By Ray Birch
NAPERVILLE, Ill.—When it comes to small-dollar lending, credit unions should be aware of two important things impacting their membership, QCash says.
The small-dollar lending arm of Alloya Corporate FCU spoke with CUToday.info about the state of small-dollar loans among credit unions, and pointed out many CUs are unaware of the high rate of payday loan usage among their members and the personal barriers that often block account holders from walking into the branch for the loan they really need.
QCash CEO Tracy Lafferty said feedback received during Alloya’s recent Credit Union Leadership Symposium makes it clear credit unions are committed to serving their communities, and see small-dollar loans as a key way to do that.
“We heard a lot of different stories from credit unions during panel sessions on what credit unions are doing,” Lafferty said. “We are hearing more that credit unions see small-dollar loans as a significant way to serve the underserved.”
Lafferty pointed out that American’s financial health has been declining.
“Two-thirds of our consumers are considered financially unhealthy, and that an unexpected expense of $400 would be a struggle for many,” she said. “Small-dollar loans certainly are a way to help tackle that challenge.”
Make No Mistake
Lafferty said while the need for small-dollar loans exists, many credit unions do not believe a large percentage of their members are using payday loans—but to think that way is a mistake.
“Many credit unions don't believe a significant or even a material portion of their membership is using payday lending, or predatory lending,” she said. “But when they pull down ACH files to take a look at what activity their members are doing, on the lending front, many of them are surprised by what they see regarding payday loan usage among their members. As we know, by nature these loans are predatory in terms of the rates that are charged.”
Many of the credit union members using QCash services across the country are credit invisible, or have very thin credit files and don’t qualify for traditional lending products, explained Kristin Roche, QCash director of program management and lending operations.
“They don't fit into the traditional loan products the credit union offers,” said Roche. “But that need is still there. Life happens and unexpected expenses come up. If the borrower can’t use the credit unions’ traditional lending products, then they're forced to go elsewhere, forced to go to higher-interest-rate, or higher-fee options. Over 80% of credit union members, we have seen in data, say they would rather borrow from their credit union than another option.”
Roche said it is important for credit unions to have a digital small-dollar loan program, as stopping into the branch to ask for the money is often a barrier.
“There's that level of embarrassment, at times, from credit union members,” she said. “They don't want to necessarily go into their branch and apply for a loan with a lender they've worked with. They don't want to go in and tell the credit union they can't afford their rent payment this month and need help.”
Being able to offer small-dollar loan options in a digital way is critical, Roche said.
“Members can apply in a way that seems somewhat anonymous to them, and the credit union can assist them,” she said.
QCash went live with credit unions in 2015 and has always been available as a digital product. As CUToday.info reported, Alloya acquired QCash in 2023 from Washington State Employees Credit Union.
“QCash can be fully integrated within the credit union's digital banking platform so that credit union members can simply select the QCash button and apply when they're within their credit union’s digital banking platform,” Roche explained. “It's an application that goes from the member clicking on a button to apply, and if they are approved the loan is funded and posted to the member’s account in less than 60 seconds…It’s 24/7, too. So, the member doesn't have to wait for the branch to be open and need money for an emergency.”
Relational Underwriting
Lafferty added that the QCash solution incorporates relational underwriting, which evaluates the member’s relationship with the credit union rather than using a credit report.
“We've seen significant growth,” Lafferty said. “We have had 50% growth in the number of credit unions that have signed on for the product and about 70% growth in the number that are up and running. We are continuing to see a great deal of interest.”
Lafferty said QCash is working to enhance the product, and Alloya is placing significant resources behind the business.
“We're very excited about tapping into those resources, from a development standpoint,” Lafferty said. “We've got quite a quite a number of things we'd like to do with the product, from an enhancement perspective.”
Lafferty said the enhancements will be made based on credit union feedback.
“We're still working on what that roadmap looks like, because we've gotten so much input from our credit union members,” she said. “It’s now about prioritizing. There's a lot of unique things we can do with the platform.”