New Research Explores Technological and Data Barriers to More Automated, Inclusive Credit Union Lending
Research brief offers loan growth and inclusion strategies to navigate the pandemic economy
As the credit union industry rebounds from the unique set of challenges presented by the COVID-19 pandemic, many community financial institutions are recalibrating their growth strategies with an eye toward bolstering inclusive lending efforts.
Trended and alternative data can play a key role in supporting those initiatives and a new research brief from Filene Research Institute and TransUnion (NYSE: TRU), examines how credit unions can adapt lending strategies to better compete with the evolving competitive landscape and expand financial inclusion efforts.
“Credit unions have long aimed to provide access to financial services for the communities they serve. Many of these institutions are also looking for ways to simplify lending decisions to improve the loan application process and serve a more diverse group of consumers,” said Sean Flynn, senior director of community financial institutions at TransUnion. “Gaining a better understanding of the role alternative and trended data can play in the underwriting process can enable credit unions to build a more comprehensive view of members’ financial situations while driving automation and transparency.”
These revelations were echoed by credit union executives recruited from major metropolitan areas and rural towns in regions across the United States. This market research was commissioned by TransUnion through Filene Research Institute and the interviews covered four broad topics: the current state of lending operations, new paradigms for lending, the credit union ethos, and the impact of the COVID-19 pandemic.
Key insights reinforced the notion that credit unions want to be more inclusive and take more calculated risks. The current economic environment has also driven many financial institutions to shift their underwriting models to include trended and alternative data versus legacy credit modeling, which has allowed credit unions better serve their membership's evolving needs.
Barriers exist, however, such as readily adopting new technologies and cost – particularly for smaller and mid-sized credit unions. While credit union size often correlates to the degree of automation or amount of nontraditional data in underwriting, new paradigms for assessing thin or no-file members are widely seen as desirable.
“We found in our research that the use of nontraditional credit data was widely seen as an important means of bridging the financial services gap with thin- or no-file consumers, who are often from marginalized and financially vulnerable communities,” said Dr. Taylor Nelms, senior director of research at Filene Research Institute. “There is a growing understanding in the industry that lending more deeply into the communities that credit unions serve can be a pathway to responsible growth, and the current circumstances surrounding the pandemic have prompted leaders to reimagine their credit union’s relationship to risk, and their members, moving forward.”
For more information on Filene Research Institute’s research, please download the report –Beyond Legacy Lending: Strategies for Loan Growth and Inclusion. CreditVision Link https://www.transunion.com/product/creditvision-link
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