Credit unions seem to have mastered rapid growth and indirect auto lending strategies, but that’s not good enough – they must be better at connecting with customers to collect on those loans.
According to the National Credit Union Administration (NCUA), credit unions saw continued growth in the first quarter of 2016 and “new and used auto lending was especially strong.” New auto loans rose 15.4% to $103 billion and used auto loans increased 13.2% to $166.8 billion. The largest credit unions saw the fastest growth in loans, membership, and net worth. These numbers paint a rosy picture for credit unions, but I say credit unions should do better lest they put these numbers at risk.
A Lot of Talk, Very Little Innovation
I talk with credit union executives frequently, and without fail, they tell me they are willing, even anxious, to innovate. But often all that talks adds up to nothing. And I get it – the reasons why the call for innovation go unanswered are many: the fear of losing the personal touch so inherent to their success, budget concerns, or a lack of resources top their list of reasons. But here’s something I don’t hear, “we want to be smaller, we don’t want to grow.”
Of course credit unions want to grow, and NCUA’s numbers point to impressive growth in the auto loan sector. Everybody loves being bigger, but I say you have to be better. It’s great that you offer competitive rates. Customers love the personal service. And as a result, you grow. It works for a while, but the bigger you get, the harder it is to maintain a personal relationship with customers. And here’s where it pays to be better.
Indirect Lending, Indirect Relationships
Add to the fact that much of the auto loan growth comes from indirect lending. Callahan & Associates reports that nationally, indirect loans hit $142.5 billion in the first quarter of 2016. Over the past 10 years, indirect lending as a percentage of total auto loans has grown from 38.2% in the first quarter 2006 to 52.3% today. Here’s where it gets really important to “be better.” All those indirect lending wins come with a loss, and that loss is in that connection with your customer. You are bringing in a larger risk pool, and are relying on the dealer for information critical to collecting on those loans. And maybe you’ve extended your risk by lending to a different customer – a more transient customer, a customer that that’s harder to reach for payment. Attracting more transient customers grows your loan pool, but what happens when these transient customers skip out, and you have no autos to show for it?
Make Smarter Decisions with Data and Analytics
The credit unions that get it right are making smarter decisions driven by data and analytics. They are innovating their way to the information that helps them to reduce the number of loans going to recovery by making contact using alternative data and analytics. With DRN’s 4.5 billion vehicle sightings, they are cutting the number of loans going to charge-off by up to 30% using that vehicle location data to locate and recover vehicles faster. They are making right party contact using information that goes beyond the comp report to connect them to the customers and keep those customers solid members of the credit union family.
Vehicle location data and analytics combine to form DRNsights – insights that deliver on the promise to innovate, fast. These insights help to provide a more complete picture of customers – a picture that fills in the blanks where comp reports fail. This picture tells you that the address on the comp report may not be the best location for making contact. It tells you the best location to quickly recover a vehicle. It tells you where you can make contact to upsell or cross-sell. This picture tells you how to be better.