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New Lending Strategies for a New Market
Reimagining Lending...Is a Digital Transformation Strategy the Solution
Joe BrancucciPresident CU RateReset
• Challenges in the Marketplace• Member Challenges• FinTechs• Credit Union Initiatives• Steps to implement a digital
transformation strategy• Questions
DISCUSSION TOPICS
“We’re Doing Fine”…......The three most dangerous words a business can utter…..These
businesses are gone......because they believed “we‘re doing fine“!!
Challenges in the MarketplaceTsunami of Regulations
Challenges in the MarketplaceFive
Generations of
Consumers are
Members
Recognizing Multiple Generations
Bridging the Generational Gap….
1970’s – WWII & Boomers Signature Loans Some auto lending – 24-36
month terms Some home equity loans
1980’s - Boomers Debt Consolidation loans Some credit cards Bank deregulation Inflation and interest
rates very high
1990’s – Boomers & Xers Longer term consumer loans Credit cards become a product Home equity lending thrives POS for auto loans via CUDL in
CA, and other solutions in other states
2000-2007 – Boomers & Millennials Full adoption of credit models Automated underwriting systems Auto loan terms extend to 60 months Home equity lines of credit Minimal dependence on income
verification Wide spread use of loan
preapprovals Origination experience greatly
improved and virtual lending prevalent
2007(8)-2013(14) The Great Recession Financial Markets
Collapse Record high member
defaults Home equity disappears Auto lending slows
down Home Equity loans
default escalates Credit scores suspect
Historic low interest rates
Today – Millennials and Boomers Auto borrowing robust - 72 and 84
month terms more prevalent Home Equity loans see resurgence Consumers demand “click-it”
solutions Income verification necessary After loan closing still stuck in
1980’s Loan approval process still labor
intensive and mediocre experience Credit cards evolving quickly
Lending Landscape and Generational Concentration
Silent Generation• Reverse annuity mortgages (RAM) to supplement reduced income from investments
• Not big into buying things on credit• Credit cards are for buying things and they immediately pay balances – tend to be attracted to “ego” cards
• Need way to finance necessary home improvements if they have tapped out RAM option
Baby Boomers
• Reduce debt • Down-size homes• May be attracted to dealer financing “payments” rather
than interest rate• Credit cards with rewards, and will move balances for
incentive and/or low or no interest rate period• Finance luxury items (boats, RVs, second homes)• Finance “personal” improvements – caps, liposuction,
gastric bypass, plastic surgery, etc.
GenX• Reduce debt • Larger home - growing family or to reflect success• Automobile loans – mini vans, crossovers, large
sedans, large trucks, and older X’ers “mid life crisis” cars
• Credit cards with awards; likely want a “brand or prestige card”
• Financing for children’s education• Finance “personal” improvements – caps,
liposuction, gastric bypass, plastic surgery, etc.
GenY (or the Millennials)• Getting credit with “thin” files – they prefer to pay
with debit or pre-paid services• Reduce student loan debt• Financing for travel and adventures • Modest auto purchases • Older millennials home purchase –need solution to
student debt• Loan products with totally transparent fees and terms• Mobile solutions
Are we able to see the forest for the trees?
• Auto loan terms average more than 60 months
• The member’s life changes after funding
• We refinance a lot of our own loans • Our preapproval process is not easy • Most members have their loans
elsewhere • POS financing for auto, home loans
and personal improvements prevalent• Lending products are ubiquitous• The member wants to be in control• “ Click it or go elsewhere” members• The FinTechs are lending R&D
Credit Union Loans at the Dealer ….
Challenge…..Point of Sale (POS) Purchase and Finance Dramatically Increasing
https://youtu.be/uDP-8VWuprQ
• The Member “Experience” of our products = process• Product designs were new in 1980’s• Regulators are a deterrent to innovation• We are risk averse• “It’s the way we always did it” mentality• Fear of being a “disruptor” in the market place • High cost of technology development
Challenges to Implementing New Lending Approaches
81% WANT financial info – only 28% believe they receive it 66% prefer banking online or mobile 80% of millenials 77% of Parents with children under 18
62% of Millenials want MORE info from their CU
45% would like more online ads outside of CU Website Only 8% of members said TOO MUCH
communication from their credit unionSegmint Survey 2000 US Adults May 9, 2017
What are Credit Union
Members saying?
Challenges in the MarketplaceNON-CONVENTIONAL LENDERS ARE VERY WELL CAPITALIZED
Digital Finance Company focused on Consumer Loans….and expanding to other loan products
Digital Process Transparent Reimagined the
credit process Education provided
Challenge… Create multi-layered approach to develop an organic and community lending strategy and to control the pre-payment of the loan portfolio.
Case Study: Implementing An Organic Lending Strategy
Over $1.5 billion credit union designing an organic lending
strategy
Partnered with CUDL for member access to loans at the auto dealer PSCU relationship expanded to increase credit card utilization and new
cards Intuovo – Marketing programs to follow-up on leads Member relationship benefits - the more the member does with the
credit union the more deposit account and loan benefits they earn CU RateReset – member in control of modifying their loan thru virtual
banking Credit repair and starter loan programs Extensive preapproval programs Development of numerous internally developed virtual solutions such
as Mobile and Instant issue credit and debit cards
Moving To Organic Lending
Healthy growth in member loans originated at the dealers Attracting new members with an average age of 32 years
old = more loans Over 90% loan to deposit ratio – selling participations
which increases return from auto loans Home equity loans beginning to increase in demand Credit starter program helping members to build credit
history Digital loan activities becoming dominant form of
lending
Moving To Organic Lending
CHALLENGE…..
Provide digital member benefit on auto loans to lower payments, possibly help with paying off high interest credit cards, increase retention, and increase yields on existing loans without staff interaction necessary; minimize FAS 91 adjustments
Digital Auto Loan Retention Case Study
http://test.ratereset.net/offer/?CE6B84C
SECU Maryland “LoanFlex” Results
Success % to total 7.9%$ Volume Loans Reset $14.8m
Avg. Yield Increase 47 bps
Avg. Duration Increase 23 months
Average Payment Decrease 37%
Digital Finance Company focused on consolidating Student Loan Debt….and using that market opportunity to expand to other loan products
Digital Finance Company focused on Small Business Loans….and using that market opportunity to expand to other loan products
Transforming Credit Cards with Mobile…
https://www.youtube.com/watch?v=Gm1dBKtrOMw
Digital Auto Loans With a Credit Union Twist…
https://youtu.be/_FaxjSKv9z4
Digital Home Loans
CHALLENGE…
TRID requires 1st ARM adjustment notification 9 months prior to adjustment. High pre-payment speeds as a result. FAS 91 implications onerous based on trend of prepayments.
Digital Home Loan Retention Case Study
http://test.ratereset.net/offer/?FB3F131
Results – All extended for another 60 months
Number of Loans Reset 1560+
Success Percentage to total 73%$ Volume Loans Reset $441,000,000+Potential Increased Earnings $3,120,000+
PenFed Digital Retention Program
Digital Marketing of Loan Products – Pre-Approvals
CHALLENGE…
Improve effectiveness of Pre-Approval Campaigns. Conducting pilots on Credit Cards, Home Equity and Credit Card Balance Transfers…..
https://test.ratereset.net/offer/?D92F843
Americas Credit Union Pilot Digital Pre-Approval Program
Results % Who Opened the “P”URL Over 3.5%
Success Rate (“P”URLs opened/new cards)
68.7%
Most balance transfers Capital OneWellsChase
SUMMARYIT IS TIME TO CREATE A DIGITAL TRANSFORMATION STRATEGIC PLAN
Multiple generations in the market provide both challenges and opportunities
Digital solutions need to be extended to all facets of the loan cycle – “if they can’t “click-it” they will go elsewhere
Members want to be in control
Preapproval process needs to be digitized
Credit unions need to create digital intimacy with the members
Create the ability to react to an early payoff request
Use the CUSO products in the marketplace to secure market dominance
Recognize that member’s lives change from the date the loan was originated – create options to have the loan reflect the member needs today
Create strategies and “click-it” solutions to recapture loans members have elsewhere
Big data – and the analytics to use itAbility to integrate APIsSenior Executive responsible for
transformationOmni channel commitmentMeasurable targets with budget allocations Focus on talentReimagine Possible
Cornerstones of a Digital Strategy
Digital Transformation for the Member…..• Deliver simple, easy, transparent and convenient experiences.
• Execute consistently across all channels – never re-enter information already provided
• Use cutting-edge big data engineering to get a full understanding of the member
• Reconfigure all your base products and processes to provide simple, easy to understand intuitive options
• Engage your members with digital marketing
• Embrace straight thru processing – regardless of how difficult the circumstances – never put the member in “maybe” hold
Thank You!!!
Any questions??????
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