The Future is One-Click Lending
By Dave Buerger
As published in the May 2018 issue of Credit Union Business Magazine
Imagine you wanted to book a vacation or a business trip, but instead of heading to an online travel site, you had to dial the number of a travel agency. When you reach an agent, you have to discuss your preferences and budget, share personal information, and then wait several days for the agent to call back with options. Jumping through so many hoops in today’s “one-click” world would seem unacceptable. Yet this is what borrowers typically experience when they apply for a loan, and it’s a big problem for credit unions.
“We’ve noticed shifts in member expectations over the last few years. It’s about more than the transaction for them. They want an experience that is seamless, intuitive and convenient,” says Cliff Carignan, Senior Lending Administrator at CAP COM Federal Credit Union.
Convenience, simplicity, speed, and transparency now shape the online experience and drive customer expectations. Easy digital options have disrupted everything from travel and transportation to shopping and entertainment—and credit unions could be the next sector to be impacted. The release of the first iPhone in 2007 ushered in a revolution in customer experience and expectation—reinventing entire industries, seemingly overnight. Unfortunately for financial institutions, the rise of the smartphone coincided with the collapse of the financial markets and the Great Recession. Financial institutions—struggling to stay afloat and certainly not focused on technology investment—were left by the wayside as mobile technology surged forward with unprecedented speed. By the time markets showed signs of recovery, it had become clear that the financial services industry had some serious catching up to do. The fierce fintech arms race that has ensued is rapidly shaping the industry of the future. Embracing this revolution and adapting to the new demands of an increasingly mobile and “one-click” world is the best way credit unions can remain competitive.
That’s why savvy members of the credit union community are making moves to meet consumer expectations by transforming the lending process. Using digital strategies, data science, artificial intelligence and marketing automation, these institutions are creating frictionless member experiences.
Arizona Federal Credit Union (AZFCU) is concentrating on convenience. Based in Phoenix, the organization has moved from traditional loan applications, which are tedious and complicated to fill out, to personalized pre-approved loans, with forms being either completely eliminated or pre-populated from the information the credit union already has on hand about its members.
“When our members come to AZFCU, they’re really looking for a simple, convenient way to get the loan they need. Enabling them to see pre-approved loan offers, along with a streamlined application process, has transformed the experience we can provide,” says Eric Givens, Senior Director of Research and Development at AZFCU.
Now, instead of having to call or visit a local branch to start a lengthy application process, AZFCU’s 125,000 members are offered personalized menus of loan options unique to their needs, which they can access via online or mobile banking, by phone or in person at the branch. Members can complete the loan activation process with just a few clicks, without having to share any additional information.
By partnering with CuneXus and using its cplXpress lending and marketing automation platform, AZFCU can leverage the information it already has about members, along with data from credit bureaus, to provide “perpetual loan approval.” This new approach shows credit-qualified members all the loans for which they already qualify, making it more convenient for them to access a product that fits their needs and goals. Loan options are customized for each member, presenting different loan types, amounts, rates, and terms based on the individual consumer’s financial profile and the credit union’s risk and pricing criteria.
The approach is working. AZFCU saw a 10.28 percent response rate to their most recent campaign, a notable boost compared to the 7.41 percent response rate it saw with the previous application-based process.
Other credit unions are also finding success in moving away from the standard application process. Across the country in Albany, New York, CAP COM Federal Credit Union (CAP COM FCU) is simplifying the lending experience by eliminating traditional applications for most loans. Instead of applying for a loan, members simply accept a loan offer tailored specifically to their individual financial profile. Think of it as loan activation, rather than loan application.
Simplifying the loan acquisition process has made borrowing a better experience for members and has increased CAP COM FCU’s loan volume. With the new process in place, auto loans grew by 37 percent over the previous year and personal loans went up by 38 percent in the same period.
“Personal loans have been flying off the shelf. People realize they can easily turn to us instead of using a credit card for larger purchases, and they’ll probably get a better rate from us,” says CAP COM FCU’s Carignan.
For CAP COM FCU, the ability to better compete with credit card companies is now complemented by their ability to accelerate the entire loan process.
Shifting to personalized, prepopulated member workflows has significantly shortened the time members spend making a loan request and eliminated the waiting period for loan approval. This means, for example, that customers can receive a vehicle loan on the way to a car dealership or get approved for a personal loan to pay for a pet’s surgery, all while waiting in the vet’s office.
The credit union reports it has decreased the time it takes to acquire a new credit card, from request to fulfillment, by 43 percent, with the entire end-to-end process now taking nine minutes on average. It’s the same story for other types of loans. Auto loan processing times decreased by 80 percent, and personal loan processing times decreased by 60 percent.
Member-owned credit unions have an advantage over larger financial institutions when it comes to consumer trust, but a loan process shrouded in uncertainty undermines this relationship. Members typically have to complete applications not knowing whether they will be approved, how much they will receive, or the terms of their loans.
Furthermore, highly-creditworthy borrowers are savvy, and will typically shop and research rates prior to submitting an application. The lender promoting the lowest teaser rate will typically receive the highest volumes of loan applications, forcing a “race to the bottom” on promotional pricing.
As part of its focus on improving the entire loan process, CAP COM FCU has worked to increase the transparency around its loans. Members now see a single screen that presents them with all their loan options. The approach is helping consumers make more educated choices about loan packages.
According to CAP COM FCU’s Carignan, one example came from a customer who had received an offer for a pre-approved auto loan that he wanted to apply toward purchasing a boat. After reviewing each of his options with a loan officer, the member was able to determine a personal loan would actually be a better financial fit for his needs.
The ongoing transparency of a perpetual loan approval also teaches the member over time to know they have an array of loan options available, instantly, and conveniently, when they need them. Why shop teaser rates and fill out a lengthy loan application, when they’re already approved for a competitive rate at their trusted credit union and the funds are just a few clicks away?
For both AZFCU and CAP COM FCU, improving the customer experience was paramount, but in doing so, both institutions also improved their ROI.
One way they accomplished this was by shifting away from narrowly-targeted propensity-based marketing. Instead of focusing on members’ likelihood to purchase a loan, both credit unions are using automation tools to help them market loans based on creditworthiness and relevance. Members receive an array of product options that are relevant and appropriate for them, increasing their likelihood to purchase and reducing the cost of promoting loan offers.
Instead of relying on single-product direct mail campaigns, which involve the costly pulling of credit information on members for every send, marketers at CAP COM FCU and AZFCU use sophisticated data analysis and automation to assign multiple offers based on a single recurring credit pull. This has the additional benefit of shining light on loan offers that do not receive a lot of marketing attention or are less in demand.
Loan offers at both credit unions are presented through a suite of omnichannel marketing automation tools and cross-selling applications continuously. Using this advanced technology, AZFCU and CAP COM FCU can integrate loan products seamlessly into every physical and digital banking touchpoint, including online banking platforms and mobile banking apps—enabling members to instantly activate loan offers from virtually anywhere with a click.
“Proactively offering an assortment of loan options increases our brand and product awareness. We’re there with what our members need, when they need it. Omnichannel marketing doubles down on a core part of what credit unions do, which is to listen to our members and help them get the resources they need to solve their problems,” says AZFCU’s Givens.
Consumer expectations for seamless one-click experiences will only increase as digital technology continues to disrupt industries. If credit unions remain tied to a tedious, complicated loan process, they will lose account holders. But if they instead embrace convenience, ease, speed, and transparency with consumers throughout the borrowing process, they will find it easier to create more meaningful experiences for their members, while also creating back-end efficiencies for themselves.