MADISON, Wis. – Virtual lending to millennials will be critical to the future success and sustainability of credit unions, but it’s important to be cognizant of the growing risks posed by expanding online channels and take steps to mitigate them, CUNA Mutual Group’s Jim Bullard told a Discovery Conference audience Thursday.
Bullard, a senior consultant in Risk and Compliance Solutions, said all aspects of the consumer lending process – application, approval and funding – are moving quickly toward reliance on a virtual technology environment due to consumer demand for convenience. Three in five U.S. consumers perform banking activities using their mobile phone or tablet, up from nearly half who did so in 2013, and one-third who did so in 2012, according to Mercator Advisory Group.1
Mobile lending is increasing across all generations, but it’s no secret tech-savvy millennials, ages 19 to 35, are becoming the most sought-after demographic in several generations, Bullard said.
While the demand and convenience of mobile channels offers credit unions immense growth opportunities, the virtual world increases the risk of fraud. A 2015 Javelin Strategy & Research study predicted online fraud in the U.S. will reach $19 billion in 2018. This estimate is almost double the $10 billion figure the firm reported for 2014.2 The increasing threat of fraud underscores the importance of having a strong authentication process, Bullard said.
“Successful lending to millennials in a virtual world requires your credit union to provide a seamless, end-to-end experience. The challenge is to create enough friction during the process to adequately authenticate your applicant, but not so much that causes the prospective member to end the session and look for a lending solution at one of your competitors.”
Bullard urges credit unions to use layered security, also known as multi-factored authentication in the new account process to help mitigate the risk of fraud. “Evolve your authentication beyond traditional methods such as username/passwords and challenge questions to more sophisticated means, such as ‘out-of-wallet’ questions, fingerprinting and other biometric tools.”
He also suggested using an identity verification/fraud service. Bullard cited California-based CUneXus Solutions as one option for credit unions to consider. CUneXus is a technology startup providing credit unions with mobile marketing technology to quickly and easily offer pre-approval for personalized lending products. CMFG Ventures, the venture capital arm of CUNA Mutual Group, invested in the startup earlier this year.
Credit unions should also adhere to their regulatory-mandated ID Theft Red Flag program. “A Red Flag policy is not a dusty binder on the top of a filing cabinet in an office nobody goes in to. It should be a living, breathing policy that is updated as needed and a prominent part of the online application process.”
He said the goal is to be able to spot concerns and know when to stop automated approval and intervene with a manual process and contact an applicant directly, such as by phone or in person, to get more information and verify who they are. Likewise, transaction thresholds should be established for certain loans.
Bullard encouraged attendees to get more fraud prevention information by going online and visiting the CUNA Mutual Group Credit Union Protection Resource Center.
To learn more, watch Bullard’s Discovery Conference breakout session, “Lending to Millennials: Minimizing Risks in a Virtual Lending World,” on-demand.
The Discovery Conference is the credit union industry’s leading online conference hosted annually by CUNA Mutual Group for credit union leaders. Participants enjoy the conveniences of attending sessions and hot topic chats virtually with on-demand content available 24/7 following the conference. Discovery’s on-demand sessions are available here at no cost.
About CUNA Mutual Group:
CUNA Mutual Group helps people plan, protect and invest for their future – regardless of their financial standing. The company was founded more than 80 years ago by credit union leaders who were looking for an insurance partner they could trust. Today, CUNA Mutual Group helps credit unions and hardworking Americans build financial security through commercial and personal insurance products; lending and payment security solutions; and risk management, retirement, investment and marketing services. Additional information about the company can be found at www.cunamutual.com.
1 Mercator Advisory Group, April 13, 2015, https://www.mercatoradvisorygroup.com/Reports/Mobile-and-Tablet-Banking--P2P-Is-Driving-Growth/; 2Javelin Strategy & Research, Postandcourier.com, CIO-Today.com, Oct. 11, 2015, http://www.postandcourier.com/archives/expect-more-online-fraud-as-new-credit-cards-arrive/article_5803f50d-7309-574e-b5b4-28cb5d6fdd8d.htmlCUNA Mutual Group is the marketing name for CUNA Mutual Holding Company, a mutual insurance holding company, its subsidiaries and affiliates. Life, accident, health and annuity insurance products are issued by CMFG Life Insurance Company and MEMBERS Life Insurance Company. Corporate headquarters are located in Madison, Wis.