Guest Editorial by Joseariel Gomez, Founder and CEO of Shastic
Credit unions are no strangers to lending, but between the recent pandemic, high inflation and a looming recession, many question what the future lending experience looks like, specifically for credit unions. Many experts believe that despite the economic slowdown our country is facing, there is hope for strong loan growth for credit unions. Many say that now is the time to invest. But why? If many signs point towards a slowing economy, what makes today the right time for credit unions to invest?
Economists from the Credit Union National Association (CUNA) project that, while a recession is more likely than not, it will be relatively mild without significant losses in employment rates when comparing it to last year. They suggest that credit unions will see slower growth compared to last year but increases converging with long-run trends make it a promising time to invest.
The credit union industry saw record growth rate of loans in 2022. According to the Credit Union National Association’s (CUNA) Monthly Credit Union Estimates, loans grew 19.4% in 2022. Certainly, coming out of a pandemic allowed for such tremendous growth, but nonetheless, it was a modern record and the highest growth since 1994 when loan growth stood at 15.3%. The Federal Reserve of New York reports that as of September 2022, consumer debt was $2.36 trillion higher than it was at the end of 2019. Low interest rates during and after the pandemic, subsequent fastest economic recovery in history and increased consumer demand were the main driving factors of this massive increase.
Because of last year’s dramatic growth and a looming recession, there are some credit union leaders expecting lending to decline in 2023. With that being said, despite tightening monetary policy and a slowing economy, certain indicators suggest that loan growth will still be strong in 2023. According to a recent CUNA article, projections indicate that loan growth will reach 7.5% in 2023 and 8% in 2024. While less than 2022’s record-breaking growth, this number is closer in line with the ten-year average. Another CUNA article points out that factors like low unemployment, decreasing supply chain disruptions, and continuing healthy consumer spending suggest that credit union lenders can expect growing loan volume. Fortunately for credit unions, we are experiencing all three of the aforementioned factors, which allows economists to predict an increase in loan volumes in the near future.
Increasing credit union membership numbers have also proven to be very indicative of loan growth. Looking into the growing membership numbers, the National Credit Union Administration states that credit unions added 5.8 million members throughout 2022, and credit union membership reached about 135 million in the fourth quarter of 2022. This growth rate was very similar to those rates in prior years. Having this consistent upward trend for several years in a row is quite encouraging and further solidifies the notion that today is the best time for credit unions to invest in lending.
While lending remains strong, it is important that credit union leaders are intentional about investing in technology that improves their lending processes. Robotic process automation (RPA) is a powerful tool for improving efficiency across many industries. However, most RPA solutions on the market now are not designed for financial institutions nor were they created to improve the member experience. In fact, financial processes, especially loans, are notoriously difficult for traditional RPA solutions to automate due to the high level of personalized interaction involved. Financial processes involve massive amounts of meticulously detailed, nuanced data that a simple RPA solution is not well-suited for handling. Most financial institutions use decades-old legacy systems that cannot communicate with each other, creating additional barriers by adding manual work for knowledge workers.
Intelligent process automation (IPA) combines the efficiency-increasing technology of RPA with innovations like artificial intelligence (AI), machine learning and real-time analytics to radically improve financial processes. IPA can track a credit union employee’s workflow using AI and automatically reach out to members, reducing the amount of time knowledge workers take out of their day to communicate with members. IPA can ask members for all necessary documents and transfer that data where it needs to go, using its cloud-based infrastructure to circumvent traditional bottlenecks.
Reducing time to close, removing manual repetitive tasks and speeding communication timelines - even outside of business hours - IPA will make a significant impact on your overall member experience. Often, credit unions, as early adopters of modern technology, find that net interest income, non-interest income and net promoter scores (NPS) all increase as a result. Your members, especially the high-income A paper borrowers you’re attempting to grow relationships with, are craving this level of engagement.
The trends are promising, and experts are hopeful. It is evident that the time is now for credit unions to invest in their lending technologies and member experience. Even more urgent, however, it’s important that credit union professionals improve their loan processes through the implementation of IPA technology. In doing so, they will be able to capitalize on the prime time to invest, leading to increased revenue in the years to come.
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Joseariel Gomez is Chief Executive Officer of Shastic (https://shastic.com/), an IPA-as-a-Service provider for financial institutions.
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