protection was cross-sold on auto refinance opportunities. Separately, MEMBERS auto and accidental death and dismemberment insurance offers were sent via direct mail to members of select credit unions. The insurance offers thanked the member for their business, welcomed them to the credit union, and then positioned the insurance offer as another benefit of belonging to the credit union.

The 13 pilot credit unions were chosen on the basis of asset size, indirect lending program volume, and lending philosophy.

While the CUNA Mutual pilot found that members welcome phone calls from their credit union, it also found that the phone call had a relationship-building effect, even if the initial call didn't at first deepen the relationship. The recorded phone calls indicated that members welcomed the calls even when they were not interested in any additional product. They were happy to hear from their credit union.

The participating credit unions reported that a pre-screening process to be another benefit of the pilot program. The credit union is able to obtain a member profile with the valuable intelligence–debt-to-income, credit cards, home equity loans, mortgages–that enabled the representative to match products to a particular member. It also gives the credit union the ability to develop marketing packages that are targeted to member groups. And it provides the organization the ability to develop more sophisticated marketing campaigns needed in a competitive financial services environment.

–[email protected]