I’ve read a number of credit union industry articles recently that focus on the rise of consumer peer-to-peer (P2P) lending/marketplace lenders, usually with speculation about when these new competitors will start impacting our industry’s loan volume.
That’s a fine discussion to have, but what seems to be lacking is an in-depth conversation around why these lenders are gaining traction in the first place. The simple answer is that many of these companies offer a better lending experience. They’ve created a fast and painless process, which is what members truly desire and are searching for.
I recently wrote an article on linking the member experience to credit union inefficiencies. I highlighted what I saw as a disconnect between the desire and need to lend money — a credit union’s core objective — and the amount of time and effort put into designing the loan process.
Quite simply, I think the credit union lending experience suffers from poor resource allocation, a lack of automation, unjustified risk aversion, and questionable compliance interpretations. In order to compete, credit unions need to surprise members with speed, simplicity, and ease of use, the opposite of what the industry is doing today. This is a problem that the industry as a whole needs to address.
So, and mostly because I like numbered lists, here are the key concerns I’d be focusing on if I was working at a credit union and tasked with preservation and growth of my borrower base in the face of mounting competition.
1) Make Employees “Member Experience” Advocates
Do your employees advocate for a simpler member experience? Credit union leaders want to believe their teams have a great handle on the member experience, and in some credit unions, that may be true. But here’s what I’ve learned from working for and with credit unions for nearly 20 years: most of your employees will simply accept the current process as is — even if it impacts ease of use. From my perspective, this is more of a cultural matter, but if your employees don’t already view themselves as consumer advocates — in the mold of Steve Jobs, not Ralph Nader — set new expectations. A priority must be placed on making it easier for your members to do business with you, and your frontline staff should routinely be looking for member pain points.
2) Formalize Product Management
Now let’s look at the organizational chart. Your operational and lending teams, who are currently serving members and making loans, rarely have time to map and improve the member experience. But there’s an easy solution to this, and that’s to formalize product ownership into dedicated teams of trained product managers.
Think back to those lending startups trying to steal your business. Those companies are actually hybrids, blending financial services fulfillment and software development. And software companies tend to have dedicated product management teams tasked with improving the user experience. Credit unions should make the same investment by creating or hiring a team dedicated to improving the lending process.
3) Observe & Report
Now that you hopefully plan to add full-time product managers — with no member-service burdens — let’s have them engage with your members. Ask lots of questions, but more importantly, have your team observe your members while they use your products. For example, ask a member to apply for a loan while you observe the process. Track your member’s joy, frustration, and overall satisfaction through each step of the application. The initial feedback will probably surprise you. And be sure that the member feedback is shared with the entire leadership team, as you’ll need them all-in on any “ease of use” process improvements (don’t rely just on your lending team). Then, simply take incremental steps towards a better experience.
4) Mitigate Your Risk Mitigation
Can we just lock your risk management folks away in the vault for a while? Kidding. But please stop letting these teams dictate the member experience. I’m all about respecting the law and having manageable loan losses, but I’ve also seen some ease of use abuses inaccurately labeled as “risk mitigation.” For example, I recently had a credit union tell me they’re all about the member experience, but then proceed to bloat their loan application with meaningless questions for staff to answer (“But are you sure you gave the member the required disclosure?”). Or how about credit unions that change their underwriting guidelines based on a single bad experience (“…and that’s why we no longer make loans on blue cars.”)? My point here is to make sure you know what your risk management teams are doing. Well, unless you like the idea of auditors and collectors designing the member experience. In that case, you’re probably fine now.
More than 50% of your consumer loan applications should receive automatic decisions. This will not only reduce staff costs, but more importantly, it’s about how this relates to a better member experience. In today’s world of simplicity and immediacy — I can text an emoji to order a pizza now — wouldn’t you also expect a fast decision for a small consumer loan? Marketplace lenders can likely eat you for lunch on this right now. Which is a shame, considering you probably know more about your borrowers than they know about theirs, so it should be easier for you to say “yes” quickly. This is simply about using the data you already have to improve speed of delivery.
The rest is about digital fulfillment. What I mean by that is you need the ability to originate a loan online and via your mobile app with a minimal number of questions, deliver an instant decision, immediately present a document for signing, and then fund the loan (no humans involved).
There are no real technological hurdles here. But you have to be willing to automate nearly every step in the process. And again, this all starts with automated decisions, otherwise, the rest doesn’t matter much. By the way, CU Direct, along with a number of other firms, can help you analyze your loan performance and system decision strategies in order to improve automation. You don’t have to go it alone.
Call it speed or call it simplicity. At the end of the day, competing in tomorrow’s world just comes down to “ease of use” for the member. And it’s an exciting time to be in the lending space, if you see these new pressures for what they really are: a valuable reminder for credit unions to always look for ways to make things simpler for their members.
Paul Kirkbride, Senior Vice President, Credit Union Solutions, CU Direct.