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  • An Unscoreable Consumer Could Become Your Next Great Member

    Posted by on March 6, 2018

    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:

    • Unbanked/underbanked
    • First-generation immigrants
    • Millennials
    • Rural consumers

    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.

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    Five Reasons Consumers are Unbanked

    Posted by on December 15, 2014

    For many people – especially those of us working in the financial services industry – it can be difficult to understand why someone would not have a bank account (or if they do, why they would still use costly alternative financial services). Yet, legitimate and systemic reasons for a lack of traditional financial relationships offer a glimpse into the “why’s” behind our nation’s underserved communities.

    At the recent 2014 CUNA Community Credit Union and Growth Conference, credit union leaders and I dug into the question “Why Are Consumers Unbanked” to uncover strategies that may help the movement better serve these individuals.

    Below are just five of the “why’s” we discussed:

    Misperceptions about money persist
    Underserved consumers report feeling they do not have enough money for a bank account.

    Geography plays a role
    Consumers in five states in particular are more likely to be unbanked and underbanked – Mississippi, District of Columbia, Georgia, Kentucky and Texas.

    Culture can be a driver
    Nearly one out of two Hispanics are unbanked or underbanked.

    Past behavior predicts future
    Households that have previously had a bank account are less likely to report they do not need an account or to use alternative financial services.

    Language barriers are real
    Nearly 20 percent of Spanish-speaking, unbanked, foreign-born non-citizens cite “account opening requirements” as the main reason they do not have an account.

    For credit unions, we discussed, there exists a great opportunity to provide a better alternative for these individuals. That’s because everyone has financial service needs – almost daily. Take a look at the five “why’s” above and ask yourself if your cooperative can address any or all of these for your local unbanked and underbanked community.

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    Credit Unions Set Sights on Payment Competitors to Attract Underserved Hispanics

    Posted by on November 17, 2014

    We get asked often why a firm focused on Hispanic outreach is based in Iowa, a state many consider less-than-diverse. In fact, the Hispanic population in our home state more than doubled from 2000 to
    2013 and is expected to account for more than 12 percent of Iowa’s population by 2040.

    The change to our state’s consumer make-up has not escaped the attention of Iowa’s credit unions. Leaders of the state’s movement are right now exploring ways to invest in service to Hispanics, the largest, fastest-growing, youngest and most underserved group in the U.S.

    To help, Coopera and the Iowa Credit Union Foundation (ICUF) recently facilitated a roundtable for Iowa credit unions. In the 4-hour session, we joined four credit unions already doing an excellent job with service to underserved consumers, many of whom are Hispanic.

    To my right are Jocelyn Peña, Greater Iowa CU; Nicole Suarez, Village CU; Traci Stiles, Des Moines Metro CU; Jessica Martens, Community 1st CU

    Among the different ways we talked about adapting credit union products and services to this special market, the concept of unique payment products stood out. Because underserved consumers continue to use high-cost alternatives to pay bills, make rent payments and secure short-term loans, payment products present a sizable opportunity for credit unions looking to reach this market.

    Here are just a few of the alternative payment providers already popular with the underbanked, Hispanics included:

    PayNearMe: This provider issues plastic cards and PaySlips that can be printed or displayed on a mobile device.

    Walmart: The retail giant continues to diversify its financial service products, which include everything from credit cards to money transfers. Most recently, it began marketing a low-cost checking account.

    LendUp: Credit-building loans starting as low as $250 available with instant approval online. (Of course, it comes with a hefty price tag at 29% APR).

    WipIt: Allows Boost and Sprint mobile phone users to make payments with cash directly from their phone.

    OnDeck: Provides small business loans online, and underwriting is based on performance rather than individual credit.

    Boom: A prepaid card with mobile banking features.

    For each of the above, our expert panelists brainstormed alongside Iowa credit union leaders how cooperatives could compete and why they should. It was an excellent discussion, and one I’d be happy to share in more detail one-on-one. Send me an email with your thoughts or questions and we can talk through your credit union’s payments strategy and how it may be configured to appeal to the underserved Hispanics in your community.

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