Credit Unions Can Continue Building Community Through COVID-19

Consumers have always looked to credit unions for friendly, in person service to help fund life goals like opening businesses and buying homes. The level of trust and care members have come to rely on from their neighborhood credit union is what sets them apart from big box banks. But with the looming health and safety concerns communities are currently navigating, most credit unions find they have been forced to temporarily close branches or reduce their branch hours – and enforce restrictive distancing guidelines when open.

As communities change and grow through this pandemic, credit unions must find other ways to connect with consumers so they can compete with larger banks in finding new members and still retain their base to keep the institution’s bottom line healthy.

Amidst the uncertainty of the current economic climate, lending institutions across the country are monitoring major lending trends to determine which types of loans are most in demand. The demand for mortgage loans and refinancing has been consistent and unprecedented due to the mass migration of city dwellers seeking refuge in the suburbs. According to a recent forecast from Fannie Mae, new home sales are projected to increase 14% this year as compared to 2019. Lenders are projected to lend $3.9 trillion this year.

Minimal and or passive lead generation and increased inbound inquiries for loans sounds like a good problem to have, but for credit unions it is often times difficult to compete with big banks because they are unable to utilize new credit data fast enough to meet the demand. (The credit data in question, e.g. payment deferrals, balloon payments coming due, loan modifications and the CARES Act, is a moving target as the pandemic stretches on.)

A Shifting Landscape

The cost of traditional marketing for lenders in general is high, as the cost to find qualified leads averages around a $90 cost-per-click. This results in expensive cost of acquisition (COA) numbers, as credit unions try to compete and reach out to prospective members with healthy credit. Multiplied by hundreds of leads, that can increase a credit union’s marketing costs by thousands.

Credit unions normally rely on the relationships they build locally within their communities, but with the loan process shifting to significant online approvals to accommodate the changing and challenging financial needs of consumers during the pandemic, large lenders not only have heftier marketing budgets that yield an advantage, they also have a technical advantage, with access to expensive software and cybersecurity maintenance.

How can credit unions compete?

Work Smarter, Not Harder

Though most lenders employ automated software that can process lending applications in mere seconds, the reality is that only a fraction of those applications (on average about 30%) of those applicants are viable, as many applicants won’t qualify because of their mediocre credit scores.

Credit unions must seek out leads for prospective members that will result in successful loans by reevaluating their lead processes and their risk models.

A typical credit union is likely sitting on hundreds of contacts who may have applied for loan products in the past and did not qualify at the time. By doubling down on serving their communities, the smart bet for credit unions is to source their existing leads. Software that can activate their existing databases and data sets to uncover new prospects can help credit unions uncover consumers who might already qualify or will have better credit in the future – providing prospects to retarget with customized loan offerings.

Take Alternative Data Seriously

The old way of evaluating personal credit is not going to work by the end of 2020. Risk models need to adapt, and credit unions need to use alternative data to manage this. FICO is currently revising its scoring to weigh the impact a personal loan has on a credit score, as a result of the sheer popularity of personal loans. Now FICO is implementing an alt data category called “trending data” to track (and score) how well a consumer manages debt levels across all accounts.

With the rise in data science and AI practices, it is easier than ever for credit unions to build underwriting models in house or work with fintech companies to create them. When done correctly, these algorithms can sort through large amounts of data to best determine which prospects are credit worthy and which are high risk.

By implementing alternative data and CRM tools, credit unions can forecast the needs of their database contacts. This can lead to an increased amount of credit qualified approvals, longer retention of existing members, and the creation of customized loan offers based on the prospective borrower’s background and needs.

Credit unions must capitalize on their ability to offer creative solutions for their current members’ immediate needs. Predictive data can help credit unions calculate risk in a nimble way, which translates to them meeting demand and building member loyalty by offering products or services like a one-time rate reduction when they need it most.

Though we are in an uncertain economic climate, credit unions have an advantage over big banks and other lenders: They offer community trust, built one person at a time – oftentimes through generations. Borrowers want to know that they can rely on an institution. With automation and the use of alternative data, credit unions can continue to do what they do best: Provide personalized, tailored solutions to their communities and build a viable pipeline for follow up online and offline.

Clint Lotz is the President and Founder of TrackStar.ai, a Chandler, Ariz.-based company that specializes in predictive credit technology that helps determine consumer lending potential.