WASHINGTON — Could wedding rings, caskets and dentures be among the keys to credit union growth this year?
Credit unions must do a better job of packaging "lifestyle loans" if they hope to grow in 2014 — including loans for things like weddings, funerals and even dental work, according to one consultant.
"All those credit unions making money on mortgages, that's kind of died," said Paul J. Lucas. "Now maybe there are going to be some purchases, maybe some HELOCs, but everything still comes back to retail lending. It's all about getting the car loans — which are real tough these days — and credit cards and other lifestyle personal loans."
CUNA data from the past few years has shown continual upticks in lending and memberships at credit unions, along with increased consumer loan demand. And while the bulk of the growth has been limited to large credit unions, with small- and mid-size institutions being left behind, the consensus is that CUs should expect much of the same to continue.
Several sources told Credit Union Journal that 2014 is poised to be a big year for auto lending and credit cards, but Lucas emphasized that "there's no magic bullet."
"There's no one thing that's going to get you over the top," he said. "Credit unions have to become retail lenders, and they have to be highly proficient at lending across all lines. A lot of times credit unions forget what they're in business for — you're in business to lend, and that's your core mission every day."
Go Deeper With Poor-Credit Members
Amy Herbig, CEO at the BA Group—a Minnesota-based marketing firm that works with credit unions — pointed out that many CUs can still go deeper with members whose credit is less than perfect.
"There's still that opportunity for the B, C and D paper that credit unions have been fearful to go to," said Herbig. "Now more than ever is the perfect time, because we're seeing so many younger people getting themselves started younger in life. We're coming out of this recession and the aftermath is still trailing on people's credit. The answer could be so simple, because in a realistic sense [CUs] can still look at everybody on a case-by-case basis, because banks are still looking at people in that black-and-white box."
Many analysts have encouraged CUs in recent years to look beyond the A and B credit tiers, and Mike Kohl, principal at Kohl Advisory Group, stressed that the pool of members (or would-be members) with poorer credit has in no way dried up.
"It has become more competitive," said Kohl. "It used to be that somebody that was of a C or D credit quality, if you'd make them the loan, they didn't care about the rate, only the payment. The payment is influenced more by the term of the loan than the rate. That's been somewhat of an issue. So it has gotten more competitive, but in no way shape or form has it dried up."
Small business services also continue to be an underserved market for credit unions, added Herbig. Even if CUs aren't offering member business loans, they and still offer small business checking, credit cards and other services to help capture that market.
NII & EMV
Non-interest income streams will likely still play a major role in credit union revenue this year, and one industry insider noted that the Target data breach that impacted some 40 million credit cards and debit cards is a sales opportunity for savvy CUs.
Andrew Tilbury, chief marketing officer at BluePoint Solutions, noted that the Target breach has inadvertently created a major opportunity for CUs to cross-sell members on identity theft and fraud protection services.
"This is also an area where financial institutions in general can get some of their credibility back by providing these services to their members or customers," Tilbury said. "That is a point of differentiation that they can have versus a retailer or some other kind of payments provider — the ability to protect their members from these kinds of threats."
Brian Scott, VP of sales at The Members Group, noted that the Target data breach appears to be forcing many CUs' hands on EMV. He said that in the six months prior to the breach many credit unions were taking a "wait and see" approach with EMV, however as a result of the breach some institutions have begun to move more aggressively toward it. (See related story on page 1)
As more CUs reissue EMV-enabled plastic to members, "along with that reissue is going to be an increased focus on marketing," said Scott. "If you have to reissue somebody a card, let's reissue them a platinum card or a card with rewards. What we're really seeing is a lot of Visa Signature cards or MasterCard World cards — card with more prestige to drive additional usage." He said that many CUs TMG works with are electing to automatically upgrade members to those despite the added costs in the hopes of encouraging members to move the CU's card to top of wallet to earn the credit union more interchange income.
While it will cost money to convert to EMV and upgrade members' cards, Scott said that small- and mid-size CUs may benefit the most from that.
"It's great opportunity for those small credit unions that may have missed out on top-of-wallet status to move into that status," he said, adding that it's a much bigger hurdle for a large CU to convert and reissue 50,000 or more cards than for a small CU to do the same with a few thousand cards.
Scott also reminded that all the effort to capture members between the ages of 18 and 24 may be coming at the expense of the more lucrative 25 to 34 age demographic.
"It's really been an overlooked market, because everybody's focused on the youth side," he said. "I think that the focus on youth has taken away a bit of the focus on those that are really in that lifestyle phase where they need loans because they're starting families and they have jobs."
Bigger Vehicles, Bigger Margins
Whatever the member's age, Kohl Advisory Group's Mike Kohl emphasized that there are still opportunities in risk-based lending — in particular used vehicle direct, and both new and used indirect lending. But aside from traditional vehicles like sedans and SUVs, Kohl pointed to opportunities for CUs in recreational vehicles — higher-priced items that often also carry a slightly higher interest rate than a traditional auto loan.
"One of the things that we generally see in credit unions we assess is that they haven't gone aggressively after recreational vehicle loans," said Kohl. "We try not to call them RV loans, because that has the wrong connotation. We're not talking about $120,000 motor homes. We're talking about boats, motorcycles, what I like to refer to as 'toy secured loans.'"
Kohl noted that the credit crunch and bad economic circumstances led many CUs to shy away from that market in recent years, but he reminded that credit unions "are in the business of risk management, not risk elimination... and if people want to go out and get a motorcycle, it seems to me that a credit union should be a place they look to, and that that should be encouraged."
