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3 Tips to Make Indirect Lending More Profitable

Indirect lending has been a critical component of the credit union industry’s rising domination of the auto lending market. Credit unions with indirect programs have experienced consistent double-digit loan growth with a rich supply of new members that otherwise may have financed with a bank or captive lender. But, are these relationships as profitable as they could and should be?
According to a report published in the  Credit Union Times  in January 2020 titled, “Indirect Lending Growth Tails Off Sharply,” credit unions hold $378.2 billion in auto loan balances or roughly 31.5% of all auto loans in America. Of that, 84.4%, or $319.4 billion, were funded through indirect channels. But an average indirect loan is not profitable until after eighteen months with an average runoff term less than twenty-four months. And once the loan is paid off as many as 98% of those new indirect members close their accounts according to a 2015  GreenProfit Solutions, Inc.  report. 

With profitability so low and the member relationship so short, I am surprised by how many credit unions do not effectively engage their new and existing indirect members with a value-adding, onboarding strategy. Specifically, the personal interaction of an onboarding call.  
Onboarding of new indirect auto and RV loans is the critical step to shortening the time to profitability and retaining those new indirect relationships. When I first started in the credit union outbound call center 14 years ago, it was to do this very thing: my job was to onboard new indirect loans. The leadership for this credit union saw the onboarding call as an important process for a few reasons. First, to reduce first payment defaults by contacting members before their payments were due. Second, to create value in the minds of new members with a personalized welcome phone call. And third, to capture additional profitability and loyalty through cross-selling opportunities.
Indirect loans, especially new indirect members, are a treasure trove of cross-selling potential. What richer opportunity could there be? The credit union has a new member with a new account and all of the financial information the credit union needs to sell additional products and services to that member. While the credit union cannot use the credit report for direct cross-selling to comply with  Fair Credit Reporting Act  guidelines, they still have the member’s application information, employment information, credit status, and, in some cases, their asset information. Credit unions also have a new loan with a variety of products and services that can be offered such as insurance, automatic payments, and online and mobile banking. There is no reason why a credit union shouldn’t see high profitability right away with an effective indirect onboarding process.

Here are three tips on how to do this:
First, give your indirect onboarding process a home.  The indirect onboarding process is best owned by a sales-focused team like an outbound call center. The reason for this is that it provides the ability to specialize. Because outbound sales calls are a unique and specialized process, it often feels like outbound sales calling is like an island that the credit union just does not inhabit. The skills, values, and motivations needed to be consistently effective in an outbound calling role are generally not developed in employees of the credit union’s branch or inbound contact center teams. By developing an outbound call center, the credit union can hire one or more individuals with the necessary attributes to be consistently successful and generate positive production.  
So, can branch and/or contact center onboarding programs be successful then? Yes. They absolutely can; however, there are some challenges that need to be addressed with solid leadership and management of the program. In addition to tips two and three, here are a few additional tips to consider when running an indirect onboarding program with branch and/or contact center teams.
The first consideration is time. Branch and contact center staff have a first priority to assist members who have come into the branch or called in. Member traffic can be unpredictable and draw attention away from employees making onboarding calls, making onboarding calls a secondary process, or worse, even further down the list of priorities. Credit unions wishing to have a successful onboarding program run by branch and/or contact center employees must create a specific schedule for calling that cannot be ignored or cannibalized with everyday functions. Additionally, employees should not make calls at their desks or stations. They should be allowed to use an office or back room where they will not be interrupted or overheard by members or other employees. 
The second additional tip is to be selective of which employees you choose to make these calls. Not all employees will have the aptitude to be successful in an outbound sales role. Leaders and managers should select employees that possess the necessary skills and motivations to be successful and are eager to make onboarding calls and develop new business through sales. Additionally, these employees should have the opportunity to earn more money in the form of incentives or bonuses when they successfully bring in new business through their indirect onboarding calls. 

Second, provide specific training for employees.  Employees making indirect onboarding calls must receive specialized training to understand the priorities and desired outcomes of the call as well as receive outbound sales process and skills training. They need to clearly understand what a “Great Job!” looks like and feel confident in their ability to achieve it. 
Give the employees access to the indirect lending system and show them how to find critical information. Also provide them specific phone training on how to up-sell ancillary products such as auto pay, GAP, and extended warranty; they should also know how to recapture all loan types and bring in new checking accounts. Finally, employees need specific training on how to gain commitments over the phone and close product and service sales through electronic platforms.  
Third, measure and track success.  The right strategy means a credit union will not be making a token effort with their indirect onboarding calls. They will be measuring calls made, contacts made, and products and services offered and sold. This is especially important in the branch and contact center where apathy can easily go unnoticed. They will then use this information to coach, mentor, and improve employee performance with the goal of increasing profitability and loyalty by adding value to their members’ financial lives.
Let’s look a little closer at a common example. Your indirect team funded a $25,000 auto loan with 3% in costs between the fee paid to the dealership and the other expenses of running an indirect program. The loan was financed for 72 months at 2.99% with a net interest spread (interest earned after interest expenses and loan loss provision) of roughly 75%. In the first year this indirect loan will generate about $520 in interest. With the indirect expenses factored in, the loan is still in the negative $230.00 and will take a few more months before breaking even. But if the credit union onboards effectively and they are able to sell GAP ($150 net), recapture an additional $18,500 auto loan at 3.49% (roughly $440 net interest will be earned in the first year), and set up e-statements ($12.00 first year savings to the credit union) that same member now nets the credit union $372 in the first year. 
In addition, the outbound agent also helped the member set up their online account, download the mobile app, set up automatic payments, and discussed the member’s future mortgage needs. Creating an effective indirect onboarding strategy isn’t necessarily easy but it is definitely worth it and something your credit union needs to implement right away if you haven’t already.

SalesCU  is a credit union-specific, sales training company dedicated to bring a proactive sales approach to every credit union. SalesCU accomplishes this by providing sales consulting and training to enhance branch sales, contact center sales, outbound sales, and lending center sales. The goal of SalesCU is to empower credit unions to cultivate primary financial relationships with their members. Engage Nick Brown directly at 801-860-5807 and nick@salescu.com. Ask about his credit union specific workshops and online sales training, featured at www.salescu.com.

This content is for CU BUSINESS eMagazine + WEB ACESS and THE TEAM BUILDER (GROUP SUBSCRIPTION) members only.
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