LOAN ON THE GO: Consumers are taking quickly to the concept of borrowing on their smartphones, says Kevin Foster-Keddie, president and chief executive of WSECU.
WESCU's Q-Cash mobile app
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Credit Union's Mobile App Approves Loans Within Six Taps

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An Olympia, Wash., credit union has begun offering fast short-term loans on its mobile app for consumers who need funds to, say, repair a car they use for work.

In so doing, it is on its way to solving two puzzles with which many banks are wrestling: how to make the loan process logical and palatable on a smartphone, and how to make mobile banking apps profitable.

Six taps can get WSECU members a Q-Cash loan ($50 to $700 with a 60-day term) or a Q-Cash Plus loan, ($701 to $4,000 with repayment terms set from nine to 36 months). The funds are deposited into applicants' linked accounts once they are approved for the Q-Cash loans.

The loan products have also been available through WSECU's online banking site since 2008 and at its branches for even longer.

Members are quickly responding to the mobile alternative: Less than a month after the May 15 launch, the credit union is already getting 20% of its applications for Q-Cash and 16% of its applications for Q-Cash Plus via mobile. Speed, ease of use and access are draws to using the channel.

"The mobile phone is within arm's reach of most people," says Kevin Foster-Keddie, president and chief executive of WSECU. "Mobile is the way we get [something] done."

Already, a few financial institutions have added financing capabilities into their mobile apps to try to capture more loan business.

America First Credit Union, in Utah, updated its app to include auto loan applications as it observed its members were using their mobile devices to apply for loans. Tech vendor R.C. Giltner Services works with smaller banks to create a checking and credit service called PaySound that lets customers take out loans under $5,000 through digital channels.

WSECU does not market its Q-Cash loans aggressively, but Foster-Keddie says that, like all financial institutions, it has customers who occasionally need short-term, small-dollar loans. The mobile app speeds up the application process in the sense that it's easier to access than a branch or desktop app. Someone applying for a small dollar loan may need those funds fast to afford emergency dental work.

Daniel J. Van Dyke, a research specialist at Javelin Strategy & Research, says more and more people are opening lines of credit through mobile.

Indeed, Javelin's May 2014 data shows among consumers who had opened a student loan within the past two years, 13% did so using a smartphone and 11% used a tablet, for example, while 14% used a smartphone and 9% used a tablet when opening a home equity loan or line of credit over the same length of time.

"Consumers want them fairly quickly," says Craig Focardi, a senior research director at CEB TowerGroup.

Of course, there is a cost for the high-risk loan.

WSECU charges $10 to $12 per $100 for the smaller Q-Cash loan, and it charges a 36% rate on its Q-Cash Plus line of credit of up to $4,000.

To determine creditworthiness, the Q-Cash products make use of proprietary algorithms that Foster-Keddie would not discuss. Still, there is a clear source of data: checking accounts are linked to digital applications, and the software can crunch the data to determine approvals.

Focardi points out how financial institutions could pull the customer's income and payment history to determine creditworthiness, for example.

One knock on payday-esque loans is that they trap consumers in a cycle of debt. And Foster-Keddie readily admits there are some who abuse the product but the financial institution looks out for that particularly for individuals who gamble. Indeed, the credit union monitors ATM use near casinos and will counsel such individuals to set a budget and stick to it.

But that's been more of the exception.

"We are helping members who otherwise would get loans somewhere else," says Foster-Keddie, noting the credit union has always been open with regulators, including the Consumer Financial Protection Bureau. "The product is really good for us. It's efficient, fast and everybody loves it and it's making us money."

WSECU plans to sell its loan decisioning platform to financial institutions.

The credit union's business partners would be responsible for their lending and for developing their own algorithms with input from WSECU. Partners could also use the software to approve and fund other types of loans (some banks may want to avoid the reputational risk associated with the product).

Foster-Keddie's own mobile ambitions include adding more loan products into WSECU's app an initiative that points to his larger consumer finance dream: when he's out shopping for a house and spots his dream place, he'd fire up a banking app, click a few buttons and get the funds deposited into this account then and there. He realizes some may think that vision is farfetched.

"We will see if I'm crazy in three years," he says.

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Comments (6)
Is he saying that within 3 years, a mortgage lender will deposit funds borrowed to purchase a home into the buyer's account? That would not only be foolish (how does the lender ensure that the funds are used to purchase the home, that title has been properly transferred, that their security interest has been established?) but would require a fundamental overhaul of the entire real estate and mortgage process, including laws and regulations. That's going to take more than an app.
Posted by MrPotter | Tuesday, July 15 2014 at 9:54AM ET
A quick look at WSECU's website shows it does not comply with the advertising disclosure rules of Regulation Z 12 CFR Chapter X 1026.24(d).

d) Advertisement of terms that require additional disclosures. (1) Triggering terms. If any of the following terms is set forth in an advertisement, the advertisement shall meet the requirements of paragraph (d)(2) of this section:

(i) The amount or percentage of any downpayment.

(ii) The number of payments or period of repayment.

(iii) The amount of any payment.

(iv) The amount of any finance charge.

(2) Additional terms. An advertisement stating any of the terms in paragraph (d)(1) of this section shall state the following terms, as applicable (an example of one or more typical extensions of credit with a statement of all the terms applicable to each may be used):

(i) The amount or percentage of the downpayment.

(ii) The terms of repayment, which reflect the repayment obligations over the full term of the loan, including any balloon payment.

(iii) The "annual percentage rate," using that term, and, if the rate may be increased after consummation, that fact.
Posted by PRLynn | Tuesday, July 15 2014 at 1:57PM ET
Thanks for the comments and review of our website! We have made changes to reflect concerns raised by readers. Mortgage funding via a mobile app, we agree, will take more than three years to accomplish. Meaningful application processing and contingent approval could come much more quickly. We will have to wait and see. - WSECU
Posted by WSECU | Wednesday, July 16 2014 at 2:59PM ET
Great - you should make sure your Compliance staff is fully involved in all marketing and website promotional materials before they are finalized. All too often, Compliance is the last to know about a new initiative which usually results in an inadvertent violation. Speaking from experience as a 30 year veteran Compliance Officer!
Posted by PRLynn | Wednesday, July 16 2014 at 3:59PM ET
I also wanted to add that the product sounds like a great alternative to the Payday loans and perhaps can be a way for some consumers to get out of the Payday loan cycle if they've gotten caught up in one. The fees are a lot more reasonable than the typical payday or title loan scenario.

I would love to see this type of product more readily available at more credit unions. Banks would probably shy away since right now since bank examiners seem to be on a witch hunt for even the smallest violation and have effectively throtled any type of innovative consumer lending product among small banks.
Posted by PRLynn | Wednesday, July 16 2014 at 4:06PM ET
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