When we launched Clutch in 2020, we benefited from the strongest tailwinds we could've imagined ... and didn't even realize!
Due to COVID lockdowns, retail businesses had to close their branches. At the same time, interest rates dropped to an all-time low and consumers received stimulus checks to fuel the economy. Credit Unions had to find ways to serve their Members digitally and had to lend out their deposits to not fall below critical loan-to-share thresholds.
We launched Clutch to help Credit Unions lend digitally and more effectively. Thanks to - amongst others - these tailwinds, we managed to grow from 1 to close to 100 Credit Union partnerships in less than two years. We could've stopped there.
Instead of stopping, we got all hands on deck and enhanced our platform to also support Credit Unions on the deposit side of the house. As the economy swings the opposite direction, our goal is to help Credit Unions with their strategic goal to raise deposits and find liquidity. We are unifying the experience of applicant onboarding - whether the applicant joins through lending or through deposits.
The article below will dive into our new Digital Account Opening (POS) offering and how we helped one of our clients raise $10M in deposits in less than a week.
Digital Transformation in the Credit Union Industry
The financial industry is rapidly evolving and Credit Unions are facing new challenges. To stay relevant, Credit Unions have to modernize their member and employee experiences and leverage technology to remove friction and automate processes.
However, the prevalent Credit Union technology stack puts the non-profits at a "digital handicap" compared to new market entrants and direct-to-consumer FinTech lenders. As a result, Credit Unions are facing a decline in member retention, a decrease in wallet share among existing members, and an increase in member acquisition costs.
Depending on the economic cycle, the "digital handicap" manifests itself in rapidly changing priorities:
In 2021 / 2022, the Credit Unions' main strategic goal was to find ways to lend more money and give more loansIn 2022 / 2023, Credit Unions started facing a liquidity crisis and the main strategic goal has shifted to finding ways to raise deposits
The inability to tap into the most effective - mostly API-based - consumer acquisition channels (e.g. Credit Karma and the general Silicon Valley based FinTech ecosystem) combined with the lack of frictionless and automated account opening and lending processes resulted in Credit Unions losing market share to direct-to-consumer FinTech lenders:
To overcome this challenge, Credit Unions have to seek relationships with partners who can work within the constraints of existing systems and who at the same time can deliver modern and seamless experiences for consumers and staff.
With our laser-focus on turning Credit Unions into FinTechs, we are uniquely positioned to become the best possible partner to help Credit Unions succeed in their digital transformation.
Deposits and Credit - Two Sides of the Same Coin
Consumers join Credit Unions for a number of reasons and at different times in their lives. The main drivers, however, remain constant: consumers are either "Deposit Seeking" or "Credit Seeking".
Deposit Seeking Account Openings
"Deposit Seeking" consumers are looking for a bank account, savings or investment product. Traditionally, consumers were used to visit a branch to open an account. Since Credit Unions are tax-exempt nonprofits, consumers will benefit from higher yields on their savings compared to comparable products at commercial banks.
The rise of direct-to-consumer FinTech lenders and COVID lockdowns created urgency for Credit Unions to re-think the branch-centric account opening process.
When opening an account, the Credit Union has to fulfill three tasks:
Collect personal information from the consumerVerify the consumer's identity and check for fraudCreate an account in the Credit Union's Core Processing Platform
Credit Seeking Account Openings
"Credit Seeking" consumers are looking for a loan or credit card. Traditionally, consumers were used to visit a branch to borrow money. While at the branch, Credit Union employees explained to consumers why the process of getting a loan requires consumers to also open a share account. After all, the member becomes part owner of the Credit Union.
The rise of direct-to-consumer FinTech lenders and COVID lockdowns created urgency for Credit Unions to also re-think the branch-centric loan origination process.
When getting a loan, the Credit Union has to fulfill five tasks:
Collect personal information from the consumer
Underwrite the consumer loan
Verify the consumer's identity and check for fraud
Create an account in the Credit Union's Core Processing Platform
Fund the loan in the Credit Union's Core Processing Platform
Most Members Join for a Loan
Some of our largest Credit Union partners ($8Bn+) did a series of studies on the origination of their accounts from 2015 - 2022. The chart below illustrates the findings of this study:
“Deposit Seeking” account opening in dark gray, denoted by “Membership”.
“Credit Seeking” account opening in red plus light gray, denoted by “Loans” and “Both Member and Loan”.
Lending products motivate over 80% of new account openings while less than 20% of members joined the Credit Union for a deposit offering.
From a digital experience perspective, however, it doesn't really matter why a member joins a Credit Union. Even if a consumer is "just" looking for a loan, the digital loan experience still needs to enable a new Member to open an account.
User Pain Points from Existing Solutions
Most of the Credit Unions technology stack was originally imagined in the mid-1990s. Back then, the challenge was turning paper forms into digital copies. A lot of the legacy “mindset” can still be viewed today in the consumer-facing experience with lengthy forms that don't lead to good user experiences:
As a result, Credit Unions are left with a “digital handicap”. All of the legacy software solutions have significant shortcomings and none of them provides feature-rich, intuitive, and engaging digital experiences that enable Credit Unions to adequately compete with true digital lenders.
Clutch Loan Application POS
To date, Clutch has shaken up the Credit Union industry with its frictionless loan application Point of Sale (POS) experience. After Chris Coleman and Nicholas Hinrichsen left Carvana - who had acquired their previous company in 2017 - the founders set out on their mission to turn Credit Unions into FinTechs.
Through enabling Credit Unions with cutting edge digital experiences, Clutch has demonstrated to drive direct loan growth, boost profitability, increase share of wallet and reduce the cost to produce a loan. The platform does three things very well:
Minimize the Time to Offer (TTO): the Clutch portal shows applicants Credit Union loan offers in less than 3 clicks. To do so, Clutch leverages 100s of third party data sources that remove friction from the application process, obtains terms from cloud-based decision engines (e.g. Zest Ai, Synaptic, Experian Powercurve) and minimizes user inputs required to present loan offers. As a result, pull-through increases and days-to-fund improves.
David Germann - CLO of Credit Union of America - would attest to these drivers:
“You have moved the dial so much, we increased traffic conversion by 136% and decreased abandonment by 22.7%.”
Become the World’s Most Helpful Loan Officer: a good loan officer will make an application easy. A great loan officer will look at your credit report and infer if there are means to save money on your existing debt. The Clutch portal automatically analyzes the entirety of an applicant’s debt and credit circumstances and makes it easy to act on other opportunities. As a result, the Credit Union increases share of wallet on every applicant.
Mia Lao - VP of Consumer Lending of Wings Financial - would explain:
"North of 15% of our credit card applicants submit a refinance application. We’re already seeing the lift and we’re barely scratching the surface.”
Generates Non-Interest Income and Provides and E2E Digital Process: when in the consumer's best interest, the Clutch portal automatically checks for eligibility of debt protection products and quotes those in session. On automatically approved loan decisions, applicants can even sign their loan documents online and without ever talking to a loan officer. As a result, the Credit Union increases its non-interest income while providing a FinTech-like user experience that drives look-to-book.
Caleb Cook - SVP Consumer lending of Digital Federal Credit Union - would summarize their results the following way:
"We increased Look-To-Book from 46% to 81% and decreased time-to-fund from 7 to 1.5 days on approved member auto refinance applications."
Credit Unions who are using MeridianLink, Allegro, Temenos or Sync1 as their Loan Origination Systems (LOS) can already benefit from the Clutch portal. Clutch leverages the experiences you and your staff love about your existing LOS and enable a premium consumer experience on top of the LOS.
For a new Member, however, the Clutch portal had always been missing a critical piece: the process of getting a loan requires consumers to also open a share account. The process of handing-off a loan application to the Credit Union's existing membership application had so far been "unfortunate":
Caleb Cook - SVP Consumer lending of Digital Federal Credit Union - explained to a prospective Clutch client in a reference call:
"Clutch has become the foundation of our efforts to become the best consumer lender in the country."
Any digital lending product will also need to handle digital Account Opening. We are therefore extremely proud to announce that we've successfully launched the Clutch Account Opening POS, which integrates with your existing Account Opening Platforms - e.g. MeridianLink, Narmi, Mantl or FiVision.
Clutch Account Opening POS
When doing discovery work on the account opening process, we noticed a large overlap with the loan application. Both a loan as well as a new account require the Credit Union to:
Collect personal information from the consumerVerify the consumer's identity and check for fraudCreate an account in the Credit Union's Core Processing Platform
Clutch's core competence is to remove friction from consumer experiences and leverage third party data to obtain personal consumer information. Lastly, our partners FiVision, Mantl, Narmi and MeridianLink have already built the connections to the Core Processing Platforms.
We always refer to ourselves as the "Switzerland" in the Credit Union technology stack. I.e. we will support the Credit Union with their partner of choice.
The following animation demonstrates the Clutch Account Opening POS user journey:
We allow consumers to choose from a set of deposit products. These products are fully configurable by the Credit Union and we support all consumer deposit options.
Once the deposit product is selected, we kick off the frictionless application experience Clutch is known for.
From the consumer's phone number and last 4 of SSN, we can pre-fill the personal information without requiring any additional user inputs.
If the consumer lives in a ZIP code that falls into the Credit Union's field of membership, the portal doesn't require any additional membership related inputs.
Clutch Product Offering and Integration Partners
As a young and fast growing startup, focusing on the DNA of your business and core competencies is absolute key to success. In our role as the Point of Sale (POS) experience provider, we naturally interact with a number of other offerings:
Credit Bureaus
Cloud-based Credit Decisioning
Ancillary Product Providers
Loan Origination System (LOS) Providers
ID verification & fraud detection
Account Opening Solutions
Online and Mobile Banking Providers
Communication Platform Providers
We always refer to ourselves as the "Switzerland" in the Credit Union technology stack. I.e. we will support the Credit Union with their partner of choice. Going into all our 100+ partnerships would go beyond the scope of this article. The following chapter therefore focuses on the account opening related integrations:
ID verification & fraud detection
There is a vast array of fraud detection and identity verification services, e.g. Experian CrossCore, LexisNexis ThreatMetrics, and ChexSystems just to name a few. However, the most important element must not be an integration with one or the other fraud detection tool.
Fraud evolves quickly and Credit Unions cannot rely on just one single integration to one single fraud detection tool for the foreseeable future. Instead, Credit Unions requires a product that provides agility and flexibility even for non-technical users. They need a tool that allows non- software engineers to constantly tweak fraud detection and identity verification efforts.
As part of the Account Opening solution, we therefore partner with providers who share the same ID verification & fraud detection vision. Brett Christensen - CLO of America First Credit Union - would describe our partnership the following way:
"Clutch is our core digital technology for consumer lending and new member acquisition."
Account Opening Solutions
Thankfully, our partners - such as MeridianLink, FiVision, Mantl and Narmi - have already figured out the the connection to the Core processors:
ability to create member records
ability to create deposit account records
ability to create loan records
Most digital account opening providers only have the ability to create member and deposit account records. Their products don’t usually require the ability to create loan records.
In our truly collaborative nature, Clutch therefore partners with an array of solutions that jointly provide the necessary feature-set for a FinTech-like account opening and lending experience for Credit Unions. Matt Kaudy - Chief Growth Officer of EECU - would explain our relationship the following way:
"Clutch is our favorite partner because they’re quick and flexible and help us on our journey to become the Credit Unions for FinTechs.”
Close to 100 Votes of Confidence, and Rapidly Growing
Our team has grown to nearly 100 employees and yet, only one Clutchie has ever worked at a Credit Union. Most successful Silicon Valley startups have demonstrated that an unbiased, fresh set of eyes is often most effective at changing an industry. None of our team members has the "curve of knowledge" and risks limiting ideas to how things have "always been done" in the Credit Union space.
Limited knowledge of how Credit Unions operate, however, often presents challenges in product development. Like Donald Rumsfeld said:
"We know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns—the ones we don't know we don't know."
If it wasn't for our close to 100 Credit Union clients who constantly provide feedback to us and who are the best development partners we can ask for, we wouldn't ever know about the unknown unknowns.
We therefore want to conclude this article with a huge "Thank You!" to all our clients, their vote of confidence, their friendships and their commitment to the Credit Union movement.
In a recent comment on LinkedIn, Jeff Harper - CLO of Orange County Credit Union - mentioned publicly:
"We reprioritized many projects to make this happen and I’m so glad we did. Onboarding was so easy with you guys and our members love the new digital experience.”
If your Credit Union is currently thinking through your digital transformation, let us know and we'll help in whatever shape or form useful to your institution!