The 2017 strategic planning season is ending. During the year, we facilitated dozens of strategic-planning sessions with credit unions of all shapes and sizes: small and large, rural and urban, community and single-sponsor charters. We were exposed to a wide range of unique credit union opportunities and challenges. We also took note of several reoccurring themes. The most common? Credit union desire to focus LESS on indirect member and loan growth and MORE on direct member and loan growth strategies.
The reason for less indirect, more direct
We heard many leaders of large credit unions say they intend to pull back (but not stop) indirect lending during the coming year. Common reasons for the shift in strategy include:
- Seeing lower indirect portfolio profitability
- Reducing indirect loan concentration risk
- Avoiding high and increasing indirect loan-to-collateral values
- Challenges of cross-selling other products and services to indirect members
- Stiff competition for indirect loan purchases, including a growing number of out-of-market paper buyers
It makes sense that these credit union leaders want to attract new members and borrowers who are more likely to use additional products and services. They want to build meaningful relationships and they want to earn higher interest yields from other types of loans.
Given the chance, most credit union leaders would increase their pursuit of direct member and borrower growth if they believed they could be consistently successful. So what are the keys to success?
Three tools for your direct growth play
Besides facilitation, our clients ask us to come prepared with ideas on how they might better achieve their strategic goals.
The following are three specific strategies we shared during the year specifically focused on member and borrower growth.
It starts with the right prescreen approach. Leverage prescreen tools to qualify and segment your potential member/borrower list according to your own unique criteria, zeroing in on those individuals most likely to respond to your offers. First, gather the internal intel you need based on your most profitable members/borrowers. Once you have a good understanding of the characteristics that make up your most profitable members, work with your credit provider to leverage that intel to identify new potential members/borrowers located within your field of membership. This isn’t a one-and-done strategy. Credit unions that are consistently successful will tell you that success comes from adjusting, testing, and monitoring criteria to find the best approach. For those of you concerned with the cost associated with regular prescreen marketing activities, consider the high dealer reserve cost associated with indirect loan purchases. Once perfected, the cost per new member could actually be a lot less than indirect. Another word on prescreening: if you’ve tried before and been less than successful, don’t give up! Work with your data provider to dig deeper, and consider the hundreds (thousands) of potential criteria that might lead to success. Ask your data provider to give you specific credit union best practices to consider. DON’T, just buy a standard prescreen. My experience is that they rarely generate the response you’re looking for.
Anticipate who is “In the Market.” Utilize “In the Market” models to identify members/borrowers who will be in the market for a specific type of product in the next one to four months. Add an extra layer of data analytics to focus your time and money on consumers who need a financial product now, or in the near future. Propensity models and estimated interest rates are great tools for identifying consumers most likely to respond. Who doesn’t want a lower interest rate, or to be delivered the right credit offer when shopping for an auto, personal, or home loan?
Determine which individuals are open to a deeper relationship with a credit union. Focus your marketing efforts on consumers most likely to open a credit union account versus a bank account. Experian has recently developed “Relationship Clusters” that assist credit unions in filtering potential members/borrowers who have a greater propensity to select a credit union over a bank. The cluster filter can be applied over most credit union products, and it increases the likelihood of targeting consumers open to credit unions product offerings. Initial results are remarkable, with triple-digit increases in consumer response rates based on these clusters.
“By listening to our clients, we’ve researched and proven a way for credit unions to layer a variable into these efforts of helping them identify who is most likely to do business with a credit union,” said Marshall Abercrombie, Experian strategic account executive. “This type of tool is often referred to as a net-down tool where credit unions can drill down on a list of names that pass their criteria when making decisions before they advertise. Ultimately, this tool impacts the overall campaign performance by improving response rates while reducing unnecessary marketing spend.”
Why it matters
I’m not opposed to successful indirect auto-loan programs. I believe they are an important part of our growth and service strategies. I have managed several successful portfolios myself. However, indirect lending does come with the challenges that have been expressed in this article. There are many credit unions that simply could not grow members or loans without their indirect channel. I always ask credit union leaders in this situation for their plan B. How will they survive if they are no longer able to compete in the indirect market? All credit unions need to have the ability to directly attract new members and borrowers to achieve long-term relevance and sustainability. The good news is there are a lot of credit unions that excel at direct-channel growth, and we can all learn from them.
We operate in an intensely competitive world. To consistently win, we must find the right members, with the right product, at the right price, with the right delivery channel – before anyone else does. Leverage quality data and intel to help you find the right members and ensure your place in the market.