Personal service, excellent rates on loans and deposits, commitment to communities — these are among the reasons why so many consumers join credit unions. But in a hyper-competitive marketplace, consumers can shop rates in a few clicks and innovations in data and technology enable fast and seamless experiences. With the right approach, credit unions have an opportunity to reinvent themselves in a new era of lending.
TransUnion strongly believes in credit unions and their mission to serve their members. That's why we're kicking off a series of five-question interviews with TransUnion experts about how credit unions can compete in the Consumer First Era.
In our first interview, we sat down with Sean Flynn, TransUnion's Director of Credit Unions. Here is what he had to say.
Question 1. What are the key trends impacting credit unions today?
Sean Flynn: For starters, I think we're seeing a shift in who credit unions are serving. Traditionally, credit unions were tied to local communities or select employers, such as manufacturers or city and state government agencies. These original core memberships have matured and credit union charters have evolved, expanding the potential market for credit unions. As consumers become more tech-savvy and their expectations for their lending experience rise, credit union delivery channels must also evolve to stay relevant.
We also see credit unions adding diversity to their loan portfolios, in part because of some balance sheet dynamics, but also due to shifting consumer demands. For example, the personal loan – a traditional product that's been around since the early days of banking – is now a preferred product for borrowers across generations. It’s straightforward in its terms and conditions and an easy product to underwrite and automate.
Along with very high levels of indirect auto loan production, a strong economy and stock market has migrated deposits away from credit union savings accounts to Wall Street and other depository institutions. That's creating liquidity issues and driving up credit union cost of funds. Credit unions will have to refocus on marketing deposit accounts, along with increasing member engagement with products like credit cards, mortgages and HELOCs that create deeper member relationships.
Q2. How can credit unions accelerate their digital lending strategies to meet members' demands for more online and mobile options?
Sean Flynn: It used to be consumers were happy if you had a website and an online banking platform that let them check balances and move money around. It’s no longer that simple — now people use their mobile devices to conduct the majority of their banking transactions, including applying for loans or opening up new deposit accounts.
As a result, we're seeing vendors offer different mobile banking solutions, and some credit unions are even developing their own solutions, much like the FinTechs do, because they want to incorporate more data — including device, behavioral, transactional and credit data — into their members' online experience. This allows credit unions to more accurately understand their members’ needs and provide solutions when, where and how their members want them. Data-driven experiences are no longer “nice-to-have” – they are table stakes.
Q3. How do trended and alternative credit data enable credit unions to have a greater impact on their members and the communities they serve?
Sean Flynn: Credit unions have always fought for financial inclusion. Serving the underserved is the basic foundation of this movement.
With trended or alternative credit data, credit unions can tap into a deeper level of visibility into members and the risk that they present – good or bad. So where traditional data may not qualify a member for a loan, trended or alternative data can show that the member is paying their loans down faster, paying more than their minimum due, or never carrying a credit card balance. These are just a few of the things that trended credit data can highlight, helping credit unions find more ways to say “yes” and driving a deeper impact in their communities.
Q4. Credit unions are facing increased competition from FinTechs and other lenders. What sets credit unions apart?
Sean Flynn: Credit unions make a difference because they listen to a member’s story and often look beyond a score, enabling them to make loans that other lenders may not. But the vast amount of data available today has enabled other lenders to improve their understanding of a member’s situation. This presents a threat to credit unions’ key differentiator. Other lenders are using credit data to tell that same story empirically, opening the door for more automation and the presentment of more relevant offers in fractions of a second versus minutes, hours or days. If credit unions can continue to harness their cooperative spirit and add just a touch of additional sophistication, the possibilities are so exciting.
That being said, credit unions need to think one or two steps ahead of their competition instead of playing catch up. Otherwise, they run the risk of becoming irrelevant to today’s consumer. I believe “people helping people” will always set credit unions apart. But delivering on that same philosophy in the future looks slightly different than it does today.
Q5. What's your perspective on the future of data and analytics for credit unions?
Sean Flynn: We are seeing credit unions ramp up significant investments in data and analytics and the talent needed to manage it all. They want to gain a deep understanding of their membership beyond their names and friendly faces. Most credit unions are starting to build some form of business intelligence (BI) function because they want to use data to better serve members. Some credit unions are even developing their own custom models – not just for credit risk but for member engagement as well.
In fact, we're having the same conversations with credit unions that we had with FinTechs a few years ago. Credit unions are making larger investments in data and analytics, and it is going to change the game for them. We are excited to be a part of it.
Visit our credit union page for more ideas or complete the form below to connect with a member of our credit union team.