INDIAN WELLS, Calif. -
"'Innovation,' like 'solutions,' is a word that means different things to different people," said Tharp, formerly the vice president of solutions development for CUNA Mutual Group. "Innovation to credit unions means not doing the same old thing."
Tharp, who recently took over as CEO of Piedmont Aviation CU in Winston-Salem, N.C., said innovation in lending could include something completely new or different, or something a credit union has been doing but in an altogether different way.
"Members are being hit from every direction by lenders. Large banks, local banks, Wal-Mart, ING, E-Trade, insurance companies and even retailers such as Home Depot and General Motors," she said. "The credit union market share is low, so there are opportunities. Credit unions are in the people business, and loans are about making dreams come true."
The challenges to CUs are many and well-defined, Tharp said. Baby boomers are borrowing less, and Generations X and Y are rate-seekers with little loyalty to any financial institution. The growth in recent years of social lending sites such as zopa.com or prosper.com is something to monitor and emulate, she said.
"They are almost like a credit union: they are cooperative," she said. Other issues: total CU loans have been trending down since June 2005, net loan interest income as a percentage of total income has declined to 65%, causing credit unions to rely more on fees, spreads are declining, as is ROA. "Without fees and other income, CUs would be losing money," Tharp assessed.
Step No. 1 of a solution: CUs must develop a lending strategy, she said, and it must cover many areas. It should address all types of loans, including auto, real estate, student, payday and non-prime. In addition, it should tie the overall effort to the CU's mission or vision.
"Credit unions must develop new ways to grow, market, package, distribute and price loans, and manage lending risk," she said. "Starbucks took a commodity-a cup of coffee-and turned it into an experience with sofas, music, and wireless Internet access. It is not just the coffee, it is the way people live it. How are credit unions differentiating lending? Are they selling an experience or a product?"
Tharp offered several suggestions to CUs looking to stand out in a crowded market:
* Auto lending-she said credit unions must do a better job of improving the auto-buying experience for their members, either through their websites, or by building relationships with dealers.
* Real estate lending-CUs have opportunities in refis, because 70% of home purchases involve Realtors. Some CUs have formed realty CUSOs, offer mobile origination, and no PMI loans.
* Student loans-Stafford Loans have a limit of $22,000, a figure that has not changed since 1992. Tharp says college costs have soared in the past 14 years, creating a need for alternative student loans by 700,000 people per year.
* Payday lending-"Credit unions can be an alternative." Non-prime-overlooked opportunity or risky business? Tharp said people with FICO scores 580 to 675 are the "sweet spot" for "near-prime" lending. "The challenge is how to do it well." Her tips: establish realistic goals and limits, expect more chargeoffs, be aggressive in collections, and get a firm commitment from the board.
