CHICAGO — Despite much interest in ApplePay and other emerging opportunities, credit unions still see auto loans as the growth area heading into 2015, according to a recent TransUnion survey.
Its no real surprise that auto loans are still the primary growth vehicle, but it was the amplitude of the response that was surprising, said Ezra Becker vice president of research and consulting for TransUnions financial services business unit. The question becomes, is this still a surge in volume post-recession, as people who held off on buying cars are back in the market? When are we going to max out? But 84% of respondents ranked auto loans in the top three areas of opportunity for credit unions, with 45% ranking it No. 1.
High demand and low delinquency rates are a big part of auto lendings popularity, TransUnion noted, but what else is driving the car?
At Patriot CU, Chambersburg, Pa., its as much about developing a relationship with auto dealers as it is with members, suggested Fred Ryerse, SVP of lending at the $495 million CU. Weve been No. 1 in market share in the Chambersburg market for a while, and weve gotten very good at serving the dealer, he said. Weve gotten very good at developing the relationship with our referral partners. They feel good about sending business our way.
There are three keys to making that happen, he said: consistency of the decisioning, the speed of the process and rate. If the decisioning is consistent, dealers will feel know which deals to send the CUs way with confidence that it will be approved. And those decisions need to be fast, with a competitive rate, according to Ryerse.
But thats not to say the borrowers themselves arent engaged in the process, noted Mike Long, chief credit officer at UW CU, Madison, Wis.
One in four auto loans in Dane County are made by a credit union. Now, part of that is because of the strong credit union presence (both CUNA and CUNA Mutual Group are headquartered there), but weve seen a 52% increase in our indirect lending this year, and consumers are driving more of that than in the past. Consumers are going to the dealer and saying, I want a credit union loan. Were starting to see that with mortgage lending, too. People are telling the Realtors, We want to go with a credit union loan.
A big part of that, Becker said, is the goodwill credit unions built up during — and after the recession, when banks largely stepped away from lending. The recession ended five years ago, and banks are back in acquisition mode, but consumers saw who helped them in a time of need. Thats when loyalty is built, not when times are good and everyones got 30 loan offers in the mailbox.
Loyalty Plus Awareness
And its not just loyalty — its awareness. Up until recently, people have seen credit unions as a good place to put their savings, but what theyre seeing now is that the service is better, the rates are better and the people are more approachable, Long said. Consumers are finally realizing that a credit union isnt just a sleepy little savings club. Were full service.
If auto lending was seen as the biggest opportunity, competition with banks was cited as one of the biggest challenges.
Credit unions feel theyre in a better position to compete with banks today than they were last year and five years ago, Becker said. But theyre still very concerned about competition. Its an interesting dichotomy. You can make the argument: did credit unions gain market share because they were doing a better job than banks, or is it because banks basically dropped out [during and immediately after the recession]? Or did banks drop out because they couldnt compete? Credit unions have been making strides in mortgages while banks dropped out, but the banks are going into customer acquisition mode and have very good processes in place for mortgages.
Technology Growth and Concerns
Outside of loans, another big opportunity for credit unions will be in evolving technology — but it comes with a healthy concern about related security issues, Becker noted.
Credit union executives are clearly cognizant of evolving technology, both as an opportunity and a risk. Eighty-five percent of credit unions said they are materially concerned about cyber attacks and 90% said they plan to increase their investment in technology to combat fraud.
We are holding our data processor and our business partners to a high standard of oversight, said Long. And were hiring third parties to evaluate the solutions we have in place.
At Patriot, data security is easily the CUs No. 1 investment, Ryerse offered. Credit unions have done well on the data security front.
On the opportunity side of the technology equation is the use of technology to engage members. From our survey respondents, ApplePay is absolutely something credit unions of all shapes and sizes should be exploring, Becker offered. Credit unions shouldnt be perceived as stodgy, brick-and-mortar-only institutions.
The advent of ApplePay has brought clarity to the market, suggested Long.
Its more about staying aware and current on who the players are. Until ApplePay, we didnt know who to go with, Long said, noting that at $1.87 billion UWCU, 50% of members are using an iPhone to access mobile banking, making it a pretty easy decision to jump onto ApplePay. UWCU will go live on ApplePay in December.
But will this opportunity be another case where size matters?
There have been a lot of different opportunities for small credit unions to partner up to do this stuff, said Long. There are mobile app solutions that an put some of these small credit unions on a level with large community banks or large credit unions. Plus, this technology just keeps getting cheaper over time.