SUCCESSFUL LENDING Centre for Community Finance Europe - Dublin, Ireland 21 May 2019
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Centre for Community Finance Europe
SUCCESSFUL LENDING
Dublin, Ireland
21 May 2019
In partnership with
Welcome
Dr Paul A. Jones
Director of Research, CFCFE
Reader in the Social Economy, LJMU
1
Welcome to our speakers
2
And thank you to our corporate members
3
Key questions for today
• Why do credit unions have difficulty in lending?
• What can be done to get better at lending?
• What can we learn from other credit unions about lending
successfully?
• What immediate actions do we need to take in our own
credit unions to build the loan book?
4
An insider’s outsider perspective -
What does a banker recently turned credit union
CEO think of how we do
business? What can we learn from the
competition?
Pádraig Enright
CEO, Clonmel Credit Union
Successful Lending, 21 May 2019
New……..8 months in
6
7
Implications of becoming a ‘Full Service’
provider
ü Broader full service proposition brings more complexity
ü This requires very slick technology enablement that we
currently don’t have and therefore….
ü Cost Implications are significant and….
ü In CCU, our CIR is 56%, peer average is 75%
ü Current CIR precludes us from going full service – there is
too much risk
ü Banks are de bundling, as they seek to manage CIR
ü Reducing range of services
ü Ringfencing more profitable activities
8
De – Bundling of Financial Services?
Is ‘Full Service’ coming to an end? 9ju st
w e e r ?
A r e e nd
e r l
t h
Credit Union
o
Credit Union
an
10In any organisation you start with your customer…
We have a
recruitment
challenge:
Implications for
sustainability
11Jessica, our customer of today…
ü Power has shifted from
institutions to the consumer
ü Trusts her peers -Friends &
family are key influencers
ü Expectations are greater &
Choice is profligate
ü Attention spans are short
ü Convenience is the new loyalty
ü She does business on her
terms, not yours
ü She has a Voice
Are we relevant to her?
12Payment Account – A compelling rationale?
Payment Account Customers have
More interaction with you, and thereby are
More connected to you, placing you front of
mind, and providing
More possibilities to understand the customer, so
you can identify
More opportunities to add value to members
lives, be their lender of choice and become
More relevant , deepening the relationship, which
creates
More interaction …& more opportunities
No Payments Account, No Convenience, No relevance
13In an age of convenience, lending needs to be
enabled by great analytics
Know our member
ü Quality conversations
that add value to our
member
ü Understand her
through analytics
ü Anticipate her needs
ü Be ready to respond
ü Deliver a WOW
Member ü While proactively
Profile managing the risk
14Digital/Mobile is where the game is
at….
Digital includes Online & Mobile
Move away from Online to
Mobile is clear
66% of Personal Banking
Products worldwide are mobile
enabled – double what it was 3
years ago
15Smartphone Consumption in Ireland
What are we doing on our phones
57 times per day?
‘I want to know ‘I want to go ‘I want to do ‘I want to buy
moments’ moments’ moments’ moments’
66% of 82% of 91% of 82% of
smartphone smartphone smartphone
smartphone
users turn to users use a users consult
search users turn to
their phones their phones
their phones
to find out engine when while in a
looking for a for ideas
more after store deciding
while doing a
viewing a TV local what to buy
task
commercial business
Generation Z & Digital Adaptation
Source: Bord Bia, Video Optimisation Masterclass (January, 2019)Evolving our proposition
Expand our lending & service proposition
through proven White label Providers?
- E.g Grenke
- E.g Irish Life
Could we Partner with:
Better economies, better expertise
- TCD/UCD/UCC?
- Build our own community of
innovation to do the work
- Fintech?
Create a mobile channel through
Partnerships –
- Creates relevance
CU – the embodiment of CSR – can we - Broadens the proposition & secures
leverage/get support from serious hitters? future customer base
- Play the Green Card?
- Stripe? CSR Appeal?
- Who else can help us if we asked?
17Through whose lens do we run our business?
Click to edit Master title style
Broader
Member
View
Credit Union Member19
How others have approached building a
defendable base
Clear Segmentation
Strategy – know what
they’re about
Discreet Strategy for
Focus on Digital &
each segment – clear on
Innovation
how to approach each
Very well
Develop a compelling
communicated; spend
Proposition for each
lots on Marketing
20Setting ourselves up to deliver a lending uplift…..
A Member Engagement Model
Outbound Calls/Leads
Successful Contacts Made
Meetings Agreed
Great Member Conversation
Member Needs Identified
Business Written
Future Needs Identified
21Shifting Consumer Opinions are driving CSR…..
We are masters but our messaging is weak?
KBC Wellfest
- Environmental
Responsibility;
- Financial Literacy;
- Entrepreneurship;
- Health & Wellbeing.
le of
e t h e ro or e
’ amin
to ex n buildin
nes s
i
e ty ’
gam
Accenture, A&L Goodbody, Arup, Bank of Ireland, Boots,BT Ireland, CRH,
busi ive soci Dawn Meats, Deloitte, eir, EirGrid, ESB, Fujitsu, HEINEKEN Ireland, Gas
lu s
inc
Networks Ireland, Janssen, KBC, M&S, Musgrave, Northern Trust, PM
‘to create inclusive
workplaces and
Group, PwC, SSE Ireland, Sodexo, Transdev, Ulster Bank, Veolia and
reduce social Vodafone. The Business Working Responsibly mark is the only independently audited standard for
inequality in Ireland’ CSR and Sustainability in IrelandHAVE WE GOT A MESSAGE….
In summary, Need to define (and stick to) a proposition
that makes sense in a rapidly changing world
ü Leverages and builds upon our true identity
ü Understanding implicitly who our customer/member is
ü Defined by being relevant to member of the future & all that entails
ü A proposition that is digitally enabled & delivered with help & partnership
from others
ü Really well communicated; by all, across all channels, all the time
ü Internally set up with an appropriate service model that enables real
member growth & relevance in our communities
ü Tells our story over and over again
24Key questions for discussion
• What are the barriers to successful lending?
• What are the opportunities for successful lending?
• What would you want to learn today that you could
implement tomorrow?
30 minutes on your tables
25Break
Restarting at 11.50am!
26Maximising Limits
Michael Byrne
CEO, Core Credit Union
Successful Lending, 21 May 2019Core Credit Union at a glance
28Successful Lending
Jul-18
Jan-18
Dec-17
May-18
Nov-17
Oct-17
Sep-17
Jun-18
Apr-18
Mar-18
Sep-18
Feb-18
Aug-18
€43.9
€42.7 M
€40.2
€39.6
€39.0
€38.4
€37.8
€43.3
€42.1
€41.5
€45.1
€40.8
€44.5
29Market Research
• April 2017 – Estimate the value of loans members are
taking out with banks and other financial institutions
• Findings:
€45m 83% Why?
Borrowed Did NOT 32% - Rates
Elsewhere enquire 21% - Loan already
over from the 11% - Online quicker
previous 3 CU for a
Years loan
30How? – Maximise limits
31Limits
• Longer term lending (max 10% of loan book)
– Home Loans @ 5%
• Medium term lending (max 20% of loan book)
– Home improvement loans @7.9%
• Short term lending
– Changed message to say rates from 6.5%
32How? – Maximise limits
50.0
45.0
3.7 3.7 3.8
3.3 3.6
3.2 3.3 3.4 40.0
2.5 2.6 2.8 6.7
1.5 2.1 5.9 6.0 6.2
1.3 1.5 3.5 3.8 3.9 4.2 4.7 5.2 5.4
1.1 1.1 2.5 2.8 3.1 35.0
1.8 1.8 2.3
30.0
25.0
29.8 29.7 30.5 30.8 30.8 20.0
28.5 28.6 28.7 29.1 29.3 29.6 29.5 29.5 29.5 29.4 29.8 30.1
15.0
10.0
5.0
3.1 3.0 3.1 3.2 3.1 3.1 3.1 3.3 3.2 3.2 3.1 3.0 3.0 2.9 2.9 2.9 2.9
1.2 1.1 1.1 1.1 1.1 1.0 1.0 1.0 1.0 1.0 1.0 1.0 .9 .9 .9 .9 .9 .0
201705
201706
201707
201708
201709
201710
201711
201712
201801
201802
201803
201804
201805
201806
201807
201808
201809
Overdue < 1 Yr 1 - 5 Yrs 5 - 10 Yrs > 10 Yrs
33Limits Maximised
34Where did our limits go?
35Takeaway
1. Clear messaging and lead with lowest
rates
2. Existing members are borrowing
elsewhere – remove barriers
3. Target empty buckets and maximise
36Growing the Loan Book – a Perspective
David McAuley
CEO, Donore Credit Union Ltd
Successful Lending, 21 May 2019Who and What Are You?
• CEO Donore Credit Union – Ireland’s First Credit Union
• Joined Sept 2016 - Considering mergers and no long term
plan – falling loan book (€6.4m) – absence of structure –
draining of members
• Midsize – financially strong – potential – good
demographics – viability was a question?
• Distinct – with loyal engaged membership – members
want to borrow
• Embrace what you are are --- “the Independent Credit
Union of the Liberties”
• 4,600 members; €35m assets, Loan Book €9m
38Growing the Loan Book – a Perspective
• Our experience
• Falling loan book
• Loan churning
• Short termism on loan management
• Single product environment
• Loss of understanding of our membership
• Dated processes and policy
• Rising arrears
39Growing the Loan Book – a Perspective
• Give members what they want • Combine traditional service
• Update Policy/Processes with new technologies
• Stop Churning of Loans – lengthen
loan book and grow loan averages • Evolve, attempt, fail, Revisit
size • Succeed
• New Products eg Diamond Loan
• Know your members – use
• Loan Book Growth requires
technology (CUFA, your Database) changes to process, product,
• Know your potential members eg people and technology
student population – have a
student loan • Inject Energy, Enthusiasm,
• Remind your members you are Positivity
“Great” – they already think it!!!
40Successful Lending – HSSCU
Catherine Byrne
General Manager, Health Services Staffs Credit Union
Successful Lending, 21 May 2019Who are HSSCU?
Set up 1970 for Health Moved to our own Expanded to a national Transfers of Engagements
Services Employees in premises in Dublin City common bond in 2007 commenced in 2010
Dublin, Wicklow & Centre in 1994
Kildare
Serving employees working in Explosion in membership Serving employees working in 2010 Law Library,
the health sector in the above the health sector across the 2013 James’s Street,
areas and their families republic of Ireland and their
families 2013 Texaco Employees’,
Had offices located in hospital
locations 2015 St Gabriel’s,
2015 Cork CIE,
2015 Castle,
2017 Galway CIE,
2018 Connolly CIE,
2018 Dundalk CIE,
2018 Broadstone CIE,
2019 Ranelagh and District.
42HSSCU Culture
Strong Member • Constantly reviewing and updating services and distribution
channels
Focus • Consistent professional service across the branch network
Innovative • Striving to be a leader in the movement
• Maximising current systems, bringing new providers to the table
Cooperative • CFCFE, CUMA, ILCU, CUDA Solution Centre, Chapter, Payac, CUCC,
Engagement CUSOP, Wellington User Group and other groups from time to time
43Lending Culture
Training provided regularly by the lending team
Clearly communicated Strong reinforced ethic to look for positive
outcomes for the member loans applications
All staff who interact with members (outside of
Tiered authority levels credit control and marketing) has lending authority
Graduated depending on their role
Depending on loan application complexity
Defined process Low complexity loans turned around immediately
Medium / high complexity reviewed by lending team
44Lending Journey
1970 1994 2004 2007
Established Moved head office out of Relaxed guidelines for loans Employed a full time
hospital environment rule of thumb ratio 10:1 marketing professional on
Coincided with introduction staff
of Special rates for car loans Extended common bond to
whole of ROI
Credit Agreement replaced
promissory note
Membership of non Irish Introduced loans via post –
Loans taken over the phone nationals started postage return paid
1987 2002 2006
45Lending Journey Continued
2008 2011 2015 2018
Started to look at other Moved to ability to Mortgages and Large CCR
special rate loan repay model, but still Home Improvement New Member online
Web loans had an emphasis on loans onboarding process
importance of share Lesser emphasis on
balances with members Process improvement
shares focus on lending
function
Moved 100% away from
savings balances
featuring loan decisions
Dedicated lending Document upload for About to launch e-
ICB function supplying paperwork signatures
2010 2012 2017 2019
46Lending Profile
170.5M in loans 17,153 borrowers
Predominantly
(loan to assets (34% of
female
48.5%) membership)
Strong
Average loan Average employment in
balance €9,940 application €4,300 public sector / semi
state
Diverse cross-
section of roles
within the
industries
47Service Delivery Channels
Taking applications Issuing
Telephone Via post – return postage paid by CU
Website / email enquiries / call backs In branch
In branch Very near to esignatures
48Lending function process improvement review
Identified under
Changed mindset in Reduced paper out Duplicate work /
utilisation of
organisation of the system printing eliminated
administrative staff
Introduced triage Ability to turn
monitoring of low Better use of around loan
to medium available resources decisions more
complexity loans efficiently
49Loan Book by Gender Analysis
Loan Principal (Current) No of Current Loans
34%
34%
FEMALE FEMALE
Male Male
66%
66%
50Loan Book by Age Profile
No of Current Loans Loan Principal (Current)
AGE 66+ AGE 66+
AGE 61 - 65 AGE 61 - 65
AGE 56 - 60 AGE 56 - 60
AGE 51 - 55 AGE 51 - 55
AGE 46 - 50 AGE 46 - 50
AGE 41 - 45 AGE 41 - 45
AGE 36 - 40 AGE 36 - 40
AGE 31 - 35 AGE 31 - 35
AGE 26 - 30 AGE 26 - 30
AGE 16 - 25 AGE 16 - 25
500 1,000 1,500 2,000 2,500 3,000 3,500 .00 7,000,000.001 4,000,000.00
21,000,000.00
28,000,000.00
35,000,000.00
51Loan Book by Employment Type
No of Current Loans Loan Principal (Current)
1% 0% 1%
0%
1% 1%
1% 2%
1%
1% 5%
7% 3%
Employed full time Employed full time
4%
Employed part time Employed part time
Temp Employment Temp Employment
Retired Retired
Self Employed Self Employed
Student Student
Other Other
Unemployed Unemployed
84%
89%
52Loan Book by Nationality of Member
No of Current Loans Loan Principal (Current)
IRISH 89% IRISH
88%
5% PHILLIPINES 6% PHILLIPINES
2% INDIAN 2% INDIAN
1% NIGERIAN
1% NIGERIAN
AFRICAN 1% AFRICAN
1%
0% AMERICAS 0% AMERICAS
ASIAN 0% ASIAN
0%
2% EU/EUROPE
2% EU/EUROPE
0% OTHER
1% OTHER
53Loan Book by Common Bond
No of Current Loans Loan Principal (Current)
1% 0% 1% 0%
4%
2% 3% 2%
8%
9%
HSSCU HSSCU
CORK CORK
9%
9% GALWAY GALWAY
JAMES ST JAMES ST
52% RANELAGH RANELAGH
53%
CONNOLLY CONNOLLY
DUNDALK DUNDALK
24%
23% TEXACO TEXACO
54Loan Application Refusal Rate
55Loan Book Growth
Loan book
€180,000,000
€160,000,000
€140,000,000
€120,000,000
€100,000,000
€80,000,000
€60,000,000
€40,000,000
€20,000,000
€-
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
56Percentage of portfolio by type of loan
Loan interest rate
80%
69%
70%
60%
50%
40%
30%
20%
11% 10%
10%
5%
3%
1% 1%
0%
Standard 8.5% Car Loan 6.99% Large Home Imp 5% Secure 5% Mortgage 4% Education 6% Other
57Summary of Key Factors
Friendly service / member relationship
Listening and responding to needs of members
Culture Clarity around lending policy
Every front line staff member has some lending authority
Telephone
Via post
Multiple channels Online
In branch
Empowering staff
Document upload
Breaking down barriers Return postage paid
E-signatures for online loan drawdown
Roles within the industry
Diversity of borrowers Ethnicity
58Panel discussion on successful lending
experience in Ireland
Ralph Swoboda, Moderator
Catherine Byrne
Michael Byrne
Pádraig Enright
David McAuley
59Lunch
Restarting at 1.45pm!
60A Regulatory Perspective on Credit Union
Lending – Strategic Considerations
John Meagher
Registry of Credit Unions – Business Model &
Engagement, Central Bank of Ireland
Successful Lending, 21 May 2019“Benefit” or Family Loans
Karen Bennett
CEO, Enterprise Credit Union
Successful Lending, 21 May 2019The UK journey with “benefit” loans
• In 2006 the UK Government launched the DWP
[Department for Work and Pensions] Growth Fund, which
enabled credit unions to access capital and revenue to
offer loans to those they deemed “financially excluded”
• 92 credit unions took part – predominantly community
credit unions
• Between 2006 and 2010 an estimated £45 Million was
distributed to those credit unions for loan capital and
running costs
• This equated in real terms to the issuing of over 318,000
loans with a value of £137 Million during this periodFacts
• 50% of those credit unions are still doing “benefit / child
benefit loans”
• Average loan is £500
• Average interest rate is 2% per month (25.6% APR)
• 90% take benefits directly to pay loans and distribute the
restEnterprise Credit Union – best thing we have done
• 24,000 members, assets of £23 Million – majority of
members are deemed financially excluded
• 90% of our members are borrowers and 100% are savers
• 65% have had a starter / child benefit loan
• We have issued over £90 Million since Growth Fund
• Our current loan to share ratio is 110%
• Our bad debt ratio is under 2%Do’s and Don’ts • DO – Calculate your risk and your appetite • DO – Ensure members save alongside repaying a loan • DON’T – issue a loan over one year • DON’T – market it as a “benefit” loan
Digital Lending
Teresa Manning
CEO, Clockwise Credit Union
Successful Lending, 21 May 2019Introduction to Clockwise
• Where we began
– Opened in January 1992
– Church-based community live or work
– Paper based accounts, passbooks and paper applications
– Volunteer run
• Clockwise Today
– 13,000 members
– 4.6 million in loans
– 4.9 million in savings
– 16% of annual expenditure is spent on IT operations and
development. Approximately £180,000 in 2018/19
– Spent £150,000 to date on pure IT development since 2016Key focus areas
Security Integration
• Mitigate legacy risks • Achieve seamless
• Secure by design for automation
new • Embrace use of API’s to
• Adopt best practices & link with third parties
increase awareness • Approximately 10 third
• Independent external party integrations in place
verification
Member Digital People Focused
• Provide high quality Software
digital services
• Realisation that current
• 24/7 delivery of core
solutions are too focused on
services
finance
• Reduce barriers
• Consolidate multiple systems
• Adopt CRM approach &
automate financial processes
69What we have achieved - Member Digital
Loan Origination
Web/Mobile Open Banking
Application Consent
Automated
E-signature
Decision
Repayment Faster
Setup PaymentWhat we have achieved - Automated Decisions
Decision Manager – a fully customisable loan
decision engine supporting:
• Real-time loan decisions using multiple data sources
– Bureau credit report data, affordability and ID
– Previous credit report data allowing for comparative analysis
– Open Banking
– Existing member data
• Decision support for manual underwriting e.g. open banking, calculating
credit limits and available products
• Built in analytics and reporting
• 32% decision automation for new members
• 40% decision automation for existing membersWhat we have achieved - Advantages
• Not dependant on branches/staff
• Speed of service to members
• Automation
• In house development so not dependant on external suppliers
• Integrations
– Best of breed approach
– Embrace API
– Flexibility
• Focus other resources on all channels of communication with
members: Back office portal, phone, branch, access points, SMSWhat we have achieved – Member Digital
Member stats:
• 70% membership registered online
• 90% of all new business (membership & loans) originates online
• Completed over 4,500 fully automated loan applications
• 95% satisfaction rate for the online and app based service
“How times have changed since all those years back having to go into the office or collection
point 2 or 3 times just to apply for a loan, drop in bank statements or pay money in. Having to
wait up to 4 or 5 days for a decision. If you apply for a loan now it can be looked at and
approved immediately without having to leave your home. My last one was approved and I
signed for on my mobile walking round Abbey Park. Money in the bank within 15 minutes!
Great service” Helen
“I suffer neurologically so this site is so easy for me to use”
“Very simple, very easy to complete and the link to the banking information service is so
convenient”Successful lending – Commsave Credit
Union
Richard Munro
Commsave Credit Union
Successful Lending, 21 May 2019Introducing Commsave
• Founded in 1991
• Initial common bond – Royal Mail employees in Northamptonshire
• Currently – 40 communication companies, Governmental departments
• Payroll deduction facility – Royal Mail Group and Dept Work & Pensions
• 23,500 members
• c. £65m assets
• Plan – 85% Loan/savings ratio
75Approach to lending
Strategy
• Can we serve every part of the market?
• Risk appetite?
• Competition?
Operation
• Marketing?
• Service?
76Panel discussion on successful lending
experience in Great Britain
Nick Money, Moderator
Karen Bennett
Teresa Manning
Richard Munro
77Concluding remarks
Dr Paul A. Jones
Director of Research, CFCFE
Reader in the Social Economy, LJMU
78Before you go
• Please complete a feedback form
• If you are a CEO who received our CEO time survey and
haven’t completed it, please do so by Friday
• Thank you for coming!
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