By W.B. King
In a concerted effort to become more relevant to members who are denied access to credit via traditional underwriting methods, the $4.6 billion Vernon Hills, Ill.–based BCU recently began a partnership with QCash Financial. The Olympia, Wash.–based CUSO offers an automated, cloud-based short-term lending technology platform.
“We were intrigued by both the relationship-based underwriting model (versus traditional credit bureau-based underwriting) and the fully automated, end-to-end workflow of the platform,” said BCU’s Senior Vice President of Lending David Brydun.
“The product fulfillment automation was necessary as these are small dollar loans. To originate profitably, much of the expense from manual selling, underwriting and funding had to be stripped out.”
Over the last few years, there have been a growing number of financial institutions and companies offering personal loans from $1,000 to upwards of $40,000. Interest rates can run from 5.94% to 35.89%, depending on the market. Most borrowers need a minimum of a 550 credit score, but the lower the score the higher the percentage rate.
Many credit unions offer personal and payday alternative loans, typically between $200 and $1,000. And by federal law, the maximum annual percentage rate for these loans is 18% and 28%, respectfully.
The QCash model is geared toward aiding underbanked credit union members, not exploiting them, explained CEO of Q-Cash Financial Ben Morales. A 25-plus year credit union industry veteran, he also serves as the chief technology and operations officer at Washington State Employees Credit Union (WSECU), which was QCash’s first case study credit union when the initiative launched in 2016.
“I really appreciated BCU’s approach as they sought to understand and explore small dollar lending because it isn’t something everyone does,” said Morales. “They are leveraging this solution to solve a member issue and to expand their market to folks who are not being served by traditional lending methods.”
The QCash/Credit Union Partnership Approach
Morales noted that QCash Financial is a white-label, highly-configurable short-term small dollar lending platform with two options that doesn’t require a credit check or a credit score. Lending criteria is based, in part, on the existing relationship between the member and the credit union. QCash, for example, is a fee-based, single payment, short-term small dollar loan with loan amounts from $50-$700 (configurable) and a 60-day loan term (configurable). QCash Plus is an interest-based, higher-balance, customizable short-term loan. Loan amounts range from $701-$4,000 (configurable) and loan terms from six to 36 months (configurable).
“We formally launched our Express Loan product in November 2020,” said Brydun. “The impetus was this notion that BCU had to become more relevant to our members with less than prime credit profiles; members that would traditionally be denied access to credit via traditional underwriting methods.”
From discovery to roll out, the process took several months, noted Brydun. He added that this time frame was due, in part, to competing priorities within BCU for technology resources. He said that roughly five tech employees were instrumental. But as new projects go, it was “fairly straightforward” with the “usual minor obstacles” to overcome.
“From a technology perspective, we connected the QCash platform to both our core banking system and online banking system via single sign-on (SSO),” said Brydun. “Because of the systems we were integrating to (online banking and core banking), there was an elevated level of oversight and planning involved, so I wouldn’t exactly characterize it as a straightforward plug-in.”
Morales said that implementation timelines, especially during the COVID-19 slowdown, have varied. Credit unions that have the resources and ability to integrate with existing open-core APIs like Symitar and DNA can be up and running in six to eight weeks, but Morales said the cycle generally falls in the six to eight months range.
“It takes good focus and planning by both parties. It pretty much is plug and play until you get involved with the smaller credit unions and the cores that serve them—sometimes they don’t have an API we can work with. These are some of the challenges we face today, but it’s evolving. We really want to have a plug and play [option] for all credit unions.”
With more than 20 state and federal credit union clients signed across the nation, QCash’s credit union clients total more than $43 billion in assets. The asset class of credit unions runs the gamut from $80 million to $6 billion, though Morales said the majority of credit unions fall in the approximate $1 billion range.
“We have delivered more than 500,000 loans on the platform for over $380 million. These credit unions are leading the way — taking on this capability to pull members back from predatory lenders, and offering a life line as these [federal] stimulus programs end and the fees that were being waved come back," said Morales. "This is going to put a lot of pressure on members to find liquidity and bridge the gap.”
BCU’s Successful Rollout
Before rolling out to its 300,000-plus membership, Brydun explained that BCU did a soft launch to its 729 employees over the course of several weeks. Lessons learned included making the communication and messaging clearer for the applicant.
Before rolling out to its 300,000-plus membership, Brydun explained that BCU did a soft launch to its 729 employees over the course of several weeks. Lessons learned included making the communication and messaging clearer for the applicant.
“Since this is a fully digital offering, our members access this product from our mobile or desktop online banking,” he noted. “We pushed out employee communication, more centered on product knowledge enhancement, to create general awareness around the product and individualized the communication based on role, such as front-line or underwriting.”
Brydun further explained that BCU offers loan amounts in the range of $500 to $2,000 with a 12-month payback period. The average loan has been over $1,000. Interest rates, he said, are based on the loss-rate the credit union expects to incur with the lending product.
“We have originated over 2,000 loans since launch with an approval rate that is somewhat influenced by our intentional initial conservative approach to the underwriting criteria,” he said. “We hope to liberalize some of the criteria soon, which will allow us to increase approval rates.”