Indirect lending programs picked up major steam over the last several years due to intense competition in the auto lending industry. Credit unions, in particular, saw substantial growth in their auto loan portfolios, nearly 30% since 2012, according to Forbes. That's due in part to an improved economy and can be chalked up to their participation in indirect lending programs.
With indirect lending programs, not only do you benefit by gaining a new auto loan for your portfolio, but there is a major opportunity to deepen the relationship with those new borrowers by providing convenient payment solutions. Indirect borrowers have the largest need for a convenient method to make a payment on their auto loan—after all, this is currently the only relationship they have with you—and if your home banking solution is only available to current members with checking and savings accounts, you're leaving your indirect borrowers at a major disadvantage.
We talk often about the importance of providing borrowers with convenient and secure payment options because we realize that falling behind the technology curve when it comes to banking options can cause borrowers to take their business elsewhere, and in this day and age of low auto interest rates and stiff competition, lenders can't afford to lose existing borrowers. If your current online payment option is not available to indirect borrowers, they are left with payment options that leave much to be desired:
Call your credit union—during business hours—and talk to one of your employees to submit their payment.
Visit your credit union—again, during business hours—and make payment with one of your employees.
Write a check and snail mail it to your credit union.
Use the home banking solution with their current checking account provider—assuming they have one available.
While all of these options can certainly achieve the end goal, there are several disadvantages, for both your borrower and your credit union. Only accepting phone payments from your indirect borrowers sources valuable customer service representative time to the task. In most cases, your employees wear multiple hats, and the time spent on the phone taking a loan payment could be spent elsewhere, on more productive tasks.
Likewise, your borrowers are busy. They have jam-packed schedules that include work, carpools, children, school, and various other events and activities. Requiring them to take time out of their schedule to call your credit union or write and mail a check just to make their loan payment is tedious and inconvenient.
Most borrowers prefer the convenience of simply logging into an online payment portal from the convenience of their computer or smartphone to quickly and securely make their loan payments, rather than having to take time out of their day to call or drive to their credit union.
There are several benefits to offering an online payment solution to your indirect borrowers:
Free up internal resources
When your borrowers have a convenient payment platform with multiple payment options — credit or debit card, checking or savings account, Internet PIN debit — that is available 24/7, they are less likely to experience delinquency issues due to lack of convenience. When your collections team does not have to spend time and resources contacting borrowers that are late on their payments (simply because they haven't had time to make a payment), it allows them to focus on borrowers that are truly delinquent and in need of a mutually beneficial solution.
It is cost effective
Giving borrowers the capability to self-serve can be a major cost savings to your credit union. Rather than adding multiple employees to your staff to take phone payments, paying their wages and employee-related expenses and training them, just making the initial investment in an online and mobile payment solution can be much more cost effective in the long run.
Create potential income streams
Offering indirect borrowers convenient, easy-to-access payment options is a great way to build a positive user experience with a consumer that doesn't have an existing relationship with you. You have the opportunity to make a positive first impression with a borrower, who likely only became a member because of your competitive auto loan rate, and potentially turn them into a multi-product member if you build upon a strong foundation. You could easily cross-sell multiple products and services to this new borrower including:
The problem with some of the "old school" ways of making payments, such as mailing a check, or taking a payment over the phone, is the increased risk of human error. Mail gets lost, employees make mistakes, and, though unintentional, it exposes you and your borrowers to risk.
However, many online solutions provide added security, both for you and your borrowers. For example, with an online payment solution that includes Internet PIN debit, borrowers enter their PIN number with their mouse by clicking numbers on screen, rather than using their keyboard, so instead of capturing the PIN's digits, the system only captures the coordinates. This prevents the PIN from being captured during processing, giving your borrowers—and you—increased security.
As you can see, the disadvantages of not providing indirect borrowers with a convenient and viable payment solution can be impactful; likewise, the advantages to providing a solution can lead to strong relationships with new borrowers and multiple potential income streams.