How Credit Unions Can Equal the Playing Field with Nonbank Lenders

By Matt Johnner08.12.2019

Following the great financial crisis, the game of loans completely changed and nonbank lenders gained momentum. According to CNBC, the amount of nonbank lenders has jumped 75 percent since 2010. These nontraditional lenders now have $15 trillion in assets in the U.S. and $52 trillion across the globe.

This large presence in lending has credit unions questioning why this route of lending has become so popular and what they can learn from these alternative lenders. With the advancements in technology and increasing financial regulations, nonbank lenders are continuing to grow in popularity and credit unions need to take a notice. 

Since the crack down on regulation from the financial crisis, credit unions and banks alike have been under a microscope and are forced to follow strict guidelines to ensure that a similar type of event does not occur. The increased regulations along with the amount of time and oversight required to facilitate a loan have made the nonbank loans a more enticing option due to the speed and hands involved in the process.

What CUs Can Learn from Nonbank Lenders

One of the greatest perks of a nonbank lender is their ability to forgo the traditional regulatory demands a credit union or bank must undergo to complete business and the technological standpoint that allows them to streamline the process.

However, the speed does come at a cost, literally. The major perk of working with a credit union or bank for a loan is that the interest rate is typically lower due to the nature of the loans the institution takes on. When seeking a loan, an individual must decide which route is more fruitful for themselves or their institution, speed over cost or cost over speed.

For credit unions to level the playing field a bit more, they can implement a robust technology solution that helps them throughout the loan process to offer both speed and a lower cost. Tools that can streamline workflow that allow them to work more efficiently and borrowers are given the same timeframe of turn-around that nontraditional lenders have.

What Nonbank Lenders Can Learn from CUs

Although nonbank lenders are not currently required to abide by the same regulations and standards as traditional banks, but if enough people are damaged or enough harm is done to the economy, regulators could change their mind and hold nonbank lenders accountable.

In order to best protect themselves from potential regulation, nonbank lenders can learn from CUs by also incorporating technology offerings that help them cover their tracks in terms of regulation. Some nontraditional lenders already have begun the process of regulating themselves through trade organizations like the Innovative Lending Platform Association (ILPA). This type of inclusion into their processes allows nonbank lenders to be compliant and not be left under a time crunch to meet the required processes of the impending newly incorporated regulations.

No matter which avenue is taken to facilitate a loan, nonbank lender or a traditional lender, both options have their strengths and weaknesses and is dependent on each loan circumstance. With incorporating an innovative and streamlined workflow process, both types of institutions can work on the same level and create a better process for themselves and their borrowers.

Matt Johnner is president and co-founder of BankLabs, which reimagines banking products for the future through community-oriented technologies that create new fee income, attract deposits, and expand loan opportunities.