With unemployment beginning to ease and retail spending up, 2015 promises a growing economy and continued lending growth that could benefit credit unions. Though some forecasts indicate motor vehicle sales and loans may slow slightly in 2015 compared to 2014, Kiplinger believes they will maintain a steady rate, about the “average for annual auto sales in the years just preceding the recession.” As a result, new and used car financing will remain a profitable retail lending niche for credit unions, but it is by no means the only lending strategy to achieve loan growth.
Consumer lending is expected to be on the rise in 2015, as retail sales are projected to climb upwards of 4% according to Kiplinger. With growing loan-to-share ratios, credit unions may want to look at ways to balance their loan portfolio concentrations, diversifying from mortgage and auto heavy portfolios to adding mix of consumer credit.
A new opportunity
New opportunities exist for point-of-sale (POS) consumer lending in high-end retail and medical services that can help distinguish local credit unions from large, universal banks. Synchrony Financial (SYF) estimates that more than 10% of overall consumer spend, approximately $1.5 trillion, could be point of service financeable. Credit union retail and medical lending can lead to growth and diversity of loan portfolios, adding profitable higher-yield short term loans, while building new partnerships with local businesses and promoting member loyalty.
With this blossoming retail lending market, credit unions have a good opportunity to offer members a more affordable alternative to high-rate financing offered by banks and payday loans. Consumers often need financing for medical and dental services, such as elective surgery or cosmetic dentistry, as well as for landscaping and home improvement services, such as the installation of a new AC or heating unit or large ticket purchases, such as furniture.
By adding POS retail and medical financing and credit to their menu of products and services, credit unions increase their value to members, expand their customer base and increase opportunities for cross-selling. And credit union members—as well as new customers—get trusted financing from a local source at competitive rates, while building new relationships they can depend on for future financing.
An indirect loan service also helps retailers and providers increase sales and improve customer satisfaction. By partnering with credit unions, they gain access to thousands of potential new customers, and eliminate the need to provide lay-away plans or in-house financing. Further, retail and medical financing opens the door for credit unions to grow their membership.
The opportunity for a successful point-of-sale retail lending program exists for any credit union, but to take advantage of this promising income stream, certain requirements apply.
Credit unions should consider programs that allow them to select the retailers and service providers with whom they wish to partner, in order to focus on one or more particular markets, tailored to their membership, existing business accounts, and the larger community.
By capitalizing on their indirect auto lending expertise, credit unions can grow their loan portfolios by expanding their retail lending programs to other types of vendors, including service providers and high-end retailers. To compete effectively with large banks and national lenders, however, credit unions must provide their retail lending POS service with best in class systems and technology that meet customers’ expectations for fast, efficient and seamless web-based loan applications, approvals and documentation.