How and why credit unions should work with Fintech
Source: ShutterstockWhy would a credit union – or any financial institution – outsource anything to a financial technology (fintech) company?
Because there are things they do better and faster than us.
Here’s the analogy I use to explain why Sharonview Federal Credit Union outsources some products and processes to fintech. If I have a light that’s out, I’ll try changing the light bulb first. I’m not going to watch a YouTube video to learn how to build a light bulb.
You need to focus on what you are best at.
Our latest fintech collaboration is with Upstart, a company that offers AI-powered personal loans. Sharonview outsourced our unsecured personal loans to them. We finance the loan and Upstart services it. They even handle collections. Our staff does not even make a warranty decision. There is no human intervention in the process. Everything happens automatically; non-members automatically become new members through the process.
Borrowers learn what they qualify for for make an application.
It has been an incredible leap in efficiency. There is no way we can build the platform Upstart has built, at least not anytime soon. Upstart communicates, via a Sharonview-branded website, to the borrower how much the borrower is eligible for and what the terms are. The borrower then decides whether they want the loan on these terms. This is a service that borrowers have access to 24/7. The borrower enters the application process knowing everything they need to know.
In some cases, they can get an answer and access the loan funds the same or the next day.
Our personal loan portfolio has grown significantly since our collaboration with Upstart began. We went from taking out about $1.5 million a month in term personal loans to just over $10 million a month – and it only took about 60 days to set it all up.
There are still many products that require personal interaction – home equity lines of credit, small business loans, a complex array of money markets and stock certificates.
Taking the simple personal loan process out of the branches has given our staff more time to focus on the products that add value to members’ lives and their financial well-being.
Our work with Upstart was not our first foray into fintech. We made a major turnaround two years ago when we sold our credit card portfolio to Elan and transferred all credit card issuance and servicing to Elan. This is their area of expertise and we felt they could provide members with a better suite of products, fraud mitigation tools and communication tools.
There is also great efficiency with our card product. We entered member loans for businesses this year, and Elan already had four different business credit cards available in the market. All we had to do was put our name on these cards. If we had worked in-house with a card processor, it might have taken us a year to deploy. Instead, it was ready in two weeks.
When we first started working with fintechs in 2018—by accepting indirect vehicle loans on our platform through car dealerships throughout the Carolinas—there was some hesitation on the part of our staff. Some wondered that members were losing the high personal touch they value from us, but we have been working closely with our learning and development department to move to a new mindset.
Simplifies the outsourcing process
We have made some changes internally to facilitate the outsourcing process. We recently created a new position: The director for lending cooperation. This team member acts as the liaison between all the teams within the credit union that are affected by these relationships and the vendors themselves. They help us reduce and manage the risks we have.
And there is risks with fintech – such as liquidity risk, interest rate risk and reputational risk. We need to ensure that our relationships with fintechs reflect our own appetite for risk.
We have only just begun to exploit all the advantages fintech offers. We know there is more we can outsource.
Why? Because liquidity is much more of a challenge than it was a year ago when the stimulus money was in the economy; there was a lot more money floating around. We are in a different environment now. Interest rates have gone up. Inflation has put enormous pressure on the consumer. It is much more challenging now to continue to finance loan volumes with traditional deposits.
Looking forward
We will continue to look for ways our members can benefit from fintech.
One day, I think there could be a mortgage product that doesn’t need a human guarantor. Absolutely, you don’t need one on a car loan.
But we must be careful. If you automate too many things without having good fraud tools, you’re going to have other problems. This is where humans come into play. Humans must look at the data to determine whether the machine is making the right decisions on a consistent basis.
My advice to those credit unions working or considering working with fintech: Make sure you research your staff and members and understand how they feel about your processes. Get their feedback. Sometimes what’s wrong with the membership experience isn’t the experience itself, it is expectation of the experience.
I’ll never forget getting an inquiry back at another credit union years ago and knowing that someone was upset. We took about a week to close their mortgage because we had closed their car loan in less time. You can never take for granted what someone’s expectations are.
Fintech partnerships save our staff and members valuable time, while allowing Sharonview to enter markets where we do not have a physical branch. We let the experts do what they do well, while we focus on providing the best personal service we can to our members.
After all, why build a light bulb when someone else is already making and selling them?
David BrandDavid Brand is SVP of lending operations for $1.9 billion Indian Land, SC-based Sharonview Federal Credit Union.
