QCash Brings Payday Loans to Credit Unions 

By Robert McGarvey 

$30 billion annually – that’s how big Pew said the payday, pawn auto title, etc.  loan market is in America.  When people need a loan, and everybody else has said no, they go to alternative lenders. That’s 10 to 12 million Americans every year. 

They pay through the nose too. Up to 400% APR.   

But what if credit unions could get involved. And what if credit unions could offer more consumer-friendly options. 

Enter QCash, an innovative, small dollar lending platform that grew out of WSECU (Washington State Employees Credit Union) and also benefited from counsel via Filene. 

 payday loans credit unions

Ben Morales, CEO of QCash, said that QCash in effect brings WSECU back to its roots. The first loan the credit union made, around 60 years ago, was $50 to a member to buy new tires. 

That is exactly the kind of helping hand credit unions were formed to offer and, said Morales, QCash is a platform designed to help many more credit unions profitably offer small dollar loans to members, to the benefit of the member and also to the credit union. 

The problem: many credit unions have abdicated small-dollar loans, said Morales, leaving the market to alternative lenders.  Which often means predatory lenders. 

Said Pew: “The average payday loan customer borrows $375 over five months of the year and pays $520 in fees.” 

Pew added: “banks and credit unions could profitably offer that same $375 over five months for less than $100.” 

Pew continued: “banks and credit unions can be profitable at double-digit APRs as long as applicable rules allow for automated origination.” 

That’s exactly where QCash comes in.  What it offers is an automated platform where the loan applicant answers a very few questions and, in under 60 seconds and with just six clicks, a decision on the loan is rendered. 

That speed is possible, said Morales, because the credit union already knows a lot about the member. There’s no need to ask the member questions where the answer is already known and, because QCash accesses the core, it knows plenty about the member. 

That speed and simplicity is a big plus for loan applicants.  Many fear that applying for a credit union loan means a visit to a branch for a face to face but QCash puts the process online or in the mobile app. That makes it easy for the member and also eliminates much of the embarrassment potential. 

About 70% of loan applications are approved, said Morales. 

Add it up and QCash is a good deal for the appropriate member. 

Why isn’t it offered at more institutions? 

The grumbles about offering payday loans at a credit union are many. There are complaints that this isn’t what a credit union should be doing, that the borrowers will default, that it’s too expensive to process loan apps to bother with small-dollar loans to imperfect borrowers, etc. etc. 

QCash proves a lot of that wrong.  Last year QCash – which presently has five active credit unions involved with several more in the go-live queue – processed around 35,000 loan apps.  It has a track record.  The charge-off rate, said Morales, is around 10 to 13%.  “That’s why you charge as high as 36% APR,” he said. 

He added that some QCash institutions charge significantly below 36%. Nobody presently charges more. 

Morales acknowledged that some in the credit union movement are squeamish about the idea of charging members 36% APR – but he pointed out that, for this member, that usually is a very good deal, much better than the alternatives that might be available. 

Point is: this is helping members. Not hurting them. 

Even so, not every institution involved in QCash is aggressive about marketing it, Morales acknowledged, perhaps because of some lingering concerns about being seen to offer payday loans. 

That’s something the reticent institution just has to get over. Because that’s the better path for the member. 

An obstacle to credit union implementation of QCash is that right now doing so requires significant in-house technical talents and credit unions below perhaps $500 million in assets often don’t have that. 

Small credit unions may also have problems in providing access to the core – frequently because the cost of needed middleware is high. 

Morales said such issues represent a challenge to QCash to “perhaps adapt its product to overcome these issues.” 

Point is: QCash is working on making its product readily adaptable to a growing number of credit unions. Morales said QCash hopes soon to offer QCash to credit unions without regard to size and scale. 

Fees from the QCash side in implementing it run $15,000 to $20,000. 

Bottom line for Morales: going after high interest, predatory lending should be a credit union differentiator – and QCash puts those targets in range.  “We can do something about this,” said Morales. 

“We can make a difference for our members.” 

Credit unions could rock their way up in the public consciousness and put on a good guy aura in the process of taking on predatory lenders. 

He added: “The momentum is there. We just have to get more credit unions off their butts.” 

Wrestling with Your Digital Talent Gap

By Robert McGarvey

For CU 2.0

 

Wake up to a frightening reality: very probably your credit union is falling behind in the race for digital talent and that just may be a sound of impending doom.

Consulting firm CapGemini, working with LinkedIn, recently issued a report on The Digital Talent Gap and the takeaways for credit union executives have to be frightening.

According to CapGemini, six in ten banking executives acknowledge they face a widening talent gap. The report pinpoints banking as a sector where the gap is especially high.

The money center banks, almost certainly, are not pointing to themselves. They are busily hiring top digital talent as they chart their paths into a 21st century where digital is seen at the core of banking.  They see that future and they are preparing for it.

Down a checklist, CapGemini sees less skill than is needed in a range of digital activities that are central to banking today. Included on the list are cybersecurity, mobile apps (where a big skill deficit is cited), data science, and big data (another huge gap).

A lot of what has become core in delivering financial services is now emerging as areas where many, many credit unions and community banks are just not keeping up because they don’t have the talent to stay in the game.

Employees know these realities. According to the survey data, 30% of banking employees believe their skills will be redundant in one to two years. 44% believe their skills will be redundant in four or five years.

That suggests a frightened, anxious workforce.

Employees also express dissatisfaction with trainings offered them by their organization.  45% say they are not helping them attain new skills.  42% say the trainings they attend are “useless and boring.”

Ouch.

Question: does your credit union leadership know their own employees fear their institution is lagging in the race for digital competence – and that they despair over the viability of their own skills?

It gets worse. You just may lose the digital talent you presently have. The CapGemini survey found that “over half of digital talent (55%) say they are willing to move to another organization if they feel their digital skills are stagnating.”

The good news: CapGemini offered concrete suggestions about what organizations need to do to remain players in the race for digital talent.

A suggestion not on the list is blunt: credit unions often will need to find their digital talent through third party vendors and CUSOs.  No shame in that.  At a certain institutional size, the savvy survival strategy is to know where to go outside to help chart the credit union’s digital path.  There still needs be digital skills internally – especially a sharp sensitivity to what matters digitally inside the c-suite.  But a lot of the digital heavy lifting can and should happen through third parties at all but the very largest credit unions.

But even the biggest credit unions need to be sure they are nurturing internal digital talent. And smaller institutions need to know what they can do with the talent they have and they also need to stay watchful of their third party vendors and their talent development efforts.

Just because a CUSO was spot on technologically in 2010 doesn’t mean it has a clue today. Things move very fast in this world.

That’s where the CapGemini suggestions about how to develop digital talent come in.

And step one is Attract Digital Talent where CapGemini points a finger at the institution’s leadership.  Specifically: “Align leadership on a talent strategy and the unique needs of digital talent.”

How does your credit union measure up there?

Does your leadership see the ultimate importance of digital in charting the institution’s future?

The next steps are no easier: “create an environment that prioritizes and rewards learning” and “align leadership on a talent strategy and the unique needs of digital talent.”

Digital warriors go where they are loved and wanted.  It’s that simple.

One more step: “Give digital talent the power to implement change.”

This doesn’t sound easy?

Nope. It all is very hard, especially for small and mid size credit unions.

But the alternative just may be planning to go out of business.

That makes the choice easy.

Who Do You Trust? A Credit Union Misstep 

By Robert McGarvey 

For Credit Union 2.0  

 

Call it a core credit union marketing misstep: there’s wide assumption that consumers trust credit unions more than banks. 

Rubbish. 

They should, I’ll readily acknowledge that, but there is no persuasive evidence that credit unions in fact score any higher in consumer trust than do banks. And banks really stumble in trust ratings, a fact underlined in the recent Landor Pulse analysis of financial services organizations. Guess what came in first? 

PayPal, which, per Landor, emerged “the clear leader.” It came in as the most trustworthy. By a sizable margin. 

Remember this about credit unions. Kirk Drake, the author of CU 2.0, has pointed out that in the aftermath of the 2008 banking meltdown, which costs innumerable Americans their jobs, their houses, their retirement savings, and everywhere banks were excoriated by angry consumers, credit unions “saw their market share grow by a measly 1%.” 

Chew on that. In 2008, credit unions were handed the ball on the opponent’s one yard line and they could not drive it in for a touchdown. How terrible is that? 

The Landor research findings help clarify what has happened here and it starts with the low esteem in which all financial institutions are held.  

Maarten Lagae, Landor’s senior manager of insights and analytics, said, “Comparing BAV [BrandAsset Valuator, a Landor proprietary metric] data over the past 10 years shows that perceptions of trust have eroded in all industry categories, but especially in the financial sector. In addition to secure assets, the ‘must-have’ for financial services brands is trust. Consumers are increasingly wary of institutions serving motives other than customers’ best interests. This is even more true with millennials, who are the first to engage with businesses that provide transparency and disrupt unequal power relationships.” 

How many focus groups have you seen where consumers say about credit unions, nope, I don’t belong, don’t like ‘em because I don’t like credit and don’t like unions. I know I have seen and heard exactly that a number of times. It’s easy to dismiss it as rooted in misunderstanding. But that consumer still walks past your door without stopping. 

Back to the Landor trustworthiness rankings: in second place is Visa with 25; MasterCard comes in third with 23; American Express comes in 4th with 17%. 

Curiously, other than PayPal, digital tools did not fare well. Apple Pay and Google Wallet are each trusted by 13%. Venmo, PayPal’s kin and widely popular among the young, won just a 10% trustworthy rating. 

What about banks and credit unions? Hang on for bad news. Capital One and Chase are the highest rated at 17%. Bank of America came in at 16%. Wells Fargo, amid its avalanche of bad press, tumbled from 23% in 2006 to 19% in 2016 to 14.5% now. That last ought to trouble credit union and bank executives because it says that many consumers are paying attention to the news and they do know bad press when they read it. And it shows up in these trustworthiness ratings. 

As for what the rankings mean, here’s Landor’s take. “Financial services brands are still seeing an impact from the 2007–2008 crisis, augmented by ongoing issues facing myriad financial institutions over the past two years,” noted Louis Sciullo, executive director of financial and professional services at Landor. “We see credit card brands faring better because of their daily place in consumers’ lives and the relative clarity of their fee model. Meanwhile, PayPal’s high trust ranking stems from the amazing job it’s done to establish confidence in its digital platform.”   

Some 55 financial services brands are rated by Landor. 

No credit union bubbled to the surface in these trustworthiness rankings but don’t assume that means credit unions did fine. 

More likely is that none scored enough notice to win a ranking and that is not an endorsement of the importance of credit unions. 

What to do about that?  Landor helpfully offers a six step program to win more consumer trust: 

  • Be transparent. That means open. 
  • “Be honest – it’s the best policy.” 
  • Have true values you live every day. 
  • Treat your employees well – they are brand ambassadors. 
  • Deliver excellent products and services. 
  • Protect customer data. Breaches are costing every FI reputationally. 

None of that is hard. But many financial institutions struggle with taking these six steps. And that includes many credit unions. 

Bottom line: a lot of financial services companies have sunk in trustworthiness rankings in the last decade. Credit unions have an opportunity to win wider public applause but so far have not capitalized on this. Make doing that job 1 in 2018. 

The Non-Bank Threat to the Mortgage Business: What Credit Unions Must Do

By Robert McGarvey 

For Credit Union 2.0

 

There was a time when traditional financial institutions owned the home mortgage business. No more.  The changes are massive and stark and the bottomline is that non-banks are eating up this business. Their share is now 45% of home mortgages, according to the Federal Reserve. 

Just about all experts expect it to climb above 50% pronto. 

In 2011, just three big banks – Chase, B of A, and Wells Fargo – lent a staggering 50% of mortgage money.  By 2016 their share had dropped to 21 percent, according to calculations by the Washington Post.   

By 2016, six of the top mortgage lenders were non banks, with Quicken Loans leading that pack with 4.9% of the mortgage market, more than Bank of America with 4.07%. 

Also among the nation’s top 2016 mortgage lenders were PHH Mortgage, loanDepot, and Freedom Mortgage. 

Credit unions so far are holding their own.  In 2015, they lent 8% of US mortgages, up from about half that in 2010.   

Before applauding, though, recognize that credit unions face big challenges when it comes to just maintaining the current market share as mortgages become more digital and much, much faster. More on this below. 

So, why have non banks grabbed so much market share, so quickly? Mainly because money center banks have largely pulled out of the mortgage market and it’s the non-banks that have nimbly moved to fill the void. 

Many money center banks pulled out for two reasons.  They were blindsided by the tidal wave of defaults on home mortgages in Great Recession.  Maybe five million homes were foreclosed on. Big banks lost a lot of money – and a lot of positive reputation – in the meltdown.  Many bankers accordingly resolved to get out of issuing home mortgages. 

Enter the Consumer Financial Protection Bureau which sent more big banks running away.  In their minds, the CFPB was anti bank, hostile, capricious and just bad news for mortgage lenders – so why make home loans? 

That set the stage for the rise of non banks which plainly saw there are many, many consumers who have gained more confidence shopping online, they also became more comfortable applying for credit cards, car loans, and, eventually, yes, home mortgages online. 

Non banks also have higher tolerance for consumers with less than perfect credit than do big banks and many credit unions. Most non banks also have found ways to live with, or avoid, the CFPB.  And – crucially – they are pioneering and perfecting home mortgage processes that are essentially totally digital. 

That means much lower loan origination costs. 

It also means much, much faster processing, Quicken, for instance, has a “Rocket Mortgage” — where approval can be had in minutes. Not weeks. Not days. Minutes. 

How many credit unions can match that – and know that this kind of speed is becoming crucial to holding onto a chunk of the mortgage market. 

BMW and Mercedes can finance and roll a new car with $50,000 in paper in a matter of minutes and that car loses 20% of its value in the first year. 

A house, in most markets, is very unlikely to depreciate. 

Can credit unions match what the car companies and non banks can do in terms of speed? 

survey of banks and credit unions by Fairfax VA consulting firm CC Pace offered worrisome news. Some 80% of respondents said they were not even halfway there to being able to offer a fully digital mortgage experience. Said CC Pace: “Everyone recognized that this is where the future lies, but many owned up to the fact that they have barely begun the process.” 

Keith Kemph, a CC Pace consultant, noted that credit unions have particular – and particularly troubling – challenges and may in fact now be falling behind even community banks in the battle to stay relevant against non banks.  Kemph said credit unions “have not been as agile in the marketplace,” especially as the marketplace changes.   

And he said “they are still plagued with technology challenges that limit their ability to grow without increasing their overall operating costs.” 

Bottomline: there are big opportunities in the home mortgage market especially for credit unions.  But credit unions may also lose this market unless they adapt to the changes that are transforming it – especially the push into digital mortgages.

PayPal and Your Credit Union

By Robert McGarvey for CreditUnion 2.0 

Feast on a frightening metric: PayPal, an Internet company from the start, now is worth more than venerable American Express. Its current market cap is north of $80 billion and, meantime, it is busy fighting multiple wars, against Apple Pay at point of sale, Square in cash transfers, and Chase and Citibank backed Zelle in peer to peer payments.   

Here’s the question for you: are you better off fighting PayPal or seeking partnership? 

Traditionally senior credit union management has viewed PayPal as an archenemy – one  executive once told me with a smile that he knew Satan walked in our midst and it is called PayPal.  That made a sort of sense because at the time around five years ago PayPal was seen as a barrier in p2p plays taking root at credit unions and it also chipped away at point of sale transactions that credit union execs believed should be theirs. 

Many have seen PayPal as intent on disintermediating credit unions and banks.   

But maybe it’s a time for a rethink. 

Especially at credit unions. 

PayPal may well be in a take no prisoners war with the money center banks – it has to see Zelle as a dagger aimed at its heart – but credit unions just may appeal to PayPal as potential partners that in fact help it spread its p2p tools, also perhaps its POS tools. 

There also is a history of credit union – PayPal partnerships. And lately PayPal has buried its hatchet with Mastercard and Visa, working with them to provide essentially instant transfers of PayPal cash balances into associated bank and sharedraft accounts.  PayPal even offers these super fast transfers for a fee of a quarter, significantly less than Square charges for similar.   

It’s on the move too. A few months ago it debuted tools that let Skype users send money within the Skype app. Right in that conversation, you can fire off $50 or $100 to help that relative.  Convenient.  

Remember, credit unions and their traditional vendors have not excelled at the tools – especially p2p – that make PayPal (and its golden child, Venmo, which handled $17.6 million in transfers in 2016).  And the digitally savvy credit union – a credit union with a plan for longterm success — will want to have p2p tools that members actually use.  

It’s not just Millennials that love p2p. It’s also the parents and even grandparents of Millennials who send money via p2p. 

Future-thinking credit unions have seen the PayPal value for years. As far back as 2012, Tech Credit Union announced a technology that let members tap a few buttons on an ATM screen and send money to just about any US mobile phone number.  A few months later, Tech CU rolled out Send Money Powered by PayPal that lets Tech CU members send money to a mobile phone number or email address in some 60 countries worldwide, via Tech CU mobile or online banking.   

Many more credit unions now have ties to PayPal.  Alliant for instance. Peninsula Credit Union.  California Coast Credit Union.  Wescom Credit Union.  America’s Credit Union.  Mountain America Credit Union.  Pacific Marine Credit Union.    

Even giant PSECU recently added PayPal to its offerings.   

The list goes on. There are many, many credit unions that partner with PayPal. 

The Michigan Credit Union League even has a piece on “Why Credit Unions Should Not Fear PayPal.”   

(PayPal did not respond to a request from this reporter for detailed information on its many credit union partners.) 

Bottomline: for millions of consumers PayPal is a trusted, known way to shift money around.  It’s a good p2p tool for credit unions to consider offering to members and, yes, a tab can be built into many mobile banking apps. 

Won’t some consumers think about ditching the credit union and doing all financial services with PayPal?  Not many, especially not if the credit union has done a good job selling itself and its uniqueness as a member–owned, member-centric institution.  Besides, PayPal just doesn’t offer the range of services most credit unions do – and there is no indication it wants to achieve full bank status in the U.S. Does it want to battle Facebook, Google, Apple? Yep.  But that is the fintech, nonbank arena and it’s there that PayPal wants to be a heavyweight. 

By all means, keep watchful of PayPal if you choose to partner with them. But know that there are things it does extraordinary well – p2p payments for instance – and it is difficult to see how many credit unions could realistically hope to rival PayPal there.   

And your members may in fact be jazzed when you tell them they can use PayPal within the mobile app. 

That’s a lot better outcome than losing them to Chase and Zelle.