Developing A New Growth Channel Through Point Of Sale Financing
In 2015 we have continued to see positive loan growth in many areas. That said, we all know that loan growth can be heavily tied to, among other things, economic, regional, and seasonal factors that aren’t always in our control. Because of this, many credit unions have identified the need to diversify their portfolios, seek out higher yielding loan opportunities where possible, and identify areas where they can provide new loan options to members and businesses in their local communities. Diversity is key to maintaining a healthy credit union lending ecosystem
One way to diversify, reduce concentration risk, and increase profitability is to expand your business to new frontiers with retail lending. The growing retail lending marketplace provides credit unions with a key new growth channel that focuses on unmet consumer needs. New opportunities exist for point of sale consumer lending in high-end retail and medical services that can help distinguish local credit unions from large, universal banks.
Recent research findings from Filene and CU Direct on point of sale financing (POSF) — financing at the point of sale for large consumer purchases — revealed that the potential size of this market is estimated at $391 billion annually, or approximately 3.5% of annual consumer spending. Health care, electronics and home goods, such as major home appliances and furniture, lead a long list of spending categories.
Point of sale financing provides credit unions with a good opportunity to offer members a more affordable alternative to high-rate financing offered by banks and payday loans. By adding POS retail and medical financing and credit to their menu of products and services, credit unions have an ideal opportunity to increase their value to members, expand their customer base and increase opportunities for cross-selling. Credit union members, and new customers alike, get trusted financing from a local source at competitive rates, while building new relationships they can depend on for future financing.
An indirect loan service helps retailers and providers increase sales, improve marketing outreach to the local community, as well as improve satisfaction and strengthen relationships with existing customers. By partnering with credit unions, they gain access to thousands of potential new customers, and eliminate the need to provide lay-away plans or in-house financing.
As credit unions explore this opportunity, there are a few key items to consider that will greatly increase the likelihood of success in the POSF retail and medical marketplace:
Assign Dedicate Staff
Many organizations may not have the ability to hire a person solely for retail/medical lending. However, if you are able to dedicate portions of a staff member’s time to research, visit, and build or maintain relationships, the likelihood for success in this lending space is much greater.
Automate Loan Decisions
To run a competitive program and provide the merchants the service level they need, you must consider automated loan decisions in your retail and medical loan program. The larger banks that compete in this space provide nearly 100% automated underwriting. Though providing 100% auto decisions is not likely needed to be competitive in this space, the more automation you can provide, and the quicker you can respond with loan decisions, the better.
Do Your Homework
Identify the types of businesses in your area that have a need for additional financing options for their customers. Are there are certain markets you can tap into based on the region you live in? Solar, HVAC, water treatment, veterinary, cosmetic surgery are some examples that may be more regionally based than others. You will need to know how those markets work and what it takes to be successful and competitive in those areas. Look for those areas with a need and study what types of loan options and programs are offered in those spaces. Credit unions can gain a strong pipeline of loan opportunities if you take the time to learn specific business lines, become knowledgeable in that space, and identify what their lending needs are.
The Bottom Line
There is a real opportunity for credit unions to offer yet another great option to their membership and community through building successful retail and medical loan programs.
Point of sale financing provides a tremendous opportunity to grow loans and diversify portfolios through a virtually untapped revenue channel, and deepen relationships with existing members, while adding new membership growth opportunities.
CU Direct’s OnSpot Financing program provides credit unions an ideal opportunity to offer members point of sale financing at retail and medical offices. OnSpot connects consumers and providers by delivering financing through credit unions, and gives credit unions the ability to build and maintain strong local business relationships through consumer lending.
(*This article first appeared in the September 2, 2015 issue of Credit Union Times)