Credit Union Geek

Marketing, Strategy, and The Force by Joe Winn

Tag: indirect lending

Are You A Dumb Bank? (Part 4ish)

Originally published on

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. Take a look.

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 have lost some business to it. However, it is costing the credit unions much more. It’s no different than the internet providers being just a dumb pipe (which, with the loss of Net Neutrality, is sure to change). You become 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. 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.

Where “Faceless” Works

Am I saying indirect and other “faceless” services are bad? Not at all. They serve a valuable role in boosting asset volume in many credit unions. If it fits your strategy, and is properly accounted, then why not enjoy the growth it can deliver? However, I have noticed a growing trend of institutions putting more resources into this basket…at the expense of their direct channels.

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?

A Revisit. A Rethink.

Diligent readers of this blog may recall a rather odd situation I encountered while listening to music. No, I didn’t realize the connection between Wizard of Oz and Dark Side of the Moon. An ad on Pandora launched an investigation. It turned out to be a hunt for Space Coast Credit Union and their campaign, “Expose the Truth”. The marketing appeared to be quite smart; tease an idea which promotes a viral following, then present the information in a great reveal. Why were so many people overpaying, and what was this truth to be exposed?

Turns out, the credit union wanted to educate their members on the practice of rate markup. In an SD card-sized explanation (if we used a micro-SD card, we would be guaranteed to lose it under a fingernail or something…they’re so tiny! But I digress.), some lenders embrace a portion of the loan rate to offer compensation to their indirect dealers. As a result, the rates increase, and in some cases, this has caused discriminatory lending practices. SCCU, like most credit unions, compensate their indirect dealer partners through a flat-rate payment structure. One loan, this much money. The interest rate remains unchanged. It’s a different approach to the same problem; the dealers are doing the legwork to get the financing and should be remunerated for this task. In the interest of member transparency, SCCU disagrees with the use of rate markup, and that is ok. At the end of the day, you’ll always get the best deal on your financing if you contact your banks, credit unions, and other lenders directly. If it is determined that indirect lending (doing it at the dealership) is the best and easiest, then there you go.

So what happened to Expose the Truth? The campaign was pulled after objections were raised by NADA (National Automobile Dealers Association). Indirect dealers felt slighted by their partner, and appealed to their trade group, NADA. You can read the full details and statements from all parties; my intent is to provide commentary that may assist in the success of future endeavors.

I’ve heard it said that any news is good news, and in some cases, it may be true. I’m not sure in this case. I could be wrong, but it feels like the responses will only serve to create more member confusion in the market. Will rate markups be going away? Probably not. Do flat-rate dealer payments result in a lower interest rate for the member? I don’t know.

Do we fault Space Coast for their marketing campaign? I’m not. They presented an area where they believe to be superior to their competition. It was clever, and, given the response, spread as intended.

The part I wish to address is how to avoid such back-tracking in the future. At its core, why did the program need to be pulled? Its reception by their valued partners, dealerships, was not considered. I’m not here to market, of course, but our own company is working to develop a strategy on growing an indirect loan portfolio through strategic referrals. We understand that the dealers don’t want to feel slighted by their partners, and do deserve their fair share for the work they do. It’s a very challenging balance. Everyone needs each other to succeed…by keeping all parties in the loop, there may be ways to deepen relationships, grow portfolios, and sell more cars, while creating happy members!

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