With the Federal Reserve estimating that the nation's credit card debt is $938 billion and growing, Hudson River Financial Federal Credit Union looked for ways to help members bring down their bills while increasing its lending program.
"Even when a credit union offers credit cards, members prefer to use department store cards or large bank credit cards, as they often provide better rewards programs," said Hudson River Financial FCU Director of Lending Chris Powers.
The $52 million Mohegan Lake, NY-based credit union supports 6,082 members and one branch.
Powers explained that only a small portion of its member use its CU branded credit card. "Based on the analysis of our portfolio using credit bureau data, we see that more than 80% of our members use at least one credit card issued by a large bank."
The average member credit card debt at Hudson River Financial FCU is approximately $8,000. And while Powers said he doesn't have an accurate view into the average APR across the entire member base, he estimates it to be around 18%.
Member credit problems aren't necessarily related to the big banks' competing credit cards and rewards programs, but the steep interest charges that are attached. In an effort to break the cycle, Powers said his CU reached out to SimplyCredit, a San Francisco-based fintech company that enables members to consolidate high-cost credit card debt and "sweep it" to participating credit unions.
"Credit unions often see us as offering an interesting way to initiate one-time balance transfers, but that is only a small part of the service," said SimplyCredit's CEO and co-founder Karthik Sethuraman. "Our tools allow members to manage debt on an ongoing basis and monitor their credit condition without having to gather information piecemeal from multiple card issuers."
To accomplish the task, SimplyCredit provides free online tools, analytics and marketing support. Prior to co-founding the company, Sethuraman was a data scientist working at some of the industry's largest credit card issuers, which continually generated hundreds of millions of dollars in new income. In time he realized that there was "no consideration" for the "real needs" of households. "I thought there had to be a fairer approach to offering credit."
Fair Credit Terms
Working with SimplyCredit, Hudson River Financial FCU can deploy a wide range of competitive lending capabilities and book "high-yield balances" without having to maintain an unprofitable credit card program.
"SimplyCredit's services can provide a vital link between lenders who are looking for membership and loan growth, and consumers who are looking for alternatives to pay down high-cost card balances," said SimplyCredit's SVP of Business Development Alan Bahr.
A long time credit union advocate, Bahr spent nearly 10 years as a director at CUNA Mutual Group. "We look to benefit all parties involved – our credit union partners, their members and the communities they serve – with free tools and marketing support."
Hudson River Financial FCU is among a small but growing number of CUs that have signed with SimplyCredit. Powers explained that partnership began in January 2016 and the solution was officially rolled out in May. To date, the CU has increased lending by 4%.
"Members transfer anywhere from $5,000 to $20,000 from their high interest credit card to the credit union at a much lower rate," said Powers. "Almost all members carry department store cards, which typically charge upwards of 25% APR. Since even bank-branded cards charge high interest rates (18% or higher), many members will save $2,500 in just the first year alone."
Offering a line of credit always comes with risk. Assuming a member's credit debt from another financial institution could be even riskier, but Powers said protocols are in place to focus on super-prime high-FICO borrowers, conservative debt-to-income cutoffs and standards for delinquency.
"One of the reasons we're comfortable with the risk is because we control underwriting," said Powers. "That was an aspect of the program we really liked."
Technology Integration
From a technology integration perspective, Powers said there wasn't much heavy lifting. The CU provided names, addresses and email IDs of its current members and SimplyCredit created all the marketing content and the test approaches for the initial in-market test.
"We had an opportunity to review all marketing emails and content before it was sent to the members," said Powers. "SimplyCredit manages all aspects of the technology, from integrating with the bureau to processing of the electronic payments. They provide monthly reconciliation reports for our internal accounting purposes."
And while there wasn't an official beta-testing period, the solution was rolled out gradually by testing the marketing messages on a small group of members first and eventually releasing it to all members.
Sethuraman added that SimplyCredit makes money when participating credit unions do, and the company covers all upfront analytics and marketing-support costs, and the tools are provided without charge so that clients incur no upfront investment expenses.
