HARRISBURG, Penn.-Being a "virtual" credit union has its advantages, says Greg Smith, CEO of Pennsylvania State Employees Credit Union, who believes that operating almost "branchless" has helped his shop withstand the recession and grow loans by $250 million this year.
"We are basically a virtual credit union," said Smith, pointing out that PSECU has one main location and a series of small offices inside colleges statewide. "Our online loan process is highly automated and a human does not get involved until an employee folds the paperwork into an envelope. About 65% of our loan volume is online."
That provides the $3.2-billion PSECU a very low cost to originate loans and lowers overhead, which Smith said the online approach to business also does CU-wide. PSECU has a member-to-employee ratio of 650:1, considerably better than the credit union average. Its 2.6% operating expense ratio is returned to members in good rates and has led to a great deal of repeat loan business, Smith explained.
"Our members have known for quite some time that they are going to get the best deal on a loan at the credit union and they are going to get an answer on their loan quickly," Smith said. "Online they can get a 30-second answer on their credit application, and if that approval is processed in the morning, the check will be in the afternoon mail."
PSECU charges 4.49% for a 60-month auto loan and requires no downpayment. The solid deals extend to deposits, as well, and come from Smith's self-described "simple" approach to pricing-avoiding fees and keeping loan rates low and deposit rates high. At press time PSECU paid 2.75% on money market deposits and 3.75% for a one-year CD. The credit union charged 6.4% APR for a 30-year fixed-rate mortgage and 9.9% on its Visa and cash advances.
Members don't have issues with the online business emphasis, said Smith, who believes the economy and gas prices make his credit union's business model even more popular. "Out of our 350,000 members, only 9% have ever set foot in one of our offices," he said.
Much of the electronic business is auto loans. Of its $2.1-billion loan portfolio, $870 million is car loans, a number that's up by $70 million since the start of January. It's a segment of the business that's remained strong since the credit union dropped used car rates to equal new car pricing.
"Our auto loan volume went through the roof when we did that about four years ago," Smith shared. "A lot of credit unions peg the used rate a point higher with the theory that used cars present a greater risk. But that whole idea is undone when you drive the car off the lot. You can see some pretty quick write downs on new vehicles. With used cars you don't have that problem."
As a result, used car loans now represent $518 million of PSECU's auto loan portfolio. Not having risk-based pricing has also driven volume, according to Smith. "Our members have a high trust factor with us because we don't do things like risk-based pricing, charge fees, and do all the kind of gotcha stuff that everyone else does. You don't have to read our fine print to get a fair deal."
That trust factor benefits the CU today, contends Smith, who admits even he is surprised that loan business has remained strong.
"Honestly I didn't think it would," he said. "We have been hearing so much about recession for so long that at some point you think it will impact borrowing. We have done well due to convenience, pricing, and the trust factor-our members tend to think of us first."
