Auto Lending in a Post-COVID-19 World: Risks & A Free Gift

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(Last Updated On: August 11, 2020)

Digital transformation. It’s not a new idea. Industry leaders have been predicting its onset and pointing the way for years. Our own Credit Union Geek has articles going back to 2014 explaining why and how. Our company blog suggested the idea in 2012.

In fact, one of our founders built the first computer-based menu-selling platform for credit unions in the 1980s! Digital is in our DNA. What about the rest of the industry?

Financial institutions with the resources and foresight put technologies in place to address the change. The essentials included offering a functional mobile app with check deposit scanning. Expectations grew as capabilities improved.

Processes including remote loan applications and pre-approved one-click loans are now in high-demand. Why? Well, in case you weren’t aware, some changes happened recently…

Yeah, we’re not sure about the specifics, either. Something about a COVID-19. You can probably find out more with some online searching. I bet someone mentions it.

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Digital Transformation Shift

The shift towards digital-as-primary was rapid and unavoidable. In just a few weeks, what were strategic planning ideas are now essential services. The need for social distancing and avoidance of branches made digital users out of millions.

The thing is, it’s not just during the pandemic. It’s the new norm, and it’s been happening for years. Now is the time to “soup up” your platform so you can roar out of the gates once society is able to begin operating with some degree of interaction.

Experts agree members will embrace this new banking norm, and the use of these digital solutions will only continue to increase. Along with that are users’ expectations of what they can do from their computer, or, more often, their phone.

These new technologies make it easier for members to secure a car loan without ever stepping foot in a branch (I didn’t for mine). They also do something else: Make it unnecessary to ever talk to any credit union staff.

This comes with a growing, yet often unaccounted-for, cost: Potential loss of non-interest income. That’s a big deal for your institution. Read to the end to get a gift that can make a massive impact on your ancillary product success.

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Exasperating Existing Challenges

Before the COVID-19 crisis, things were already dire. About 40% of Americans could handle a $500 emergency using cash, savings, or a credit card that gets paid off quickly. Now, it’s worse.

Another survey went deeper, still pre-coronavirus. And even then, it was a depressing sight. 27% of those surveyed would need to borrow or sell something to come up with $400. An additional 12% would not be able to cover it at all.

Previous figures are according to the Federal Reserve Report on the Economic Well-Being of U.S. Households. Remember, this was all already the case before the enormous impacts of COVID-19 roared onto the world stage.

Even worse than a lack of emergency funds are the number of people constantly 1-2 weeks from economic insecurity. We call people in this situation “living paycheck-to-paycheck”. They consist of 78% of U.S. workers.

The government shutdown of 2019 gave a preview of what happens when these people go weeks without receiving their paychecks. The pandemic made their total number look small in comparison. And the impacts on everyone rise as time goes on.

All this means greater risk for your credit union as a lender. Plus, it adds additional challenges for those wishing to use your financing. For this article, we’ll look at auto lending.

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“Ancillary” or “Protection” Products

Credit unions like yours provide solutions that can reduce risk for both your institution and your borrowers. Here’s a quick summary of typical industry protection products:

Depreciation Coverage (Equity Protection)

In the event of a total loss, this protection reimburses the borrower’s equity (up to a stated amount) in their vehicle so they can replace the car with an equivalent vehicle in year, make, and model.

Guaranteed Asset Protection (GAP)

A type of debt cancelation which helps to cover the difference between an insurance payout and a loan’s outstanding balance, in the event of a total loss.

Payment Protection

Debt cancellation or credit insurance, both help offset risk due to Death, Disability, and possibly Involuntary Unemployment, Maternity & Sick Leave, and other life events.

This coverage can ensure debt isn’t transferred to family members by waiving or suspending payments.

Vehicle Service Contract (and many other names)

Helps pay for unexpected repairs and enables usage of a vehicle for work, family responsibilities, and more. VSC can also play a role in reducing delinquencies, as one cause of nonpayment is a broken vehicle the borrower cannot afford to repair.

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Revenue Opportunities

Your credit union earns income on the sale of these products.

This may come through a flat or percent markup, or through back-end, “earned reserves”. Either way, the revenue can compose a large portion of your non-interest income. All of which goes towards better serving members.

Digital Transformation Has A Downside

“Digital transformation” was on a steady course, becoming more risky to ignore each year. Now, it’s here. Today. Yesterday, in fact. And a lot gets said about it. So much so that you’re probably tired of reading articles about digital anything.

We understand. Instead of discussing industry trends, challenges, and more “futurist” pieces, let’s talk about action. First, the risks you face today, and then the things you can do to address them. Right now.

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We’ll start with remote lending. It’s not a trend. It’s here to stay, and improve. Remote lending is a huge opportunity and also an enormous risk to the way you’ve always done things.

Your borrowers can now apply for and close loans without any personal contact. Maybe it’s easy, but it prevents members from effectively learning about your protection products.

Most likely, your credit union, comfortable with face-to-face (or even phone) closings to offer and explain protection product benefits, is already seeing greatly reduced sales.

Fewer sales means more risk to your borrowers and credit union, along with reduced revenues. No one wins.

An Essential Part of Your Solution: Content Marketing

What is content (or inbound) marketing?

HubSpot, a company which innovated the concept, defines it as such:

Content marketing is a strategic marketing and business process focused on creating and distributing valuable, relevant, and consistent content to attract and retain a clearly defined audience, and ultimately, to drive profitable customer action.

Oh, that’s one of those, “complicated-sounding” definitions. Here’s the same thing in a way you will understand:

Content marketing means asking and answering the questions your current and potential customers want to know. Put simply, it’s this Learning Library.

It’s a more “human” way of selling by providing relevant, honest, and unbiased content to address real problems. It allows the reader or viewer to educate themselves and determine the solution which best fits their situation.

What type of content is best?

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All of it! Ok, that’s not the answer you wanted. We have a whole series about how to choose the right content. It ranges from looking at your member base to playing towards your staff strengths. Of course, it considers your budget and available resources.

More can be found in our introduction to Inbound (Content) Marketing and how to use it at your institution.

We suggest starting with well-written articles. Expand from there into case studies (everybody loves a good case study!), infographics (if you have a graphics wizard available), and short explainer videos.

Each builds on the others. For example, your infographic can clarify the premise of an article. Then, your explainer video can animate and describe the infographic. All link to each other, building SEO while providing related, yet different media for sharing.

Where do you put this content?

Best practices suggest having a learning resource area, while also linking appropriate pieces directly from other parts of your website.

For example, your auto loan application and closing process could include videos to explain your protection products. Or the credit card section may have an infographic (interactive if able!) to show how interest rates affect total costs.  You get the idea.

Integrating honest and educational content is valuable. For sharing with members, short videos under 2 minutes typically attract more views than articles. In fact, 84% of people say they’ve been convinced to buy a product or service by a brand’s video.

Remember that you can reuse content on different channels. Enter social media and outbound communications. You can both empower members to educate themselves and also begin a conversation, even if they aren’t currently seeking a loan.

Content Marketing Still Rare in Credit Unions

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We know the strategy works. So why aren’t all credit unions already using content marketing efforts?

Three reasons:

  1. Their marketing team is not trained in content marketing;
  2. The CU does not have the budget nor resources;
  3. The rapid shift in digital transformation caught some credit unions unprepared.

Ok, so we need to remedy this immediately. What can be done to jumpstart your content marketing efforts? And get that video streaming going?

We’ve got an idea.

A Gift to Jumpstart Your Member Education & Marketing

We believe in people helping people. That’s not just credit unions working with other credit unions. It’s also those of us who help you serve your members.

As professional content marketers, we put a lot of time and energy into understanding how to continually improve. It’s essential for our business. It also benefits our client institutions. Because we’re sharing our latest efforts with you…at no cost.

“You’re Special To Us” Video Series

You're Special to Us

This project, named with your mission in mind, is a full series of videos explaining the benefits of a “Fully Protected Loan”. That’s a loan where the borrower opts for all of your available plans.

There’s a separate video for every ancillary auto loan product. One for GAP, VSC, Payment Protection, and Depreciation Coverage.

Each video has an eye-catching explainer design, made to attract attention and build trust. They speak directly to the risks faced by your borrowers and presents why each protection plan is worthy of their consideration.

None are “hard sells” and some even explain why it may not be a fit for that member. Just like this Learning Library, we believe in transparency.

“What if we don’t offer your represented products?” Great question. Doesn’t matter. Because we want everyone to benefit from these videos, they are 100% generic. You use your preferred partner; the videos will still be relevant.

Get Your Complimentary “You’re Special To Us” Videos

It bears repeating: These videos are 100% free. Your credit union has a few options for usage. You may download a link or embed code for your website. Or, to host on your servers (or video hosting platform), you may also download the video files.

Enhance your digital protection product sales. Get the video series today!

Continue Your Content Marketing Efforts

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Coronavirus cannot spread digitally. You can spread great education digitally, though.

We understand that remote lending already posed a risk to your ancillary product efforts. Now, after COVID-19, everything is moving at the speed of plaid. It’s essential to meet members where they are, which, more than ever before, is on their devices.

The “You’re Special To Us” video series is the latest in our portfolio of content marketing services to assist your credit union. We hope you enjoy and use it to help educate, excite, and engage your members! Please share metrics after adding; we’re interested!

Be sure to Subscribe to the Learning Library to get regular updates on best practices.

Our Marketing section is the place to go for everything from social media efforts to SEO to building your Inbound/Content Marketing strategy.

Disclosure: Our company offers all the protection products discussed.  However, we understand that our offerings may not be a fit for your credit union. Our goal is to ensure you have access to necessary tools regardless of your current vendor.

Joe Winn - CU Geek

Blogger. Speaker. Part-time Jedi.

Focused on helping your bank or credit union grow in the face of emerging challenges.