Risk is inherent to lending, and navigating the lending landscape is becoming more difficult. Jim Bullard, risk management senior consultant for CUNA Mutual Group, recently discussed how lenders have traditionally used the five “Cs” of credit to assess risk and approve loans: character, capacity, capital, collateral and condition.

However, the complexity of the lending landscape now goes beyond traditional credit risk and requires credit unions to consider the following risk factors:

• Application Fraud – Unfortunately, before examining the credit worthiness of a loan application, lenders must now consider the legitimacy of the applicant. Is the application from a fraudster that has compromised someone else’s identity? Is the applicant a real person, or a creation of a synthetic identity using components of several legitimate characteristics?
• Demand for a more virtual delivery channel – The need to attract younger members requires credit unions to meet the prospective member where they are, which is most often at the other end of a mobile device, and not in a branch lobby.
• Increased competition from fintech lenders – Cutting-edge fintech companies and technological innovation are changing the competitive landscape and forcing traditional lenders to rethink how they deliver products and services.

Considering all the challenges and the complexity of the lending landscape, there has never been a better time for credit unions to begin the strategic discussion to help them thrive in the current environment. CUNA Mutual Group is encouraging credit union leaders to consider the following competitive advantages when developing long-term goals for a lending program:

• Technology can work for you, not only against you. Increasingly, credit unions are partnering with companies that provide the technical expertise to accomplish transaction security, allowing lenders to focus on what they do best – take care of members.
• The credit union movement’s cooperative philosophy where each member has a vote aligns perfectly with the millennial generation’s desire to partner with ethical companies where they feel they have a voice and can impact the future of their financial institution. The credit union message will resonate with millennials once we consistently figure out how to reach them.
• After growing too quickly and experiencing credit losses, fintech lenders recently raised their approval criteria to require higher credit scores. This gives credit unions an opportunity to regain market share and grow their member base. Credit unions are much more qualified to assess the total credit risk in the relationship than a transactional, online lender.

Jim Bullard is a risk management senior consultant for CUNA Mutual Group who frequently speaks on a variety of lending topics. He can be contacted at: james.bullard@cunamutual.com.