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How Efficiency Can Drive Sustainable Loan Growth

Assessing your credit union’s loan approval processes can show where automation can boost operational efficiency and member satisfaction.

By Paul Kirkbride, Senior Vice President, Credit Union Solutions, CU Direct

I have the opportunity to meet with many credit unions in my travels. Here’s my not-so-stunning finding: some credit unions are pretty inefficient. But why am I talking about inefficiency in an article on sustainable loan growth? Here’s how I see it. Sustainable loan growth is achieved by focusing on improving the member experience. The member experience is negatively impacted by operational inefficiency. Reduce operational inefficiency and you’ll improve the member experience. Improve the member experience and you’ll grow loans. Simple, right?

Take automated decisioning for example. Anecdotally, credit unions automate about 20% to 25% of their loan decisions. In other words, three out of every four applications are referred to a loan officer for further review. Credit unions will likely approve a majority of those applications in the end, but not until they’ve spent additional time and money; and that’s truly inefficient. If your credit union instead made it a goal to automate 50% of those decisions, you’d save money while improving the member experience by reducing both wait time and anxiety.

But why aren’t credit unions feverishly looking to eliminate non-value added lending activities and seemingly just adding more bodies? Even though lending is at our core, most executives on a credit union’s leadership team only have a loose understanding of the loan process. Credit unions hire experts in finance, IT, marketing, and human resources, and they tend to stick to what they know in their respective areas. As a result, the lending executive is often alone in his or her pursuit of better solutions. Consequently, loan-related process improvement takes up a disproportionately small amount of time in leadership team meetings, relative to the income generated from lending activities. Instead, the group might find itself debating less impactful items, like branch color schemes (Hey, is that the right shade of indigo?).

Consequently, loan-related process improvement takes up a disproportionately small amount of time in leadership team meetings, relative to the income generated from lending activities.

The law of triviality loosely states the amount of deliberation on any given topic is inversely proportional to its complexity. So when a diverse team comes together to make critical business decisions, like a credit union’s leadership team, they might find themselves focusing in on even debating the trivial items they all understand, bypassing the more complex ones (the nuts and bolts of the loan application process, for instance). And since lending is very complex, it might appear to make sense to defer to the expert to handle that. But in my opinion, that’s the problem.

First, the expert you now trust to deliver a great member experience also owns risk management, efficiency’s archenemy. Think about those automated decision stats I mentioned earlier three out of four members don’t get an instant decision, in the name of risk management. Second, and more importantly, this individual probably doesn’t have the bandwidth/resources needed to make wholesale changes to the lending experience.

Can he or she really command the resources needed to redesign the entire process? Unlikely. They need IT, HR, Finance, etc. involved in addressing and implementing the necessary changes to improve the member experience. And finally, this person may have grown blind to the opportunities for improvement, which can and does happen to folks when they’re buried in operations. To get the right focus on loan-related process improvement, this has to be addressed by the entire leadership team.

I strongly encourage your leadership teams to openly and frequently discuss loan-related process improvement and the member experience, and to learn more about how your members are interacting with your credit union. I’d start with something simple, like going through the process of applying for a small personal loan on your institution’s website. Have a loan officer originate a test application in front of the leadership team and take it to funding, explaining all the steps along the way.

I’d start with something simple, like going through the process of applying for a small personal loan on your institution’s website.

I guarantee the first time you walk the path of your member, as a group, you’ll be stunned by how many non-value added, inefficient activities exist in the workflow. And once you identify these opportunities, the leadership team should be eager to allocate the necessary resources to weed out inefficiency. Again, a team effort here.

Leadership teams can be pretty powerful when they focus on innovation, and not just administration. The better they understand the process, the more likely they are to spend time and money improving it.

So in summary, ask your leadership team to understand and ideate around the loan process. As they note inefficiencies, work together to address those inefficiencies, thereby improving the ease of use for your potential borrowers. That should help drive sustainable loan growth. At the very least, your borrowers will be pleased with your revamped and streamlined processes.


Established in 1994, CU Direct has helped the credit union industry fund over $160 billion loans by being the nation’s leading lending and automotive solutions provider for credit unions. Representing more than 1,100 credit unions, CU Direct specializes in solutions that help credit unions generate loans, create efficiencies, and grow membership. CU Direct offers a diverse, extensive library of products and services designed to help credit unions advance their lending programs and achieve overall portfolio success. For more information on CU Direct and our solutions visit www.cudirect.com.

This article is sponsored by a recognized solutions provider in the credit union industry. Callahan & Associates does not endorse vendors or the solutions they offer, and the views and opinions offered here might not reflect those of Callahan. If you are interested in contributing an article on CreditUnions.com, please contact the Callahan team at ads@creditunions.com or 1-800-446-7453.
June 8, 2015

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