Personalization Helps Credit Unions Out-Compete Banks on Lending

You can’t have a successful business, no matter the business, if you don’t attract customers.

When it comes to today’s world of evolving financial markets and fluctuating interest rates, consumers are becoming more discerning when choosing their financial institutions for credit products.

“Consumers are relying less on their primary financial institution for major credit products than they used to,” Denise Stevens, senior vice president and chief product and digital officer at PSCU, told PYMNTS CEO Karen Webster.

“They are looking to shop for terms and interest rates that can help them stretch their dollars and help meet their financial goals,” Stevens said.

Especially as interest rates are expected to remain elevated, consumers are increasingly shopping around for credit products beyond those offered by their current financial institution, hoping to find the best deals on what matters most to them.

Read also: International Credit Union Day Spotlights Member-First Innovation

New Ways for Credit Unions to Compete for Consumer Business

In the face of today’s shifting macro landscape, a challenge facing credit unions is the need to compete effectively to capture a substantial share of the financial services market.

Credit union members tend to be more discerning and rate-sensitive, making competitive interest rates and terms essential.

“Credit unions need to be super-focused on making sure they are competitive on price and flexibility,” Stevens said.

“Despite the digital shift that has happened, I think credit unions did a pretty good job maintaining a mix of digital and human interaction and capitalizing on that strategy by leveraging established relationships through ongoing communications with members and proactive follow-ups,” she added.

This allows credit unions to offer a personalized experience by understanding their members’ financial goals and using data effectively.

Personalization and customization are key to offering the right credit products to members, making it possible to approve loans that might be declined by traditional banks, she said.

“When you look beyond the traditional ways used in this industry to approve consumers, credit unions really can get creative in that area, and they usually do,” Stevens said. “[Credit unions] need to be very focused on the innovation side of lending to ensure they have a large reach.”

Mortgages, once a primary focus for consumers, have seen a decline in interest. The real estate market’s dynamics have shifted from a seller’s market to one where consumers are more cautious, Stevens said.

However, auto loans, especially for new vehicles, remain in demand, she added, saying credit unions in particular have an opportunity to tap into this market by offering competitive rates and flexible terms.

The Role of Data in Credit Union Success

The ability to use data for personalized lending is an advantage for credit unions, and it plays a role in their ability to tailor their lending offerings to individual borrowers in a way that traditional financial institutions can’t match.

By using data effectively, credit unions can make informed lending decisions, improve risk assessment and create customized loan options that align with the borrower’s financial situation, Stevens explained.

“To me, data is the key component in lending,” she said.

At the end of the day, credit unions are cooperatives, she said, meaning that they are built to serve the members who own them.

“Credit unions are in the unique position to create [a credit product that is] very individualized to the member,” Stevens said. “There is a huge opportunity to use data to personalize loans and create flexible and attractive terms.”

For instance, embracing buy now, pay later (BNPL) lending can cater to members who need short-term financing. Credit unions can also customize loan terms within their risk tolerance to provide quick and flexible solutions. These types of innovative lending products address consumer demand and can be valuable when members are educated about their responsible use, Stevens said.

A Focus on Innovation and Creativity

Financial institutions of all shapes and sizes are under increasing pressure to adapt their systems and processes to meet consumers’ changing demands and financial behaviors. Stevens explained that “making sure [credit unions’] portfolios have a good array of lending options” is crucial to capturing more of the market.

Still, while it’s important to offer a wide range of credit products, the emphasis on making traditionally challenging loans more accessible shouldn’t be forgotten, she said — and this is particularly true in the business lending space.

What does Stevens see for the future?

“We are focused very heavily in the digital lending space … and small business lending and small business credit cards are also very important,” she said.

It is, after all, a two-pronged plan, she explained. By staying focused on consumer needs and offering a diverse range of lending products, credit unions can continue to be a valuable resource for their members in the ever-changing financial landscape. By offering business lending products, credit unions can capture both business and personal banking from entrepreneurs and small business owners.