What Can Credit Unions Learn from Niche Lenders

One credit union's dedicated focus on a niche market is paying off in double digit loan and share growth.

The Benefits of a Specialized Focus

When it comes to lending, most credit unions are more than happy to expand their loan portfolios however they can. But some credit unions have chosen to focus on a particular niche market, usually defined by their field of membership or geographic location,and to tailor their loan services to that market.

Such a model generally benefits both members and credit unions. Members benefit from credit unions with a better understanding of their needs, and in many cases, better rates and fees. Credit unions benefit from being positioned as key organizations ina particular market, which may lead to individuals and businesses seeking out those credit unions for their expertise.

In addition, credit unions can enjoy good growth as their reputation in the market increases and word-of-mouth spreads from member to potential member. Although niche lending may not be right for all credit unions, some have been able to identify a segmentin their market and remedy a problem, leading to increased loan volume and member satisfaction.

One example of this business model is Evangelical Christian Credit Union (CA, $962M).

Evangelical Christian and Ministry-Based Lending

Evangelical Christian Credit Union caters to missionary and church lending, an area it saw as being previously underserved. Many banks began to stray away from ministry lending because there is a stigma associated with the market, says Mark Johnson, ECCU’s EVP of Church and Ministry Lending. No bank wants to have to foreclose on a church and be seen as the evil villain.’ Rather than face that proposition, many financial institutions were simply not making loans to churches and other ministry organizations. ECCU now has become a nationwide lender to both churches and ministry organizations.

Choosing to focus on this market has been great for both ECCU and our members, says Johnson. Now our members have less difficulty finding an available lender they can trust, and from our prospective, although this wasn’t ourintention, we have seen quite a large amount of loan growth. Johnson feels this loan growth stems from the relationship the credit union has been able to build with its members. By choosing to focus on this niche, we have something veryimportant in common with our members. Rather than being simply good bankers, we have the ability to talk to them about issues affecting their communities, because those issues are affecting us as well, he notes.

From the outset, credit unions have been about a common bond shared with members. These bonds still exist today and may become the basis for a mutually beneficial specialization. ECCU took this idea to heart and has revamped its entire corporateculture to better reflect the common bond of its members. This mission alignment has allowed ECCU to let the relationship drive its service. By making sure the members and the credit union have the same goals, perspective, and understanding,ECCU positioned itself in a way that makes it clear to its members where it is coming from and how the shared focus can benefit members.

These client relationships have helped ECCU score exceptionally high on the member satisfaction surveys it conducts with each loan. Member satisfaction is something any credit union with a specialized lending model must be aware of. In such a tightlyknit community, word gets around. If we do business with one church, we know they will tell others about the experience, Johnson remarks, whether it was good or bad.

To see Evangelical Christian’sor any credit union’s2Q performance, visit CUSP Online, a free financial performance reporting tool for all credit unions. Visit Cusp Online

April 22, 2016

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