MALVERN, Penn.—Another expert is emphasizing the big opportunity credit unions have in merchant lending, stressing that the successful programs will make it simple for consumers and merchants to secure CU financing.
Kris Frantzen, senior product manager with Temenos, said his company is talking to clients about the importance of delivering first-class, efficient digital account and loan origination experiences with merchant lending.
Frantzen pointed to 2015 data from the Filene Research Institute that estimates an annual potential market size of $391 billion for merchant lending, or point of sale financing, for large consumer purchases.
“The challenge faced by credit unions is to combat the trend of disintermediation in many of the merchant verticals, such as home improvement, where financing decisions are being steered toward the likes of Synchrony, GreenSky, or Wells Fargo,” said Frantzen.
Better Pricing, Service
Frantzen said that credit unions are getting some of this business through refinancing and consolidating balances on member’s high-interest private-label credit cards. But, he said CUs need to interject themselves into the initial financing decision, as they offer better pricing and service.
While those are advantages for credit unions—along with their skill at relationship building—they won’t be enough, said Frantzen.
“The consumer and merchant demand speed and convenience in the financing decision. So, the credit union must provide an intuitive origination experience akin to that of a direct-to-consumer experience—allowing for simple application data collection, fast approvals, and electronic document signature,” Frantzen said. “The pricing and user experience demands can vary from one merchant vertical to another. Each credit union must identify its target verticals and merchants—or perhaps niches within larger verticals—best aligned with its goals of member service and growth, and devise an appropriate strategy.”
There are technology considerations, as well, added Frantzen.
Kris Frantzen
“To start, the convenience of an omni-channel solution will allow consumers to originate the application from the device of their choice, whether it’s a laptop, desktop, tablet or mobile device,” he said. “The ability to prepopulate existing member information into the application can serve to further personalize and streamline the experience. That convenience should not stop at the submission of the application. Consumers should be able to electronically upload—whether it be attaching a file or taking a picture—any documents required for loan approval and electronically sign required documents.”
Automated Underwriting
Automated underwriting, too, should be part of the program.
“Yes, the credit policy and pricing strategy may require adjustment from one merchant vertical to the next, and as the credit union analyzes results and optimizes those strategies having an easily configurable loan origination system is very important,” said Frantzen. “Additionally, the ability to automate the loan processing as much as possible will reduce the time to close, increasing the likelihood of gaining the business from that transaction and also building confidence with the merchant and consumer for future business.”
Frantzen believes credit unions can become a major player in the merchant lending space.
“Temenos is excited to marry our technology solutions with the business plans of our clients to help them capitalize on this tremendous market opportunity,” he said.