Credit unions in the past two years have made gains in capturing market share in the auto lending market. There are very good reasons consumers have flocked to credit unions for auto loans, such as their emphasis on the consumer experience and ease of doing business, generally lower rates and the fact that credit unions can seem more approachable than large banks and online lenders. This appeal is significant.
According to Investopedia, credit union market share for all auto loans in the latter half of 2022 shot up to more than 30%, trailing only the captives. Business is also brisk for new-car financing, with credit unions now accounting for 24%, just a single percentage point behind banks.
More startling is that even with the steady growth credit unions are experiencing in auto lending, many credit unions still rely on old systems and expensive manual processes to originate and manage loans. Credit unions that are active in the space know that providing auto loans is good for business. It provides an excellent opportunity for them to market to a wide audience of potential members, cross-sell any number of financial products and reinforce the relevance of their brands.
To do this well, the entire loan application experience has to excel. Consumers feel a sense of comfort knowing that they are dealing with a local institution and not some faceless corporation or online lender. This plays into the appeal of credit unions, but it’s nearly impossible to flourish if one relies on manual processes in the digital age. Potential members want simplicity, speed and accessibility, too.
This point hit home in a report issued by Javelin Research and Strategy. In a survey reported late last year, Javelin found that 84% of consumers said the most important factor in choosing a loan was the rate, followed by how easy the loan process was, which came in at 83%, just a single percentage point behind rates. Both are areas in which credit unions should excel.
Today’s cloud-based loan origination and loan management platforms give credit unions an effective, reliable and secure vehicle to successfully originate and manage auto loans. These solutions can automate many of the manual processes and workflows associated with loan origination, such as application scoring and decisioning, document generation, reporting and other compliance mandates. These platforms are highly configurable, giving credit unions the ability to easily institute their own procedures and policies, and adjusting workflows whenever the need arises.
Some of the more advanced platforms integrate with a broad set of compelling third-party services that add even greater efficiency to auto lending. Tools like automated income and employment verification eliminate the need to collect and process paper documents, accelerating decisioning from days to minutes. Risk mitigation and authentication are also very useful to lenders. By retrieving and synthesizing data from alternative sources such as utility bills, mobile phone records and rent and mortgage histories — a reliable profile can be constructed for the applicant, reducing instances of fraud. Other capabilities, like automated payments, can also be integrated into the platform, providing even more efficiency for both lenders and members.
The time Is now
As credit unions evaluate how to maximize their auto lending practices, there is little debate that members want clean, fast and satisfying interactions. By leveraging state-of-the-art loan origination technology, credit unions can quickly ramp up lending activity without adding personnel or incurring significant risk. It creates another layer of stickiness with current members while mitigating competitive threats. In addition, credit unions can use these automated platforms to conduct proactive marketing campaigns and expand their footprints even more.
Credit unions and auto lending are an ideal match. Now is the time for credit unions to adopt compelling technology and take advantage of this unique opportunity.
Sam Heath is the chief revenue officer of Inovatec Systems, which 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.