CHICAGO–A new research brief from the Filene Research Institute and TransUnion offers insights into how credit unions can adapt lending strategies to better compete in an evolving landscape while also expanding financial inclusion efforts.
The market research was commissioned by TransUnion through Filene, with the interviews covering four broad topics: the current state of lending operations, new paradigms for lending, the credit union ethos, and the impact of the COVID-19 pandemic.
According to the organizations, key insights “reinforced the notion that credit unions want to be more inclusive and take more calculated risks. The current economic environment has also driven many financial institutions to shift their underwriting models to include trended and alternative data versus legacy credit modeling, which has allowed credit unions better serve their membership's evolving needs.”
The researchers said, however, that barriers exist, such as readily adopting new technologies and cost – particularly for smaller and mid-sized credit unions. While credit union size often correlates to the degree of automation or amount of nontraditional data in underwriting, new paradigms for assessing thin or no-file members are widely seen as desirable, the researchers added.
An Important ‘Bridge’
“We found in our research that the use of nontraditional credit data was widely seen as an important means of bridging the financial services gap with thin- or no-file consumers, who are often from marginalized and financially vulnerable communities,” said Dr. Taylor Nelms, senior director of research at Filene Research Institute. “There is a growing understanding in the industry that lending more deeply into the communities that credit unions serve can be a pathway to responsible growth, and the current circumstances surrounding the pandemic have prompted leaders to reimagine their credit union’s relationship to risk, and their members, moving forward.”
A ‘Better Understanding’
Added Sean Flynn, senior director of community financial institutions with TransUnion, “Credit unions have long aimed to provide access to financial services for the communities they serve. Many of these institutions are also looking for ways to simplify lending decisions to improve the loan application process and serve a more diverse group of consumers. Gaining a better understanding of the role alternative and trended data can play in the underwriting process can enable credit unions to build a more comprehensive view of members’ financial situations while driving automation and transparency.”
For additional info, download Beyond Legacy Lending: Strategies for Loan Growth and Inclusion.To learn more about CreditVision Link and how alternative and trended data can benefit financial institutions, please visit: https://www.transunion.com/product/creditvision-link