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.

Another Brilliant Credit Union Blog

Scott Patterson from Callahans contacted me today regarding his new blog called "Reflections from Across the Pond". Scott is on sabbatical and spending his hard earned personal time on conducting research of credit unions and financial institutions in the UK. (Scott - I had to use your new favorite word - Brilliant). He has posted some interesting findings in his blog with the latest one directly related to credit union lending. We have been talking about the One Account (made famous by Virgin Bank in the UK) for that last several months and Scott reports how NatWest uses this product offering. Through my involvement with the Filene Research Institute i3 group I was exposed to one of the i3 groups project on this very concept. They called it the Flex One account and have published their research findings. It is my opinion that the key to this type of product offering taking off among US credit unions is the core processors. Without the core processors embracing the product with technology that makes the product easy to administer it will be difficult for the product to gain the momentum it needs to reach profitability. Rumor has it that Wells Fargo is planning a US launch of this product. Has anyone else heard about other US launches? I believe a credit union in California has rolled it out in a limited fashion.

Zopa - Coming to America

As some of you may know that have had to sit through one of my Future Trends in Lending conference presentations, I have been closely following the evolution of Zopa a web based company out of the UK that has a credit union grass roots feel to their business model. They facilitate peer-to-peer lending in a unique way. Isn't this the same as credit unions? We take money in for deposit to loan it out, right? I won't try to describe everything that Zopa does because it is easier to simply check out their web site as they do a fabulous job of explaining exactly who they are, what they do, why they do it and where they are headed - refreshing, huh? Back to the point, some breaking news on Zopa - play Neil Diamond Coming to America in the background, they are moving into the US market. This will be interesting.

Credit Union Tech-Talk (An excellent weekly source of credit union technology information via email) even recently reported the following on Zopa, "Zopa Ltd., a London-based online exchange for consumers willing to borrow or lend money, plans to open up a US operation early in 2006. Zopa, which stands for "zone of possible agreement," is a little bit like eBay, but with money being bought and sold instead of goods and services. In the UK, Zopa's lenders are obtaining an average return of 7.8%. The service is currently available to any UK resident over 18 who passes a credit check. To reduce risk, each lender's cash is spread among at least 50 customers, and loan amounts are capped at about $28,700."

Stay tuned as I hear more on this 2006 Zopa introduction to the U.S. I will keep you posted.

A wake-up call.

You know how it feels when the alarm goes off in the morning and you hit snooze a few too many times and thus you are already behind the day? Come on, I know you do. Well, same sensation as I was eating lunch today and opened my December issue of CUES Credit Union Management magazine. I turned to page 6 to ready Mary Arnold's monthly column From the Editor (highly recommended read as she has a knack for summarizing many cool things in credit union land as does the entire publication) and right there in front of me is a mention of this infant blog I started on credit union lending. I must admit my first reaction was cool someone actually found the thing and then my second reaction was oh no, I haven't spent hardly anytime updating this blog. I confess any free blogging time has been devoted to the MoneyWorks blog I am working on through my most recent Filene Research Institute i3 project. By the way, I am confident the MoneyWorks concept is a way to get more loan business. So, with the MoneyWorks project wrapping up, I am planning on spending some time to add worthwhile content to this blog. The vision is to provide a place to discuss future lending trends as I believe we are on the cusp of a great deal of innovation in the area of lending. Also, one of my inspirations in the blog world, Trey Reeme, Open Source CU blog, keeps encouraging me to keep this and the MoneyWorks blog alive. So, stay tuned for more content - connect to the RSS feed - and please contribute as compelled. Thanks Mary for the mention in your world class publication.