Tag: personal loan

Credit cards are the most widely available credit products offered to millions of consumers today. For many consumers, owning a credit card is a relatively simple step toward establishing credit history and obtaining access to other lending products later in life. For credit unions, offering a credit card to members expands and enriches the credit relationship. In today’s environment, some credit unions don’t view credit cards as an integral part of their member service. I propose that the benefits of credit cards in a credit union portfolio are impactful, meaningful and fully align to member outreach and community service. A high-level review of risk-adjusted yields across three of the most common retail products offered by credit unions show that credit cards can be very profitable. The average APR of credit cards as of Q3 2020 is just slightly below personal loans. While charge-offs as a percentage of balances are more than double of personal loans, the estimated risk-adjusted yield is still elevated and is 1.8 times higher than auto loan and leases. See Table 1. Table 1. Estimated average risk-adjusted yield for auto loan and lease, personal loan, and credit card for credit unions Auto loan and lease Personal loan Credit card Average APR 5.21% 12.05% 11.26% Charge-offs as % of balances (annualized) 0.28% 0.89% 1.98% Risk-adjusted yield 4.93% 11.16% 9.28% Notes: Average APR of auto loans and leases, personal loans, and charge-off information as of Q3 2020 was extracted from Experian-Oliver Wyman IntelliViewSM Market Intelligence Reports. IntelliView Market Intelligence Reports, Dec. 22, 2020, experian.com/decision-analytics/market-intelligence/intelliview. Average APR of credit card as of Q3 2020 was extracted from National Credit Union Administration website. Credit Union and Bank Rates 2020 Q3, Dec. 22, 2020, https://www.ncua.gov/analysis/cuso-economic-data/credit-union-bank-rates/credit-union-and-bank-rates-2020-q3. Estimated risk-adjusted yield is calculated as the difference between average APR and charge-offs. A profitable retail product allows a credit union to share those profits back with members consistent with its mission of promoting and supporting the financial health and well-being of its members. Credit cards provide diversification of income streams. Income diversification provides a level of stability across cyclical economic conditions when some types of credit exposures may perform poorly, while others may be more stable. When combined with sound and effective risk governance, credit diversification allows lenders to mitigate levels of concentration risks in their aggregate portfolio. Offering credit cards to members is one avenue to grow loan volume and achieve scale that’s sufficiently manageable for credit unions. Scale is particularly important today as it’s needed to fund technology investments. The pandemic accelerated the massive movement toward digital engagement, and scale makes technology investments more cost-effective.  When lenders become more productive and efficient, they further lower the cost of credit products to members. (Stovall, Nathan. Dec. 14, 2020. Desire to compete with megabanks driving more U.S. regional bank M&A — KBW CE blog. https://platform.mi.spglobal.com/web/client?auth=inherit#news/.) The barriers to offering credit cards have moderately declined. Technology partners, payment processors and specialized industry companies are available in the marketplace. The biggest challenge for credit unions and lenders is credit risk management. To be profitable and to stay relevant, credit cards require a relatively sophisticated risk management framework of underwriting criteria, pricing, credit line management, operations and marketing. Industry and specialized support for launching and managing credit cards is widely available and accessible. Analytics play an essential role in managing credit cards. With an average active life of approximately five years, credit card portfolios need regular and periodic performance reviews to manage inherent risk and to identify opportunities for growth and profitability. Account management for credit cards is equally as important as underwriting. Credit line management, authorization, activation and retention have significant impact to the performance of existing accounts. Continuous engagement with members is critical and has taken on a new meaning lately. Credit cards provide an opportunity to engage members, to grow lending relationships and to support financial well-being. Marketing and meaningful card offers drive card usage and relevance. They’re critical components in customer communication and service. The benefits of credit cards contribute positively to a credit union portfolio. With sound and effective risk management practices, credit cards are profitable, help diversify income streams, grow loan volume and support member credit needs.

Fintechs take on banks, technology, and finance as we know It. In the credit space, their reputation as a market disruptor precedes their definition. But now, as they infiltrate headlines and traditional finance as many know it – serving up consumer-centric, convenience-touting, access-for-all online marketplace lending – fintechs aren’t just becoming a mainstay within the financial spectrum’s vernacular. With their increasing foothold in the marketplace, they are here and they are gaining momentum. Since their initial entry to the marketplace in 2006, these technology-driven online platforms flaunt big data, actionable analytics and originations growing at exponential rates. Fintechs hang their hats on their ability to be the “anti-bank” of sorts. The brainchild of finance plus technology, their brands promise simple but powerful deliverables – all centered on innovation. And they market themselves as filling in the gaps commonly accepted as standard practices by traditional financial institutions. Think paperwork, less-than-instant turnaround times, a history of unwavering tradition, etc. Fintechs deliver a one-two punch, serving the marketplace as both lending companies and technology gurus – two pieces that financial institutions want and consumers crave. Now, as they grow more prominent within the marketplace, some are starting to pivot to test strategic partnerships and bring their strengths – technological infrastructure, speed and agility – to credit unions and other traditional financial institutions. According to the World FinTech Report 2018, 75.5% of fintechs surveyed want to collaborate with traditional financial services firms. The challenge, is that both fintechs and traditional financial institutions struggle with finding the right partners, efficiently working together and effectively scaling innovation. From competitors to collaborators, how can fintechs and traditional institutions strike a partnership balance? A recent report sponsored by Experian and conducted by the Filene Research Institute, explores this conundrum by examining the experiences of six financial institutions – some fintechs and some traditional FIs – as they seek to collaborate under the common goal of better serving customers. The results offer up key ingredients for fostering a successful collaboration between fintechs and traditional financial institutions – to generate real impact to the customer experience and the bottom-line. Rest assured, that in the fast-moving, disruptive world of fintech, effective partnerships such as these will continue to push boundaries and redefine the evolving financial services marketplace. Learn More About Online Marketplace Lending Download the Filene Report

The holidays are behind us, the presents are unwrapped, resolutions have been made and may already be broken. For many, it’s the most depressing time of the year as the reality of holiday spending settles in. According to the American Consumer Credit Council the average American spends $935 on gifts each holiday season. A recent report by Mintel showed the average consumer held $16,000 in debt at the end of 2015. Now is the time to reach out to consumers who may be suffering from a financial hangover; an Experian study revealed consumers typically look to personal loans for help with credit card debt in the second quarter of each year. What’s the best way to reach these consumers? Direct mail is still one of the most successful paths. Here are four keys to securing new personal loan customers via direct mail marketing: Focus on education: Some of the most successful direct mail campaigns for personal loans in 2015 focused on educating consumers about personal loans first, and then showing options for debt consolidation. Consumers are weary of trusting new lenders, according to Mintel, with 50% viewing them as riskier than banks and credit unions. Marketplace and online lenders should take the extra step of introducing their brand and showing their product as a safe option. Highlight the use of the loan: Consumers generally have a negative attitude toward debt, with 72% feeling uncomfortable holding any type of debt. Stressing that personal loans are a responsible tool for consolidating debt is critical. Some effective campaigns listed the top three reasons to choose a personal loan, while others used customer testimonials to show how a personal loan was used and how they benefited. Provide a competitive comparison: Another way to highlight the benefits of personal loans is by comparing the fixed rates and payments of a personal loan to credit cards. Many consumers consolidate credit card debt to one card immediately after the holidays, according to the Experian study. Simply showing the long-term benefit of a personal loan versus credit card is often enough to trigger action. Personalize the offer: Lenders are delivering more personal, relevant offers that are tailored to the interests of each recipient through the use of the latest personalization technology. For example, highlight the recipient’s specific qualifying loan amount or the qualifying loan rate for which they are eligible. Unsecured loans have experienced growing popularity in the last several years, and originations are poised for a seasonal peak in the coming months. Are you ready?