LAS VEGAS—When community banks are asked, “Who’s your competition in consumer lending?,” they always respond, “It’s the credit union down the street,” according to Daryl Jones. What do credit unions say when asked the same question? “It’s the credit union down the street.”
While that credit union response likely deserves further examination, the more confounding issue, says Jones, a director with Scottsdale, Ariz.-based Cornerstone Advisors, is why both community banks and credit unions are missing the fact the biggest competition for both types of institution isn’t on the street at all.
“New providers are coming that are going to be competing with both the banks and the credit unions,” said Jones in remarks at CU Direct’s DRIVE 15 Conference here.
Jones said that he was surprised while attending the Lendit Conference, which is for the online lending community, to find no representatives from traditional banks or credit unions among the 2,400 people on hand.
“Considering what they are doing and working on I was a little shocked there weren’t more of either there,” he said.
The markets are certainly betting on the companies at Lendit, he said, noting that one-third of those on hand were lending platforms, while the rest were investors.
“We surveyed our institutional community and asked, ‘What do you think of some of these disruptive lenders, and do you have any known competition against them?’ Eighty percent said they see the disruptive lenders as no threat. I don’t think it’s a matter that they haven’t lost business to them, I think it’s that they don’t know. The troubling part is that about a third of them said their primary way of dealing with them was they plan to watch them.”
The same survey found, ironically, that more than half of respondents indicated that alternative lenders are not an immediate threat, yet nearly three-fourths said they had lost business to Quicken.
The one small piece of good news for CUs: according to Cornerstone’s research, 0% of average community banks are doing online loan applications and online decisioning, while 23% of credit unions are doing so.
LendingClub Market Cap Rises
LendingClub, meanwhile, now has a higher market cap than many banks, including some well-known brand names.
“LendingClub has legitimized that the model is working, and we’re going to see more and more of these platforms going public,” said Jones. “One of the most interesting yet odd things is the partnerships that Lending Club is forming with banks and credit unions. LendKey is powering online student lending for Navy Federal Credit Union. From what I’ve heard about that they had really strong loan volumes on the first day they did it, with no marketing. The interesting thing about these partnerships is that at the conference they said, ‘The credit union across the street is who we are competing with.’ They are going to be partnering with people they say they are competing with.”
What are some of these disruptive lenders doing? According to Jones:
- They are betting that credit unions and banks are going to sick to the traditional “push the branch” model.
- They are employing data scientist for proactive data management and to redesign loan processes from the ground up.
- They are putting in place fast path loan apps with real-time, soft credit offers.
- They are integrating fully automated, non-credit-driven behavior analysis.
- Disruptive lenders are fully remote delivery with DocuSign and ACH funding and repayment. Jones said one lender reported it is pushing one week on mortgage approvals and funding.
Jones said that among the most intriguing of lending prototypes he has seen is LendingClub’s “Cube,” which is in development.
“If it comes out anything like they are saying it will, it’s a bit scary,” he said of the physical, cube-shaped device. “They could literally put that in anywhere. It’s Wi-Fi connected, has a touch screen and keyboard, Sigital display and voice recognition, and scanner. It’s a POS solution that can go in car dealers, furniture stores, etc.