Lending Machine Fuel - How Liquid are You?
In Phoenix tonight on business and I must say the weather here is much better than I left earlier today in Indy. The palm trees decorated for Christmas are a nice touch here in the desert. On the plane ride over I read three different magazine articles about banks, yes banks not credit unions, that are having problems funding their loans as they need deposits. We can certainly relate in credit union land. At our lending shop we are sitting at 130%+ loan-to-share and we really need deposits and from my conversations with other credit unions many of you are in the same predicament. So, what is the answer? The articles I read all were based on the same strategy - duplicate what ING Direct (the orange brand - 5 years - $51 billion) has mastered. An excellent article on the ING Direct story is in the latest edition of Bank Technology News. The ING Direct strategy is simple, different and honest - you gotta respect it. These banks have established Internet only divisions of the bank that simply offer money market and CD rates with no access to their brick and mortar outlets or any other services. This strategy allows them to offer an ultra competitive money market rate to attract new deposits without having to reprice their existing money market portfolio. This innovative approach is not new in the banking world, but it is in infancy in credit union land. Sunmark FCU has started such a division called RateEdge. My friend at Sunmark FCU says it is too early to report results, but knowing this credit union they will be successful. We are looking at this new product offering in 2006. So, what do you think - will this strategy help? To keep the loan machine humming we need cost effective deposits.
If we can't get the deposits long term to fuel the lending machine, it is my opinion that we may need to look at facilitating some sort of peer lending. One such company that has done a fabulous job in this niche market is Circle Lending. I recently had the opportunity to talk to the founder of Circle Lending, Asheesh Advani, and he has all the pieces in place to continue the growth of his company. He has streamlined the lending process, has repeat business that is referring new business, and lots of exposure. Circle Lending is featured in business plan software packages, financial management software tools, and has been featured in major print publications and television programs. Trey Reeme recently posted on this blog that VanCity CU has started a peer lending program in the area of business lending. VanCity acts as a facilitator for micro entrepreneurs. Matching borrowers and savers (investors) - isn't this is why credit unions were started? If this eBay like matching takes off you would think that credit unions should be positioned for this - something to think about. I would think credit unions could effectively facilitate matches and make the process as efficient as possible for all parties creating a win-win-win situation.
In Phoenix tonight on business and I must say the weather here is much better than I left earlier today in Indy. The palm trees decorated for Christmas are a nice touch here in the desert. On the plane ride over I read three different magazine articles about banks, yes banks not credit unions, that are having problems funding their loans as they need deposits. We can certainly relate in credit union land. At our lending shop we are sitting at 130%+ loan-to-share and we really need deposits and from my conversations with other credit unions many of you are in the same predicament. So, what is the answer? The articles I read all were based on the same strategy - duplicate what ING Direct (the orange brand - 5 years - $51 billion) has mastered. An excellent article on the ING Direct story is in the latest edition of Bank Technology News. The ING Direct strategy is simple, different and honest - you gotta respect it. These banks have established Internet only divisions of the bank that simply offer money market and CD rates with no access to their brick and mortar outlets or any other services. This strategy allows them to offer an ultra competitive money market rate to attract new deposits without having to reprice their existing money market portfolio. This innovative approach is not new in the banking world, but it is in infancy in credit union land. Sunmark FCU has started such a division called RateEdge. My friend at Sunmark FCU says it is too early to report results, but knowing this credit union they will be successful. We are looking at this new product offering in 2006. So, what do you think - will this strategy help? To keep the loan machine humming we need cost effective deposits.
If we can't get the deposits long term to fuel the lending machine, it is my opinion that we may need to look at facilitating some sort of peer lending. One such company that has done a fabulous job in this niche market is Circle Lending. I recently had the opportunity to talk to the founder of Circle Lending, Asheesh Advani, and he has all the pieces in place to continue the growth of his company. He has streamlined the lending process, has repeat business that is referring new business, and lots of exposure. Circle Lending is featured in business plan software packages, financial management software tools, and has been featured in major print publications and television programs. Trey Reeme recently posted on this blog that VanCity CU has started a peer lending program in the area of business lending. VanCity acts as a facilitator for micro entrepreneurs. Matching borrowers and savers (investors) - isn't this is why credit unions were started? If this eBay like matching takes off you would think that credit unions should be positioned for this - something to think about. I would think credit unions could effectively facilitate matches and make the process as efficient as possible for all parties creating a win-win-win situation.
1 Comments:
Sunmark's RateEdge rate is 4.25% APY with no minimum balance requirement! I checked my own credit union's basic share savings account rate today and it can't come close to competing with that. In fact, it tops out at .80% APY with a $2k minimum average daily balance.
By all means, you should offer a similar product and make sure your members know it's there. Promote it like you've never promoted anything else before!
There's been a ton of recent discussion about microcredit in publications like BusinessWeek, whose December 26th issue profiles a "Microcredit Missionary," Muhammad Yunus, who runs Bangladesh's Grameen Bank, "a leading advocate for the world's poor that has lent more than $5.1 billion to 5.3 million people. The bank is built on Yunus' conviction that poor people can be both reliable borrowers and avid entrepeneurs. It even includes a project called Struggling Members Program that serves 55,000 beggars. Under Yunus, Grameen has spread the idea of microcredit throughout Bangladesh, Southern Asia, and the rest of the developing world."
Doug, you're absolutely right - if microcredit/peer-to-peer lending takes off in the US, credit unions should be inherently positioned to lead this lending segment.
By Trey Reeme, at 6:35 PM
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