Community lenders: The best-kept secret in town

[00:00] Barry Kirby: In the end, it’s about who has the biggest marketing budget gets the broadest access and can basically become the only talk track. So if you go Google credit cards in your area, Chase, Citi, SoFi, LendingClub, and it’s like, “Where are the credit unions and the community banks in your market?” They can’t spend to keep up with these guys. And so for us, it’s super important to just start reintroducing the best kept secret in banking, which is these community lenders that you probably haven’t even heard of.

[00:33] Narrator: Welcome to 22 minutes in Lending, your go-to podcast for insights on all things lending, from lending practices, regulatory updates, how to enhance lending efforts, and more. In each episode, Vince Passione connects with industry leaders to discuss the latest trends and happenings around the lending industry. Let’s dive into the latest in lending.

[00:55] Vince Passione: Welcome everyone to 22 Minutes in Lending. I’m your host, Vince Passione, and I’m happy to have Barry Kirby, the co-founder and chief revenue officer of Union Credit, as our guest today. With over 20 years in financial services industry, Barry’s experience spans roles in marketing at Raymond James Financial to leading sales and business development at CuneXus. Throughout his career, Barry continues pioneering innovative lending solutions, and his insights have guided countless organizations to the evolving lending environment. So Barry, welcome to the podcast.

[01:23] Barry Kirby: Thanks for having me. Delighted to be here, Vince.

[01:26] Vince Passione: Awesome, awesome. So I’ve done a lot of research getting ready to this, so I’m pretty excited to hear about Union Credit. So you guys came out of stealth mode the beginning of the year. TruStage Ventures provided about $5 million of seed funding, I think. Is that right?

[01:38] Barry Kirby: Yep, we closed our round just at the beginning of January, February of 2023.

[01:42] Vince Passione: Great. And first, let’s explain, what is the product you launched with?

[01:48] Barry Kirby: Sure. So we’ve created a… I call it’s a marketplace, technically, it’s an embeddable marketplace, but it’s more of a connective tissue. So one of the challenges in just community banking in general is trying to meet consumers where they are. If you just think of some of my friends here in Long Island, there’s a credit union there called Jovia Credit Union. Most people walking down the street have never heard of the name Jovia, but they know the name SoFi.
[02:15] Barry Kirby: And so we built this marketplace that allows us to embed the credit union’s products within the native apps that these consumers are using, so they could start moving more into that digital real estate things. Imagine things like the Zillows of the world, the Experian apps, the Bankrates, and we’re the connective tissue that allows those other marketplaces to be able to extend these credit union products just by
plugging into one platform, which is Union Credit.

[02:43] Vince Passione: Yeah, and then, so marketplace, Barry, what’s in the marketplace? Is it product agnostic? Is it all
products? Is it deposits as well, or just loans?

[02:52] Barry Kirby: All of those products. So it’s all consumer loan products, as well as deposit products, except we don’t do first mortgage. So HELOC, home equity, credit cards, personal auto, as well as we do offer deposit products, as well as there’s cross-selling within both of those flows.

[03:13] Vince Passione: And business lending, is that also part of it, or not?

[03:14] Barry Kirby: Haven’t gotten into business lending yet. We are, probably in the next quarter here, we’ll be moving into the SMB side of the house, which is just a glorified, just a large personal loan. But the challenge there is to be able to identify an actual business owner. And so you have to go take a little bit more due diligence there when you’re building that product out.

[03:36] Vince Passione: So can you embed yourself in other marketplaces as well?

[03:40] Barry Kirby: Yeah, we are embedded in other marketplaces. So for example, we’re inside of the Experian app. There’s 78 million consumers that are on that, daily check and credit scores on their phone. It’s a marketplace. We’re inside of Bankrate. The challenge right now for these marketplaces, again, imagine like the Experian app, is they’re our marketplace. It’s the same names you’ve always accustomed to seeing. It’s the too big to fail banks, it’s the SoFis, the LendingClubs of the world. These marketplaces do want to provide their users and consumers with alternative sources, as well as just more variety.

[04:15] Barry Kirby: But the challenge that community lenders bring into the mix is they have geographic boundaries, credit unions have membership eligibility. As a credit union system, I’m not saying anything we can’t say, which is we have a tendency to be fickle. We want deposits one day, we want loans the next day. And so, for these marketplaces, maintaining these credit unions is just a very tall order for the output they get, whereas they can just plug into us, and we manage all of that for them, and then provide them that access to that local network.

[04:47] Vince Passione: Yeah, no, when we launched, we had similar challenges. We’d kind of do some of the same things, and I agree with you, I think it’s very hard to get airtime when you’re only going to blend $5 million. You just get deprioritized, and then you got to get over the hurdle of can you become a member, which sounds like… I saw the pun, the play on words, right? Union Credit, credit union, and Union… Makes a lot of sense. We call it democratizing financial services. How do you get that balance sheet to be big and to be available, which sounds like the technology you’ve built has done that.

[05:21] Vince Passione: So I want to jump back to credit cards for a minute, because you’re talking about what’s on the platform. We had Brian Cray on from Navy Federal, and Navy probably has, I got to imagine it’s over 50% of all the credit card balances in the credit union system are in Navy’s books. As I go from credit union to credit union, many of them basically just sold off that product, and now they partner on it. As you go around and talk to credit unions, and you think about, you talk a lot about Gen Zs, and about Millennials, and getting younger, and I was looking at some stats on Millennials’ use and Gen Zs’ use of credit cards, which is higher than Millennials, [inaudible 00:05:57] that product, how do you see credit unions coming back to that product potentially because it feels like they walked away from it.

[06:05] Barry Kirby: I definitely think they walked away from it. I mean, auto loans have been, the past 20 years, auto lending has been the bread and butter of the credit unions. As liquidity crunch comes into play, as rates are increasing, as vehicles are being sold over MSRP, opportunities for the auto loans have dramatically decreased from the credit union’s perspective. They’re down in the 30% to 40% in the production range, in 2024. So now, they’re looking at, “Okay, how do we start getting new sources of interest, income, and revenue?” And credit cards have been largely, to your point, they were sold off, they were kind of left, they kind of gave up and said, “Okay, Citibank has won this. We should just give up.” And what we have actually found is we’re seeing credit unions that are starting to place more focus on credit cards.

[06:54] Barry Kirby: The other thing that we’ve stumbled onto, just through locking some research, is SoFi has done actually a really good job with a younger consumer on helping them understand the value of a personal loan. What we have actually found is the value of a personal loan is actually interchangeable with a credit card, if you educate a consumer on how these two products are very similar. And so when you start introducing a consumer to say, “Hey, by the way, this credit card at Jovia Credit Union, there is no annual fees on it. It does also provide rewards and so forth,” when you put that up beside, say, a Chase Sapphire card that charges $500 a year for annual, it has similar rates, consumers start to understand, “Okay, I’ve never heard of this institution, but why would I not take a chance on this credit union versus the traditional Chase card?” or whatever it may be.

[07:50] Vince Passione: So interesting, so going back and forth between credit cards and personal unsecured loans, so my impression is always that because it doesn’t revolve, you see this appetite for personal unsecured loans, especially when they’re sold at the point of sale, versus what you’re doing today. What do you see as far as usage in Millennials and Gen Zs, credit cards versus personal unsecured loans? I mean, obviously personal unsecured loans is a much, much smaller market, right, than credit cards, but do you see an attitude in your research where younger consumers are opting more for credit cards if you educate them correctly, or personal unsecured loans, because it’s an installment loan, and I can pay it off in two years, and don’t revolve?

[08:28] Barry Kirby: Right, so the ’08 crisis is where we basically deemed that credit cards were bad. And so that generation, let’s say that was the 20-something-year-old, automatically started going over into the personal loan space, because it was a fixed expense that was basically, it had a monthly installment payment on it. What we’re seeing now, though, is the younger folks who… That was 20 plus years ago, they’re not seeing the credit card as a negative thing that came out of the 2008 financial crisis.

[09:02] Barry Kirby: And so a lot of these younger consumers we’re seeing are actually pay down credit card users. From across from our platform, the consumers that are taking a credit card, we’re seeing, in the first 30 days, that 53% card usage within the first 30 days, which is huge for us, because it tells us the consumer’s not just sitting on the card, it’s collecting dust, they’re actually using it. So we’re actually seeing that the 20-something-year-olds, the Gen Z, are actually starting to swing back over to the cards, which 23, 24 years ago was very popular, until the ’08 crisis, basically told you that that was a bad thing, use the personal loan.

[09:42] Vince Passione: So you’ve been pretty transparent other interviews, so hopefully you’ll do the same here.

[09:47] Barry Kirby: Yeah.

[09:48] Vince Passione: I thought, the beginning of the year, you quoted like 30 credit unions on the platform. How is that going? I understand we’ve got some liquidity concerns, which we’ll talk about, but how’s the growth on the credit union side going?

[10:00] Barry Kirby: Good. I mean, yeah, we came out of the gate in 2021, If I would’ve told somebody, “I can bring you more loans than you can handle,” they would go, “Game on, let’s do it.” Obviously, we came out of stealth in January of ’23, and you say the word, “Loan,” and they say, “There’s the front door.” So yeah, I mean, initially, we had planned on if we had 50 credit unions, with the previous economy, we would be able to handle a very good chunk of the consumer demand. Realistically, just due to constraints right now with liquidity, we probably need double that.

[10:34] Barry Kirby: We’re just under 50 credit unions, and we have a bank as well. But again, we probably need to double that. What we’re trying to ultimately do is… I’m super concerned just about community banking, and I mean, a community bank or a credit union for me are interchangeable, because they’re serving a community. I’m super concerned about that pillar, because right now, even with places like the CFEB and all of these groups that are trying to provide more options, in the end, it’s about who has the biggest marketing budget gets the broadest access, and can basically become the only talk track.

[11:10] Barry Kirby: So if you go Google credit cards in your area, Chase, Citi, SoFi, LendingClub, and it’s like, “Where are the credit unions and the community banks in your market?” They can’t spend to keep up with these guys. And so for us, it’s super important to just start reintroducing the best kept secret in banking, which is these community lenders that you probably haven’t even heard of, back to these communities and these populations.

[11:36] Vince Passione:  No, look, it’s tough even from a regulatory perspective, right? And you hear some of the pundits will say, “What the Fed really wants is 15 major [inaudible 00:11:45] center banks, and they can turn the dials, and control the economy, and everybody in the middle disappears.” And maybe what you’ll have on the extreme end are these community financial institutions serving these quote, unquote “financial deserts”, which is both an opportunity but also a huge concern about where the overall banking industry is going.

[12:07] Vince Passione: But getting back to liquidity, so I was looking at the NCA quarterly report, because I wanted to see where they came out in Q1 on loan to share, and they’re about 82.3%, they’re saying, for the credit unions. And I was at the CEO conference down in Key West, and there were probably about 150 CEOs there. And the question was asked, “Is there a liquidity crisis in the credit union system?” And I think two CEOs raised their hands, and the rationale was, “Well, we’re just getting used to having to have these levered balance sheets.”

[12:40] Vince Passione: But I guess, as you go around, because I see the same thing, and I’ve heard you talk, and I have some of the same concerns is that’s interesting. But then, everybody came out of their strategic planning sessions last year going, “I want to keep my powder dry for my existing members, but then I need deposits.” And I scratch my head and say, “Where are the deposits going to come from? You already have your member deposits.” So how do you see credit unions standing up to this challenge of loan to share ratios are going to stay higher for longer, you need deposits, and how do you get growth?

[13:12] Barry Kirby: Yeah. So yeah, all those same comments are said in the board level and the executive level, also while saying at the same time they’ve got to start getting to the next generation, the newer, the younger consumers. I mean, you’ve probably heard these stats, but the average credit union member age right now is 55. If you peel off indirect auto lending, the portfolio from a credit union, it’s actually probably getting closer to 60, because an indirect auto loan is usually a one and done type of member. They’re somewhat transient. They got to keep an eye, who sold them on a payment, didn’t sell them on a credit union, and what they serve.

[13:46] Barry Kirby: And so we kind of educate them that, “Listen, liquidity is not going to be a challenge in five years at the rate you’re running at, because at a 65-year-old consumer, in five years, if you’ve done a good job as a credit union or a local lender, they shouldn’t need any money from you. And so how are you going to get to the next generation?” And then they say, “Well, we need to get deposits.” Well, a 25-year-old doesn’t have any money underneath their mattress for a CD. And so that’s where I think, as bankers, we tend to forget just like human logic, which is, “I have a need, so I’m a 25-year-old consumer, I have a need.” Maybe it’s a need for your personal loan.

[14:23] Barry Kirby: When you make that exchange, that’s when you start developing trust, and you can then ask for and barter in exchange for, “Hey, we’d like you to move your payroll over, and for doing that, we can reduce your rates.” That’s how you can grow the deposits. They’re going to be mostly micro deposits, but I mean, payroll in the end is where you start getting back to some sense of a PFI.

[14:47] Barry Kirby: And that has largely been relegated, due to just the fact that credit unions have been super gung-ho on indirect auto lending, which is where you’re not going to get a payroll. You’re getting one auto loan through a dealer channel. And so now, they’re starting to shift back to, “Okay, direct loans are where it’s at. We should give these consumers what they need upfront, because that’s our job.” And then ask for an exchange, once that trust has been developed, “Can we move your payroll over? Have you seen our $500 checking account?” Whatever it may be, and then start moving towards that direction.

[15:22] Ron Draper: This is Ron Draper, CEO of Somerville’s Credit Union. So in 2014, we were looking for a turnkey student lending solution, one that was simple and efficient for our members to access, and eventually, we chose LendKey because it just integrated seamlessly for quick member mobile access, and was easy to remotely review and approve from a loan officer point of view. And I should know, because I’m that loan officer. I still recommend LendKey to people whenever I get the chance, because after almost a decade, it continues to offer consistent product and service delivery, both to our membership and to our staff.

[15:59] Vince Passione: So CDFIs, you launched [inaudible 00:16:01] with CDFIs. We had Shirley sent on from Senior Strategic Resources not too long ago, Senior Strategic Planning, and we discussed CDFIs. And Shirley does a great job of explaining, so this is an entire ecosystem. There are 2,200 credit unions in this, but there’s also community banks, you’ve got funds in it, and you’re really making a commitment to join a community that’s trying to service this specific population. You entering into the CDFI space, what’s the objective there for you, and what’s the objective for your clients?

[16:32] Barry Kirby: So actually, this idea was not my idea. It was actually a conversation we were having with a bank in North Carolina, which is where I live. And they were like, “You know, it would be amazing if you could identify the census track of a consumer, because how we identify if they’re in a low or middle income type of area.” And we started talking, and you start just taking your lenses off. If you look at a lot of these communities, there are payday, cash checking places behind every bus stop. There’s a payday lender on this corner and that corner. These credit unions and banks don’t have brick and mortar presence within these communities, but all of these people in these communities are on digital devices.

[17:14] Barry Kirby: So the question is, can we reach into those devices and identify there’s somebody who needs to be served, and can we do it proactively? We are now, when we basically prescreen a consumer, we get back their census tract, which tells us are they in a specific community? And so now, credit unions and banks have trouble as it is showing an examiner or the Fed that they’re proactively trying to serve that community. Whereas, now we can say, “Hey, look, you are proactively doing it,” whether they select your, I can’t force them, a consumer to select your product, but we can say for a fact you’re trying and you’re getting on those devices. And so, it’s really just giving them another tool to start helping those communities and really start targeting them digitally.

[18:04] Vince Passione: Yeah, it’s a tough time in CDFI land, right? Everybody has to re-certify, and I think that hasn’t been happening for five years, according to Shirley. So all these credit unions now have to demonstrate that they are actually doing what they said they did when they first got that designation. So it’s good timing, it’s very good timing. So we started off talking about your founding and venture funding, and we’ve had
plenty of different guests on, we had Matt Harris from Bain, who says that we’re not going to get back to where FinTech was in 2021 for years.

[18:36] Vince Passione: We had Nick Evans on from Circle Fund, and Nick talked about, “Hey, there could be a potential saturation point where there are just too many of these.” Now, we see that venture [inaudible 00:18:46] investing in FinTech has kind of trailed off, AI’s the new shiny objects, so some of it’s diverting there. What’s your view on the world, especially being in the industry, when you see credit unions now, right, there’s about three different funds, there’s Circle, there’s Reseda, there’s another one, they’re all investing in these FinTechs. At what point do you think this is just, there are too many FinTechs chasing too few opportunities?

[19:12] Barry Kirby:  Yeah, I would’ve said that was five years ago.

[19:12] Vince Passione: Okay.

[19:13] Barry Kirby:  Yeah, yeah. I mean, it’s unrealistic to think a credit union strategic team or board is going to have the capacity to look at 11,000 FinTechs that are out there. I mean, every FinTech you talk to, and I’m guilty of it all, we all have the formula that’s going to solve everybody’s problems. I talked to a board last year, actually, they had a similar question. They were like, “There’s too many FinTechs. We could review three demos a day and not even scratch the surface. Where do we begin?” This board was asking me to talk to them about this, and I just told them flat out, I was like, “I think you first need to reverse the way you’re doing this. You need to identify your top challenges today for survival. What are your challenges?” “We
need new members.” “Great.” “We need liquidity.” “Great.”

[19:59] Barry Kirby: So as a board, they need to define those categories, and then you need to go find a couple of good players that you think can start making an impact within those categories. And so that’s kind of how I look at it. There’s a ton of these FinTechs out there, there’s so many niches out there. And I try to just, even when I worked at Community Mutual, which is now TruStage, I helped out on the venture side, and it’s focused on the things that are going to move the needle is what it comes down to. Will this move the needle? Is it a shiny object? I mean, you can just say, “AI and machine learning,” and they’ll get money, but does it actually change the way or their outcome of what’s going to happen? And that’s what we’ve always stayed focused on, is anything we’re going to build, if it doesn’t have a true impact and have a significant impact to the people we’re selling it to, then we probably should find a different idea.

[20:54] Vince Passione: Yeah, and it’s also, I think the phase we’re in, right? In the beginning, it’s always been about disruption to
get started. Internet, right, and now where we are with things like AI. It’s one product, it’s not even a company, it’s a product, and it disrupts.

[21:08] Barry Kirby: Right.

[21:10] Vince Passione: Now, we’re back into sort of aggregation, right? People want to see complex systems come together, and that’s why you’ll see, I think you’ll see much more M&A activity, which will be driven by two things. The first is funding’s drying up, so you’re going to see M&A. But I also think people have realized that, “Okay, we’re at that phase where that little product that you built, standalone, isn’t a company. It needs to be connected to something else.”

[21:33] Vince Passione: Now, but part of the business proposal from when I think about Circle and TruStage is, and I hear Nick say this a lot, he’ll say, “We get credit unions. So when you, as a FinTech, take money from Circle or TruStage, you’ll get one of us on your board, and we get credit union.” So TruStage, an investor on your board, I know you want to be careful what you say about them, but is that part of the value proposition to you? I mean, you get credit unions, you’ve been in them for 25 years, so how does that work as a founder of a FinTech with TruStage?

[22:03] Barry Kirby: Yeah, it’s a little bit different for Dave and I, just because we’ve been around for long enough to have our own credit union networks. But the value, for example, like a TruStage brings is they have 95% of all the credit unions use them in some type of way, I mean, their bonds, their insurance. I mean, they’re a major pillar of the credit union system. And so for a lot of new FinTechs, for example, the TruStage is almost like this badge that it’s been vetted, even just from a due diligence perspective. We know this thing is buttoned up, and if you buy it, in the worst case scenario, we got the money to prop it up if it’s a critical vendor for you. And I mean, let’s be honest, credit unions and community banks, we’re in the business of reducing risk.

[22:49] Barry Kirby: That’s what lending is, they’re all about looking at the risk of a consumer to default on a product. They look at vendors the exact same way, and so they’re not very apt to go with something out of just no man’s land that hasn’t had any type of relationship with Circle, or TruStage, and things of that nature, and just roll the dice on it, because that poses a large risk to them, in their mind. So I think that’s really what it does. I think it helps just from a perspective to say, “Well, it’s backed by TruStage. It’s in the ventures portfolio. How bad could it be?” Or, “It’s in the Circle fund. Obviously, they’ve done their due diligence. Well, they’re not betting on dogs either.” So I think it’s a lot of just a mental as well as I think other… I can’t speak for the other FinTechs. I mean, we don’t necessarily use the distribution hub as much, but I certainly know it exists, and other FinTechs are using, and it’s definitely helpful for them.

[23:47] Vince Passione: Yeah, no, it makes sense, especially given how close the industry is, right? It is a referral industry, so it does make sense. These are both individuals and companies that people know, and it works. And given your network, I can understand how Union Credit fares, and not having to use much of it. So you’ve been in the market since the launch, right? Any kind of pivots or things you want to talk about that you think
the future… What’s the future for Union Credit, as you see what’s happening in the industry since launch?

[24:19] Barry Kirby: Yeah, I mean, so we have phases to our launch. So our first phase was almost what I would call offers as a service. So being able to generate pre-approved offers on behalf of a network of lenders, and then embedding that within the places where consumers actually are. Consumers aren’t going to joviacreditunion.org. They don’t even know what it is. Most of the people who go to the credit union or bank’s website are their customers. So you got to start meeting them in this digital real estate that most local lenders can’t afford to get into. So that’s kind of phase one. Phase two is now, for us, is then
extending that experience to the point of transaction, the actual checkout experience.

[25:03] Barry Kirby: So imagine you’re going to… Tesla sells solar panels for your house. Let’s say you’re going to Tesla, right now, there’s a world where, let’s say you’re one of the people that we’re pre-screening you into perpetuity, which we have access to 90% of the population of the US. You pop up on Tesla, you look to see if you’re already pre-approved one of the credit unions, you now grab the asset you want to purchase, and you then go check out using a pre-approved personal loan, whatever the product may be. So it’s taking what buy now, pay later taught us, which is consumers will take financing at the point of transaction, but bringing traditional products into that mix versus this untraditional product, which is buy now, pay later.

[25:48] Vince Passione: Makes sense, makes a lot of sense. Well, exciting stuff. I wish you an awful lot of luck.

[25:53] Barry Kirby: Thank you.

[25:54] Vince Passione: It sounds like an amazing product, so thank you.

[26:00] Barry Kirby: Thank you. Thanks for having me, and appreciate the opportunity to chat with you and spread the word.

[26:01] Vince Passione: Absolutely, and thank you, as always, to our listeners. Don’t forget to subscribe, so you can enjoy future episodes, and I’ll meet you back here for our next 22 Minutes in Lending.

[26:10] Narrator: Thank you for listening to the 22 Minutes in Lending podcast. We hope you enjoyed today’s episode. You’ll find links to any resources mentioned in the show notes. If you’re enjoying our show, be sure to subscribe and leave us a five-star review