The direct and indirect mortgage losses that the financial services industry are experiencing have dominated the news headlines for several months, and recent passage of the $700 billion treasury plan is a testament to the distress that many institutions are facing.
However, the news is not all bad for credit unions. Callahan & Associates recently reported that loan originations reached $134.2 billion during the second quarter of 2008, an all-time high. The growth includes a 40% gain in first mortgage originations from June 2007 to June 2008. This indicates that a unique opportunity exists for credit unions to not only weather the economic downturn, but also grow their loan portfolios.
Similar to banks, credit union margins are shrinking. They also face the same declining potential borrower base because fewer people qualify for loans in today's strict credit market, making lending more competitive. The market's condition, however, is having another effect in that a number of lenders have exited, leaving an opportunity for growth open to credit unions. In order to capitalize, credit unions have to go beyond the standard selling based upon lower rates and provide something more for current and prospective members. This added value must come in the form of the convenience that technology offers.
For example, people choose a local grocery store based upon a number of criteria-reputation, products, location, customer service, etc. The decision is not typically rooted upon one factor, but convenience plays a large role because our society is increasingly one where long lines and slow turnaround times are unacceptable.
Currently, many credit unions are trying to spur loan portfolio growth, but their methods are tied to old processes. Home banking, online bill pay and call centers all provide a higher level of convenience for members, but they still involve paper documents being sent to and/or received from the member. This is where the convenience ends because faxing, postal mail, express mail and trips to the branch all add to the length of the process and reduce completion rates.
Credit unions must additionally use convenience to grow loan portfolios because Generation Y is the new target audience. Every day these consumers capture a larger percentage of the buying public. And as they become older and advance their careers, they will have more purchasing power with regard to loans. An opportunity exists in the student loan market as well. A survey sponsored by MeritaiAid.com recently found that 85% of students have significantly increased the time and energy they spend searching for financial aid. If positioned correctly, credit unions may be able to capitalize on these trends and increase loan volume.
The industry has recognized that all members, young and old, are attracted to the time reductions that technology offers. In fact, CUNA reported this year that 68% of credit unions offer online banking and many see it as a "must-have" financial service. Now, credit unions must expand this view to loan documents, which can be done with remote signature technology. This web-based technology is available to any member who has access to the Internet, a web browser and Adobe Acrobat reader. It involves verification and authentication to identify that the user retrieving the loan file is the person they say they are. After that, the member can view loan documents online that have been sent from the credit union. The member completes and signs the documents anytime, anywhere, and securely sends them back to the CU.
Remote signature technology is the right investment at the right time because it creates a competitive relationship for credit unions. When a member must wait to receive paper loan documents, search for a notary or find time to visit a branch to complete the transaction, it gives them the chance to shop for lower rates. Credit unions have historically tried to compete by offering lower rates, but at some point that strategy is not cost effective. Remote signature technology addresses these issues because it encourages members to sign the documents and complete the deal right away, securing the business for the credit union.
One credit union that has seen its members embrace this technology is Colorado-based Red Rocks Credit Union. Since implementing a remote technology solution during the first quarter of 2008, 40% of its loans have been completed online with an average of 90 per month. The success was achieved because the credit union has combated misconceptions about identity theft and new technology being complicated by educating its members and offering the service to every loan applicant.
In spite of the economy's drastic decline, huge opportunities still exist for credit unions. In September, BECU saw a tremendous jump in membership, setting an all-time record, due to the sale of Washington Mutual Savings Bank to JPMorgan Chase Bank. Other credit unions can reap the benefits of more consumers looking to community financial institutions as the industry's largest players falter. It presents a unique opportunity for increased loan volume through both new member growth and organic growth. However, this means that the trend of conducting business via the Internet must be leveraged to include remote signature technology.
Chuck Klein is the CEO of Integrated Media Management, a New Jersey-based document output and automation technology provider. Chuck can be reached at chuck@immonline.com.
