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COVID-19 Puts Two Big Pressures on Credit Unions: Deploy Capital and Transform Digitally

business man feeling pressure between walls
By Nicholas Hinrichsen

6 minutes

Credit union leaders who succeed at tackling these challenges will be celebrated and remembered for decades.

When governments ordered businesses to shut their doors in March, the stock market fell off a cliff. Private investors withdrew their capital from volatile assets and decided to sit on cash until the markets calmed down. To stimulate the economy and prevent it from collapsing, the Fed lowered interest rates to the rock bottom. In turn, the government supported taxpayers through a variety of monetary measures.

As a result, technology stocks rallied, and bank accounts became more and more flush with deposits. All these events put two big pressures on credit unions, which now have to: 

  1. deploy more capital quickly—that is, make loans, and
  2. move their business and member engagement online to meeting rising demand for digital service delivery.

These are not unknown challenges to CU leaders. However, never before did the world change so much so quickly. Leaders had to send their teams home for work, find new ways to deploy capital and compress half a decade of digital transformation into 12 months.

Credit union leaders who succeed at tackling these challenges will be celebrated and remembered for decades. These are truly exciting times and the opportunities ahead are vast. Credit union leaders just have to demonstrate agility and move towards digitization with strong conviction.

Credit Unions Have the Better Auto Loan Product

Credit unions have a lot going for them in meeting these two challenges. For example, CUs have the best lending products and the most competitive rates. Armed with these two conditions, how can credit unions deploy more of their capital?

When credit unions were forced to shut down their physical branches, they lost the locations where direct loans have typically been made. Making indirect loans—those made at dealerships—could still be an option, but these kinds of loans typcially do not perform as well. Even if credit unions chose to pursue more indirect loans, typically the only way they could get more of them is by paying dealers higher referral fees. 

Instead, credit unions might find a bigger opportunity in refinancing auto loans that members have with other lenders. They already have tools to help them do it. Indirect loans rely on generic data fields available to anyone offering an auto loan. CUs have additional data about their members and can theoretically make more targeted and smarter offers.

To make the most of this opportunity, CU leaders need to better leverage technology to engage existing members. If refinancing a car loan with your CU were as easy as taking photos on a smartphone, deploying the CU’s capital quickly would be a walk in the park.

A Little Bit of Tech Will Go a Long Way

Almost all credit unions doing refinancing rely on marketing automation tools and loan origination systems to help them. These kinds of tools did the trick pre-COVID, when members typically walked into branches to submit their loan applications. Now, however, CUs may need to look to new tools that will help them transform themselves more quickly to being more fully digital institutions.

To win digital refinance business, CUs need to excel on three dimensions:

1. Engage customers with a high degree of personalization. Technology can help with this. For example, the standard CU refinance outreach campaign is a physical mailer to every pre-approved member. Sadly, many of these costly mailers land in a members’ garbage.

Enter digital campaigns, which can be highly personalized. Which of the following do you think would lead to a higher response rate?

“Dear Will Smith: Congratulations, you are pre-approved for a car loan at rates as low as 2.49%. Visit our website to learn more.”

Or …

“Dear Will Smith: Congratulations on your car purchase last February! How has your 2018 Toyota Camry been treating you? We could save you $32 dollars a month or $2,084 over the remaining 66-month term of your loan. With just three clicks and one e-signature, we can pay off your Ally Financial loan and lower your rate from 5.49% to 2.49%. What are you waiting for?”

We’ve seen 311% conversion lifts through personalizing digital campaigns like this.

2. Build web and mobile experiences that convert. Rule No. 1 in conversion optimization is, “Don’t ask users for more information than necessary.” Yet, almost all CU websites require their members or potential members to provide 15 or more inputs before they finally get a firm refinance offer. Requiring such a high number of inputs is unnecessary and can lead to significant and painful drop-offs.

Rule No. 2 in conversion optimization is, “Leverage automation and—to the extent possible—remove gates that require human interaction.” But some credit unions’ loan origination systems still manage new credit applications through queues, which require manual steps by a loan processor. 

When marketing to their own members, CUs already know most of the information required to refinance. Any missing detail can be supplemented through application programming interface calls, i.e. automatically tapping into the LOS’s data fields or third-party data.. 

3. Scale workflows with technology. Once the avalanche of members who want to refinance their loan is in motion, credit unions will drown in queues and back-office work. Existing software may not take advantage of clever integrations, which reduce manual inputs and steps to a minimum. Take the Military Lending Act as an example:

According to the law, all lenders are required to check if an applicant is in the military to ensure the right thresholds are applied. If your LOS’s “integration” is a link to the MLA website, that’s a waste of credit union employee time and a productivity killer.

The government offers APIs that can be used to completely automate this repetitive task that takes minutes each time and wastes valuable employee time. The MLA is just one of many workflows that the traditional software may not support. Is it time for an overhaul in your shop?

In sum, credit unions have already solved the hard problem: They offer a superior product. The remaining challenge is to find effective ways to reach members, convert them through unparalleled digital experiences, and delight them through workflows that leverage technology and scale. 

After getting his MBA at Stanford, Nicholas Hinrichsen started a digital car retailer in 2013. He and his co-founder, Christopher Coleman, raised $10 million in venture funding and sold the business to Carvana.com in 2017. Hinrichsen pioneered the Sell To Carvana business and enabled the digital retailer to source the majority of its inventory directly from consumers and 100% online. After leaving Carvana, Hinrichsen and Coleman dedicated their time to helping Americans lower their car ownership expenses and started WithClutch. The two entrepreneurs find that supporting credit unions in digitizing member engagement is the most effective way to fulfill that mission.

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