NAFCU Journal September October 2021

32 THE NAFCU JOURNAL September–October 2021 INSIDE NAFCU SERVICES T he landscape of consumer lending is changing rapidly, and credit unions are adapting to keep pace. The future of con- sumer lending will be shaped by groundbreaking digital innovation that is predicated on changing consumer preferences. However, credit unions also face unprecedented economic dynamics that will influence strategic decisions, such as historically low interest rates. We spoke with several partners in the lending space recently and gained some important insights on these changes and challenges that I have detailed here. Michael Lock, Senior Vice President of Lending Partnerships at Upstart, believes that consumer preferences have changed significantly in the last few years with the pandemic catalyzing this shift. Lock identifies four transformational shifts on the horizon for digital experiences: 1. Immediacy of delivery 2. Rising quality expectations 3. Ability to shop anywhere, anytime 4. Focus on social good These four changes in consumer behavior are likely to shape the landscape of con- sumer lending. Consumers have grown accustomed to high-quality experiences in other industries that will soon become table stakes within the consumer lending world. According to Lock, consumer lend- ing “has to adapt to the modern American consumer [and] provide experiences equiv- alent to the digital leaders in other areas.” Within lending, Lock describes five key trends that are defining the industry today: 1. Fast loan funding—same day or next day funding 2. 24/7 availability of mobile products 3. Improved shopping experiences—transparent pricing and availability of reviews 4. Best of breed in each loan category—differentiated product offerings and optimized loan applications 5. Broader and more inclusive programs In addition to changing consumer needs and tastes, credit unions also face unique economic dynamics that will impact strategic decisions. According to Vince Passione, CEO of LendKey, credit unions “are flush with deposits and need access to new loans, especially those with attractive risk-adjusted yields.” In 2020, credit union deposits soared over 20% while loan growth only increased 6%. Passione points out that the current low interest rate environment is compressing margins, causing the average yield on credit union generated loan assets to fall. Additionally, credit union fee income continues to decline, a trend that has played out over the last twelve years. These dynamics are causing credit unions to pursue new markets and expand existing ones. In 2021, real estate refinancing, home- equity lines of credit and student loans are declining in prevalence, while the personal loan and auto loan segments are growing rapidly. Given the macro- economic landscape, personal loans and auto loan refinancing represent a major opportunity for loan and member growth. Personal loans are the fastest growing consumer segment and are ripe for digitization. Within the auto space, dealer point-of-sale financing models and auto refinances are emerging. These new financing models represent a big opportunity for credit unions. In the auto space, only 4.5% of the $1.3 trillion auto loan market is refinanced annually even though dealerships often originate loans 2–3% above market rates. This disparity presents an opportunity for credit unions. Through refinancing, members can save approximately 15% on their auto payments while credit unions can grow their balance sheets and increase yield. Given the high average THE FUTURE OF CONSUMER LENDING By Randy Salser ...artificial intelligence is the secret weapon of all large-scale digital applications, and it’ll be the key for consumer lenders to deliver modern all-digital experience.