Top-Level Takeaways
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Digital FCU launched its Quick Loan, an online and mobile-only pre-approved short-term personal loan, in June 2018 as a payday loan alternative.
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The loan process is fully automated; no humans needed.
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To date, Digital has made nearly 20,000 loans totaling nearly $18 million.
CU QUICK FACTS
Digital FCU
Data as of 03.31.19
HQ: Marlborough, MA
ASSETS: $8.9B
MEMBERS: 820,869
BRANCHES: 23
12-MO SHARE GROWTH: 5.6%
12-MO LOAN GROWTH: 7.6%
ROA: 0.55%
Sometimes, best-laid plans go awry and a member needs emergency funds now. Not tomorrow. Not when business hours resume. Now.
When that’s the case, the appeal of payday lenders which tout convenience and immediate cash availability can outstrip inflated interest rates and debt cycle dangers.
It is part of the credit union mission to provide low-cost credit to borrowers of modest means, which makes financial cooperatives natural fits to serve current and prospective members who might otherwise turn to payday lenders. However, credit unions must compete on convenience as well as rate if they are to come out ahead in a borrower’s decision-making process.
Digital Federal Credit Union($8.9B, Marlborough, MA) is one credit union that is making it easy to tap into extra cash. In June 2018, the credit union introduced its Quick Loan, a pre-approved short-term personal loan members apply for solely through online or mobile banking. The credit union automatically approves the loan up to $1,000 in minutes without a credit check.
In this Q’A, Lindsey Thomasian, consumer lending manager at Digital, discusses the Quick Loan, what risks it poses, and how members have received it.
What is the purpose of this loan?
Lindsey Thomasian: Our goal was to provide members with a loan they could obtain quickly. If our members are in a crunch whether their boiler broke at 2 a.m., they need to replace a washer or dryer, or they need car repairs we wanted to provide an alternative to payday lenders and high-cost title loans.
I worked closely with our internal developers to come up with the internal process, the member experience, and more. We have members across the country, and whereas the Northeast is not a big market for payday loans, we’re aiming to help all our members.
What do members use the funds for?
LT: We see a variety of needs, whether it’s appliance repair or cash in the holiday season to buy gifts for loved ones. It’s all different.
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Why doesn’t Digital run a credit check for this loan? What kind of risk does that present?
LT: We want to serve the underserved, someone without a credit history or with poor credit. We might not otherwise approve these individuals for a personal loan, but they still need some cash to help them out in a tough situation.
There is risk with every loan, and we took that into consideration when developing the Quick Loan. To mitigate our risk, we drew two lines in the sand. We limited the maximum loan amount to $1,000, and we required borrowers to have an existing relationship with us of at least 90 days for a loan amount of $500 and at least 180 days for the full $1,000. The APR is 22%.
To expedite the process, how do members receive these funds?
LT: We deposit the funds into a savings account. A member needs to log into their online banking to accept the loan, and the funds flow into their account automatically. We’re not providing members with a check, nor does our staff manually process the loan, so it’s easier.
How much volume have you seen in this portfolio?
LT: It’s been a little more than a year, and as of mid-July we’ve funded nearly 20,000 loans corresponding to $17.6 million. When we launched, there was a huge influx of applications. Since then, the volume has steadied.
What level of delinquency do you see in this portfolio? What were your expectations?
LT: We did anticipate a higher delinquency compared to our other consumer loan products. Our portfolio is healthy with a delinquency rate of 6.99% as of June.
We introduced this loan as a healthy alternative for members who would otherwise take out a predatory loan, not necessarily for profitability purposes. And while we are constantly analyzing parameters on these loans, we have not yet found it necessary to make changes.
Have you identified any best practices or lessons learned?
LT: One of the advantages of the Quick Laon is that we automatically post funds to the borrower’s account. Making that an automated process has taken a load off internal staff and made the member experience a more positive one. It’s wowed a lot of members.