By Ray Birch
MADISON, Wis.—What are credit unions going to do if they lose 40% of their auto lending portfolio?
It’s a difficult question to answer, and unfathomable to many. But is also a question that can’t be avoided, which is why the Filene Research Institute has been looking into how autonomous vehicles and dramatically different views on automobile ownership in the future will affect credit unions and their loan portfolios in the future.
Ryan Foss, managing director of innovation at Filene, pointed to studies by some research firms that project that by 2030 40% of financial institutions’ auto lending business will disappear as the result of autonomous vehicles.
“Even today, a lot of the carmakers are already getting into iPhone types of subscription services,” said Foss. “Volvo, for example, lets you pay a subscription and get a new car every year. You take a look at the changes and trends in the automotive industry and you say, ‘How can credit unions get involved in them?’ We don’t have the answers yet, but we are looking into this at Filene. That is what one of our i3 teams is looking into—if credit unions were to lose 40% of their auto lending business, what is available today that can help us prepare for that and actually be a leader in that disruption?”
Foss said that team is one of five i3 teams currently examining how major events, trends, shifts in consumer behavior and more may affect credit unions several years down the road.
Creating ‘Preferred Futures’
“The teams are using a new innovation methodology now, using strategic foresight to evaluate trends—not only in our industry but social, political, environmental and economic trends—in an effort to create alternative plans and preferred futures for credit unions,” he said.
In addition to autonomous transportation, i3 teams are also examining cybersecurity, wealth and equality, pandemics, and climate change.
“They are immersing themselves now in those topics and creating, based on trends that are happening today, future scenarios (5-10 years) and testing technology available today against problems they are seeing in those futures,” Foss explained. “This is really different stuff than previous i3 teams have done.”
Foss emphasized that the new work is being performed to prepare credit unions for more disruption that the industry may see coming–especially the types of disruption that are hard to forecast.
“The easy example is autonomous transportation,” said Foss. “The easy thing to see is that it will have a big impact on credit union lending portfolios. But there’s more. If you start looking at trends outside of our industry, you begin to see even more things that will impact our members and their credit unions.”
Foss pointed out that transportation is the number-one employment category in 28 U.S. states and that when self-driving cars (and trucks) become common, many people will lose their jobs.
“That will be a huge disruption for our members and credit unions,” he said. “So, are there some things we can begin to start to offer, such as transportation cost loans or some sort of gap insurance? You can’t predict the future but you can start planning for different scenarios that can happen.”
The Threat from Climate Change
Then there is another potential threat that may initially seem unrelated to credit unions: climate change.
“Look at all the coastal communities and the credit unions and members in these areas—and the water levels are rising due to global warming,” said Foss. “And what about hurricanes? Are we as an industry prepared for the possible environmental changes we will see in the next five to 10 years? Our team members are immersing themselves and saying, ‘OK, if you are on the Gulf Coast and something like Katrina, or worse, happens again, if you are a credit union what are the things you need to begin doing today to plan for that.’”
Another team is looking at wealth and equality—essentially a trend in which the wealthiest people have been getting wealthier, while the poor are getting poorer. Falling into this area or analysis are issues that include student loan debt and payday lending, said Foss.
Other i3 Projects
“In our Incubator we are testing two products out of i3. The first is Member Megaphone,” said Foss. “We started this three years ago and now we are to the point where we are working with a software company to build it.”
Member Megaphone is a member referral app to help CUs with organic growth, explained Foss. “This helps members refer family and friends to the credit union, and it has had a lot of success in testing with 19 credit unions.”
The other project is titled “Will Be Done.” It’s a website program that helps members take the initial steps toward creating a will. Foss said the program itself is fun and not serious even as it helpts to address what is a serious matter. The member answers a series of questions and when the short program concludes they get a printout to take to their lawyer to finalize the will.
“Studies show that 64% of Americans don’t have a will and the big reason is that they just don’t know how to get started,” said Foss. “Will Be Done gets them over this hurdle and is a nice value-added service for the credit union.”