Originally published on CUInsight.com
This is a spiritual continuation of a series from a while back, titled Are You A Dumb Pipe. The idea is related; read on to understand how.
For every 100 members buying a car, 8 will pay in cash and 30 will lease, leaving around 60 which continue to be an opportunity for your credit union.
Of those, many will simply finance at the dealer, signing with captive or another indirect lender.
Was it yours? Maybe. Probably not.
Since most people pay for cars at the dealer, it only makes sense to pour resources into indirect, right? Operating in this fashion reminds me of my post on being a dumb pipe.
Becoming A Dumb Bank
Indirect lending is making your credit union a dumb bank. Your members won’t know who you are. They don’t care. You’re a line in their bill pay platform, and it’s probably set to automatic, anyway.
I’ve spoken to the lending teams at many credit unions. The allure of indirect is strong. Do nothing, get auto loans. As long as you approve and fund them in good time, you’re done.
I’ll be honest; I’ve lost some business to it. However, it’s costing credit unions like yours far more. It’s the same as the internet providers being just a dumb pipe (with the loss of Net Neutrality this will change).
It’s the path to becoming a faceless lender.
What’s Wrong With Being a Faceless Lender?
Credit unions see financial interactions in a different way than any other institution. It’s what makes you, well, you. And not a random bank. Right?
I mean, if I’m wrong, say so and continue down the path you’ve set. Become the faceless money storage and lending facility.
It’s true, there are a lot of people who will never care about their bank, credit union…whatever. When it does what they expect, it’s another utility which receives little attention.
If something goes wrong, well…”geez, this bank just sucks!”
You can try to engage them, but the decision is theirs.
However, if you are in any way trying to fulfill your mission statement, this is not the path forward. As your services become commoditized, your interactions devolve into support requests and complaint resolutions.
So what’s wrong with becoming a faceless financial institution? It becomes nearly impossible to achieve your mission, which is a disservice to everyone.
You lose the ability to help your members in all the unique ways available to credit unions. Financial coaching? That would have been nice. Investment guidance? I’m sure they’ve got it handled.
Even a simple grasp of how fee structures or interest rates can affect someone long-term? Hey, if they don’t know you, they don’t engage.
And if you try to connect, well, you’re just that faceless money box. Have you earned their time and attention?
Where “Faceless” Works
Am I saying indirect and other “faceless” services are bad? Not at all. They can serve a valuable role in boosting asset volume in many credit unions.
Of course, indirect isn’t quite the money-maker some think it is. So I’d keep a close eye on that.
Sometimes, you just want to run a service that’s “set and forget”. If this fits your strategy, and is properly accounted, then enjoy the growth it delivers!
However, I have noticed a growing trend of institutions putting more resources into this basket…at the expense of their direct member engagement.
There are a lot of industries where your company can remain unknown while also a part of everyone’s life. That works if being faceless yet ubiquitous fits the mission.
I don’t believe it does for the credit union industry. Do you?