Credit union observers say that Goldman Sachs' "Marcus" consumer lending platform may not pose a significant risk to CU personal lending portfolios, but it should serve as a wake-up call.
That's according to Chris Oldag, chief lending officer and vice president at Pacific Service Credit Union, a $1.1 billion institution based in Concord, Calif., who told CU Journal that Goldman's new venture should be taken as an opportunity for credit unions to more aggressively market their unsecured loan products through targeted emails and direct solicitation offers.
While Goldman Sachs' recognizable brand name might attract some of credit unions' existing personal loan business, said Oldag, it remains to be seen if the Wall Street mega bank will have an advantage when it comes to attracting the millennial consumers credit unions are pursuing.
Oldag suggested that credit unions could learn something from the strategies of Goldman and new fintech entrants to the market.
"The new entrants may simply send a loud wake-up call to many credit unions that have neglected this portion of their product matrix as they have aggressively grown loan balances through MBLs, indirect auto loans, loan participations from others portfolios or taken on a large amount of long-term fixed low-rate real estate over the past few years," Oldag said.
According to Chuck Price, vice president of lending at Nassau Educators Federal Credit Union (NEFCU), a $2.5 billion institution based in Westbury, Long Island, a name as "powerful and formidable" as Goldman Sachs will certainly draw attention and the curiosity of customers and members of all financial institutions. But Price also suggested that Marcus likely won't sway those consumers who remain skeptical about the "big banks" and other parties associated with the financial crisis and the Great Recession.
How to Respond?
Still, as more and more sophisticated online lenders enter the market with ever-faster delivery times, Jon Paukovich, chief lending officer at Ent Credit Union, a $4.4 billion institution based in Colorado Springs, Colo., recommended that credit unions put more money into technological upgrades in order to better compete in what is becoming a more crowded marketplace.
Mike Mattone, vice president of public relations and corporate communications for the $2.5 billion Municipal Credit Union (MCU) of New York, believes that credit unions can maintain and even strengthen their position in consumer loans by continuing to provide "excellent personal service" to their members, and "continually find ways to utilize technology" to make processes more efficient for staff and convenient for members.
Mark Kretzschmar, senior vice president of loan servicing at State Employees' Credit Union, the $34 billion institution based in Raleigh, N.C., took a holistic view of how credit unions can cope with new competitive pressures in this market. He believes the credit union industry must "continue to evolve to meet the changing and diverse lending needs of our members."
He also suggested that increased competition is not necessarily a bad thing, especially if it provides more consumers access to "fair and transparent lending."
"Regardless of whether Goldman Sachs becomes a larger player in the consumer lending space, credit unions will need to continue to invest in technology that allows us to efficiently and effectively serve our members' lending needs," he said.
Price of NEFCU said that as the marketplace becomes ever more crowded and demanding, credit unions will need to "continue to keep pace technologically and allow borrowers to complete transactions seamlessly," particularly with regard to the online space.
"We will also need to continue to try to meet the needs of all our members with competitively priced products," he added.
Who's The Real Rival?
Looking at the entire field of competitors in the personal lending arena, it would appear that both banks and credit unions are lagging behind the fintech lenders.
TransUnion reported earlier this year that fintechs are accelerating their market share in the consumer lending – at least with respect to prime and near prime borrowers.
Over the first three quarters of 2015, fintech lenders originated $10.14 billion in personal loans to these consumers, a 122% jump from $4.57 billion issued in the same period of 2014. Over that same period, credit unions originated $7.28 billion in personal loans, up from $6.76 billion; while banks issued $7.24 billion, up from $6.61 billion.
But credit unions may have one crucial element on their side: speed. Indeed, CUs generally fund personal loans almost immediately upon request, while most banks and fintech lenders take up to two days or longer.
Oldag is confident that credit unions can meet any challenges posed by Goldman Sachs or other new competitors by simply getting the word out regarding their product portfolios. He pointed out that almost all credit unions have "brilliant, albeit modestly-sized," marketing efforts that deliver the credit union value proposition in the form of email or direct mailed messages to members about cost savings and the cooperative difference of doing business with their credit union.
"The products promoted by credit unions always attract a lot of attention," he said. "For example, when a credit union is having an auto loan special offer or credit card limit increase promotion, we have to make sure our loan officers look carefully for all other member debt obligations on credit reports from applications and do everything they can to reprice the member's debt through recapturing those balances into more favorable credit union products."