NEW YORK—Credit unions need to start seriously thinking about ways to supplement auto lending before it begins to wane, says LendKey.
Auto lending has seen increased competition in the rising-interest rate environment creating unprofitable returns for many credit unions, the company said.
As auto lending becomes less attractive, credit unions should be focusing on supplementing the lost volume with responsible unsecured lending opportunities, which can help boost returns and serve the interests of both new and existing members, the company said.
“Non-bank alternative lenders continue to gain market share in unsecured consumer lending and are attracting younger borrowers with an effortless borrowing experience, and cross-selling other relevant products,” said Christian Widhalm, SVP lending partnerships.
‘Jumping Onto Opportunities’
Technology partnerships bring profitable and relevant products to market quickly, at low costs, and with a “five-star” experience that members expect. Credit unions are starting to partner with technology companies to attract the next generation of members, said Widhalm.
Even with an increase in partnerships, most credit unions have not yet stepped into unsecured lending, such as student loan refinancing, as an acquisition tool for younger, new members, he said.
“Unsecured lending in credit unions has largely been in the form of signature loans marketed directly to their existing membership,” said Widhalm. “It’s difficult for most credit unions to offer their own members a borrowing experience that competes with that of the new non-bank lenders, and many credit unions can benefit from partnering with fintechs to easily deliver this frictionless member experience.”
Credit unions are developing new processes for vetting fintech partners. This includes an understanding of which partners have the best experience—both from operational, member experience, and regulatory perspectives, said Widhalm.
As vendor management and oversight continues to be a growing burden for credit unions, having a proper vetting process in place is critical to maintain successful partnerships, he said.
“These partnerships, while appealing in many areas from operational efficiency to member experience, do come with vendor risk,” said Widhalm. “Credit unions are learning how to properly assess partners and should keep in mind that not all fintechs are created equal.”
A Billion-Plus in Lost Income
Widhalm suggested that while it will take time to see what happens to the bottom line of many credit unions that wait to diversify their assets, those that wait will likely see their ROA decrease over time.
“With $1.34 trillion in total credit union assets, a decrease of even 0.10% in ROA is $1.34 billion in lost income to the credit union industry,” he said.
Widhalm said credit unions should consider ways in which partnering with fintech firms can help improve their overall efficiencies, diversify portfolio, increase loan-to-share, and deliver digital experiences younger members expect.
“Understanding best practices in fintech partnering will help credit unions continue to offer the best member experience in the market while simultaneously mitigating their vendor management risk,” said Widhalm.
LendKey provides a compliant digital lending solution that allows credit unions to quickly and efficiently introduce white-labeled lending programs into the market at the risk and balance sheet levels that are right for the institution, Widhalm said.
“Our solution helps community lenders mitigate risk, increase yields, and attract Millennial members in various unsecured lending assets, including in-school student loans, student loan refinance, and home improvement lending,” explained Widhalm.