DENVER–Low-overhead and low-rate online lenders, combined with new entrants into the financial services space such as Google, are elbowing in on CUs’ core business, forcing credit unions to rethink their approach to lending, assert two analysts.
Patrick McElhenie, director of product management for CUNA Mutual Group, and Karim Habib, director of lending for CUNA Mutual, outlined the quickly growing threat facing CUs’ lending portfolios from the new market entrants.
“Lending is your bread and butter, and if you are being disrupted with your bread and butter, you better react,” McElhenie told attendees at the joint World Council of CU’s World CU Conference and CUNA’s America’s Credit Union Conference here. “It’s imperative to understand what is happening with these market disruptors because your decision time is now compressed. These are people trying to get at your core business, and they are coming at it fast.”
McElhenie noted that market disruption happens much more quickly today than in the past.
Watch The Clock
“Credit unions should pay attention to the clock because change happens – and it happens fast,” said McElhenie.
McElhenie shared examples of innovations that have disrupted other industries, such as GPS devices being replaced by smartphones and digital technology replacing traditional camera film. He warned attendees to pay attention to the changes happening in the P2P space as well, from companies such as Lending Club and Kabbage.
“Online access has revved up the speed with which companies can connect with customer and service niche markets,” said Habib. “The online direct lending and peer-to-peer finance communities have turned lending from a manual process into an automated and efficient exchange.”
Habib outlined steps credit unions need to consider to keep lending portfolios from slipping away to Silicon Valley:
- “Be alert. You need to research these disruptors, stay in front of them and know what they are doing and how they will impact your space. Be aware of your membership, learn how your membership is using these disruptors, and then counteract what is happening.”
- “Build an offensive strategy, and that does not always involve technology.”
- “Use defensive strategies to buy time. This is not a primary strategy, but something you may need to do to buy time to research and develop strategies to address the disruptors.”
- “Pay attention to the clock. Consumers’ ability to take on new technology is coming on very quickly, and they are adopting these new lending products at a rapid pace.”
- If your website is not optimized or mobile you are losing loans and losing members.
Consumers Still Want Branches
“There is a window of opportunity still here,” said Habib. “Eighty percent of consumers say they still need branches to do their banking. This is something the online lenders don’t have. Use this opportunity to interact with members more, find out what their lending needs are, and ask for their business.”
Habib added that as online lenders make credit available to consumers with lower credit sores that credit unions should consider loosening their lending standards that tightened during the recession, and provide faster loan decisions. He also pointed out that lending to subprime borrowers brings in more profits than lending to super prime, despite the higher delinquencies.
“Use that money to invest in technology that can make you a disruptor,” Habib said.