After we knew we had the necessary technology and products to serve the members, we had to see if virtual branching made sense for our members and community. Our Advisory Board, consisting of leaders of local not-for-profits and municipalities who work with the same Low-Income Target Population (LITP), described four reasons why this initiative and the subsequent full switchover to virtual branching would benefit the unbanked and underbanked individuals we serve.
Strategy for Inclusion
Frankly, this feedback stunned and confused us. There was a disconnect between the reality of what the LITP was doing and what the Advisory Board said they wanted and needed. The members that had the least amount of time and the least amount of resources to get to the branch were using it the most. Why?
They don't use the branch because they have to, but because it's what they know. 60% of our branch transactions are check cashers. While we offered direct deposit they still came in to cash their check. Why have direct deposit if you have to go in anyways to get cash or money orders to pay your bills? They trade their check for money orders because they didn't own computers or have internet and consequently couldn't use bill pay. When smartphones and WIFI became more readily available, it became more about what they've always known. Also, bill pay somehow got a bad rap that you have to choose auto-pay. They need more control with living paycheck to paycheck.
We learned that financial wellness was not just about financial education but in product education. While this feedback from our Advisory Board gave us confidence that a virtual branching strategy would work, it was on us to show members, one by one, how to use our products. This is how you are more inclusive of the underserved and underbanked, by meeting them where they are, listening and not assuming, and taking the time to teach. Individually showing each member that walked in how to set up bill pay and that they can manually choose the day they pay was a game-changer.
They don't use the branch because they have to, but because it's what they are told. Another reason we saw the LITP coming into the branch is because we force them in when applying for a loan. Most credit unions' auto-decisioning loan operating system (LOS) is useless if you go much deeper than A paper. 75% of our loan portfolio ($) is to the LITP with colorful credit, and yet a typical LOS would tell nearly all of these applicants, "Please visit your local branch." Anyone can auto-approve a loan with A credit and <30% DTI. If we want to be more inclusive in our auto decisioning we need to be more aggressive at bringing in third-party, non-credit bureau data, creating underwriting algorithms driven by true risk-based lending factors which generally have little to do with what your credit score is today, and Ai learning based on loan performance. Our members are no longer using these online predatory lenders because it's their only option, but because they believe it's the better option. These online predatory lenders are auto approving and auto funding and we are rapidly losing market share. Our members, and yours, see more value in speed and being treated with dignity (yes, not being auto-approved is another reminder of 'you're not worthy') over the savings of a 200%+ APR loan. Who are we to say it's not worth the cost? Obviously, they disagree.
We've taken our most loyal, and quite frankly our most profitable members, for granted. We found the moral of our story is we have met the enemy, and he is us.
*According to PEW Research, reliance on smartphones for online access is especially common among younger adults, lower-income Americans, and those with a high school education or less. Demographics of Mobile Device Ownership and Adoption in the United States | Pew Research Center, 52% (Household income less than $74,999) of U.S. adults do not use broadband at home but own smartphones. WIFI is readily available just about anywhere and everywhere. There are many programs that offer free and deep discounted smartphones/plans based on household income.