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Perspectives on the Credit Union Market

Perspectives on the Credit Union Market

Summary of Industry Metrics

Throughout the summer, lenders experienced significant YoY origination growth across numerous products, including card, auto and personal loan. Card originations soared with 124% YoY growth, while personal loan experienced ~70% origination growth YoY — perhaps unsurprisingly considering the state of the credit market one year ago. Credit union mortgage origination slowed through the first half of 2021.

While auto and mortgage enjoyed encouraging balance growth in Q3, HELOC balance runoff continued with the sharpest decline (12.7) YoY. All lenders experienced a slight increase in the number of accounts in serious delinquency in Q3 2021. However, in comparison to pre-pandemic trends, delinquency rates continued to remain very low — specifically for banks and credit unions.

Three Emerging Market Trends for Credit Unions

1. Focus on financial inclusion causing credit unions to reevaluate legacy credit scores

New research from VantageScore® demonstrated the disproportionate impact legacy scoring models have on minority and low- income consumer scoreability and thus, access to affordable credit. As competitive pressure for loan growth heats up, many lenders are turning to current-generation risk models to bring tens of millions of previously unscoreable consumers into prime and above credit tiers. To better support underserved communities, credit unions should migrate primary risk scores to trended, alternative or AI-derived risk models which are available in many of the leading LOS and core banking platforms.

2. Buy-now-pay-later (BNPL) usage points to thirst for smaller dollar credit

Despite record volumes, BNPL transactions do not appear to cannibalize credit card balances. In fact, the majority of BNPL payments are on card products. POS financing users have higher than average card application volumes. Usage of these products provides perspective on best practices for enaging and attracting younger consumers who are entering their prime borrowing years. While the checkout experience intergration presents a barrier to entry for many depositories, the demand for BNPL should inform strategy for financial institutions moving forward. Credit unions should interrogate internal ACH data to determine which members are using BNPL offerings to expand the universe of marketing campaigns for traditional products.

3. Card balances have rebounded in 2021, largely driven by strong YoY growth in younger borrowers

Younger consumers have driven card balance growth to pre-pandemic levels. Community lenders are likely to see higher balance growth from this segment, and may want to adjust acquisition strategies and digital application experiences accordingly. Consumers — especially younger ones — will reward lenders that provide an adequate credit line and will quickly shift to another card with a higher limit, making regular credit line reviews increasingly important. Lenders looking to reinvigorate credit card programs or accelerate growth can gain a deeper understanding of market dynamics with share-of-wallet or market share analyses. Texas and Colorado saw the largest YoY card balance growth through Q3 with 2.5% and 2.4% growth, respectively.

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