BROOKFIELD, Wis.—It’s time to reduce “operational friction” between the credit union and its members, and also do a much better job of explaining the CU difference if credit unions are to compete with non-traditional lenders entering the financial services space.
Mark Sievewright, president of credit union solutions for Fiserv, told CUToday.info that those two important steps must be taken by credit unions as alternative lenders, such as Lending Club and Square Cash, are making inroads and show no signs of going away.
“Lending Club has now funded $11 billion in loans since it started and close to $2 billion in the last quarter,” said Sievewright. “Tell me that is not meaningful.”
Sievewright believes there is “very real risk of disintermediation because these companies—which we can, unbelievably, still classify as startups—are doing a very good job of lending money and processing payments for consumers. They see the friction consumers experience today from traditional financial services institutions around lending and payments.”
Tough Loan Apps
That friction is often a more difficult loan application process along with slower approvals and funding, as well a more complicated account opening process.
“The focus of these companies, as we know, is to automate as much of the loan process as they can. They typically generate, close and fund a loan in less than five days,” said Sievewright. “Credit unions are doing better here, but we are not where we need to be.”
Sievewright acknowledged that financial institutions face regulations that often slow the lending process, while the new market entrants do not.
To compete credit unions need to further streamline their lending, said Sievewright, who observed that many new financial services players have successfully “cherry picked” a friction point consumers are experiencing with their FI.
Mark Sievewright
“They say, ‘We can generate a loan faster and more efficiently than any company currently in the business of generating loans,’” said Sievewright. “There is a premium in the industry today on immediacy, convenience and ease of use.”
Soon enough, CUs will have to establish parity between their delivery channels and that of the market disruptors, including some of the large banks that are improving processes, Sievewright added.
Change The Branch
“We know it can be difficult to do for some credit unions due to limited resources,” said Sievewright. “But we have to make certain that we are offering mobile banking and other mobile capabilities. We have to offer EMV. As chip technology evolves, credit unions can’t be the last ones standing in adopting EMV.”
Branches, too, must be reconfigured as they transition from transaction hubs to centers for sales and advice, noted Sievewright.
“Branches have to be geared toward how we deliver financial services tomorrow, not how we did business yesterday,” he said.
With the rich member data CUs possess, Sievewright said analytics should be used to create a deeper understanding of what products members want.
Perhaps the biggest advantages credit unions hold over the alternative lenders are the trust members have for the credit union, and the CU business model itself. Sievewright said it is time credit unions leverage both.
Trust The FI
He pointed to research that shows consumers would bank with PayPal or Apple if they offered banking services, but that consumers place much higher trust in an FI to handle their financial business, especially credit unions.
“I would say the number one job is to make sure members and potential members understand the credit union proposition,” said Sievewright.
Standing pat and not adjusting to the new competition is risky, said Sievewright, noting that the direct marketing conversion rate of many non-traditional lenders is up to ten times that of traditional financial players.
“I find that remarkable,” said Sievewright. “These new players are not flavor of the month, and they are not going away. They are looking to expand their services, and most important, their mouse trap is deemed to be better than the existing mouse trap.”