Lending Strategies 2.0 Carolinas Credit Union League 2015 Leadership Conference October 22, 2015
WHAT DOES THE FUTURE HOLD?
CUES - Scenarios for Credit Unions through 2020
Two Uncertainties/Four Scenarios The strength of the US credit union system The financial services landscape http://www.cues.org/professional-development/library/research/view/id/75
Strategic Considerations What will the financial services landscape look like through 2020? 1. Who will be our competitors? 2. For which demographics/markets will we compete? 3. What loan products will be in great demand? 4. What is the state of the economy, and how will that impact loan growth and credit union profitability? 5. What role will scale and technology play?
COMPETITION
Competition Deep pocketed technology leaders Banking alternatives Retailers Payday lenders
Competition 321 Carolina Walmart locations - Compared to 931 CU branches
Competition
CHANGING DEMOGRAPHICS
Changing Demographics Hispanic Millennial Credit challenged Technology friendly
Growing Young Demographic NC 9% (890K consumers) SC 6% (27K consumers) Median age is 22 Overlooked by Mainstream financial institutions Only fully served by AFS predatory services. As of 2014, the Latino population in the United States has reached 53 million, and is projected to reach 86 million by 2030, and 133 million by 2050.
Technology Adoption Hispanic consumers are tech trendsetters domestically Hispanics continue to outpace non- Hispanics with the adoption of smartphones Hispanic consumers have taken the smartphone adoption a step further by using them to research and make purchases more than non-hispanic consumers in every category. Hispanics are more likely to use social, mobile, and online content as resources.
Overcoming Barriers of Trust Understand that conventional banking (as we know it) may not be part of the traditional Hispanic upbringing. Build trust and credibility by offering culturallyrelevant and language-appropriate products and services and back it up with bilingual/bicultural staff Accept ITIN for new accounts and loans. It s also important to show genuine concern for the community HIRE THEM
Who are the Millennials? The Pew Research Center defined "adult Millennials" as those who are 18 to 33 years old, born 1981 1996. According to Pew, "Millennials are detached from institutions and networked with friends. Have higher levels of student loan debt and unemployment.
Financial Services Millennials Want Convenience ATM Shared branches Mobile app Remote deposit capture Alternative Financial Services (AFS) Check cashing Payday loans Buy here, pay here Prepaid cards
What the Heck?!? According to Think Finance 92% report using a bank 45% have supplemented banking activities with some form of AFS within the past year Identify the products as more convenient (42%) Lower or more predictable fees (31%) The products generally better meet their needs (30%). They were satisfied with their experience when using AFS and consider them important financial tools.
Opportunities for Credit Unions Connect with Millennials Help members establish/improve credit for future loans Create loyalty Fee income
Credit Challenged According to the 2014 CFED Assets and Opportunity Scorecard. 57.7% of NC and 63.6% of SC consumers have sub-prime credit
LOAN PRODUCT DEMAND
Loan Product Demand Saturated markets Alternative Products Access
Traditional Markets are Saturated Prime lending Indirect lending Branch footprints Loan products Business loans Mortgage loans Credit cards Personal loans
Alternative Loan Products 45 40 35 30 25 20 15 10 5 0 $20.5 B Refund Anticipation -Loan Refund Anticipation - Check Deposit Advance Internet Payday Pawns Payday loans Overdraft Auto Title Loan Secured Credit Card Subprime Credit Card Installment Loan Rent to Own Subprime auto loans $41.0 B $8.9 B Money Orders Walk-in Bill Pay Payroll Card Prepaid Card Check cashing Card Remittance s Deposits 5% Payments 11% $3.8 B Savings Accts Checking Accts Other 5% Short-Term Credit 53% Very Short-Term Credit 26% $3.8 B Debt Settlement Tax Preparation
Access Affordable access to credit will grow in demand Increasing lower to moderate income populations Large underserved minority communities Sub-prime credit majority First time auto and home buyer for Millennials Increased access to small business lending More CU s gain scale and enter market Take advantage of LID Advocacy wins MBL cap battle
SCALE
Scale and the ability to compete There will be a Race to reach scale Credit unions must grow 74% of Carolina CU s are small. Low operating cost creates a pricing advantage Must be able to keep up quickly with rapidly changing technology Access to product Access to underserved and emerging markets Human resources with relevant skills and aptitude Attitude to accept change and compete Cooperation
BEST PRACTICES
Best Practices #1 Greater Abbeville FCU $15.0 million assets Abbeville, SC 1 Branch Auto lending Risked based lending Financial education 2 nd Chance Checking
Best Practice Greater Abbeville FCU as of June 2015 5 Year Average GAFCU CUNA Net Worth 15.30 10.50 ROA 2.12 0.46 Asset Growth 9.10 6.00 Share Growth 7.99 6.40 Membership Growth 7.33 1.30 Loan Growth 11.96 3.00 Loan-to-Share 85.00 76.90 Delinquency 1.55 1.50 Charge Off 0.63 0.92 Source: CUNA Credit Union Forecast and CU 5300
Best Practices #2 Latino Community $196 million assets Durham, NC 10 Branches Latino Community Development Center Extensive partnerships Credit union collaboration Financial education Micro small business loans Affordable housing program Investors/Funders
Best Practice Latino Community CU as of June 2015 5 Year Average LCCU CUNA Net Worth 10.60 10.50 ROA 2.36 0.46 Asset Growth 19.31 6.00 Share Growth 20.81 6.40 Membership Growth 0.86 1.30 Loan Growth 19.25 3.00 Loan-to-Share 91.67 76.90 Delinquency 2.14 1.50 Charge Off 0.28 0.92 Source: CUNA Credit Union Forecast and CU 5300
Thank You! Scott Butterfield, CUDE, CUCE, CCUE Your Credit Union Partner 253-507-2443 Scott@yourcreditunionpartner.com www.yourcreditunionpartner.com