Why digital lending fintech can accelerate financial inclusion
March 14, 2023
When Maurice Smith started worrying credit unions could “lose their relevance” in the minds of their members and communities, he decided to do something about it.
Serving as CEO for Raleigh, NC-based Local Government Credit Union and Civic Federal Credit Union, Smith somehow finds the time to also serve as chair of the CUNA CEO Council. An avid proponent of telling the powerful story of the credit union movement, his mission doesn’t end there. In a recent news piece on CUNA.org, the organization highlighted the mission to which Smith has dedicated himself – combining the power of credit unions and credit union service organizations (CUSOs) to create new ways to serve members.
Smith’s combined agenda for his two credit unions and their CUSO partners he calls the Enterprise represent a “how-to” list for creating yet another powerful story. The Enterprise acknowledges the constantly-changing demands of a dynamic workplace, the COVID pandemic, and economic instability, while incorporating financial inclusion efforts. One new CUSO will focus on financial wellness while another will contend with helping the Enterprise expand the barriers to advance new ways of serving members.
Smith sums up his efforts with the Enterprise: “What if credit unions could crack the code for sustainable, scalable wealth-creation for disenfranchised communities? It’s really anchored in the notion that we as credit unions should focus on the people who need us the most.” Such an effort will require doing more than is necessary to reach the members and communities with the lowest credit scores or exhibiting moderate to extreme financial instability.
These efforts can also help establish members’ financial health goals so they can access credit and potentially purchase a home in the future. Focus like that has enabled the combined credit unions to achieve a return on assets of more than two percent, with 23 percent year-over-year loan growth. In addition, delinquencies decreased 10 percent and charge-offs decreased 80 percent.
“This is the coolest thing we’ve ever done,” says Maurice Smith. “It’s really anchored in the notion that we as credit unions should focus on people who need us the most. Based on historical trends, the next recession will be in 2027. It would be a shame if we faced the next bout of financial troubles not having applied what we learned from previous recessionary times.”
Digital lending CUSOs and fintech taking the reins
Maurice Smith’s eternal optimism represents the perfect example and a roadmap for taking proactive action in attacking financial instability on behalf of underserved in credit union communities. While the QCash mobile lending platform assists credit union communities from another angle, the value Smith sees in CUSOs represents another example of how the credit union movement can fundamentally impact this nation’s financial health challenges.
Unfortunately, not everyone in the movement has been able or is willing to take action on such digital solutions.
Traditional banking processes are scattered with what many call “legacy systems” completely absent of innovation, and to such an extent that they lack the agility and the technological expertise necessary to develop first-rate financial products and services. On the other hand, fintech are technologically-enabled financial service providers, employing advanced programs to offer efficient and accessible financial services to their credit union partners. In doing so, they often disrupt those traditional financial service providers and move the banking standard forward for members who expect more innovation from their financial institutions.
The rise of digital lending and a more financially-inclusive world
In the traditional practice of lending, an individual may go into a financial institution. These kinds of lenders fit into a certain box that works for all loan products, and are unable to meet detailed and diverse credit requirements. Easy access to credit has been the biggest challenge in not only America but the world.
Digital lending has become a new addition to the lending ecosystem and has disrupted the historic challenge of addressing the delays in consumers accessing proper credit. These digital lenders use payments data to underwrite loans in near-real time. QCash, for instance, employs a patented relational underwriting algorithm that takes the member from application to fund deposit (if approved) in 60 seconds.
The fintech company employs their members’ 360-degree relationship with the credit union, in part with financial and transactional data, to underwrite lending agreements instead of a traditional API-centered approach. This method lowers the time necessary to access personal or payday loans.
All fintech is not the same, however. Part of QCash’s express, good-faith mission is to partner with credit unions in their movement to enable individuals of all income levels near-instant access to funds through our mobile small dollar lending platform in order to take care of life’s unexpected emergencies. In addition to that function, however, is getting the member re-engaged with their local credit union in order to gain consistent mentorship, education, and guidance from staff in advancing their goals for improved financial health and inclusion.
Unfortunately, not all digital lending fintech is motivated in the same way. An article in The Regulatory Review quotes Christopher Odinet, law professor at the University of Iowa, who claims that fintech firms exploit partnerships with banks to engage in predatory lending. He also argues that financial regulators need to update the banking regulations in order to protect consumers.
Of course, there are fintechs out there who unfortunately partner with financial institutions or exist on their own that “exploit” and take advantage of consumers. Those misguided enterprises tend to have a short shelf life, wherein their misdeeds catch up with them legally, or the market finds a way to make them irrelevant in the long-term. Then again, there are many, many more fintech companies who use their rock-solid relationships with their financial institutions to genuinely grow, nurture, and guide their members’ financial health goals, all the while enhancing the credit unions they serve by offering the services that will make their members’ lives better.
Digital lending is an effort to build a more financially-inclusive nation and, in the broad scope, world, providing almost three billion individuals excluded from such offerings access to a wider assortment of products and services. When we enable the benefits of access to credit unions, those underserved members and consumers gain access to better and quicker products and services in more affordable ways.
Fintechs around the country gain competitive advantage when they introduce digital lending products. The availability of various accessible technologies -- internet access and increased smartphone -- has raised consumer expectations for what is possible, which constantly changes based on the user experience. Introducing digital lending products and services will help credit unions stay current in the needs and demands consumers expect from their financial institutions.
While Maurice Smith went wild on incorporating CUSOs with his credit unions, such efforts should only inspire your credit union to take action and move your community’s underserved toward improved financial inclusion. Equally, those digital and mobile lending offerings can only bolster your cooperative's current product and service portfolio while helping your organization to progress and stay ahead of your competitors.
QCash Financial, a CUSO, is a fintech firm that is mission-driven to empower financial institutions in their quest to improve the financial well-being of their communities by providing loans to their members in under 60 seconds without the use of a credit score. The QCash platform is the best tool for advancing financial inclusion and access for credit union members.