How well are your lending products serving your Credit Unions's Members?
For many Credit Unions, the answer is ambiguous or unclear at best. How do you even track and measure this? While answering this broad question requires a deeper discussion, we believe there are two good metrics for understanding overall lending performance:
In this study below, we examined the share of wallet for various loan product categories, and then examined % of Members who could be better served by a Credit Union product.
What share of wallet do Credit Unions typically capture of their Members?
We work with over 17+ Credit Unions with a combined 2.5 million Membership base and utilize soft pull data from over 9,000 applicants to see share of wallet among various common products.
A summary of these findings is below:
When looking at debt categories, we get an idea of what percentage of Members have a particular type of debt. Within these credit files we see nearly all Members have a credit card or auto loan. Furthermore, roughly ⅓ of Members have a mortgage, student loan, or unsecured loan.
If we look at the average “debt” per Member, this picture looks substantially different, as illustrated below. It should be noted that mortgage debt varies highly by geographic location (so a California based Member often has much higher mortgage balance than a Kansas based Member for example).
Here we can see, while debt categories vary dramatically, the average Credit Union Member has $139k in debt, and has a variety of product mixes. If we start to examine what “share of wallet” the Credit Union captures of this debt, the results are equally surprising.
At peak, the average Credit Union has just 21.8% of a given debt category (auto loans). Penetration in unsecured loans and credit cards are even lower. Why are Members not using your debt products?
In what % of cases could Credit Unions offer a better product?
There can be a host of reasons why Credit Unions don’t capture 100% share of Member debt. Low credit scores, previous delinquencies, subsidized 0% APR auto loans are all great examples. The next obvious question is “How many of these underserved Members would have a better loan product from a partner Credit Union?” Or in other words, what are the Credit Union's missed opportunities?
Using the soft-pull credit scores, we analyzed what % of Members would reduce their auto loan rates had they switched to Credit Union loans (we used decisioning from a 100k+ Member Credit Union as a reference). We also limited the sample to FICO scores 640 and above (more typical of Credit Union lending standards).
In this analysis, 45.5% of Members with FICO scores above 640 would be saving on their existing auto loans. Even if we limit savings to more than 3% APR, still 22% of Members would significantly save by refinancing their auto loans with a Credit Union loan. These efforts alone would triple the share of wallet of auto loans for existing Members.
Similarly, the situation is even more extreme for personal loans: over 32% of Members with a FICO score above 640 would save by moving to a Credit Union product. This would quadruple the current share of wallet in personal lending. The interest savings are even more pronounced for personal lending, as over 10.7% of Members would be saving more than 9.75% APR on these personal loans.
In the case of personal loans, over 32% of Members with a FICO score > 640 would save by moving to a Credit Union product. This would quadruple the current share of wallet in personal lending. The interest savings are even more pronounced for personal lending, as over 10.7% of Members would be saving more than 9.75% APR on these personal loans.
What does this mean for my Credit Union?
This data implies there’s no shortage of additional lending opportunities for Credit Unions within their own Membership. We believe there’s two fundamental questions Credit Unions should ask to further determine the right strategy:
1. Why is my Credit Union losing out in the first place?
2. How can I recapture debt that I’ve already lost out on?
Our next piece will examine strategies and products for both. And as always, if you’d like to discuss potential solutions and how digitized lending experiences can help, feel free to reach us out at firstname.lastname@example.org.
Please note this sample is not random, but a self-selecting sample who “applied for loan” so these Members are likely to be more credit-reliant than non-applicants.