Trust as Currency: How Credit Unions Drive Growth Through Member-Centric Lending

[00:00] Aaron Aggerwal: That question reminds me of a phrase, and I want to say it’s Kevin Plank from Under Armor, “Trust is built in drops and lost in buckets.” To Brian’s point, it doesn’t just happen overnight. But I think a key part of this is, first of all, embracing our ethos as a credit union. Credit unions and Navy Federal alike, we have a strategic advantage. We’re built as not-for-profit, mission-based organizations that our members own. That’s who we’re accountable to. And I think that’s actually an advantage in that we can really, and we need to and we have to, it’s what we’re accountable for, put our members at the forefront of everything that we do.

[00:42] 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 in to the latest in lending.

[01:05] Vince Passione: Welcome to 22 Minutes in Lending. I’m your host, Vince Passione. Today we’re thrilled to have Aaron Aggerwal, the Chief Lending Officer at Navy Federal Credit Union with us. Navy Federal is the largest credit in the world, serving over 14.2 million members and managing over 180 billion in assets. With interest rates in flux, shifting consumer behaviors and the growing role of FinTech in AI lending, we’ll talk about how Navy Federal is navigating these changes while staying true to its mission of serving military members and their families. We’ll also discuss their expansion into education lending, their approach to risk management and how trust plays a key role in their long-term strategy. Aaron, welcome to the show.

[01:43] Aaron Aggerwal: Thanks, Vince. Great to be here.

[01:44] Vince Passione: So Aaron, we were just chatting before the show, 13 years at Navy Federal. You’ve had quite a ride. So tell us, what does the loan composition look like today at Navy Federal?

[01:54] Aaron Aggerwal: Yeah, absolutely. So the reality is it all starts with membership. And we are currently 14 million plus members strong, very proud of that, been adding roughly a million net new members a year. And all of this is powered by our 24,000 team members and our branch network that scales to over 360 branches worldwide. We really want to be where our members are and given their unique needs. And when we get to our lending portfolio, really the composition is fueled by working backwards from what members need and want. We have a unique member base, we focus on the military and their families, and so our charge is to really think about what they want and need. And so with that mindset, we’re excited about not only the growth and scale of the portfolio, but more importantly the loyalty and engagement that we’ve seen.

[02:49] Aaron Aggerwal: And so we often like to think that we sort of punch above our weight because our members are so loyal and engaged. And with that in mind, our credit card portfolio has eclipsed 30 billion in total outstandings. Our auto loan portfolio is also over 30 billion. We have what we call our signature loans, which are unsecured personal loans. That’s roughly 7 billion. And as you know, our education and lending portfolio recently surpassed a milestone of 1 billion, and that’s great. And we’re seeing steady growth there. So it’s been awesome. And really, we like to think that our growth is fueled not by growth for growth’s sake, but really thinking about our members and working backwards from their needs and wants.

[03:29] Vince Passione: So Aaron, a million new members, that is a number that most credit unions probably couldn’t get their heads around. Can you give us a little bit, drill down a little bit further, where are they’re coming from? Are these family members? What’s driving it? And then also how do you turn them into real members? How do you expand that relationship?

[03:46] Aaron Aggerwal: Yep. Appreciate that. We’re proud of the growth as well. And I think I mentioned before, we’re not driving growth for growth’s sake, but trying to really focus on those key things that enable success. And first, I just want to acknowledge that over time our charter has expanded as a credit union. And most recently, I think it was in 2017, we opened up our field of membership for veterans. And you touched on who our members are, that certainly can change the composition of our membership growth and their needs. Maybe they have a more mature financial portfolio and they’re looking to add to that. And that’s where I think it becomes critically important for us to really focus on constantly delivering new and different for our members as their needs change. Either they’re evolving in their journey or we’re picking up a different slice of members who are eligible for Navy Federal.

[04:47] Aaron Aggerwal: The other thing that I touch on is I think, and we think, the financial services business is a relationship business and certainly one where word of mouth really matters. And so, one of the biggest influencers, if you will, in this space is certainly trusted friends and family. And so a big part of our growth and our feeling around that is that word of mouth. We continue to focus on delivering great service, great value for our members, and they talk about it. And that’s kind of a driver for us that enables a lot of the growth.

[05:27] Vince Passione: So you talk about trust. We had Brian Cray on, and Brian heads up credit card and education lending, and he talked about trust being a really big differentiator. And his quote was, anybody can lower a rate, but building trust through consistent actions over many years is hard to replicate. So how do you build in trust into your lending approach?

[05:48] Aaron Aggerwal: So that question reminds me of a phrase, and I want to say it’s Kevin Plank from Under Armor, “Trust is built in and lost in buckets.” To Brian’s point, it doesn’t just happen overnight. But I think a key part of this is first of all, embracing our ethos as a credit union. Credit unions and Navy Federal alike, we have a strategic advantage. We’re built as not-for-profit, mission-based organizations that our members own. That’s who we’re accountable to. And I think that’s actually an advantage in that we can really, and we need to and we have to, it’s what we’re accountable for, put our members at the forefront of everything that we do. And particularly when it comes to long-term strategic decision making, that’s where that really shines. And kind of bringing it down to how we do that, I think there’s a lot of levers to pull or elements of trust, but for me, there’s a couple that come to mind, particularly when we think about our lending products. It’s choice, value, and simplicity.

[06:53] Aaron Aggerwal: So on the choice side, we’ve got to have a great set of options for members based on their needs. We have a phrase, we like to show our members that we know them, and certainly how we bring choice to life is one of those elements. And value, value needs to be demonstrated in multiple ways. Some members are going to really value and anchor on great rates, and we need to provide that. Service is certainly a value play, convenience and the experience as well in everything we do. And I touched on this before, but that simplicity and transparency is paramount to building trust. And so we try to take a very straightforward approach to our product design, the way we price, and ensure that members really have the confidence that they know what they’re getting.

[07:45] Vince Passione: Yeah, it’s interesting. But beyond product, it’s also about the people, more this hands-on approach in coaching the members. And especially to an auto purchase experience and talking through things like what is negative equity, or buying a car through a Craigslist and some of the risks associated with it. So it’s pretty clear to me from a customer service perspective, lots of hands-on in that auto experience, does that extend beyond auto into things like credit card? And then we’ve had conversations about buy now, pay later.

[08:17] Aaron Aggerwal: Yeah, absolutely. I think part of mandate as a credit union, if you will, and certainly part of our strategy is to drive as much financial education, awareness, and understanding as we possibly can. And really being a partner in our members overall financial wellbeing is critical to our strategy. And we certainly have a large proportion of members that are newer to their financial portfolio building and we can be there for them. And we have a pretty big focus on that. And I’ll share a couple of specific examples.

[08:54] Aaron Aggerwal: One is we’ve built out what we call our MakingCents or my MakingCents Hub. And this is basically a one-stop shop for financial educational resources, an opportunity to engage with us and our experts on questions that our members have, that’s certainly supported by our staff, whether they’re in the branches or our 24/7 contact center. They’re equipped to provide sound advice and insight and guidance for our members that want it. And it certainly doesn’t stop there. We keep adding new content. You touched on buy now, pay later. We certainly are cognizant of what’s going on in that environment and know it’s a good option for some members, but we want them to be sure that it’s the right option for them. And so focusing on education is critical.

[09:45] Aaron Aggerwal: And another great feature that is highly, highly used across our membership is a credit score simulator. So we’ve actually empowered our members to be able to create different scenarios. If I miss a payment, if I take out a loan, if I do this, what does that do to my credit score? And so for our members, and all of us are very focused on managing our credit, it’s a very important element of the underwriting and pricing and everything. And so giving our members those tools are critically important.

[10:20] Aaron Aggerwal: And I would just add it’s a before, during, and after equation as well. We also know that some of our members might fall in periods of financial distress. And so we’ve thought long and hard about how to be there for them. And we’re proud, we have a group called Personal Financial Management that our members can reach out to and actually spend time with one of our financial counselors walking through their situation and looking at things in a very detailed way to come up with a plan to get back on track. And so that’s some of the ways that we come at it, but no doubt about it, we’re focused on that. It’s the right thing to do for our members and something that certainly plays and builds into that overall trust that we talked about earlier.

[11:05] Vince Passione: Now, you covered a lot of tools. Do you build all those internally at Navy or are some of those partnerships?

[11:12] Aaron Aggerwal: Yeah, it’s a mixture. We certainly build, but we also know there are a lot of credible partners and folks out there our members listen to. And so we certainly work with them. And a third place is we also are engaged in partnerships where we know that organizations are focused on supporting our member base. And so maybe recently you heard about our partnership with the U.S.O. That’s a place where we’re providing financial education via the U.S.O. in partnership to reach a broader audience, which includes folks not in our member base. And it’s just something that we’re very passionate about as an organization.

[11:58] Jim Merrill: This is Jim Merrill, President and CEO of Inspire Federal Credit. For the last 13 years, we’ve partnered with LendKey to elevate our lending services and strengthen our commitment to providing the best financial solutions for our members. The team at LendKey is not only knowledgeable and responsive but also genuinely committed to our success. They have empowered us to better serve our members and have been a true partner, not just another vendor.

[12:29] Vince Passione: We’ve had a relationship since 2014, 2015 on the education lending side. Can you share how FinTech partnerships fit into your strategy at Navy?

[12:41] Aaron Aggerwal: Sure thing. So FinTechs are definitely a core component of our overarching strategy at Navy Federal. And the LendKey partnership is definitely a good example of that. And I think we all know that there has been a proliferation of FinTech organizations. And if you think about the definition in a literal sense, it’s technology and financial services. And so I say that because there is almost no shortage of options in terms of what FinTech providers can enable for organizations.

[13:17] Aaron Aggerwal: And in the case of LendKey, this was a great opportunity where we at Navy Federal recognize an opportunity in the student lending and refinance space, and LendKey provided a solution that got us to market quickly, but more importantly enabled the member experience that our members expect from us. And I share that as an example because I think what’s so critical in all of this is having a clear north star of what you’re trying to solve for so that there isn’t paralysis by analysis of all the options out there.

[13:53] Aaron Aggerwal: And the last couple of things I just add, and we touched on it a little bit with technology, need to certainly invest in integration. If these FinTech’s partners are using the most modern and latest and greatest technology, you need to be able to connect and integrate with that. And certainly third party risk management becomes more of a center stage focus as you kind of build out your ecosystem beyond the walls of your organization. So that’s a little bit of how we’re thinking about FinTech and really shaping it for Navy Federal in the future.

[14:26] Vince Passione: I remember when we met, we talked about the strategy being to become multi-generational and you’ve now surpassed a billion dollars in originations. When you look back on this, talk about the age of your member, talk about how education lending has helped you maintain that. Did it meet the goal that you set out back in 2014?

[14:48] Aaron Aggerwal: Yeah. So I’ll start off by saying, one, when you think about Navy Federal’s Charter, it’s serving our members of the military, veterans, and their families. And the reason their families is so important, and you kind of touched on it with multi-generational, in particular for our active duty members, their families, significant other, spouses, etc, are often playing a key role in managing their overall finances.

[15:19] Aaron Aggerwal: And to drill it down a little bit to the education lending opportunity, for sure in understanding our members, we know that many of them were looking to pursue or enable their child or loved one to pursue higher education. And many also had existing student loan debt that they were looking to simplify or make more affordable. And student lending gives us an opportunity to not only do that and connect with the student, but also the families. Cosigners are a very common thing in the student lending place. And so you’re engaging not only with the student, but often a parent or a grandparent or other family member.

[16:03] Aaron Aggerwal: And a key component to this too is, we kind of talked about, being there for our members. Well, that’s being there at all journeys or all stages of their financial life cycle. And student lending is a great opportunity to build the trust that we talked about early, so that way when that member is ready to buy their first car or buy a home, Navy Federal is top of mind.

[16:29] Vince Passione: No, it makes a lot of sense. It’s always interesting to us because this asset class is one that a lot of credit unions overlook. The largest credit union in the world has taken this on in a big way and has been quite successful at it. So right now, as we talk around to the credit union industry, lending has become tougher and tougher, auto industry has been tougher. Credit unions rely upon the auto business, and that’s down. Mortgages are down. How do you manage aggressive loan growth while maintaining strong asset quality? Because that seems to be the next place to look, we’re starting to see credit unions lower their gun sights a little bit because they need loan growth.

[17:09] Aaron Aggerwal: A couple things on that, I mean, we’ve touched on this a bit, but not to belabor the point. I do think it really starts with empowering members with the right tools and information to make smart choices and being there for them and putting them in a position to succeed. We really have to look at things through the eyes of the member.

[17:28] Aaron Aggerwal: The second part of that is about understanding members. So we talked about showing our members that we know them, well, data is a key element to that, and that shows up not only in product design, but it also shows up in underwriting guidelines. And constantly pursuing new and different data, which we touched on a little bit, so that’s elements of the relationship with our members, that’s using things like open banking to better understand if it’s cash flow, analysis, etc, to really get a holistic picture. And again, with always the backdrop and north star of trying to do what’s best for the member and put them in a position to win versus some other objective financial or otherwise.

[18:11] Aaron Aggerwal: And so I think that’s really the recipe to balance in what is a very uncertain environment that is full of data that is conflicting at times. Some things you’re like, okay, and in other instances you’re wondering where things are headed. And so I think those few elements we covered are really the recipe to kind of withstand the ebbs and flows.

[18:34] Vince Passione: Okay. No, good answer. So as we look ahead into 2025, Aaron, and you think about key trends in lending that might be influenced by technology, maybe branch expansion, community focus initiatives, what are the things that come to mind?

[18:47] Aaron Aggerwal: Yeah. So first I’ll just start by saying I think the future is exciting and bright. And you mentioned technology. With the rate of advancements in technology, I just see so much opportunity for innovation and innovation across product design, across service, and across experience. There’s just so much we can do with the capabilities that are out there. I think the add-on to that too is that the pace of change is going to be more rapid, and certainly member and consumer expectations are going to rise. They’re not only interacting with financial institutions, but they’re interacting with technology across a variety of different mediums and platforms. And that is very much informing their expectations. And so they’re not distinguishing between my social media, my Amazon, my big box retailer and my financial institution. They’re really looking for common experiences across all of those platforms.

[19:52] Aaron Aggerwal: And what I would add though is just the world is becoming increasingly digital, but there’s always going to be need for human interaction. And especially in those high value circumstances where you’re looking for a trusted partner. And that’s where that investment in our branch network and certainly our contact center experience becomes critical in enabling that.

[20:18] Aaron Aggerwal: And just the add at the end here is, I think credit unions and Navy Federal, we’re really well positioned in this environment. I stressed it before, but being mission focused, not for profit, and accountable to our members really is a great recipe for long-term success in any environment that we’re operating in.

[20:42] Vince Passione: Great. So before we wrap up, great conversation, what’s the one key takeaway you’d want our listeners to remember about Navy Federal’s lending strategy?

[20:50] Aaron Aggerwal: Yeah. The key word in our entire discussion was trust. And that’s where it starts. And we’re maniacally focused on not only building that trust, but keeping it. It’s hard-earned and it can disappear very quickly, and I think that’s a major focus for us, and it just shows up in everything we do and really putting the member first and foremost in our decision-making process across all fronts.

[21:16] Vince Passione: Excellent. Aaron, thanks again for joining us. Thanks to our listeners. Thanks for tuning in into 22 Minutes in Lending. If you joined the episode, please be sure to subscribe and we’ll see you back here at our next 22 Minutes in Lending. Aaron, thank you so much.

[21:29] Aaron Aggerwal: Thank you so much, Vince. Appreciate it.

[21:32] 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.