WASHINGTON-Small CUs may not be able to compete with larger institutions that are "lending machines," but they can be smarter about how they use their information, according to one person.
"If you're competing against a lending machine, that lending machine is using the credit bureau as its prime source of analytical information," said Bill Myers, director of NCUA's Office of Small Credit Union Initiatives (OSCUI), noting that CUs-and particularly small CUs-are going to lose in that kind of head-to-head competition. "Part of the way credit unions have recaptured the market is using the credit bureau but also using proprietary information that only they have: how long have they been a member? Have they had loans out at the credit union before? Do they ever overdraft? Do they have a regular paycheck with us?"
As an example, Myers observed that "if you look at credit bureau reporting, almost 40% of the people have thin or no files."
But where credit unions can compete is by using information they already have, even if the member's credit bureau file is thin.
For instance, he noted that quinceanera loans-to help pay for girls' 15th-birthday parties common in Latino culture-have proven to be a winning strategy for small CUs in heavily Hispanic markets.
"Think about saying 'We offer great rates on unsecured personal loans' versus 'We'll lend you money for a quinceanera,'" said Myers. "People might not understand what an unsecured personal loan is, but they understand what a quinceanera is in their community. That's the difference of a small credit union speaking directly to its membership."
Beating Bank of America
Bank of America can do a lot of things, said Myers, but it can't drill down that deeply.
Similarly, he said, "payday loans is a great little focus for a lot of credit unions that have found a great middle market in the underbanked that we can serve."
And once a credit union has a foot in that market, they can transition those members into other, longer-term products.
Raising awareness about loan availability also remains a problem for small CUs, but Myers noted that for SEG-based credit unions, getting bulletin board space at factory sites to advertise the CU or including a stuffer in the paycheck with information about loans at the CU can be viable options.
For CUs with an aging membership, family marketing is also a strategy that has worked for some credit unions, said Myers.
"Market a loan to your son or grandson or granddaughter," he suggested. "The members have families, and they could bring a good deal to the rest of their family."
A Loyalty Strategy
While CUs of all sizes are struggling with an aging member base, many credit unions have members that have aged out of the lending market but are still fierce advocates for the institution. Myers recalled working with one small CU to build a marketing program based around incenting older members to invite their relatives who needed a car loan to visit the credit union.
"Because they had an interest and cared for the credit union but weren't borrowers anymore, it was a pretty successful effort on the scale of that credit union," he recalled. "Chase can't do loyalty marketing like that."
