Whether it was the leftover effects of the COVID pandemic, inflation-related factors, or liquidity fears in the economy, small-dollar lending found itself in the limelight once again in 2022.
New data from the National Credit Union Administration (NCUA) revealed cooperatives issued $227 million in small-dollar loans through the Payday Alternative Loan (PAL) program in 2022, overtaking the previous record of $174 million set in 2019 by 30 percent. In fact, reports by CUNA in February showed unsecured consumer loans grew 21.2 percent to $66.5 billion from a year earlier.
This rise in digital small-dollar lending benefits credit unions and their members alike as those loans represent hundreds to thousands of dollars in savings in relation to abusive rates from predatory payday lending or rent-to-own outfits. That means you’re drawing underserved members back to the financial mainstream and the economic stability they will remember you and learn from. Such growth also means more borrowers with limited credit can borrow funds quickly to cover recent expenses and avoid those payday lenders in the future.
Expanded small-dollar automation like credit union service organizations (CUSOs) can assist in driving recent increases for consumers during these uncertain times. But what if those same credit unions believe they’re inhibited by liquidity fears and issues that prevent them from investing in affordable, flexible, and accessible CUSO fintech like QCash?
Why CUSO fintech can ease liquidity fears for credit unions
For credit unions thinking about onboarding a particular small-dollar lending platform, individual loan-to-share figures represent areas of concern when it comes to liquidity fears. Solutions abound with CUSOs, however, especially from the inherent flexibility of fully-customizable platforms like QCash in easing such anxieties or reservations.
At the same time, consumers are also spending more on products and services during a time of high inflation and, as a result, are tapping into their savings.
By the end of 2022, the number of small-dollar loan accounts increased by 16 percent over the previous year, largely driven by borrowers angling to consolidate their debt to fight back against inflation. As those loans come to maturity and liquidity increases, small-dollar lending can offer returns as high as nine percent while representing a distinct opportunity for cooperatives to gain new members and form new and long-lasting relationships.
A big advantage when it comes to CUSO fintech is the quantum leap in efficiency versus yesterday’s vastly outdated manual processing procedures. Following implementation, QCash’s system takes no staff time to process loan applications, allowing those executives to focus on projects that will bring in even more revenue for the cooperative. All the while, members have unlimited access to digital loans, providing the opportunity for increasing loan volume.
For example, Peoples Advantage Credit Union President and CEO Amanda Habansky offered a story of efficiency and revenue-generating results on a CU Broadcast episode with Mike Lawson and QCash CEO Seth Brickman. Before Peoples Advantage implemented QCash digital platform, the cooperative’s lending team would get bogged down every holiday season due to the inefficiencies in their manual processing. But they kept doing them because members loved them! That inefficiency resulted in funding over 200 small-dollar loans in two full months. They found themselves overdue for a smoother, more member-friendly and updated solution.
Enter QCash digital Life Event Loans. During this last December’s holiday season, Peoples Advantage fulfilled 200 loans in one week alone! By employing the QCash platform, Peoples Advantage turned one of their problematic inefficiencies into one of their biggest strengths by focusing on those areas that helped the cooperative weather periods of unbalanced liquidity.
Mentioned earlier, payday alternative loans, or PALs, help members with less-than-stellar credit scores obtain needed funds. But PALs can also assist a federal credit union’s liquidity challenges due to the fact that, as contrasted with such loans as mortgage and auto, they’re not on the cooperative’s books for very long and typically have longer repayment periods of one month to a year. That nearly guarantees members pay back their loans and increase revenue for the cooperative.
In addition, providing small-dollar loans and bringing in revenue for that product also makes the credit union look favorable upon audit or review by the NCUA.
Todd Harper, NCUA Chairman, recently said the PAL program meets a glaring need, especially in an economy dealing with liquidity fears.
“The rapidly changing rate environment has not slowed the rising demand for small-dollar, short-term loans at federal credit unions. With the help of technology, credit unions are being increasingly responsive to this need while operating within current interest rate caps, adhering to the NCUA’s updated supervisory guidance for interest rate risk, and remaining committed to meeting the financial needs of their members – especially those of modest means.”
Today’s application of financial technology has the capability to help cooperatives bypass historical limitations in liquidity when market conditions are less than optimal. By placing more focus on letting members know about such advantageous CUSOs like QCash’s easy-to-access platform for both emergency funds and monthly, everyday bills, you’re also giving your credit union the opportunity to keep a beneficial loan-to-share ratio and increase the financial health and organizational efficiency of your cooperative.
