Banks and credit unions are fascinated and threatened by the success of FinTech lenders. Through technology and innovative credit worthiness indicators, FinTech lenders have created a new set of borrower expectations. The convenience and speed of the application, approval and funding process is extraordinary when compared to the traditional process for banks and credit unions. Borrowers of all ages are attracted to FinTech, millennials in particular. They don’t mind paying a higher interest rate for the more favorable experience. Did I mention that millennials are entering the prime lending years?
If history tells us anything, it tells us that once the public gets a taste of a better experience, it will never be satisfied with the old ways. Remember how long you used to wait for your computer to boot? It was no big deal then as there was no alternative experience to compare the wait time. Can you imagine your impatience if your existing computer took as long? If a millennial comes in for a mortgage loan and you tell them it will take two weeks to get them an answer, they will laugh at you and get a loan approval from Rocket Mortgage on their phone before they leave your office.
FinTech is cool and it is cutting edge, and works well at a certain level of success. The problem with FinTech is that FinTech is outgrowing its ability to fund the loans. FinTech has used individuals, banks and hedge funds as funding sources but there are problems with those sources. There are not enough of them and the cost of funds from those sources is high. The FinTech folks complain that regulatory issues are becoming more and more complex; citing regulation as the greatest inhibition to growth. Welcome to our world. It will not be long until the Consumer Financial Protection Bureau focuses on FinTech. A peek into the depth of the funding problem occurred when it was reported in the Wall Street Journal on May 10, 2016 that the CEO of Lending Club was fired for delivering loans to investors that were not conforming to the investors’ standards.
Remember the Golden Rule. Those who have the gold make the rules…to a point. With lower cost of funds and plenty of them, banks and credit unions have the fuel to compete very favorably with FinTech but they do not have the engine. To be successful, banks and credit unions need the engine, the technology engine that FinTech has built.
Through the CUSO, Credit Union Lending Experience, LLC, credit unions in partnership with technology experts are developing a lending platform that will source new members and create a lending experience that mirrors the FinTech experience. Best of all the credit unions will have ample cash to fund the loans at a lower cost. Credit unions will be able to provide the FinTech experience without the premium charged by other FinTech lenders. That is a competitive advantage but only if credit unions act on it.
For more information on Credit Union Lending Experience, LLC contact Kirk Kordeleski, Kordeleskiconsulting.com, 516-528-5057.
ABOUT THE AUTHOR: Guy A. Messick, The CUSO Guru, is an attorney with Messick & Lauer PC in Media, PA and General Counsel to NACUSO. He can be reached at 610-891-9000 or guy.messick@gmail.com
