By W.B. King
When the NCUA amended an existing loan participation rule in October 2022 expanding the ability for credit unions service organizations (CUSOs) to originate all loan types, Origence jumped at the chance to enter the electric vehicle (EV) market.
To this end, Tony Boutelle, president and CEO of the Irvine, Calif.-based Origence, told Finopotamus that in September 2023 the CUSO launched FI Connect.
“This was to provide top-of-funnel opportunities to credit unions, allowing them to compete where purchases are being made and financing is decided,” he noted. “We originate the loan, enroll the borrower for membership, and transfer the loan to an eligible credit union partner in real-time, 24/7. The platform is equipped to handle the needs of large national retailers that want affordable lending options.”
What came next was a partnership with the Austin, Texas-based Tesla, Inc., which allowed FI Connect to offer credit union financing to EV buyers through the Tesla website.
“Tesla appreciated the credit unions’ value proposition of offering affordable auto loans, but needed a partner that could provide buyers with a uniform lending experience nationally,” noted Origence Chief Financial Officer Neetu Bhagat.
“They liked how FI Connect could provide a single experience for buyers to take advantage of credit unions’ historically low-rate financing options. This partnership supports Tesla’s goal of removing the friction in buying a car, as FI Connect can make loans on a one-to-many basis on behalf of their buyers,” Bhagat continued. “Our credit union clients can tap into a fast-growing market, providing their financing options at the point of sale.”
Early Adopter: Silver State Schools Credit Union
To date, FI Connect has 25 credit unions in its network, a number that is steadily growing. In mid-January 2024, for example, Bhagat noted that 88 credit unions inquired to learn more about the partnership.
“We’re currently supporting five states through our credit union partnerships and plan to add several more this quarter,” added Boutelle. “Our goal is to have credit unions live in each of the 31 states that Tesla can do indirect auto loans. We’re actively meeting with credit unions on the value of participating in the Tesla program and the benefits attributed to this new lending channel. Our partner credit unions are promoting this program as well.”
Among early adopters is Silver State Schools Credit Union (SSSCU). The $1.1 billion Las Vegas-based credit union serves more than 63,000 members and supports 10 branches and 202 employees.
“SSSCU has always been a major player in the indirect market and being one of the large credit union direct lending (CUDL) indirect lenders in the state of Nevada, we were approached by FI Connect and their parent company Origence,” Senior Vice President Mel Valenzuela told Finopotamus. “The technology and artificial intelligence (AI) developed by Origence was essentially what appealed to me.”
According to Atlas Public Policy, in September 2023, there were 136,000 EVs sold in the U.S., which represented a 67% year-over-year increase.
“The majority of EV financing is done by banks – roughly 56%, followed by captives at 30% and credit union finance around 10 to12%,” Valenzuela said. “Even if 2024 isn’t as strong as years past, being a part of this new lending opportunity will increase market share for credit unions.”
Valenzuela explained that once the opportunity was offered in summer of 2023, SSSCU quickly signed up and rolled out the service in November 2023. The process was streamlined, he added.
“Most of the IT lift came from FI Connect and Origence. The application program interfaces (APIs), the robust automation, and some human interaction, helps reduce overhead costs, thus a better net yield,” he said. “Having Origence as the indirect LOS (loan origination system) helped SSSCU with a quicker implementation and being one of the first credit unions in the nation to go live.”
Boutelle added that great efforts were taken to ensure that implementation is as “low-lift” as possible for credit unions.
“But we still ask for clients to be engaged and committed throughout the process. If the credit union is currently using our loan origination platform (arc OS), the implementation is much quicker,” he noted. “If the credit union doesn’t have an existing relationship with us, implementation is typically 60 to 90 days.”
Another attracted feature of the program, Valenzuela offered, is that there are no associated marketing or advertising costs. “The loans are spoon-fed to us and we developed robust automation, with the help of FI Connect and Origence.”
Know Your True Net Yields
FI Connect currently has $3.6 billion in signed commitments from participating credit unions; a figure Boutelle said will increase throughout 2024.
Valenzuela explained that SSSCU implemented AI to optimize the automation, which includes: no-picture identification, robust underwriting decisioning and instant funding.
“This reduces the overall overhead and allows for a strong net yield product,” he said. “Since inception, mid-November 2023, SSSCU has funded $17 million for 410 loans, and onboarded more than 400 new members.”
Besides the “risk diversification from traditional auto loans,” he added that SSSCU is also reviewing traditional loan processes to determine how implementing AI can “enhance the member experience and increase efficiency,” so that the credit union can become more competitive in the marketplace.
“As an experienced indirect lender, I know the indirect penetration is low. However, I have personally seen how the impact of a personalized marketing strategy at a previous credit union achieved 28% penetration amongst new indirect members,” Valenzuela said. “SSSCU will implement a similar strategy to connect with these new members and engage them to enhance products per member.”
When Finopotamus asked what advice Valenzuela has for other credit unions interested in the partnership, he responded: “Know your true net yields, which includes your ‘cost/per loan” and how often an employee touches a loan in the process, and servicing costs (collections EV performance) and compare to traditional indirect.” He added: “Embrace technology/AI and be open to new ways of doing loans.”
Keeping Credit Unions Competitive
While Bhagat told Finopotamus that in order to participate, FI Connect is asking credit unions for a minimum $5 to10 million monthly commitments, the company is in the process of "creating a path" for credit unions with less capacity to participate. “We encourage all interested credit unions to reach out for more information,” she noted.
For those attending the 2024 America’s Credit Unions (formerly CUNA) Governmental Affairs Conference (GAC), Boutelle said to stop by the Origence booth to learn more about the opportunity.
“FI Connect is the only platform in the market that allows credit unions to connect with large retailers like Tesla directly,” he said. “We’re keeping credit unions competitive and helping them prepare for the future, which is offering embedded financing options at the point-of-sale.”