“The personal loan is hip again…” or so says Laura Alix in her recent American Banker article, “We’re not kidding: the personal loan is back.” The article explains that use of unsecured personal loans is on an uptick, especially among millennials, who in 2015 “took out fewer mortgages and credit cards and relied more heavily on personal loans and auto loans.”
The writer’s conclusions are based on a study by TransUnion, which also recently revealed that consumers tend to pay their unsecured personal loans first, even before mortgages and car loans. TransUnion included unsecured personal loans in its study for the first time since it began analyzing payment behaviors in 2010. The reason? The meteoric growth in the number of these types of unsecured loans, facilitated largely by the influx of online lenders and Fintech firms.
Many financial institutions—ranging from large institutions like Suntrust, TD Bank and Fifth Third to community institutions like Pinnacle Bank in Georgia, The Fauquier Bank in Virginia and FMB Bank in Florida—have capitalized on the favorable market conditions by offering unsecured personal loans from their company websites.
While many financial institutions have given up on smaller consumer credit due to lack of efficiencies, compliance risks and the cost of adverse action denials, financial institutions that have embraced digital lending technology have seen positive loan growth according to a Moebs Services study… and here’s why:
Digital technology—which allows members to apply for and be approved for loans in just minutes, any time, from their computers or smart devices—makes the lending process efficient, profitable and a highly appealing way for members to interact with your credit union.
The experience. Mobile-focused consumers, especially millennials, demand a positive digital experience in dealing with their financial institutions. According to TransUnion, consumers like the anonymity of applying for a loan online, not to mention the ease of uploading documents and e-signing. This digital connection is so important, in fact, that 38% of consumers say they have reduced how often they bank somewhere due to a poor digital experience, according to an MX Consumer Survey.
Existing member base. More than seventy percent of consumers at the average financial institution have no non-mortgage loans at the institution, yet they hold nearly $10K in unsecured credit elsewhere. Credit unions can re-capture this lost loan revenue by appealing to their established member base–using the credit union’s own documented compliance standards–with digital personal loans.
Efficiency. Credit unions can compete with online lenders and other credit sources by adopting an end-to-end technology solution that automates the entire loan process, from application and underwriting to set up, review and renewal. This automation can reduce the cost of processing and managing a loan from approximately $2,400 to $200 or less. A Banking Exchange article reported that institutions using this technology “have seen what nonbank lenders are doing and adopted it—namely moving away from traditional underwriting methods to using decisioning software.”
Is your credit union ‘hip’ to offering personal digital loans? Watch the video, “Digital Lending 101” to learn more.