MALVERN, Penn.—Despite strong credit union loan growth in 2015, one analyst thinks CUs can do even better this year by including less traditional approaches, such as merchant lending.
“We’ve seen certain credit unions making groundbreaking strides in ways that have not yet been adopted by the industry as a whole,” noted Larry Edgar-Smith, SVP of product evangelism at Akcelerant. “There are three opportunities in particular that credit unions should consider in 2016, all supporting a central strategy: alternative ways to get additional loan volume from loyal members.”
One opportunity many CUs are overlooking, according to Edgar-Smith, is merchant lending.
“Also known as lifestyle and retail lending, merchant lending is the practice of providing loans for a variety of products at the point of sale, such as recreational vehicles, medical needs, weddings, Jacuzzis, or a dream vacation,” reminded Edgar-Smith. “The credit union markets the program in partnership with merchants.”
Consumer And Lender Win
Edgar-Smith said the consumer gets the loan they need at a fair rate, the merchant gets the business and the credit union has a chance to extend another loan to a deserving member or develop a new relationship.
“This method can be very successful since you collaborate with the vendors to develop strategies, and your origination system manages the pricing and risk,” explained Edgar-Smith. “As an added benefit, merchant lending programs provide diversity to the credit union's portfolio.”
CUs, too, should consider serving more of the underserved market, including obtaining a Community Development Financial Institution (CDFI) certification, advises Edgar-Smith.
Larry Edgar-Smith, Akcelerant
“This aligns perfectly with the principles of the credit union movement. But while many CUs have a mission to serve the underserved, not as many take advantage of the CDFI program,” said Edgar-Smith. “CDFI certified lenders can obtain secondary capital, apply for grants to help subsidize and introduce programs such as small business lending and, most importantly, expand their investment in their members and communities. Institutions with robust origination and collection solutions know that you can easily balance risk and reward. Serve the underserved and your local community, develop relationships with new and loyal members, and take advantage of the financial benefits available.”
Zero In
Edgar-Smith contends that CUs can improve the impact of pre-approval campaigns through better targeting.
“Pre-approvals can be a great thing, but finding that perfect niche can be challenging,” he said. “Before you spend valuable time reaching out through e-mail campaigns, direct mailers, outbound and inbound calls and maybe even text messaging, be sure to consider which campaigns and which targets will be the most effective.”
Edgar-Smith noted that pre-approval efforts should extend beyond high-wealth prospects.
“To improve your results, develop campaigns that find new account holders that behave like your most profitable members, or make an effort to expand relationships with your existing account holders by making them feel like VIPs,” said Edgar-Smith. “Embrace your creative side when executing these pre-approval campaigns, and don’t forget the importance of timely and effective follow-ups. Since they are pre-approved offers, your origination system should be able to quickly process these transactions.”