A beta product launch by an Austin, Texas, credit union and a locally based fintech aims to expand consumers' options with their monthly loan payment amounts, while illustrating how community-based institutions try to reach technologically savvy consumers.

The $125 million-asset Capitol Credit Union became the first financial institution last month to offer customers the product, Kasasa Loans. The product, developed by an Austin-based fintech company called Kasasa, allows borrowers to make larger than minimum payments but then "take back" the extra money in the future if they need the cash.

“The main reason people don’t usually pay more than the minimum payment on a loan is because they’re afraid they may need that money later,” said Pierre Cardenas, Capitol Credit's CEO. “We want to give them more control over their money.”

Texas capitol building in Austin
Rapid growth in Austin, Texas, and influx of financial institutions means well-established institutions must focus on digital services. “That makes it very competitive, and you have to stand out,” said Capitol Credit Union's Pierre Cardenas. Bloomberg News

For example, if a consumer pays $100 more than the minimum payment due on a loan one month, but a few months later needs that money for a car repair, he or she can request to have it put into a checking account, with that amount then reapplied to the loan.

Cardenas said with the success Capitol has had with its limited rollout of Kasasa Loans, it plans to offer the product to its wider customer base “within the next 20-30 days.”

But the product, which so far is being tested with 30 users, seems part of a broader aim by smaller institutions — powered by their fintech partnerships — to differentiate themselves. Particularly in a city like Austin, prime for expansion with young professionals drawn to a vibrant music and food scene, well-established banks and credit unions might find it challenging to compete.

“Growth has been very rapid here, and a lot of banks have been coming into Austin” in recent years, Cardenas said. “That makes it very competitive, and you have to stand out.”

Cardenas said smaller institutions like Capitol have tried to prioritize their digital services. The credit union has overhauled its website, and already features other Kasasa-backed products, including a cash-back checking account as well as an account that makes available credits for online digital purchases. It has also turned to consumer lending, the focus of the new product it is testing.

“We do a lot of consumer lending,” Cardenas said. “We really wanted to focus on innovation in that area.”

Kasasa, also based in Austin, primarily sells technology to community banks and other smaller financial institutions.

The new product offered by Capitol also features an interactive dashboard that allows customers to do things like input different monthly payment amounts to see how long it would take to pay off the loan paying that amount, as well as how much goes to pay down the principal versus interest.

“Many consumers don’t understand how debt works; they’re not sure of the mechanics of a loan,” said Chris Cohen, director of product management for Kasasa. “We’re trying to help them understand the impact [of paying different amounts] before they make them.”

Since Capitol has such a focus on consumer lending, Cardenas said, offering these kinds of digital services will help the institution not only retain existing customers, but attract new ones.

“As a smaller financial institution, you absolutely have to differentiate yourself, and somehow retain your existing customer base while attracting new ones,” he said. “We really feel strongly that having the digital [services] people want will help do that.”

Even though the product is still in beta mode, he said, in a market like Austin, word travels fast especially with a younger consumer base adept at using digital media.

“It’s amazing how fast word spreads,” Cardenas said. “All someone has to do is post something on Facebook and you’ve got a flow of business coming in. In Austin you also have all the state employees — all working in pretty close proximity downtown in just a few buildings — so word can spread quickly.”

He said digital services are vital to Capitol, not only because that is the way the industry is trending, but also because the credit union maintains just three branches.

“Branches are very expensive and difficult to maintain,” he said. “We want to offer [customers] the opportunity for self-service as much as possible, and let them get loans remotely, where they don’t have to come into the branch.”

Christine Pratt, senior analyst with Aite Group, said it is no longer just enough for smaller institutions to offer better loan rates in order to remain competitive.

“There’s a lot of competition, not only from bigger banks but the online lenders too,” Pratt said. “People want to be able to self-serve as much as possible, and they want an answer [on a loan decision] immediately. It doesn’t matter how low your rates are; you need to have convenience and a streamlined, digital experience.”

In general, investing in digital channels is becoming a top priority for smaller banks and credit unions, Pratt said.

“They’re looking at digital as something they need to do, not only to control costs but to remain competitive,” she said.

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Bryan Yurcan

Bryan Yurcan

Bryan Yurcan is a senior writer with American Banker, with a focus on financial technology.