Lending is at the core of our business. That's why we call ourselves a credit union. We're not a savings union or an investment union. If you examine the most successful credit unions in terms of return on assets and member growth, you'll find that they have in common fabulous lending programs and an internal emphasis on lending. Inherently, we are not organizations that ought to be focusing on lobby transactions and making loans when we can get around to them. Lending is-or at least it ought to be-our core value.
Processing Content
Credit unions and the wider financial services industry have historically done business face to face with members and customers. Technology and new directions in lending, including indirect lending, automated channels, and preapprovals have changed all that. Credit union members can now choose how they want to apply for a loan: in person at a branch, at a car dealership, by phone via the call center or automated phone service, at a kiosk, by mail, or via the Internet.
Managing those different distribution channels has become a critical factor in both long-term strategies and day-to-day operations.
The technology gap that continues today between the early-adopters in our movement and the latecomers reflects the varying levels of acceptance among members. Some of our members live online; they are already choosing their financial service providers based on technological readiness. Others are perfectly happy to stop by the lobby to perform transactions. In the middle are a lot of members who still say, "I don't want it, and I don't need it." One day, though, they are going to wake up and say to their credit union, "I want it now. Why don't you have it?"
We need to be prepared to offer a choice to those members when they are ready to embrace it. As an industry, we tend to look at our current membership and say, "Our members are older. They're not comfortable with Internet account access." But if we want to grow and continue to thrive, we need to be reaching out now to younger members.
The management challenge is supporting all those distribution channels with equal importance and emphasis. Face-to-face service in the branches remain essential. Serving members by phone is critical. Indirect lending is a must for certain members, and Internet access is a requirement for others. Many of our members use the branch for certain transactions, ATMs for others, and the call center and Internet for still others. They want service to be easy, convenient, and high-touch, whatever channel they choose.
Consistency at Every Touch Point
A related challenge is to integrate all of those distribution channels into a seamless system so that no matter where the member decides to touch you-at whatever service level-the product remains the same. Technology channels aren't the end product of the member service delivery system. They just serve to connect members to credit union staff in a different way. To provide consistent and efficient service, the staff needs instant, internal access to how members are accessing the credit union. If a member applies for an indirect auto loan at a dealership and then walks into the branch with a question about the loan, your staff had better have those details at their fingertips.
When we talk about distribution channel management, then, what we mean by both offering members a complete selection of delivery channels and managing those channels to provide a consistently high- quality product.
It's All About Choice
Choice is the essence. At Vandenberg Federal Credit Union, for example, we are expanding our lending touch-points to offer a real-time Internet loan product for mortgages and consumer loans, 24/7 loan call center support, and full branch services. Right now, though, 65% of our loans come through our indirect lending program, which offers a full range of automated channels through the Credit Union Direct Lending Network. Members just don't want to be bothered coming into the lobby.
Members today want service "my time, my place, my rules." If they don't get it at their time, their place, their rules, they'll go somewhere else to someone that's going to give that to them. We need to manage the channels with the understanding that the institution doesn't control the transaction anymore.
Some credit union managers tell me, "We do offer other options. We accept loan applications via mail or fax." The problems with this option are (1) they still require more effort on the member's end than calling the credit union, and (2) mailed or faxed applications tend to be given low priority because there's no member standing in front of your employees or waiting on the telephone. If you plan to promote mail and fax as delivery channels for your loan products, then you can't adopt that practice that "we'll get to those applications in our spare time." Processing loan applications has got to be a priority whether they come directly to member service representatives in the branch or via phone, fax, mail, or Internet.
The Role Of Credit Scoring
Credit scoring makes managing multiple distribution channels easier. It improves credit quality and can be used to deliver a consistent response across all touch points. It makes "no-brainer" credit decisions quickly and efficiently and, by doing so, gives your loan officers more time to focus on applications that require more scrutiny.
All this is not to say that credit scoring is a must, or a requirement for every delivery channel. But if you want to offer real-time credit approval on the Internet, you must employ some sort of scoring tool. And if you decide to use credit scoring in an indirect loan program or on the Internet, it makes sense to employ the same technology and the same credit-granting process for all channels.
What you want to avoid is members getting one response to an application submitted online and another for an application filled out at a branch. There are some members who will push the outside of the envelope by trying every delivery channel: "I'll call. If you don't approve my application over the phone, I'll stop by. If you deny my application in person, I'll send one over the Internet." The potential for three different responses to the same application depending on the delivery channel is confusing for members and your staff. If your employees see a pattern develop, they may start telling members, "Don't come into a branch to apply for a car loan. Go to the car dealer." These are crucial considerations to keep in mind as you design and manage your distribution channels.
A lot of credit union executives tell me they're reluctant to use credit scoring extensively, because they think members will miss the personal touch of manual processing. But I think the bigger challenge is educating your lending staff about the benefits of using some automation. The main message is: Most of our borrowers are great borrowers; let's use these tools make those decisions in seconds so we can focus our efforts on those whom we want to touch.
This message may sound obvious, but it can be a hard sell for an industry that prides itself on member contact. That's OK-if that's what members want. But many members today don't necessarily want face-to- face contact. They want service that's convenient to them, even if it's 3 a.m. Saturday. Continuing to emphasize face-to-face service in today's environment may turn out to be a serious misstep for our industry.
It's not that personal service no longer matters. Of course, it remains essential. But personal service is not necessarily delivered face-to-face. Remember: my place, my time, my rules. I perceive that I get really good personal service from Patelco Credit Union even though I am 350 miles away from its main office, because the Internet and the telephone deliver it to me. If credit union executives balk at employing technology because they believe our competitive advantage lies in face-to-face service, the movement cannot remain competitive. Today many members define exceptional service differently than they did a decade ago.
The Value Formula
Providing value remains the best way to recruit and retain members. What has changed is the way people define value. It used to hinge on a very simple formula:
According to the mathematics of this formula, consumers were either willing to pay more for higher quality, or they would compromise on quality for a lower price. That's how we described value. For years, credit unions have delivered on the value formula with this response: "Our price is lower, and we deliver good quality." We were the price leader on loan rates, and that caught our members' attention and held their loyalty.
Today, the traditional value formula is under fire from two angles. First, the rising number of competitors means that credit unions can no longer count on leading the field in price. Nonfinancial competitors entering the financial services marketplace have come up with some really attractive pricing strategies, and the Internet has revolutionized pricing models. Secondly, and perhaps more importantly, members consider many other factors as they rank the value of their financial institutions. They still count on low loan rates and they expect quality service. But they also want convenience, a low-stress process, innovation and even fun.
Thus, we can update the value formula:
You might be tempted to discount the final three factors in this equation as difficult to pin down. Before you do, remember that your competitors won't. They understand the value of innovation, of offering a product so new that consumers say, "I want to try that." The X factor entails being flexible in responding to requests.
The fun factor can become central to setting your credit union apart from its competitors. To a great extent, this means doing away with anything in the process that's "unfun," including long waits for a decision or requirements for extensive verification forms and paperwork.
Here's a good way to assess how focused your credit union is on making loans. Take a mental step back and observe your next ALM management meeting. Do you spend most of your time talking about how to invest the cash in your corporate account? Or do you focus your energy on how to make more loans to your members?
Distribution channel management is not, at the core, about technology. It's about making sure that your loan application process is as easy as it can possibly be, that members are made aware of the various channels open to them, and that from the frontline to top management, everyone understands that you're here to make loans.
That's what our business is truly all about.
