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Southwest Lending Conference: Lending to Millennials
Monday, May 23, 2016 6:25 AM

George Hofheimer

In his Thursday breakout session at the Southwest Lending Conference, Filene Institute Chief Knowledge Officer George Hofheimer addressed lending to Millennials.

Hofheimer notes right off that what drives credit unions is the extension of credit, and the 80 million Millennials who make up the largest generation in American history are just entering their prime lending years. This makes it essential that credit unions successfully engage this demographic in their lending efforts.

While Millennials are the future of the industry, Hofheimer notes they have fairly volatile but flat household income growth. His studies show that student debt may throttle their borrowing ability, with 80 percent of graduates holding an average educational debt of $35,000.

They also have changing approaches to asset ownership, like cars and homes. Many live in multigenerational households, much like Americans did in the 1940s. And he says that studies show this demographic is overconfident in their financial capabilities but "under capable," which presents serious implications as to how credit unions should approach this market.

Still, there are many ways they are not different than other generations before them. They want a good value, price, and convenience in their products and services. Technology, obviously, matters a great deal to them, and they have credit, savings, investment, and insurance needs.

The Competition is Fierce

Credit unions have all the ingredients to do a better job of attracting Millennials, and their competition is not just banks. Enter the FinTech class of financial institutions. FinTechs are digital competitors that are showing much faster growth than all other financial institutions. In fact, FinTechs have surpassed traditional FIs in making personal loans, particularly to Millennials.

In Q1-Q3 2013, FinTechs had issued $1.95 billion in personal loans to consumers, compared to bank loans of $5.58 billion and credit union loans $5.93 billion. Jump to Q1-Q3 2015, and FinTechs numbers leap to $10.14 billion, versus banks at $7.24 billion and credit unions at $7.28 billion.

Hofheimer says credit unions can copy the success of these FinTechs. He suggests credit unions delve deeper into their websites and applications to see how these companies work and what might be usable in their own institutions. Test each platform and weigh the pros and cons.

Many of the FinTechs are startups, use different metrics than credit unions, and operate under different regulations because they only operate in certain states that allow them, but there are still many things credit unions can learn from the way they operate and attract Millennials. Regulatory agencies are only beginning to look more closely at these entities.

While the digital applications can be added to a credit union's arsenal, consumers will still need the personal contact that credit unions provide, including account service, problem solving, credit and money counseling, ancillary services, etc. That's the differentiator and an opportunity for credit unions to capitalize on this market.

Hofheimer says Millennials need simple, automated, higher yield, digital first, and unbundled products and services.

About the Lending Council
The Lending Council was launched by the Texas Credit Union league (now Cornerstone Credit Union League) in 2001. Currently, the Council has 261 members. Council membership is open to paid staff or volunteers from league-affiliated credit unions. Potential members may join by visiting the Lending Council web page.