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Council Paper: CUs Fight For Small-loan Market
MADISON, Wis. (8/15/13)--The market for unsecured loans--previously the domain of credit unions--has largely been taken over by credit cards, payday loans and peer-to-pear lending, as credit unions fight to remain relevant in a crowded marketplace, according to a new white paper from the CUNA Lending Council.
"Fighting for our Turf: Threats to Credit Union Small Loan Markets" explores how credit unions can capitalize on opportunities within the marketplace and improve their small-loan portfolios.
Among the "lessons learned" the report offers:
  • Credit cards have taken over the small-loan market, according to a number of lending professionals. But the American consumer is wary of taking on more debt and wants to pay down expensive credit card debt. Consolidation loans to pay down this type of debt are growing in popularity.
  • Payday loan customers are a small subset of the membership, typically 1% to 2%. They frequently pass on financial counseling and want their funds immediately. Each credit union must decide whether it makes sense to serve this segment.
  • Payday loan alternatives and small loans can be expensive to make, but if fulfilled online with automated decision-making and minimal staff involvement, they can generate revenue. Members receiving these loans will likely come back for more services if the experience was positive.
  • Peer-to-peer lending had a rocky start in the industry, but with new technology and community based credit unions working through a credit union service organization, a market opportunity exists.
  • Point-of-sale financing is an untapped market with more than an estimated 1.5 million retailers and medical/dental offices that need reliable and community-based financing for their customers. The technology exists to make this happen.
  • Point-of-sale offers a chance to deepen relationships with existing select-employee groups if credit unions offer relevant products or services. It can also provide an opportunity for furthering business lending efforts.
  • By adjusting underwriting standards--sometimes just slightly--net interest margin can increase while prudent lending is maintained. This includes increasing the loan-to-value ratios, lowering the Fair Isaac credit scores, and especially working with more "B" and "C" borrowers.
  • Messaging should revolve around what the loan can do, rather than the loan itself. Is the experience of obtaining a loan at the branch or Internet a quick, convenient and positive one?
  • A focus group of members can reveal answers.
To download the whitepaper, use the link.

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