ONTARIO, Calif.—If a credit union finds itself with a budget surplus during 2018 and ROI is a must, CU Direct suggests two primary strategies to produce a quick return.
“The first would be to optimize existing systems, and the second is investing in self-funding initiatives,” said CU Direct VP of Innovation Brian Hamilton.
The insights are being shared as part of a CUToday.info series on what to do with unexpected budget surpluses, such as the payment from the NCUSIF many credit unions will receive this year.
When optimizing existing systems, Hamilton said three areas immediately come to mind: automated credit decisions, marketing and collections.
“It’s no secret that instant loan approvals provide a better experience for everyone involved and drastically improve operational efficiencies and pull-through rates that result in more funded loans,” Hamilton said. “By investing modestly in a review of your loan performance and automated decision rules, such as debt-to-income ratio, small tweaks can be made that have immediate results.”
System Decisions
According to Cornerstone Advisors, fewer than 20% of indirect auto loans, and only 30% of direct loans, on average, are system-decisioned.
“In my experience, even a modest increase can improve underwriting productivity by as much as 20% without materially increasing risk,” said Hamilton. “This gives underwriters more time to analyze the more challenging requests for approval, and approve more cross-sell opportunities.”
Likewise, a CU Direct study of indirect auto loan applications for the past year reveals that the probability of funding a loan rose by 37% on average when the application was system-approved versus manually-approved.
Marketing campaigns are much more effective when supported by outbound calling, said Hamilton.
“Sometimes credit unions have the data available, or can subscribe to it through a third-party, but lack the resources to make effective follow-up calls,” he said. “A simple solution to employ is to pool the information into a central repository, and then have branch staff make calls during slow periods or offer voluntary overtime after normal business hours. Couple this with a fun and creative incentive campaign, and the ROI proves out rather quickly without an increase in staff.”
Loss mitigation can be overlooked, since it does not generate revenue, but can still impact the bottom line, noted Hamilton.
“Employing a more sophisticated collection call prioritization strategy will increase payment velocity and improve member service,” he said. “For example, perhaps you have a member who is not on automatic payment and is consistently more than 10 days late, but never goes 30 days past due—while another member has never been late with automatic payment, but cancels it and is 14 days late for the first time. The first member is best served with an automated reminder, while a timely call to the second member could provide an opportunity to find a solution before the problem snowballs out of control, and the credit union may be able to offer a loan that would both assist the member and increase loyalty.”
Additional Consultation
Many collection systems have the data and workflow capability to support dynamic queuing, but are underutilized, Hamilton said, noting that investing the time internally, or in external consultation, can immediately impact collection efficiency and impact.
Leveraging third-party providers can be an effective means of gaining expertise and scale without increasing costs. Services available include marketing, call center support, underwriting with limited authority, and processing, Hamilton said.
“Some credit unions are hesitant to outsource loan origination services for fear of losing control of the member experience. However, there are several providers that have expertise and scale that credit unions lack, and they are very much in tune with the credit union philosophy of member service,” Hamilton said.
For example, ensuring the credit union is always available when a member is shopping for a loan increases loan volume and builds brand loyalty, he said.
“I have been in shops where we incrementally booked $5 million more per month in auto loans by extending our reach through third-party providers, and I have seen credit unions fund much more when leveraging multiple providers,” Hamilton said. “It is important to ensure that you only do business with reputable providers, and keep a close eye on performance metrics, but it can easily be a self-funding program.”
Hamilton emphasized that much has been written about how credit unions have a large amount of valuable data at their disposal, but how they also struggle to extract it and make it actionable.
“Hiring a full-time data scientist may be beyond a credit union’s budget, so, instead consider outsourcing this activity to a service that charges per initiative. For example, getting your arms around where payoffs are coming from can help to reduce payoffs, or at least recapture the members in short-order,” Hamilton said.
For example, payee information on auto loan payoffs is often housed in a section of the core system that is separate from loan originations, and some credit unions don’t think to extract and quantify where those payoff checks have been going, which is usually to another lender, he noted.
“Once you identify and quantify that runoff, you can make a business case for allocating resources to defend against it,” Hamilton said. “This may involve contracting out data extract and analysis, subscribing to services that provide alerts when a member is shopping, or outsourcing outbound member calls. But again, the member and loan retention will offset the cost of employing these solutions.”
Applying The Data
Hamilton said that CU Direct has found that credit unions are using the company’s Intuvo marketing and sales engines to sync their core and loan origination systems that drive data mining initiatives.
“The key to leveraging data is not only locating the right data, but also applying it in a way that integrates proper data analysis, automated marketing, engaging content and CRM follow up,” he said. “The goal is to successfully increase loan volume and member satisfaction, while also improving efficiency by decreasing call volume and branch visits. That’s key when it comes to self-funding initiatives and quick ROI.”