Navigating Current Lending Trends for Growth and compliance
Following current lending, trends can boost loan applications and approvals. It can also spark new partnerships and provide a competitive edge in a volatile market. Let's look at navigating current lending trends for growth and compliance; and how they can help your credit union grow.
How do I encourage membership growth?
CUs generally have lower loan rates, higher rates on savings and investment accounts, and fewer fees. While credit unions focus on securing memberships from younger generations, it's important not to discount lending to small and mid-size businesses.
Due to economic uncertainty, small business owners are forced to seek online lending options. Online lenders are dominating the market with higher percentage approvals and quick funding.
Small businesses are worth the acquisition cost since most will need additional products like checking and savings accounts. A positive CU experience could solidify a long-term client both for business and personal financial needs.
How do I increase equipment loan approvals?
Once you have established relationships with small and mid-size businesses, they will likely need additional loans such as equipment financing. While it's easy to put a business owner into a box by only recognizing his credit score or actuarial models, that box doesn't meet the needs of today's business owner.
Does the owner have collateral? Cash flow? Do they have a good reputation with your CU? All of these factors should also influence loan approval.
By underwriting each equipment loan, you can personalize the experience and collect pertinent data that can help upsell additional products and services.
Take the time to get to know local industries that are seeking loans. Do you understand their equipment needs? Are they able to source new or used equipment?
Establishing genuine care and concern for each business member's needs can generate referrals and build trust among industries. Running a business in any industry is difficult and understanding the needs and unique financial mistakes can help your CU provide solutions to keep those businesses running without a hitch.
How do I go digital without losing members?
By 2025, it is estimated that over half of tasks currently held by various credit union personnel such as loan officers, tellers, and financial advisors could be automated according to Accenture. Although going digital could save financial institutions billions of dollars, it also affects the ability to provide a human experience, a touchpoint that credit unions rely on.
However, going digital doesn't have to mean slashing the workforce or giving your members the cold shoulder. For example, OceanFirst Financial in New Jersey retrained its employees to assist digital banking roles.
Even though OceanFirst closed over 1/3 of its branches, through its employee retention efforts and forward-thinking mindset, it was able to keep over 90% of members who banked at the closed branches.
By adopting digital processes, OceanFirst also witnessed an 81% increase in mobile deposits (2019). Investing in retraining their employees not only educates their staff on digital processes but provides growth and sustainability for their coverage area.
Why should I partner with fintech?
As the need for a personalized digital banking experience paralyzes credit unions, fintech can provide the perfect partnership.
Your CU doesn't have to become fluent in online coding or start from square one. By partnering with fintech companies, credit unions can expand their network of businesses, and simplify the loan process to engage more members at a faster pace.
This strategy is particularly important for CUs that lack manpower and budget in the areas of risk, underwriting, and compliance.
Fintech can also help CUs gather data analysis regarding their potential and current membership. The data measures credit risk allowing the credit union to understand the borrower's financial behavior before a transaction has commenced.
By using smart credit risk technology, CUs can feel comfortable approving the loan, even if traditionally the borrower may have questionable credit on paper. This is the main avenue fintech uses to speed up loan approvals.
It's important to choose a fintech early in the game. As fintech gets more established the rates start to increase, which means the cost of partnership can as well. Coronavirus has forced scenarios we have never conceived before. Only being able to communicate via a virtual world is right up fintech's alley so take advantage of their automation techniques in personal and small business lending.
What's next for the U.S. economy?
Since 2000, credit union lending as increased in both first mortgage and auto. Totaling $81.6 billion (26.0% of all credit union loans in Q2 2000) and $440 billion in Q2 2019 (41.1%), first mortgages have seen an increase of over 15%. Auto loans have increased too from $123.6 billion in 2000 to $374.4 billion in 2019.
However, 2020 has ushered in a global pandemic, social unrest, and an economic downturn. With all of these factors, it is unlikely that the nation will be as strong economically as it was between 2015-2019. Here are 3 factors that could limit economic growth in the next couple of years.
1. Political Uncertainty
President Trump frequently tweets and according to JP Morgan, those words go way beyond social media banter. JP Morgan nicknamed the tweets the ‘Volfefe Index' after a confusing 2017 “covfefe” tweet. These specific tweets are showing a significant impact on Treasury yields.
Depending on the content, tweets affect volatility in the market which affects the pricing of options and securities. As the November election looms, uncertainty in the market is considered commonplace.
2. Low Inflation Rate
A low inflation rate is meant to keep the recovery going. However, when inflation rates are already low, cutting them can make a weak economy weaker.
The probability of an additional 25-basis-point rate cut averaged approximately 87% for contracts expiring between the end of 2019 and September 2020 as found by the Federal Reserve Bank of Atlanta's market tracker.
3. Future Economic Trends
As a higher ratio of Americans is retiring, the U.S. has seen a slowdown in productivity. Less productivity means less economic growth. This decline of economic growth along with a decline in consumer spending could be problematic for a quick economic recovery.
Even with lending wrapped up in the chaos of economic uncertainty, now is the time to invest in technology and comply with industry regulations to stay competitive. Listening to the needs of your members can help your CU weather economic uncertainties. Here at Oak Tree we follow the lending trends in the credit union industry and are here to help you adapt. What's your feedback on navigating current lending trends for growth and compliance at your credit union?