Somewhere between 50 and 80 million U.S. consumers have little or no credit history. That’s somewhere in the range of 15 to 25 percent of the U.S. population. What this means is that a massive number of people in America are “unscoreable” by most traditional models.
At the same time, acquiring new members is becoming increasingly difficult for credit unions. Competition and financial consumer expectations have never been more complex and fast-moving.
What if there was a way for credit unions to avoid turning away “unscoreable” consumers for loans and other services? What if there was a way to welcome them without increasing a cooperative’s risk profile?
No Credit Does Not Mean Bad Credit
Just because a consumer is unscoreable by most traditional credit scoring models doesn’t mean he or she won’t be able to pay back a loan. Several alternative models available today can help a lender evaluate a consumer’s ability to repay. Below are some examples, along with the types of data they incorporate into their models:
eCredable – Bills, such as rent, utilities, mobile phone, cable/satellite TV and insurance
Cignifi – Mobile phone behavior data
First Access – Prepaid mobile-phone payment histories
TrustingSocial – Social, web and mobile data
Kabbage – e-commerce histories from sites like Amazon
Experian’s Emerging Credit Score – Internet and direct-marketing purchases, property and asset records and telecommunications and utility data
TransUnion CreditVision Link – Property tax records and checking/debit account records
LexisNexis RiskView – Residential stability, asset ownership, derogatory status, life-stage analysis
One thing all these companies have in common: They’re using big data to create better outcomes for consumers and meaningful value for lenders. And credit unions have the opportunity to do so, as well.
Alternative sources of consumer data, such as utility records, cell phone payments, medical payments, insurance payments, remittance receipts, direct deposit histories and more, can be used to build better risk models. Armed with this information – and with the proper programs in place to ensure compliance with regulatory requirements and privacy laws – credit unions can continue making responsible lending decisions while better serving the underserved.
How One Organization Successfully Uses Alternative Credit Scoring
Kinecta Federal Credit Union uses an alternative data score from LexisNexis known as Riskview to assess creditworthiness for traditionally unscoreable borrowers. The model factors in data from sources like utility bills, public records, address and employment stability, among many others alternative data elements. The result is a Fair Credit Reporting Act (FCRA) regulated score.
By using nontraditional credit verification methods, Kinecta is able to approve more than 60 percent of the applications it receives. Since 2014, Kinecta has made about 20,000 loans for more than $30 million.”
How Alternative Credit Scoring Fits the Credit Union Philosophy
Credit unions exist to help people, not make a profit. Their goal is to serve all members well, including those of modest means – the very people most likely to be unscoreable by traditional credit scoring models. Many of these consumers fall into one or more of the following segments:
Alternative credit scoring provides credit access to consumers who may otherwise be turned down for a loan or forced to turn to a predatory lender. Using payment history and other data sources to evaluate a consumer’s creditworthiness is an excellent example of “people helping people” – one that benefits both consumers and credit unions alike.Leave a comment
In September 2017, we announced seven Juntos Avanzamos designated credit unions had received the 2017 Warren Morrow Hispanic Growth Fund Grant to continue their Hispanic outreach and community impact efforts. Over the next few months, we’ll be checking in with each of the credit unions and sharing updates on their progress.
First up is JetStream Federal Credit Union in Miami Lakes, Florida.
JetStream partnered with a local high school to select a deserving scholarship recipient. To qualify, the student needed to be a member of a Hispanic, low-income family and meet the following criteria: a 3.7 minimum GPA, a college in mind and an area of interest in business or finance.
As a first step, JetStream chose Barbara Goleman Senior High as a partner. “We chose this high school because of its location, as well as its student body makeup,” said Vanessa Miranda, manager of HR and community outreach for JetStream. “The Barbara Goleman student makeup is 84 percent Hispanic.”
JetStream received many qualified applications, which included essay responses. With the help of several teachers and JetStream staff, they were able to select the winner: Gabriel Hernandez, a senior who will begin an accounting program at Florida International University in the fall.
“Gabriel’s essay demonstrated his devotion to his academics,” said Miranda. “His long list of extra-curricular activities, as well as his academic achievements, truly stuck out from the rest. He has been an honors AP student since freshman year and has achieved a 4.9 weighted GPA. In addition, he is the captain of the soccer team and part of The National Honors Society.”
Something else Jetstream says made Hernandez stand out was a strong commitment to his community. He has tutored immigrant students at a local high school, as well as volunteered his time to feed the hungry.
Long-term, Hernandez plans to be an accountant or financial advisor. “I will be working with people and matching them to financial programs that will assist with their future,” Gabriel wrote in his essay. “Like JetStream’s motto, I believe that people matter most. I think that I could be an asset for both the consumer and the financial institution that hires me in the future.”
In his essay, Hernandez also shared that he is concerned about how he will pay for college tuition and does not want to create further financial burdens for his parents.
“We are very thankful that the Warren Morrow Hispanic Growth Fund Grant was awarded to JetStream, which allowed us to give a most valuable gift, the gift of education, to this deserving Hispanic student,” said Miranda. “I know this young man will go on to do amazing things. We feel honored that we were given the chance through this grant to aid him in achieving his goals and helping him see that the American dream is possible for everyone.”
Hernandez closed his essay by writing, “I know that I will succeed in college, but this scholarship will show me that others believe in me, too.”Leave a comment
Have you ever felt a calling to help, but you weren’t entirely clear what form that help should take? It’s a puzzle many credit union leaders confront. That’s because the credit union movement has rallied around the collective battle cry of “people helping people.” While most everyone working in or leading a credit union is aware of the mission, quite a few wonder, what exactly does “people helping people” look like in our cooperative? How can we live out the industry’s mission in our community? Who needs our help the most and how do we find them?
The answers are clearer for some than others. Yet, even those with a solid giving-back plan in place often discover even more ways to contribute after they begin. The key, according to LiFE Federal Credit Union (LiFE FCU) CEO Dustin Fuller, is simply to put yourself in the place you believe you’re needed. The rest, he insists, usually happens naturally.
Take Fuller’s recent credit union-sponsored mission trip, for instance. Fuller and LiFE FCU’s former chief lending officer (now CU Evolution CEO) Deke Alexander had a crystal clear vision for how their credit union employees could impact the lives of some of the world’s poorest people. Modeling their outreach after traditional church-sponsored mission trips, the pair gathered a group of employees and credit union members together and organized a mission trip of their own.
Fuller and Alexander had traveled to the Dominican Republic before, so they had an intimate understanding of the acute need for access to clean drinking water in many of the villages there. The plan, then, was to mobilize their group around the installation of water filters in two villages. As the group went about making their plans for the trip, one of the soon-to-be missionaries had an idea. A LiFE FCU business member, he is also a doctor who owns and operates Total Eyecare, a vision clinic in LiFE FCU’s hometown of Denton, Texas. What if, the doctor proposed, we bring eyeglasses along for the village elders, many of whom are likely experiencing loss of vision as they age? Everyone agreed it was an excellent idea, so they packed a suitcase full of glasses and brought it along to the Dominican Republic.
The five-day mission trip was, as Fuller describes it, “an awesome experience that did some amazing things for the hearts of employees and members.” By the time the group was ready to head back to the U.S., they had installed two LifeStraw filters that were producing enough clean drinking water for 400 people in three villages. And, they had outfitted 72 elders with reading glasses.
Even more exciting, however, were the unanticipated ways the group was able to impact the lives of the villagers. As they moved about the people and the environment over those five days, they discovered three other, absolutely unexpected, ways they could impact the lives of the people they came to help.
The first surprise came as their van was leaving one particular village. From inside the vehicle, the doctor spotted a young girl sitting alone in front of her family’s home. He asked the driver to stop so he could go and talk with her. As it turns out, the girl had trouble seeing because one of her eyes wasn’t focusing properly. The impairment also affected the way she looked, and she was being teased by her schoolmates. The doctor had with him a lens he believed would help. When the little girl tried on the glasses, her eye immediately responded, straightening out instantly. “Her little face just lit up,” said Fuller, who witnessed the moment. “And her mother… you should have seen her. She hit her knees, bawling. She had never seen her daughter’s eyes straight in her entire life.”
The second surprise came out of a conversation the LiFE FCU missionaries were having with a few of the village pastors. The topic was how to help people in these desolate villages develop their own healthy economies. The group began to talk about the cooperative financial model and how supporting them in the build of a community-based financial network could work. They also discussed the development of a micro-lending pool to finance a motorcycle. If equipped with a crate or two, the villagers could sell their now-clean drinking water in nearby villages. The income could be pooled and used in the case of a health emergency, to finance additional motorcycles or for any other needs that came up. According to CU Evolution’s Alexander, the elders in the village were excited about the concept and are beginning to work toward bringing the vision into reality. LiFE FCU is also looking forward to supporting them as they develop the micro-lending network.
Lastly, the group learned that pastors in nearby villages were forced to travel 10 hours every month to get the proper training they needed to support their villages. If they had mobile devices, however, they would be able to participate in training sessions digitally, staying close to the people in their villages while also learning what they needed to become even more adept at serving them. Fuller called back home to another of LiFE FCU’s business members, SNAG Management, and asked if there was anything they could do. The member gave an emphatic yes, and shipped off five iPhone 5s to the village pastors within a week.
What was so special about each of those three moments, Fuller points out, is that they could never have been predicted. They happened as a natural outgrowth of the group being physically present in a space and being open to the opportunities that presented themselves.
“The pastor at our church often says, ‘You have to go through to grow through it,’” said Fuller. “What he means is you have to experience first-hand how the people you want to help are moving through their days. And it’s not just about experiencing the poverty; it’s about experiencing how the people live and then discovering how you’re uniquely gifted to help.
“Too often, in our personal lives and in business, we get so wrapped up in the way things have always been done,” continued Fuller. “The same is true for giving. Unless we look out at the horizon and think about exploring something new, we can’t grow. We have to go through it to grow through it.”
Alexander acknowledges that “putting yourself there” can be scary. But, he says, acknowledging the fear and pushing past it is worth the effort. “The first time I was approached about going on a mission trip, I didn’t know if I wanted to go. It seemed like an incredible amount of work. I didn’t know the language. I wasn’t comfortable with the environment. Mostly, I didn’t understand how I was going to be able to contribute or what I even had to give. But I did it, and it changed me. I just had to sit there and let the people impact me. It’s not what you know, it’s how open you are to the experience.”Leave a comment
In its 2017 Diversity Report, Financial Solutions Lab (FinLab) provided an update on its efforts to create a more inclusive financial services industry. Managed by the Center for Financial Services Innovation (CFSI) with founding partner JPMorgan Chase & Co., FinLab seeks to identify, test and bring to scale promising innovations to improve financial health in America. The program is dedicated to supporting and encouraging diversity within the early-stage fintech space.
“As an investor and supporter of early-stage startups, we believe that diverse teams simply build better products,” writes CFSI FinLab Senior Manager Maria Lajewski in the report. “By having a more comprehensive understanding of the market, diverse teams are more likely to build products that address the needs of a broad swath of consumers, including those who are historically underserved. And it’s those companies that are much more likely to grow and scale to reach millions of customers.”
Below are a couple interesting findings Lajewski shares in the report:
Of the 57 percent of Americans who struggle with their financial health, some segments of the population – including low-income women and people of color – struggle disproportionately.
Of the 78 FinLab applicants who self-identified as targeting at least one underserved community, 32 had not yet raised any capital and 22 had raised less than $500,000. However, the average amount of capital raised across the total applicant pool was $630,000.
LESSONS FOR CREDIT UNIONS
FinLab’s findings and work to create a more inclusive industry are relevant to credit unions in several ways. Here are a few key takeaways:
Consider extending credit to startups. The FinLab report reveals many early-stage companies, especially those serving underserved communities, struggle securing investment capital. With their community focus and “people helping people” philosophy, credit unions are well-suited to help meet that need. As reported in Inc., Apple may exist today because co-founder Steve Wozniak was able to get a loan from his credit union while the company was still based in a garage. Talk about a feather in that credit union’s cap.
Educate staff and community. Throughout FinLab’s eight-month program, the organization brings in a wide range of people and experiences to help founders deepen their understanding of the financial challenges low-income and underserved consumers face. FinLab also organizes dinners to discuss how to build diverse organizational teams and culturally relevant products for underserved communities. Credit unions could easily adopt similar models to educate their employees and community members.
Host “day-in-the-life” events. During a workshop called FinX, FinLab participants go into a local community to perform a series of real-time financial transactions, such as cashing a check, buying and loading a prepaid card and sending a money order. Here again, credit unions could organize similar activities to help their staff better understand the challenges faced by the underserved in their communities. Coopera coordinates similar activities through its Coopera Immersion Program. Our staff guide credit union team members through a series of exercises designed to give them a better idea of what life is like for the underserved in their communities.
“While we understand these issues are multifaceted and will never be solved in a single conversation over dinner, creating a safe space and the opportunity to have these discussions is one way that we can regularly check our individual and collective blind spots,” writes Lajewski. “Where are the missed partnership opportunities or design decisions that could open up your customer base to those who have the most to gain from your product? It takes a little extra effort to make sure we’re creating a safe space to discuss these kinds of questions, but it’s an investment we’re willing to make.”Leave a comment
The annual Financially Underserved Market Size Study, conducted by the Center for Financial Services Innovation (CFSI), illustrates the tremendous opportunity that exists to address the needs of financially underserved consumers. The study measures the size, composition and opportunity for products and services underserved individuals use to save, spend, borrow and plan.
Here are some of the 2017 study’s highlights:
• Underserved consumers spent $173 billion in fees and interest to use $1.94 trillion in financial services in 2016.
• Spending by financially underserved consumers increased 6.6 percent, or $10.7 billion, in 2016.
• The market has grown an average of four percent each year since 2009.
The report also identifies five trends driving opportunities for financial services providers. What follows are a few ways credit unions may consider leveraging these trends to improve the financial lives of underserved consumers in their communities.
How Credit Unions Can Help
How Credit Unions Can Help
How Credit Unions Can Help
Small Business Finance
How Credit Unions Can Help
How Credit Unions Can Help
Clearly, there are many ways a credit union may be able to leverage the trends driving opportunities in underserved markets. Before embarking on a new initiative, however, a credit union should ensure the strategy aligns with its mission and target market. Doing it right requires a decent amount of work, and importantly, buy-in from executives and the board. But for credit unions looking to tap into the huge potential of the underserved opportunity and improve the financial lives of more consumers, it’s likely worth the effort.Leave a comment
On a recent Freakonomics podcast episode, Is America Ready for a No-Lose Lottery, a professor at the Saïd School of Business specializing in consumer finance shared some interesting insights about consumers’ savings habits (or lack thereof). He surveyed nearly 10,000 people to see if they could come up with $2,000 in 30 days.
“Why $2,000?” Tufano asked. “Because an auto transmission is about $1,500. Most estimates of everyday emergencies are about that order of magnitude… And then, why this language ‘come up with’ as opposed to ‘save?’ Because we wanted to see if people had access to resources between savings, credit, friends and family.
What he found was that nearly half of Americans are not able to come up with $2,000 in 30 days. That means they are just one emergency or crisis away from dire circumstances.
The study highlights the need for credit unions to encourage their members to save, really save. A number of financial services providers are finding creative ways to do just that by adapting to consumer behaviors, particularly those of low-income communities. Below are a couple examples.
Twenty states currently allow prize-linked savings accounts as a way to encourage their residents to save. With this model, consumers deposit money in an account with an understanding they won’t receive interest on their deposits. Instead, the interest of all participants is pooled together and awarded as a large cash-based prize.
This type of account appeals to certain segments of the population because of a phenomenon economists call “skewness.” Skewness is the idea that despite really poor odds, there is an almost irresistible appeal to the idea that with a low upfront investment, one big win could change your life. This phenomenon is illustrated by the nearly $60 billion Americans spend on lottery tickets every year.
Prize-linked savings does carry a few roadblocks and concerns – namely, such a product is not yet legal in every state. Also, the product may be difficult for consumers to understand, particularly for underserved populations who may not even be familiar with the role of traditional financial institutions.
However, if we can overcome those barriers, it may be an interesting product. As Freakonomics host Stephen Dubner said, “In a country where it’s easy to borrow your way to bankruptcy, where you can buy lottery tickets anytime you buy a loaf of bread, prize-linked savings is like a big neon billboard that turns a boring old savings account into an exaggeration of itself. Stick some money in here, it says, and you just might hit a big payday. And even if you don’t — well, your money still belongs to you.”
Tanda is a Spanish term used to describe a savings and lending circle among family and friends that helps people reach financial goals. With more than 200 different names that vary from country to country, the concept of an “informal loan club” has been around for hundreds of years.
Here’s an example of how it works: 10 friends and family members form a tanda. Each member gives $100 every week to the group’s organizer. At the end of 10 weeks, one participant gets the payout of $1,000. This continues until each member has received the payout. By working in a group in which others are counting on them, participants have motivation to stick with the plan. Tandas are particularly popular in Hispanic and immigrant communities in which a high level of value is placed on mutual trust among family and friends.
To appeal to today’s increasing digital consumers, organizations such as eMoneyPool and PayPal are bringing the concept of a tanda into the digital world.
eMoneyPool is a sharing community that operates much like a tanda except anyone can join in less than five minutes using a connected device. Unlike a traditional tanda that only includes family members and close friends, eMoneyPool offers a marketplace where participants can take part in a pool anytime with people from across the country. This means there will always be a pool available to meet their needs. With PayPal Money Pools, participants can create a page that lets others easily chip in for group gifts, special events and more.
Whether prize-linked savings or next-generation tandas are the right path forward for your credit union, one thing is clear: There exists a real need among consumers, and particularly among Hispanics and other underserved communities, for creative and relevant savings options.Leave a comment
As in most cultures, shopping and gift-giving are important parts of the holiday season for many Hispanics. According to recent research by ThinkNow Retail, 33 percent of Hispanics say they will be spending more this holiday season than they did last year, compared to 30 percent across all markets. Some other interesting findings from the study include:
–About 41 percent of Hispanics plan to pay for most of their holiday purchases with a debit card, higher than any other market. Cash and credit tie for second among Hispanics at 24 percent each.
–Smartphones will be the most commonly used device for making online holiday purchases among Hispanics. About 62 percent of Hispanics will use a smartphone, compared to 50 percent across all markets. Laptops, on the other hand, will be the device used the most overall across all markets.
–On average, Hispanics plan to buy about 35 percent of their holiday purchases online and about 46 percent in-store.
For credit unions serving Hispanic communities, it’s important to understand holiday purchasing behaviors to better tailor marketing offers, as well as products and services. Even more important, however, is the understanding of specific motivations. That level of intelligence allows your teams to create a deeper connection between the credit union and its community.
In the Hispanic culture, most holidays have their origins in religion, specifically Christianity. Approximately 77 percent of Hispanics are Christians, with the overwhelming majority identifying as Catholic.
As such, Christmas is one of the most popular Hispanic holidays, and there are many traditions associated with it. Here are a few favorites:
Tamale-making parties – Tamales are holiday staples in many parts of Latin America. Because making tamales is a time-consuming task, many people participate in tamaladas, where participants bond over recipe swaps and bulk prep of the holiday favorite.
Christmas Eve feast – Nochebuena is a very special celebration shared with family and close friends on Christmas Eve. Food plays an important role during this celebration. Each country, and even certain regions within a specific Latin American country, has a special dish.
Re-enactments and plays – Posadas are re-enactments of Mary and Joseph looking for a place to stay before Jesus was born. Many posadas start at church services. Las pastorelas are plays that retell the Christmas story.
It’s clear religion and family are at the heart of the Hispanic holiday experience. Whether it’s partnering with a local community center or church to support a tamalada or posada, having a drawing for a pork roast, a common centerpiece of the Nochebuena meal, or simply sharing holiday family fun ideas on your website and social media channels, there are a variety of ways credit unions can connect with Hispanics in their communities this holiday season.Leave a comment
In October, I shared the plans of three Warren Morrow Hispanic Growth Fund Grant recipients specific to how they will use the funds earned. This post will take a look at four additional recipients of the grant, which is made possible by Coopera, CUNA and the National Credit Union Foundation. Each of the recipients is a Juntos Avanzamos-designated cooperative, a program taken to the national stage by the Federation.
Ascentra Credit Union
“We have been building and evolving our program to accommodate our successful growth of Hispanic members,” said Alvaro Macias, Ascentra AVP of community development. “We also have an internal group of bilingual staff that meets 3-4 times a year and a community development advisory group that evolved out of our Latino Outreach Advisory Group. Today, we are positioning the credit union to build community partnerships that are mutually beneficial to members, other organizations and long-term sustainability of the credit union.”
Santa Cruz Community Credit Union (SCCCU)
“The Warren Morrow Grant will help us close the outreach gap by supplementing our budget for providing financial education to the Spanish-speaking community,” said SCCCU President/CEO Beth Carr. “Additionally, more nonprofits serving the Hispanic community here are being required by grant funders to include financial literacy and training in their grant proposals and programs. As a Juntos Avanzamos-certified credit union, we feel it is our responsibility to assist our community non-profits.”
DC Federal Credit Union (DGEFCU)
“This enhances our credit union’s current Hispanic growth strategy in a couple ways,” said DC FCU President/CEO Carla Decker. “First, it grows our staff’s professional competency and serves to retain talent. Second, the training will add another resource to a budding partnership opportunity with the potential for tremendous impact and further expansion of DGEFCU’s footprint.”
JetStream Federal Credit Union
“At JetStream, we feel the need to help the professionals of tomorrow by providing them with the tools they need today for a better future,” said Vanessa Miranda, manager of HR and community outreach for JetStream. “The grant will go directly into the hands of a deserving local Hispanic low-income student.”
This collective of credit unions is proof the industry sees the Hispanic community as important to the future of the movement. Kudos to each of you for the continued effort to reach and serve this influential and growing segment.Leave a comment