New Lending Strategies for a New Market

Reimagining Lending...Is a Digital Transformation Strategy the Solution

Joe BrancucciPresident CU RateReset

• Challenges in the Marketplace• Member Challenges• FinTechs• Credit Union Initiatives• Steps to implement a digital

transformation strategy• Questions

DISCUSSION TOPICS

“We’re Doing Fine”…......The three most dangerous words a business can utter…..These

businesses are gone......because they believed “we‘re doing fine“!!

Challenges in the MarketplaceTsunami of Regulations

Challenges in the MarketplaceFive

Generations of

Consumers are

Members

Recognizing Multiple Generations

Bridging the Generational Gap….

1970’s – WWII & Boomers Signature Loans Some auto lending – 24-36

month terms Some home equity loans

1980’s - Boomers Debt Consolidation loans Some credit cards Bank deregulation Inflation and interest

rates very high

1990’s – Boomers & Xers Longer term consumer loans Credit cards become a product Home equity lending thrives POS for auto loans via CUDL in

CA, and other solutions in other states

2000-2007 – Boomers & Millennials Full adoption of credit models Automated underwriting systems Auto loan terms extend to 60 months Home equity lines of credit Minimal dependence on income

verification Wide spread use of loan

preapprovals Origination experience greatly

improved and virtual lending prevalent

2007(8)-2013(14) The Great Recession Financial Markets

Collapse Record high member

defaults Home equity disappears Auto lending slows

down Home Equity loans

default escalates Credit scores suspect

Historic low interest rates

Today – Millennials and Boomers Auto borrowing robust - 72 and 84

month terms more prevalent Home Equity loans see resurgence Consumers demand “click-it”

solutions Income verification necessary After loan closing still stuck in

1980’s Loan approval process still labor

intensive and mediocre experience Credit cards evolving quickly

Lending Landscape and Generational Concentration

Silent Generation• Reverse annuity mortgages (RAM) to supplement reduced income from investments

• Not big into buying things on credit• Credit cards are for buying things and they immediately pay balances – tend to be attracted to “ego” cards

• Need way to finance necessary home improvements if they have tapped out RAM option

Baby Boomers

• Reduce debt • Down-size homes• May be attracted to dealer financing “payments” rather

than interest rate• Credit cards with rewards, and will move balances for

incentive and/or low or no interest rate period• Finance luxury items (boats, RVs, second homes)• Finance “personal” improvements – caps, liposuction,

gastric bypass, plastic surgery, etc.

GenX• Reduce debt • Larger home - growing family or to reflect success• Automobile loans – mini vans, crossovers, large

sedans, large trucks, and older X’ers “mid life crisis” cars

• Credit cards with awards; likely want a “brand or prestige card”

• Financing for children’s education• Finance “personal” improvements – caps,

liposuction, gastric bypass, plastic surgery, etc.

GenY (or the Millennials)• Getting credit with “thin” files – they prefer to pay

with debit or pre-paid services• Reduce student loan debt• Financing for travel and adventures • Modest auto purchases • Older millennials home purchase –need solution to

student debt• Loan products with totally transparent fees and terms• Mobile solutions

Are we able to see the forest for the trees?

• Auto loan terms average more than 60 months

• The member’s life changes after funding

• We refinance a lot of our own loans • Our preapproval process is not easy • Most members have their loans

elsewhere • POS financing for auto, home loans

and personal improvements prevalent• Lending products are ubiquitous• The member wants to be in control• “ Click it or go elsewhere” members• The FinTechs are lending R&D

Credit Union Loans at the Dealer ….

Challenge…..Point of Sale (POS) Purchase and Finance Dramatically Increasing

https://youtu.be/uDP-8VWuprQ

• The Member “Experience” of our products = process• Product designs were new in 1980’s• Regulators are a deterrent to innovation• We are risk averse• “It’s the way we always did it” mentality• Fear of being a “disruptor” in the market place • High cost of technology development

Challenges to Implementing New Lending Approaches

81% WANT financial info – only 28% believe they receive it 66% prefer banking online or mobile 80% of millenials 77% of Parents with children under 18

62% of Millenials want MORE info from their CU

45% would like more online ads outside of CU Website Only 8% of members said TOO MUCH

communication from their credit unionSegmint Survey 2000 US Adults May 9, 2017

What are Credit Union

Members saying?

Challenges in the MarketplaceNON-CONVENTIONAL LENDERS ARE VERY WELL CAPITALIZED

Digital Finance Company focused on Consumer Loans….and expanding to other loan products

Digital Process Transparent Reimagined the

credit process Education provided

Challenge… Create multi-layered approach to develop an organic and community lending strategy and to control the pre-payment of the loan portfolio.

Case Study: Implementing An Organic Lending Strategy

Over $1.5 billion credit union designing an organic lending

strategy

Partnered with CUDL for member access to loans at the auto dealer PSCU relationship expanded to increase credit card utilization and new

cards Intuovo – Marketing programs to follow-up on leads Member relationship benefits - the more the member does with the

credit union the more deposit account and loan benefits they earn CU RateReset – member in control of modifying their loan thru virtual

banking Credit repair and starter loan programs Extensive preapproval programs Development of numerous internally developed virtual solutions such

as Mobile and Instant issue credit and debit cards

Moving To Organic Lending

Healthy growth in member loans originated at the dealers Attracting new members with an average age of 32 years

old = more loans Over 90% loan to deposit ratio – selling participations

which increases return from auto loans Home equity loans beginning to increase in demand Credit starter program helping members to build credit

history Digital loan activities becoming dominant form of

lending

Moving To Organic Lending

CHALLENGE…..

Provide digital member benefit on auto loans to lower payments, possibly help with paying off high interest credit cards, increase retention, and increase yields on existing loans without staff interaction necessary; minimize FAS 91 adjustments

Digital Auto Loan Retention Case Study

http://test.ratereset.net/offer/?CE6B84C

SECU Maryland “LoanFlex” Results

Success % to total 7.9%$ Volume Loans Reset $14.8m

Avg. Yield Increase 47 bps

Avg. Duration Increase 23 months

Average Payment Decrease 37%

Digital Finance Company focused on consolidating Student Loan Debt….and using that market opportunity to expand to other loan products

Digital Finance Company focused on Small Business Loans….and using that market opportunity to expand to other loan products

Transforming Credit Cards with Mobile…

https://www.youtube.com/watch?v=Gm1dBKtrOMw

Digital Auto Loans With a Credit Union Twist…

https://youtu.be/_FaxjSKv9z4

Digital Home Loans

https://youtu.be/nXW2BJixXfw

CHALLENGE…

TRID requires 1st ARM adjustment notification 9 months prior to adjustment. High pre-payment speeds as a result. FAS 91 implications onerous based on trend of prepayments.

Digital Home Loan Retention Case Study

http://test.ratereset.net/offer/?FB3F131

Results – All extended for another 60 months

Number of Loans Reset 1560+

Success Percentage to total 73%$ Volume Loans Reset $441,000,000+Potential Increased Earnings $3,120,000+

PenFed Digital Retention Program

Digital Marketing of Loan Products – Pre-Approvals

CHALLENGE…

Improve effectiveness of Pre-Approval Campaigns. Conducting pilots on Credit Cards, Home Equity and Credit Card Balance Transfers…..

https://test.ratereset.net/offer/?D92F843

Americas Credit Union Pilot Digital Pre-Approval Program

Results % Who Opened the “P”URL Over 3.5%

Success Rate (“P”URLs opened/new cards)

68.7%

Most balance transfers Capital OneWellsChase

SUMMARYIT IS TIME TO CREATE A DIGITAL TRANSFORMATION STRATEGIC PLAN

Multiple generations in the market provide both challenges and opportunities

Digital solutions need to be extended to all facets of the loan cycle – “if they can’t “click-it” they will go elsewhere

Members want to be in control

Preapproval process needs to be digitized

Credit unions need to create digital intimacy with the members

Create the ability to react to an early payoff request

Use the CUSO products in the marketplace to secure market dominance

Recognize that member’s lives change from the date the loan was originated – create options to have the loan reflect the member needs today

Create strategies and “click-it” solutions to recapture loans members have elsewhere

Big data – and the analytics to use itAbility to integrate APIsSenior Executive responsible for

transformationOmni channel commitmentMeasurable targets with budget allocations Focus on talentReimagine Possible

Cornerstones of a Digital Strategy

Digital Transformation for the Member…..• Deliver simple, easy, transparent and convenient experiences.

• Execute consistently across all channels – never re-enter information already provided

• Use cutting-edge big data engineering to get a full understanding of the member

• Reconfigure all your base products and processes to provide simple, easy to understand intuitive options

• Engage your members with digital marketing

• Embrace straight thru processing – regardless of how difficult the circumstances – never put the member in “maybe” hold

Unisys Elevate – The Future of Lendinghttps://youtu.be/WOtZJyOE9hA

Thank You!!!

Any questions??????