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  • 5 Financial Preferences of Multicultural Consumers

    Posted by on June 4, 2018

    Recent research by CUNA Mutual Group’s TruStage reveals interesting insights about the unique makeup and preferences of Hispanics and other multicultural consumer groups. Below are some of the key findings from the What Matters Now research along with what they mean for credit unions seeking to establish more meaningful relationships with multicultural consumers.

    Multicultural consumers have significant buying power.

    Over the past five years, multicultural consumer groups have accounted for 100 percent of U.S. population growth and 61 percent of credit union growth. The annual spending growth rate for Hispanics is 4.1 percent, compared to 1.4 percent for Whites.

    What it means for credit unions: Credit unions desiring to grow their memberships, assets and loan balances should place a strategic focus on their outreach efforts to Hispanics and other multicultural consumer groups.

    Hispanic appreciation for apps over-indexes other groups.

    Hispanic consumers are almost two times more likely than Whites to research financial products and services using mobile apps. Additionally, 17 percent of Hispanics reported applying for financial accounts and products through an app, compared to only 9 percent of Whites.

    What it means for credit unions: To be relevant to Hispanic and other multicultural consumers, credit unions should be investing in mobile strategies. These cooperatives should ensure their mobile apps have a Spanish language option and the experiences are culturally relevant to Hispanic consumers.

    Business loans are a desired product.

    Hispanics are nine times more likely than Whites to take out a small business loan in the next five years.

    What it means for credit unions: Invest in products and resources to help Hispanic entrepreneurs, such as small business-friendly loans, microloans and small-business financial education. Also, consider partnering with organizations that offer small business assistance, such as local Hispanic chambers of commerce and small business incubators.

    Hispanics prioritize ease of use.

    Twenty-three percent of Hispanics look for convenience in financial products and services, even if it means higher rates or fees, compared to only 9 percent of Whites. Flexible payment schedules and speed of lending are also more important to Hispanics than other groups.

    What it means for credit unions: No two consumers are exactly alike. Providing a range of product options and fee structures will help you be relevant to a wider range of consumer segments. Offering instant online loan approvals is one way to meet a need for many Hispanic consumers.

    Hispanic consumers tend to worry about finances.

    Every expense category studied by CUNA Mutual causes Hispanic consumers concern — sometimes up to 20 percent more than other consumer groups. At the same time, Hispanics tend to have a stronger sense of generosity and community than other consumer groups.

    What it means for credit unions: Think about ways to help relieve concerns for Hispanic consumers through relevant financial education and resources. Also, be sure to educate local consumers on the credit union philosophy of “people helping people,” and share stories of how your credit union and members are improving the lives of individuals and families in your community.

    As you apply these findings to your credit union’s Hispanic outreach strategies, be careful not to over-simplify the data. “When examining the research findings, it’s important to remember a person is made up of many unique cultural aspects,” said Opal Tomashevska, manager, multicultural business strategy, CUNA Mutual Group. “Be careful not to over-generalize or create stereotypes from this information and apply it to all members of a certain group. The data shows trends and significant differences but does not attempt to speak for every individual.”

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    5 Trends Driving Credit Union Investment in Underserved Markets

    Posted by on January 8, 2018

    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.

    Credit Cards
    Credit card spending among underserved consumers has grown rapidly for several consecutive years. CFSI estimates underserved consumers will spend $37.6 billion on retail credit cards, $8.3 billion on subprime credit cards and $0.4 billion on secured credit cards. Retail credit cards resemble subprime credit cards in terms of average balance and interest rates, but promotional features, like product discounts and no-interest startup periods, drive many account openings. Consumers who don’t pay off their balances quickly enough may see the cost of credit increase rapidly. The average retail credit card APR is 24 percent, and 72 percent of retail credit cards do not base APR on cardholder creditworthiness.

    How Credit Unions Can Help
    Consider mapping out a strategy to evolve your credit card offerings in a way most likely to benefit the unique underserved populations in your market. Start by identifying your existing members and prospects who fall into the underserved segment. Finding success with a credit-builder product like a secured card isn’t a quick fix. Issuers must take the necessary steps to comply with several regulations, including Ability to Repay rules. Cards and marketing teams will need to collaborate closely to execute sales, communication and, importantly, cardmember education plans. There must also be a good program in place for graduating cardmembers into appropriate products as their improving credit profiles warrant.

    Frequent Overdrafts
    Nearly 75 percent of overdraft revenue comes from a relatively small number of consumers. The Consumer Financial Protection Bureau (CFPB) reports 8.3 percent of all checking accounts experience more than 10 overdrafts in a year. In 2016, this subset of frequent overdrafters spent $24.5 billion on overdraft fees. Of consumers whose overdraft frequency is in the top 20 percent, 23.4 percent close their accounts within 15 months. Of those, 86.3 percent see their accounts closed involuntarily.

    How Credit Unions Can Help
    Educate your members on how to avoid overdraft fees, including opting out of overdraft protection, keeping closer tabs on checking account balances, direct depositing paychecks, signing up for automatic notifications if the balance drops below a certain level and setting up a linked account as a backup.

    Credit Pricing
    There are approximately 91 million U.S. adults who are credit-challenged, meaning they have subprime credit scores below 600 or are unscorable due to a lack of sufficient credit file information. Many credit products accessible to underserved consumers feature one-size-fits-all rates and fees, which means they aren’t priced according to risk.

    How Credit Unions Can Help
    Many credit-challenged consumers may benefit from alternative measurements of borrower risk to increase their access to credit. Big data makes it possible to develop much more nuanced underwriting and rate-setting techniques. Setting custom-tailored rates to fit an applicant’s credit history does require specialized expertise, but the return is worth the extra effort. This is true not just for the credit union but also for members of the local community who may be turned down for credit with traditional underwriting. Risk-based pricing allows issuers to lend to consumers of higher risk and still be profitable.

    Small Business Finance
    An annual Federal Reserve survey found between 56 percent and 71 percent of small businesses with revenues of less than $1 million failed to receive the full amount of credit requested on loan applications over the past three years. Forty-four percent of small businesses surveyed reported securing financing as a top challenge. Small businesses are increasingly seeking out non-financial institution online lenders as a source of credit. These online lenders were preferred by 26 percent of small businesses in 2016, up from 18 percent in 2014.

    How Credit Unions Can Help
    While credit access is extremely important, it represents only one piece of a small business’s overall financial health. Broader opportunity exists for credit unions to help address the full range of small business financial challenges, such as limited time for financial management, cash flow volatility and barriers to startup funding.

    Fintech Solutions
    Several product markets are feeling the impact of increased digitization. The rise of digital wire transfers and online tax filing points to the inroads new technologies are making into previously brick-and-mortar domains. Short-term credit products are primed for online channel growth that can enhance borrower control in the loan comparison and application process.

    How Credit Unions Can Help
    Ensure the digital experience your credit union offers is on par with the experience offered by your non-financial institution competitors. Many underserved populations use online and mobile devices as much or more than other segments. A recent Google study found U.S. Hispanics use online sources at a higher rate (54 percent) than the general population (46 percent) throughout the purchase journey.

    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.

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    Keeping Lending Products Accessible for Hispanic Borrowers

    Posted by on August 7, 2017

    By making a few key adjustments to your traditional lending products, you can make inroads with an entire segment of Hispanic borrowers looking for your services.

    It’s no surprise that the Hispanic segment of the U.S. population is growing, increasing from 17 percent of the population in 2015 to an expected 29 percent in 2020 (according to U.S. Census figures). With that increase comes a growing demand for culturally-appropriate lending services, which is an exciting opportunity for credit unions looking to grow Hispanic memberships.

    Access to credit is a key stepping stone for many Hispanic families, opening the door to greater financial and economic stability. Small-dollar loans also are a necessity for many Hispanic individuals, particularly those looking for financial help in completing the immigration and naturalization process. Without assistance, the application and processing fees associated with filing for U.S. permanent residency or U.S. citizenship can be out of reach for many immigrants.

    By keeping a few key factors in mind when designing lending products, credit unions can expand the reach of their offerings to connect with Hispanic members and create lasting relationships.

    Affordable products

    Product affordability is key for many Hispanic members. Keeping application fees low (or non-existent) and capping interest rates to keep monthly payments affordable will make lending products more appealing to multiple segments within the larger Hispanic community.

    Redefine creditworthiness

    Hispanic immigrants and other non-U.S. citizens may not always fit the traditional “borrower” profile. Yet, members of this segment can become loyal, profitable members. Instead of turning to traditional tools like a FICO score, consider looking at things like rent or telephone payment histories. Available through services like LexisNexis or Clarity, these alternative credit indicators can provide your lending team a view of a potential borrower’s ability to meet financial obligations.

    Cultural competence

    Some Hispanic segments prefer to speak in their native language when discussing complex and personal things like finances. Having bilingual staff and materials is key to helping your Hispanic members, particularly those new to the cooperative, understand the associated fees and requirements for lending products, and to feel more confident in their financial decisions.

    By adjusting a few elements of your traditional lending process and products, you can better connect with Hispanic borrowers and create mutually beneficial and long-term relationships that drive growth. If you’d like more information on how Coopera’s staff can help you do that, please let us know.

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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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    Walmart is After Your Untapped Market, Hispanics

    Posted by on October 9, 2014

    I don’t think many of us were surprised to hear of Walmart’s unveiling of a new checking account with an $8.95 monthly fee and no overdraft or returned check fees. After all, the writing has been on the wall for some time, as we’ve watched the mega retailer dip its toes into financial waters.

    What was less expected, however, was Walmart’s rollout of health insurance services this month.

    So, who is Walmart targeting with these new products? We believe the target is a specific sector of its existing shoppers – the unbanked/underbanked and the uninsured/underinsured markets, and in particular the Hispanic market.

    Unbanked individuals do not have a traditional financial institution account, providing a potentially large gap for Walmart to fill. As for the underbanked, these consumers may have a traditional savings or checking account; however they largely rely on non-traditional financial service providers, such as check-cashers and money transfer services, for many of their financial transactions.

    Did you know that 1 in 12 U.S. households is unbanked and 1 in 5 U.S. households is underbanked? That’s a total of 34 million households in the U.S., according to the FDIC’s 2011 National Survey of Unbanked and Underbanked Households.

    The health insurance market also represents a sizable opportunity for Walmart, as the U.S. uninsured rate is now at the lowest level recorded since 2008. For the Hispanic market, that means nearly 1 in 3 people are uninsured.

    Why Walmart Sees Potential in These Markets

    There is a misconception about the unbanked and underbanked market all being low-income, high risk and not profitable clientele. Walmart knows better. The U.S. unbanked and underbanked market does include low-income households, yet it also includes immigrants, young people, minority groups and single family households with financial needs.

    These individuals spend much of their paychecks on pricey alternative financial services, to now include Walmart’s checking account and prepaid cards. (If you’re thinking $8.95/mo sounds pretty affordable amid news of rising fees, keep in mind the average monthly service fee for a non-interest checking account fell 5 percent to $5.26 over the past 12 months.)

    A large percentage of U.S. unbanked and underbanked households are made up of Hispanics. Much of this stems from cultural preferences vs. a lack of financial stability. Hispanics are also the largest, fastest-growing, youngest and most underserved group in the U.S. with more than a trillion in purchasing power – a prime untapped market for credit unions.

    One thing is for sure, profit-hungry Walmart would not introduce these products if it did not foresee strong potential. It’s clear their executives have identified the above consumer segments, many of which include Hispanic consumers, as a hot, untapped market. Credit unions must not acquiesce – these markets are tailor-made for the “people helping people” philosophy and are primed for generating tremendous revenue and membership growth.

    As Scott Butterfield from Your Credit Union Partner notes in Credit Unions and The Ultimate Category Killer, “Overlook the Hispanic community at your own risk.”

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