All-Digital CU Gets Down to Business

An ambitious goal set by Civic Federal Credit Union President Dwayne Naylor is something you never hear an executive talk about publicly, particularly for an all-digital de novo cooperative.

“I want to become the best small business lender in North Carolina,” Naylor declared in an interview with CU Times.

When you consider that credit unions operate for years serving basic consumer loans before they even start to think about offering member business loans, the $25 million Civic Federal Credit Union in Raleigh, N.C., may be the industry’s first online-only credit union to market business loans when it launched less than a year ago.

“Yes, we’re de novo, but you can’t stereotype us because we have put a tremendous amount of talent into automating business lending account opening,” he said. “We have got it down to an average of 14 minutes to onboard business members and four minutes to onboard consumer members. So our automation has been recognized during our exams at the highest level. And, our professionalism of making sure everything is done right is also at a very high level.”

To accomplish this feat, the credit union invested a substantial amount of resources, time and hard work into developing its own technology infrastructure.

“We built the entire, comprehensive technology infrastructure including policies and procedures, governance and everything else from scratch,” Naylor said.

In addition to automating the entire business lending process, the de novo credit union also offers all of the other latest digital capabilities in mobile banking, ATM fee refunds, and other products and services to meet the financial needs of businesses and other organizations such as non-profits. While the credit union specializes in providing and servicing loans for dozens of volunteer fire departments for new fire trucks, equipment, ambulances and buildings, Civic plans to expand its business loan offerings outside of this realm. Additionally, the credit union offers an array of personal loan products and services.

Because the credit union’s technology system required more time to develop and test, Civic wasn’t able to launch its official open-for-business date until Nov. 14, 2018, nearly a year after it secured its NCUA charter and insurance coverage on Dec. 12, 2017.

“When the board asked if we were over-built, I said, ‘Absolutely, we’re over-building.’ And the reason is because we had to be comprehensive and competent right out of the gate rather than growing into it,” Naylor explained. “I want to be the best small business lender in North Carolina. Now, we’re not there yet, but that is what our goal is. If we’re going to do something, we’re going to do it better than anybody else. And with automation in the systems, a member can upload whatever they need to for that loan, and it’s all captured in our online systems. We have created some systems that we could not buy in the market. So we had to do a tremendous amount of development to get that working.”

The seeds of Civic were unknowingly planted in the late 1970s, ironically enough, by the North Carolina Bankers Association.

Back then, the bankers association successfully sued the $40.6 billion State Employees Credit Union in Raleigh for serving the state’s local government agency employees, which was not part of the credit union’s field of membership. That lawsuit gave birth to Local Government Federal Credit Union in 1983, which now manages $2.1 billion in assets and serves nearly 350,000 members. Although SECU and Local Government were separate entities, they operated within a collaborative partnership. For example, SECU served Local Government members through SECU’s statewide branch network.

However, about four years ago, SECU made a strategic decision to discontinue serving business and organization loans to focus on consumer lending. Because SECU managed the technology systems that operated the business and organization loan portfolio, Local Government was unable to support the IT systems on its own to continue to manage the business loan portfolio, which primarily consisted of loans for volunteer fire departments and other non-profit organizations. That portfolio totaled more than $110 million in loans and about $56 million in deposit assets.

“Local Government had to decide how we were going to serve that community, and that’s how the decision was made to charter Civic Federal Credit Union,” Naylor, who served as COO for Local Government since 2013, said. He began his credit union career with SECU in 1983 and has held a variety of executive positions with that cooperative and the $2.9 billion Langley Federal Credit Union in Newport News, Va.

Creating Civic with an independent IT system would allow it to continue to service volunteer fire departments and other organizations while also expanding its business portfolio. The credit union also established a collaborative partnership agreement with Local Government, similar to the one that that credit union has with SECU. What’s more, Local Government provided Civic with $5 million in capital.

“We have all $110 million in loans on Civic’s service platform, and we are in the process of transferring over mainly the rest of the assets at Local Government that have to close,” he said. “But it’s voluntary. We did not want to make the members automatically transfer over. We wanted to go out to the market and earn the business. And as of July 31, we just exceeded $25 million in assets in our first eight months, which we’re very excited about.”

One of the ways Civic plans to expand its business portfolio is to offer loans to volunteer firefighters who are also small business owners.

“When we did our research during the chartering process, we discovered over 40% of the volunteer firefighters in North Carolina run their own businesses,” Naylor said. “So, they not only serve the community through the fire service, they’re also serving the community by running their small business. So, that is what we’re focusing on first, is to communicate to these firefighters that we can serve their businesses as well. Our strongest word of mouth [advertising] is through the fire services [organizations].”

Although Civic has nearly 350 members, Naylor wants to aggressively grow the membership by initiating a “why join” rather than a “why switch” membership campaign.

“I don’t need you to switch, I just need you to join and then we’re going to earn your business,” he said. “What Civic is doing is acknowledging that people’s financial lives are not at one financial institution. So, if we allow them to aggregate all their services and move money between those relationships, we would be the net winner with our transparency.”

To attract new members to join an all-digital credit union and provide them with the ability to have access to their cash anytime, anywhere, Civic refunds members the fees they are charged at any ATM. While the credit union’s mobile app provides members with ATM locations throughout the U.S., its app also enables members to make digital payments, including person-to-person payments, and connect to outside accounts and make direct deposits as well as electronic transfers.

While Civic plans to keep developing its digital-first strategy, it eventually expects to open branches in key markets throughout the state where a local presence may help expand its business loan initiatives. For now, the credit union plans to introduce video chat this year that will allow business loan officers to have face-to-face meetings with members and prospective members.