From Legacy to Cutting-Edge: Overcoming Challenges in Credit Union Lending with Tech Solutions 

By Don Hoegg, Jr., Fintech Writer

Mergers and acquisitions, accompanied by lending-oriented growth strategies, have been a boon for credit unions in recent years. As credit unions continue to evolve, they can leverage cutting-edge technology to roll out the red carpet for borrowers like never before — for new and long-time members alike. 

Consolidations have reduced the number of credit unions by about 25% over the past 10 years. This has coincided with a doubling in assets under management (AUM) over the same period. Increased auto lending, including third-party lending, in particular, has fuelled credit union growth, reflecting an expansion beyond simple deposit products. By some metrics, credit unions collectively account for the largest share of auto loan originations in the country, making it imperative that they have the same caliber of technology leveraged by corporate lenders. 

Outdated processes threaten credit unions’ gains 

Still, members continue to expect a quality user experience, and those who approach credit unions as third-party borrowers may have even higher expectations. Because they do not have the years-long attachment that more established members do, they are more willing to abandon the relationship in favor of another lender. Additionally, they tend to be younger than the average member and, accordingly, more demanding of an all-digital experience. 

Offering a user experience that can retain current members and attract new ones, particularly in the loan application process, is one of the critical focuses of credit union leaders.  

Despite this, many lenders still rely on legacy methods in carrying out basic steps in the loan approval process, such as verifying applicant income. Requesting tax records or pay stubs introduces what is often an unnecessary hurdle, sometimes leading applicants to abandon the process altogether. (In any case, these documents prove exceptionally easy to fabricate, limiting their utility in preventing fraud.) 

The right technology offers credit unions an alternative to the old way of verifying income 

In some form, there will always be a need to validate an applicant’s income, employment history, and other parts of their financial identity. However, technology can empower financial institutions to take a low-touch approach. Before lenders escalate to requesting user-submitted documents, third-party income verification services providing expert-informed, AI-powered solutions can take a first pass. By referencing ever-expanding repositories of employment and income data, these solutions can validate when an applicant’s reported income aligns with expected income with remarkable accuracy.  

If there are scant records on an individual applicant, machine learning algorithms provide a second level of verification services. These approximate an applicant’s financial situation by modeling comparable cases and then determines if the stated income is realistic for the applicant’s stated job title, location, and work history. 

While many financial institutions have long used some type of financial modeling, advances in AI can deliver a new level of precision, allowing underwriters to inform their decisions with synthesized, intelligent data. The right solutions can greenlight up to 80 percent of applicants without costly and time-consuming manual intervention. For the remaining cases, applicants simply go through the traditional income verification process. 

A stress-free, hands-off experience for credit union members 

By adopting AI-powered solutions to streamline the loan approval process, credit unions can offer their members a faster, more accurate, and stress-free loan application experience. With the help of cutting-edge technology, credit unions can now compete with traditional lenders and provide their members with top-notch services while keeping the costs and time investment to a minimum. The use of AI in the loan application process enables credit unions to meet the increasingly high expectations of younger members who demand a fully digital experience. In turn, credit unions can see a higher look-to-book rate  

Ultimately, the integration of intelligent data and automation in the loan approval process will help credit unions retain existing members and attract new ones, thus ensuring their continued growth and success.

To learn more about how Point Predictive solutions can help credit unions and other lenders mitigate these risks, please contact us.