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In the Future, CUs May Maintain Price Leadership Advantages
Tuesday, May 9, 2017 6:45 AM

Change Ahead

Dean Borland, SCMS, CUDE, VP Product Development, Credit Union Resources

When “Old Credit Union Guy” worked his way out of collections and actually started making loans, it was a seller’s market. Underwriting was stringent and pretty straightforward with low-risk tolerances and correspondingly low debt-to-income ratio guidelines. A straggling medical bill notwithstanding, borrowing opportunities were limited for those who were not judicious in taking care of their personal finances. But, if your member had a history of meeting their commitments (or was a long-time employee on a sponsor company’s payroll deduction) credit union loans were readily available at the best rates in town.

Fast forward 40+ years. It's a buyer’s market for borrowers. “Bad credit? No problem!” It seems anyone can get a loan. And just so no one’s feelings are bruised, some lenders advertise that they don’t even pull a credit report. Hello algorithmic underwriting!

Convenience, speed, and payment amount have replaced relationship and interest rate as borrowers’ primary care-abouts, particularly among those elusive Millennials. This is a big deal—Filene’s Trending: Credit Unions in 20251 report quotes a Goldman Sachs projection that best-in-class start-ups and giant technology companies could siphon $11 billion in profits from the traditional banking sector in the immediate future.2

According to Filene, “No credit union service is at more risk than core lending. In addition to the traditional competition among financial institutions, sophisticated start-ups are nibbling away at unsecured loans, auto loans, mortgages, and business loans... Credit unions may maintain their price leadership advantages, but the lending winners will be those that make borrowing easy.”

Old Credit Union Guy gets acid reflux just thinking about it.

Yes, lending has changed dramatically, and the rate of change is accelerating at the speed of Fintech. CUNA Mutual Group is investing millions of dollars in early stage Fintech and Insurtech solutions to help credit unions be front and center with (1) digital channels and platforms, (2) data analytics, and (3) financial protection and education solutions, all geared to help credit unions create an enhanced consumer (member) experience.

Lending is a central theme in CUNA Mutual’s “future view,” as it should be with each and every credit union. After all, lending is a core component of virtually every credit union’s value proposition. Even credit unions that were able to achieve pre-2007 profitability from investments are watching the Federal Reserve Open Market Committee’s “longer run” projection of continued low interest rates and contemplating how to stimulate lending to fund future profitability.

So, Credit Union Resources’ Impact Group, a panel of forward-looking credit union CEOs, is undertaking an initiative to explore where lending is heading and what credit unions need to do to be competitive today and in the not-too-distant but very different future. The Impact Group will be exploring lending initiatives to identify needs and possible tools and solutions to help credit unions compete (or perhaps partner) with Fintech lending solutions. We will keep you posted on their progress.

1 Ben Rogers and Manpreet Nat, Trending: Credit Unions in 2025, Filene Research Institute, Publication #376 (9/15)

2 Ryan Nash and Eric Beardsley, The Future of Finance: Part 1, Goldman Sachs, March 3, 2015.