By Ray Birch
PHILADELPHIA—The need to cut costs as fee revenue declines is leading an increasing number of credit unions to focus more on back-end auto lending solutions, including digitizing workflows, according to one new analysis that also found CUs expressing greater interest in auto loan securitizations.
It’s a move that will also help them better work with the secondary market, yet which also brings with it new compliance concerns, Wolters Kluwer said.
A new Wolters Kluwer study polled more than 3,000 credit unions about their digital lending operations and found 82% say a fully digital lending experience is important, even though only 9% currently offer a full suite of digital lending experiences.
“The majority of CU executives (36%) said they are currently leveraging digital strategies and tools for digital lending experiences for members,” said Tim Yalich, head of motor vehicle strategy for Wolters Kluwer. “Another 32% said they offer basic digital lending—online banking—experiences for members. Even though 82% said it is either ‘somewhat’ or ‘very’ important to create a fully digital experience, less than 10% of respondents said they currently offer a full suite of digital lending experiences, including banking and loan applications online.”
Yalich called it “alarming” that 72% of CU executives reported they are not confident in their ability to create a fully compliant digital strategy that automates back-office processes with digital tools.
The Big Barriers
“When asked of their largest barriers of adoption, the largest number of respondents (31%) said they have been unable to find the right partner, and 28% cited lack of tech resources,” Yalich explained. “Budget was only mentioned by 14% of respondents.
“We certainly see captive lenders and the large banks really on the front end of what we call e-contracting, or the digital loan origination work,” he continued. “There's been years of work and adoption here…You can submit your application online or at the dealer and they pass the data digitally straight through to the lender.”
Yalich said that process is being deployed with credit approvals.
“The next stage is then contracting that vehicle purchase into a loan,” he said. “What we're starting to see is the next wave of adoption, the automation of funding workflows. So, after the loan is consummated at the dealer and the information is sent to the lender there isn't that waiting period.”
An ’Overarching View’
Yalich explained in the study Wolters Kluwer was seeking to get an “overarching” view of how credit unions view digital lending.
Tim Yalich
“I thought that credit unions would have had a higher percentage of actual digital experiences for their members,” he said. “I'm not a credit union member myself, but I really thought that might be a little higher, maybe towards the 50%.”
Yalich said the data show there’s clearly a shift taking place that aligns with the broader automotive market.
“There is a focus to find efficiencies in the funding process,” he said. “There's always been a heavy focus on credit decisioning, but now everything's shifted to the back end—where it's processing loans and being more efficient. That aligns to the broader industry.”
A Priority for CUs
Data also show there's a priority by credit unions on the member experience and regulatory management.
“Back-office efficiency was of high importance to all of the credit unions,” Yalich said.
Yalich recommended credit unions improve their back-end efficiencies before putting too much energy and investment into the front side.
“They get a bigger bang for the buck this way,” he said.
Low Confidence
Yalich said he also noticed in the data very low confidence among credit unions that they can accomplish a great digital journey or strategy with the tools they have today.
“Which speaks very loudly to the fact they need help,” he said. “They need education. They need tools, and they need partners to help them get there.”
An ‘Interesting Dynamic’
Finally, the report also reveals a growing interest among credit unions to participate in the secondary market.
“Credit unions are really looking for ways to leverage their assets in the secondary market,” Yalich said. “Credit unions are entering into the securitization space. It's only happened in the last couple of years. We asked the question about this area specifically, the secondary market. We wanted to see if more credit unions were wanting to get into this space. What we found is they do. However, they just don't have the wherewithal to do it, and they also don't believe they can attract investors because of the size of their portfolios. It is a very interesting dynamic.”