ONTARIO, Calif.—Consumers are willing to pay for a better experience, and credit unions that simply rely on price and the “traditional” definition of service to compete will lose, according to one expert.
“Historically, credit unions have gained market share with two competitive advantages: price and service. But member experience is now taking a priority over price,” said Brian Hamilton, VP of innovation, CU Direct. “And, often, what members expect in terms of a good experience is different than what credit unions have traditionally defined as good service.”
Hamilton said this should not be shocking news to credit unions.
“We’ve heard it presented at conferences, published as educational content and we’ve discussed it with peers. As a collective, everyone agrees credit union strategy must change to reflect changes in consumer expectations. But as with any industry, there’s a gap between our aspirations and our execution,” he said.
Hamilton termed competing on price a budget misstep.
“In many cases, credit unions are losing loans to non-credit unions that charge higher rates,” Hamilton explained. “This indicates there is price elasticity in the market; members are willing to pay a higher rate to receive a better experience. If cost is a barrier, then credit unions could raise rates and use the extra yield to fund investments that improve the member experience.”
Hamilton pointed to TransUnion data showing fintech companies originated 36% of total personal loans in 2017, up from less than 1% in 2010.
“Worthy of note, personal loans have surged to a record high this year and are the fastest-growing U.S. consumer lending category, according to data from TransUnion. Outstanding balances rose about 18% in the first quarter of 2018 to $120 billion,” Hamilton added.
Rethinking a Definition
When considering where to invest in technology to improve the member experience, credit unions need to rethink today’s definition of service, insisted Hamilton.
“Amazon is a perfect example—they don’t provide personalized, face-to-face service, but their service ratings are very high. That’s because they meet and exceed customer expectations,” he said.
Hamilton said some credit unions may say, “We don’t want to be Amazon, we still want to build relationships with face-to-face service.”
“As an alternative, they could instead consider the experience Zappos has defined,” he said. “Zappos has doubled down on their call center investment and have no time constraints on how long a call should be, because they know taking that time leads to tremendous service scores. However, they’ve also invested in the technology Amazon has, improving speed of delivery, for example. They’ve found a way to hold on to personal engagement, while also making technological advancements.”
Three Primary Areas
Hamilton cited three primary areas credit unions need to address: speed of loan decisioning, automation of communication, and automation of fulfillment.
“The dollar impact of improvements to these areas will vary by credit union, depending upon how much they have already invested in technology and the size and complexity of their lending programs. However, the impact could be significant, regardless of the numbers,” he said. “One credit union I worked at invested in automating some processes, including loan decisioning, and we also automated documents and communication to members. As a result, we increased our funded loans by 10%, which is a pretty significant lift.”
Credit unions can improve the member experience through other forms of automation, such as implementing regulatory compliant solutions to eliminate the need for members to provide pay stubs for loan approval, said Hamilton.
“Many lenders don’t require pay stubs when other factors indicate an ability to repay, so it’s become an unacceptable extra step for credit union members, especially for your long-time members who have lending history with you,” he said. “There are third-party providers, including CU Direct, that work with the major credit bureaus and other providers who can provide effective risk management tools.”
Another step that can greatly enhance the member experience is to improve the ability for subject matter experts to communicate directly with members, added Hamilton.
“Doing so can have a dramatic positive effect on pull-through rate. If your loan officers or other subject matter experts can’t take a member’s call, not only is the member unhappy about being transferred to the call center, it also increases the workload in the call center, which diminishes the experience for other members,” he said.
‘Fantastic Self-Funding Initiative’
Hamilton said service hours are another area credit unions need to look at closely.
“While budget may be a constraint, there are ways to incrementally gain income as you invest,” he explained. “For example, maybe something as simple as adding service hours later on weekdays, on Saturday or Sunday, will bring in enough loans to pay for it. In my experience, extended service hours have brought in north of $5 million per month in consumer loans. That can be a fantastic self-funding initiative. It can be especially effective if you do indirect lending.”
Hamilton said “conventional wisdom” says that dealers won’t put in loan applications on the weekend because they know their credit union partner will buy it come Monday.
“But that’s not universally true. Some want that decision on the weekend,” he said. “So, from an incremental standpoint, your credit union should consider providing decisioning on the weekend. I would suggest promoting it to your dealerships and running a three-month trial before committing resources long-term. Investments that automate decisioning will also help to solve that problem.”
In today’s experience-driven marketplace, credit unions shouldn’t underestimate the value of delivering a great member experience, insisted Hamilton.
“Credit unions can effectively make changes by raising their rates, and spending that extra yield on automated loan decisioning, communication and fulfillment,” he said.