ORLANDO, Fla.–Nearly all 101-million credit union members WANT their CU to assess their financial needs, to give them an annual “financial check-up.” But most credit unions fail to do so, observed one expert, saying those CUs are all guilty of “lending malpractice.”
For an example, Karim Habib said he didn’t need to look any further than himself. Habib, director of sales and marketing over CUNA Mutual’s Lender Development Program, said he has been a member of his credit union for more than 10 years. He has 11 products and services through his CU, and over that time he has represented three different opportunities for his CU to expand those relationships even further. The number of times his CU has worked to grab those opportunities? Zero.
“Zero is the number of financial check-ins over the last 10 years my credit union has sought to assess and diagnose what is happening in my life and how can they better support me from a financial services perspective,” said Habib in remarks to the joint meeting hosted by the CUNA Operations, Sales and Service Council and CUNA Technology Council.
Again, close to home, Habib noted he visits his CU every other week and takes his two daughters with him. “Not once in the last five years has anyone from my credit union ever come up and asked, ‘Have you ever thought of opening up a kids account for your daughters?’ ”
What should concern all CUs, said Habib during a session on building a member-friendly sales culture, is that he gets solicited consistently by other lenders happy to ask him the questions his credit union isn’t.
That’s becoming more critical, Habib noted, because the largest population cohort ever, Millennials, are driving a lending disruption. Surveys show they are most likely to be open to non-traditional providers who make borrowing easy. It’s the reason, he stressed, that omnichannel, which Habib prefers to call “channel optimization,” must be seamless and consistent across all channels for members in order to leverage the opportunity to cross sell.
Missing the Point
With the U.S. economy strong and membership surging, Habib said it’s easy to miss a critical point when lending is surging at CUs: credit unions have just a 9% marketshare of consumer credit balances.
“So 91% of consumer credit loans are held with the competition. Just 9%! What does that tell us? There is a lot of opportunity,” he said. And it isn’t just about the loan opportunities, added Habib, pointing to non-interest income sources such as credit insurance, debt protection coverage, gap coverage, and more.
He cited Accenture research showing that 35% of banking revenues will be at risk by 2020 and that 71% of consumers consider their banking relationships to be transactional rather than relationship driven.
“All these disrupters are in the financial services space, and your space is savings, lending, investments, insurance and payments, And you need to protect this,” said Habib. “Payments is at the center of all this for a reason. They are not just disrupting, they are impacting your revenue streams.”
Disruptors Worth Watching
Pointing to some of those disruptors, Habib cited:
- Lending Club. Eighty percent of the loans Lending Club writes are consolidation loans. “That’s about $10 billion in consolidation loans that are your bread and butter and should be coming to credit unions.” Habib quoted Lending Club’s CEO as saying, “The nest big disruption is ease of transaction. Period.”
- Kabbage: Kabbage does business loans up to $100,000 and will improve a loan in seven minutes. “How many of you can approve a business loan in seven minutes?,” asked Habib. No hands were raised. “Kabbage does not pull a credit report. What they do is they look at your social media profile, the number of likes you have on Facebook, connections on LinkedIn, and your PayPal history.”
- Karrot: Kabbage’s cousin, Karrot does consumer loans and can also improve loans in seven minutes. “They do lifestyle lending, emotional lending. Look at how they attract Millennials? They don’t advertise that ‘We do signature loans or secured loans.” They advertise ‘We do vacation loans, wedding loans, start-up loans.’ ”
“These companies are in your space and taking your loans,” Habib said. “For these P2P lenders, the average age of their clients is 34, versus 47 in credit unions. They are going after the members you need to go after.”
Habib said there are some common themes to be seen among disruptors in financial services. They:
- Use technology driven business models (platform strategies).
- Have lower cost structures.
- Find ways to bypass relevant laws and regulations.
- Utilize low cost ways of moving money.
- Aggregate customer data and monetize it.
- Enter a single financial before moving to other categories.
Habib said one credit union that has gotten proactive is University of Wisconsin Credit Union in Madison that now uses a data-mining tool that digs through member credit reports and “dollarizes” opportunities where those members could save money by moving accounts to UWCU. Four employees work in that department and make outbound calls and contacts saying things like, “I can save you $1,700 a year, do you have a few minutes to chat about that.”
Karim Habib of CUNA Mutual addresses CUNA OpSS/Tech Councils conference in Orlando.
When it comes to new providers and omnichannel, the discussion most often focuses on online offerings. But Habib emphasized the branch remains critical, even with the youngest consumers.
“In omnichannel, you have to reform your physical channels. Physical branches remain important,” said Habib. “ Consumers are attracted by experiences. The warm smiles of friendly member advisors, familiar faces from the community, and knowledgeable employees are some of the many benefits members receive from visiting their local branch. And it’s not just about growing with the member who is in front of you, it’s about the household that is behind that member.”
How to Combat Disruption
How can a credit union combat disruption? According to Habib:
- Build a member experience culture
- Upskill your lending staff to be lending consultants.
- Focus on your existing members and grow organically (household)
- Maximize every opportunity to do a “Financial Check-in” with your members.
- Maximize the window of opportunity on Internet loans between “approval” and “funding.”
Habib urged credit unions not to let the opportunity go wasted after a loan is funded, noting there is still a good opportunity for follow up. For example, the CU can contact the member to ask how they want the loan funded/deposited, or mention that “by the way, while looking at your credit report I found a couple of opportunities where we might be able to save you some more money. Would you like to talk about that today?”
“This window of opportunity is critical,” he said. “If you continue to do loans through one channel your members are going to continue to have one loan with you, even as competitors are coming at your members. But regardless of channel, you have to make sure that the member is treated in a consistent manner, and that your employees are providing the same consistent experience.”
When it comes to reaching out to members, Habib noted there are three models:
- Reactive: “This is you sit and wait and the initiative is by the member. If you’re still doing this, you wouldn’t be here today.”
- Proactive: Promotions, seasonal work, preapprovals, spray and pray.
- Preemptive. “This is where the disruptors are. They are doing loans with no applications. They are doing perpetual preapproval status. It’s multi-product and omni-channel and customer centric. It’s ‘Click here’ if you want to advance any funds’.”
Time To Get Personal
Habib urged credit unions not to be afraid to “get personal” with members in order to better understand their needs. And he reminded, “Your members are looking to solve-real time problems and expect instant solutions.”
A big part of that can be the annual “financial checkups,” of which Habib is a proponent.
“A lot of credit unions we talk to don’t do this today, but they are so critical. This is the proactive call to the member. You have to do these with a purpose. It can be pre-scheduled or done when the member comes in for a loan, but either way it has to be with a purpose.”
One example” reaching out to members who are 36-48 months into their auto loans to see if they are in the market to refinance.
He said a good post-loan process to follow is:
- 3 days: Follow up on preapproval opportunities uncovered during the loan approval.
- 2 weeks: Follow up on something new from credit report, while minimizing inquiries on the credit report.
- 1 month: follow up on referrals to friends, family and co-workers.
- Annually: Schedule the financial check in. “We find that credit unions that do this have members who WANT that call every year.”
You need to know what life stage the member is in. Otherwise you’re just pushing products. Members like to talk to you, but it’s important to ask the right questions in order to offer the right products and services.”
Those life stages include what Habib dubbed “matches (marriages), hatches (births), and dispatches (divorces, lost jobs).
“Sales and service go hand in hand, and ultimately what you need to be driving is a member experience culture,” he said. “You’re genuine, valuable, trustworthy, personalized, different and better than the rest.”
What a transparent sales culture is NOT, he emphasized, is employees being pushy or talking too much. “This is about matching your products and services to meeting members’ needs.”