In July 2012, the chief lending officer of Washington State Employees Credit Union announced at a Callahan-sponsored CLO roundtable that WSECU would go paperless in 2013. According to CFO Keith Troup, within 17 months the credit union would complete all loan applications and contracts electronically, and it would start with its indirect channel.
WSECU ($1.9B, Olympia, WA) is an active indirect lender that, as of June 30, 2013, attributed more than 30% of its loan portfolio to new and used auto, according to the Search & Analyze function on CreditUnions.com. Since summer 2012, the credit union has been rolling out its paperless indirect lending process, and beginning October 1, 2013, the credit union will no longer accept paper loans from its indirect partners.
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Before WESCU invested in a digital process, its records department had to manually scan all newly generated paper into the institution’s lending system. Despite the upfront expenditure, the new electronic process will increase worker efficiency and reduce long-term paper and storage costs.
Leadership at WSECU first learned about the paperless option during a 2011 Credit Union Direct Lending conference about smart funding, which is the electronic distribution and receipt of loan contracts. CU Direct Corporation, a CUSO that provides lending technology to credit unions, owns the indirect lending program featured at the CUDL conference.
“We came away from that conference saying, ‘this is something we want to bring back to our shop,” Troup says.
The credit union started pushing smart funding through CUDL’s platform in the summer of 2012. At the time, it received 20% of its indirect loan contracts electronically. Today, that rate is 90-95%. The credit union pushed smart funding by reaching out to dealers and pitching the benefits of sending loan funding contracts via electronic channels.
“Every time our processors talk to a dealer, they’re asking ‘do you know what smart funding is?’” Troup says. “The way we pitch it, [it’s] for them to save money and get their money faster from us.”
Smart funding saves the dealer money in overnight shipping costs, which is how most were sending loan contracts, and it saves time because documents are immediately available for review. For the credit union, smart funding allows for a speedier funding process. The efficiency created by smart funding will allow the credit union to repurpose an entire department.
“It’s going to cut down a lot of people’s time in the processing of loan contracts,” Troup says. “It’s going to eliminate one department’s activity completely in getting consumer loan documents into the system, so perhaps there will be other things those people can do with the freed up time that they have.”
To gauge the success of its smart funding initiative, WSECU is monitoring its funding ratio, which is the amount of loans acquired from dealers that are ultimately approved. The funding ratio of approved applications for indirect auto was up to 57% from 52% over the nine-month period since the smart funding roll out. Additionally, the funding ratio of approved applications for RV was up to 67% from 47% over the same nine months. The credit union attributes increases in the funding ratio primarily to the increased use of smart funding.
“We have been able to drive up that funding ratio,” Troup says. “It’s still not where we want it to be, but it’s higher for dealers that use smart funding than for dealers that don’t.”
The paperless system has also helped increase the efficiency of loan processors. According to Troup, many things the credit union has done have contributed to the increase in consumer loans processed and funded per loan processor, but the reduction in physical paper is a major factor in its recent gains. For example, in July 2012, WSECU loan processors processed or funded an average of 145 consumer loans. In July 2012 that number had jumped to 175, meaning each FTE processed or funded an additional 30 loans.
As the October 1 deadline approaches for dealers to switch to electronic smart funding, WSECU is running a promotion to reel in stragglers. Each time a dealer submits a contract electronically, WSECU enters it into a drawing to win a suite at a Seattle Mariners baseball game.
“We’re having a contest for our dealers to provide them a positive reason to make this switch,” Troop says. “It’s our last-ditch effort for the few dealers that are holding out. We hope that will be enough to get them over the edge because on October 1 and October 2 we do not want negative experiences with dealers that are sending us paper agreements.”
The credit union is building off its paperless indirect channel success by creating paperless loan applications for consumer loans. Currently, 20% of remotely generated consumer loans are electronic, and the credit union’s goal is to make its consumer lending completely paperless, as well.
“We would love to see [remote electronic loans] be much higher than 20%,” Troup says. “In our mind, it’s about creating a remote member experience where they’re comfortable starting and finishing an application remotely.”
Perhaps it’s a fortunate coincidence, but WSECU’s percentage of indirect contracts coming in electronically was also 20% only a year ago. Such insight bodes well for the consumer lending side.