Digital Small-Dollar Loans: Powerful Savings for Credit Unions and Members
By Seth Brickman, CEO, QCash
September 15, 2023
For wayward credit union members or consumers trying to get out from under debt or unpaid bills, the road can get pretty rough.
Those consumers may not even be aware of the avenues available to escape their situations, much less worry about how they’re going to save money for the future. That is why this latest offering in QCash and CUNA Strategic Services’ continuing joint series “The Case for Small-Dollar Loans” explores the financial benefits of small-dollar lending and its direct effect on savings for your members and your cooperative.
Benefits for Members
The rise in small-dollar lending, particularly in this new and advanced era in digital fintech, benefits credit union members considerably in affordability and accessibility. These digital loans represent thousands of dollars in savings as opposed to the abusive rates charged by payday lending outfits, check cashing or rent-to-own businesses, and the like. Below, we touch on the benefits of small-dollar lending, their benefits for savings, and how they help members build hope for their long-term financial well-being:
- Lower APRs: This benefit goes back to the founding advantages of the credit union movement. On average, credit unions offer drastically lower annual percentage rates on their loans due to their focus on returning value to their members by reinvesting revenue back into the cooperative. Predatory lenders, on the other hand, average 391% nationally, while federal small-dollar loans typically average 18%.
Cooperatives tend to charge lower fees, require lower deposit balances and provide superior member service and counseling towards improved financial inclusion and wellness. Those savings are reflected in members’ accounts, enabling positive savings habits emphasized by member literacy counseling for which the credit union movement is renowned.
- Longer repayment terms: Another satisfying feature with credit unions is their flexibility towards repayment of small-dollar loans issued to members trying to regain financial stability and reestablish positive savings habits. Small-dollar loans have longer repayment periods, allowing members the chance to side-step devastating debt traps common with high-priced, for-profit predatory lenders whose repayment periods are strategically, purposefully short.
- Lower fees: Credit unions offer much lower loan and application fees, if they have a fee at all in comparison to predatory loan fees. On average, a payday lender may charge three times as much as a credit union would charge for a small-dollar loan.
- Convenience of digital: Incorporating digital banking into your credit union’s offerings and giving your members the ability to perform daily tasks from their digital devices remotely is a huge benefit for today’s informed and on-the-go consumer. From depositing checks to transferring funds to executing a digital small-dollar loan in a sudden emergency, convenience and saving on daily costs is the name of the game today in both attracting and then maintaining your relationship with your members.
Benefits for Credit Unions
Small-dollar loans started as the bedrock product in the credit union movement since its founding and have benefited credit unions through both the best and most trying times in our nation’s history. If positioned correctly to your community, they will continue to serve as a stable source of reinvestment into your institution.
Below, we list ways investing in a digital small-dollar loan platform like QCash can raise the quality of your digital lending services:
- No staff required: One of the more favorable features of the QCash platform is that no staff is required to issue loans. Automated small-dollar lending is available 24/7. QCash is integrated directly with your core processor to complete every step of the process, requiring zero intervention or management from your lending staff. It can cost the credit union $150-200 to process and deliver a manual loan. Eliminate the overhead on these loans and allow your team to focus on higher-value loans. Because of the speed of QCash, credit unions automating a manual small-dollar loan experience a 270-350% increase in funded loans.
- Member retention: As credit union members go searching for more convenient and cost-saving mobile offerings from their credit unions in their day-to-day lives, the Credit Union Times found a report that said 48% of consumers 30-years-old or younger claimed they would switch to another credit union if it offered digital services comparable to those of larger financial institutions. Overall, 27% of all members were willing to switch to financial institutions with more innovative products, according to PYMTS research.
- Pre-approved loans: Pre-approved loans enable you to target specific groups with specific needs. For example, you can reach out to members who are using predatory lending with a special offer, inviting them to take advantage of an affordable, responsible small-dollar loan. This can free them from the cycle of predatory debt.
One of QCash’s credit union clients reported they helped 99% of their predatory lending users out of this debt trap. These members have moved upstream to more traditional credit union products, thereby contributing more revenue back into the cooperative. Pre-approved loans can deliver lines of credit, credit cards, personal loans and targeted small-dollar loans.
- Overall business growth: For many consumers across the U.S., digital banking has become an everyday necessity. In fact, according to Cotribute, 31% of 25-34-year-olds and 36% of 35-44-year-olds do their banking entirely online. Credit unions looking to increase their membership would be at a huge advantage if they are successful at onboarding the digital services members are looking for.
There are many sources of questionable funding that consumers can go to in-person and online, and very few, if any, of them have their best interests in mind. Credit union-backed digital small-dollar loans have seen cooperatives and their members through the worst of the last century and into the first quarter of this one, and the fintech to deliver them has only gotten better and more member-centric.
Connect with QCash to learn more.
QCash Financial offers relationship-based small-dollar loans. The CUSO’s lending platform enables credit unions to help their members responsibly when they face financial challenges from unexpected life events. From application to account funding, the process is complete in under 60 seconds, no credit check required, and completely digital, needing no effort from staff. When life happens, be there for your members anytime, anywhere and from any device.
Ready to level-up your members’ experience? Consider Life Event, Specialty, and Financial First Responder Loan programs, all using QCash’s patented relational underwriting.