Enhancing credit union lending through member-facing automation
Customizable portals combined with loan origination systems’ (LOS) capabilities can help enhance experiences and build market share.
Although banks and captive finance companies continue to dominate automotive lending, credit unions are finding opportunities to increase market share. A recent Auto Finance News article noted that credit unions are gaining ground in the provision of longer-term loans, capturing 49% of new vehicle loans with terms of 84 months or more, representing growth of 37% from the second quarter compared with the previous year.
This trajectory is likely to continue in an uncertain economy, since credit unions are typically able to offer lower rates than larger banks. As these opportunities continue to rise, credit unions stand to benefit considerably from the use of customizable, sophisticated automotive lending solutions in more than one context. These solutions have benefits both for direct sales, and for indirect bookings through DealerTrack, RouteOne or other portals.
Leveraging relationships, low rates and long terms
Credit unions have an opportunity to leverage their current member relationships to win more business, encouraging applicants to easily finance — or more likely refinance — vehicles on the lender’s website. A direct application portal embedded on a credit union’s website can be a powerful tool in that regard, giving the customer the ability to choose the financing package he or she wants, removing confusion, enhancing customer satisfaction and accelerating the entire lending process.
When working through indirect channels, credit unions can leverage their competitive advantages of lower rates and longer terms. A sophisticated, automated solution can streamline the arduous workflows that have frustrated lenders, dealers and consumers. New capabilities like alternative data sourcing and fraud mitigation help lenders validate applicants, make better decisions and make those decisions faster. These efficiencies benefit all parties — credit union, channel and consumer.
We’ve seen automation produce extraordinary success in the field. Case in point: A large credit union had been exclusively providing indirect loans for close to 30 years. The CU made the decision to implement a feature-rich member portal, adding direct sales to their traditional indirect model. In a little more than two years, this credit union roughly doubled their overall automotive lending volume. The credit union’s direct loan revenues now exceed that of its indirect loans. To top that off, the CU has also received an award for its superior digital consumer experience, which certainly adds to its brand proposition.
Credit unions typically have long-term relationships with members through products like savings and checking accounts, mortgages and revolving credit lines. This history allows CUs to suggest additional products — like auto loans — as a natural extension of their existing relationship. And long-term members may carry lower risk than new auto-loan-only clients. Adding a direct-lending auto finance or refi option can give a credit union an opportunity both to expand a profitable line of business and to create greater stickiness with consumers.
Capabilities that level the playing field
Credit unions don’t typically have the same level of budget or access to in-house IT resources as larger banks in areas such as fraud mitigation, automated decisioning or advanced analytics. But modern cloud-based loan origination solutions solve this problem by integrating best-in-class third-party features and capabilities directly into the LOS platform. This approach enables credit unions to access an ecosystem of high-value services that reduce risk, accelerate workflows and above all, help lenders book deals — without the associated costs and headaches of purchasing and integrating software into existing infrastructure.
Credit unions can also take better advantage of concepts like AI-driven models and real-time triggers or alerts. Advanced consumer portals and LOS systems can support a multitude of third-party services that will immediately benefit credit unions. For example, Provenir, Jericho Information Technology and Point Predictive are best-in-class providers whose solutions can be integrated with a modern cloud-based loan origination system to improve credit-decisioning.
As credit unions continue to seek opportunities to bolster their member base and expand their automotive finance portfolios, member-facing portals integrated into an LOS can capture new revenue and build brand loyalty in a fast-moving, highly competitive marketplace.
Sam Heath is the Chief Revenue Officer of Inovatec Systems. Inovatec provides LOS, LMS and direct systems that seek to eliminate friction in the lending process and automate much of the manual work of originating and managing loans.
Auto Finance Summit, the premier industry event for auto lending and leasing, returns October 26-28 at the Wynn Las Vegas. To learn more about the 2022 event and register, visit www.AutoFinanceSummit.com.
