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....-->
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?
A...