How Y-12 Credit Union Uses Embedded Finance to Reach Younger Members

We had not considered it, but as Barry Kirby, co-founder and chief revenue officer for Union Credit, explained, embedded finance is simply another channel for indirect lending. We’re just taking the concept into digital channels now, and while many credit union members are curious about it, some are not using it. Credit unions must ensure their financing options and other services are reaching the younger demographics who are most likely to be looking for this digital option.

Sarah Snell Cooke, co-founder/publisher of The Credit Union Connection, sat down with Kirby and Emily Gibson, the vice president of Consumer Lending at Y-12 Credit Union, to discuss the future of embedded finance and how credit unions can remain relevant among the younger generations—even when just 4% of Gen Z are credit union members! Watch this informative video ——>>>>

Read the full transcript:

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Sarah Cooke 00:00

Hello. Welcome everyone to this edition of The Credit Union Connection. I am your host, Sarah Snell Cooke, I am joined here today with the CRO, Chief Revenue Officer and Co-founder of Union Credit Barry Kirby. Barry, welcome,

Barry Kirby 00:18
Welcome. Thanks for having me

Sarah Cooke 00:20
And joining us today is also Emily Gibson. She's the Vice President of Consumer Lending at Y-12

Credit Union. Welcome.

Emily Gibson 00:29 Thank you. Hello, everyone.

Sarah Cooke 00:31

We are going to talk embedded finance, which is such a hot topic right now, particularly among credit unions, because I'm hearing rah, rah, that the credit unions are a little more advanced, maybe than the community banks going forward. So that's great to hear. So, um, Barry, I'm going to start off with you. Um, I've read that far more people are actually curious about embedded finance than actually using it. What does that say? What are the, what's the friction there?

Barry Kirby 01:02

So credit unions, embedded finance is a little bit of a term that we've created in the past couple of years. The original form of embedded finance started probably 20 something plus years ago in the credit union space, where credit unions offered financing through dealerships as consumers were purchasing vehicles. So that's that's the definition of what embedded finance is. It's the ability to extend financing at the point of purchase of a goods or service and allowing that consumer to have it. And so credit union's been doing it for a long time. What we're now, the buzz that you're hearing now is, can you now take that and provide that in digital channels? So can you start meeting consumers in places like Lending Club? Can you meet them on Angie's List? Can you meet them at Tesla and starting to provide consumers with more perspective and options versus the same old names they see? The same old Chase credit card, the same old Bank of America loan, and start showing them more equitable products from local lenders like Y-12, yeah,

Sarah Cooke 02:02

so Emily, I mean, he was referring to indirect auto lending, of course. You know, historically, doing this digitally, what's the member demand been like for Y-12? Why are you guys looking at this? Well, we,

Emily Gibson 02:16

we've, we're starting to see member demand tick up a little bit. You know, the last couple of years, we've been kind of steady in that loan growth on purpose, just because we are battling some liquidity issues, but we're starting to see that soften, and we're looking at other markets outside of our original charter footprint. And to do that, you have to have a really great digital space. You have to have a really great digital channel, and credit unions are not typically great at that, that area we we're the in-person, in-branch, even in dealership world, we have those, those local connections. So it's, it's necessary for us to find a channel that pushes us outside of our regular space and that we can get comfortable that the business that comes to that channel. So that's what Union Credit is doing for us now. But again, we are looking to expand into other areas that, we our brand doesn't have a presence, and that's very challenging. Our name, Y-12 is very specific to our area, and it may not be recognizable in Nashville, in Kentucky and some of our border states. So creating that brand is so much harder, but a platform like Union Credit allows us to put that brand out there, even though we may not have a physical presence in that area, it allows us to introduce ourselves in a digital way. So that's powerful when we start looking at actually moving into those areas physically.

Sarah Cooke 03:40
Yeah, excellent. And that's a really good point, too, you made about the Field of Membership. What is your original Field of Membership? And how are you reaching out to these other folks?

Emily Gibson 03:48

Our original membership was eight counties. We've, we've recently been approved by NCUA to expand into areas of northern Kentucky, northern Georgia, and as you know, that we have a membership by foundation, so our, our members can join in the Foundation Association, even if they don't live, work, worship in our area. So we've had that in place for a while. But again, the delivery channel is, without going there physically, we have to find ways to introduce our brand. So, you know, it's a very new process for us. We've just had this charter expansion since February of this year. We put Union Credit in place in November, so we want to be a little bit ahead of that game, but really getting aggressive in pushing digital platforms, making the process of onboarding a member much easier than it has been in the past. The paper, additional documentation, all of that changes in this credit union space, and that's new for us. So it's a, it's a process of compliance, it's a process of making sure we're reading regulation, and these platforms help us do that in a very powerful way.

Sarah Cooke 04:55
Yeah, that's awesome. And Barry, she mentioned compliance. What? What sort of stuff on that

end, or is Union Credit doing? Or how are you a part of that part? Yeah,

Barry Kirby 05:06

so, I mean, we're, so we're not the compliance business, but what she's referring to is making sure that, for example, consumers are giving like E-consent, and they're giving notice that they're okay joining, say, a foundation as part of their membership and acceptance of a preapproved offer. So again, what we're trying to do what we're finding with the with the Gen Z and the millennials, so there's only 4% of Gen Z is a credit union member, and that should be really scary for most credit union executives, because that's a problem because the older generations aren't passing along the same message that we heard from our parents on why you should join a credit union. And so the the constant, what we're seeing from these younger populations is, if you just go look up credit card and if I was in Emily's area on Google, it's going to be these too big to fail banks, it's going to be Sofi. And so, for folks like Y-12, who don't have 800, a million dollars to spend per month to buy that that digital real estate, how do they actually start educating younger populations that we're a local provider and we're here to help you. And usually products from Y-12 are way better than these large banks. So really, our perspective from Union Credit is similar to what Amazon did. So Amazon worked originally with Mom and Pop retailers to help them distribute really good products. They were a really good distributor of products, and we're doing similar to that. We are trying to help folks like Y-12 distribute their really good products and meet those new members where they actually are, and then obviously disclosures and compliance is all controlled by Y-12, and meets their teams, their needs and requirements.

Sarah Cooke 05:15

And so, some of the consumers have, I've been reading that, you know, there, there's lower credit limits, available fees that accompany embedded finance. How is this? How is this different? How's this more credit uniony?

Barry Kirby 07:04

Well, I can, I'll talk on real quickly on mine. So what, so what Buy now, pay later taught us is people are willing to take financing at the point of purchase digitally. So you know where covid hit, people are buying Pelotons and using buy now, pay later. I'm not particularly a huge fan of buy now, pay later, but it proved a point that consumers were in demand for that. So what we're doing is taking traditional credit union products, which have always been consumer centric, and providing them at those transaction levels, and helping those consumers, and most, I mean, Emily can speak, as most of our credit unions aren't charging like annual fees. They're they're very consumer focused, whereas the Sofis in the world, candidly, just don't care. They just blast the market and consume as much of the ad space as possible.

Emily Gibson 07:51

I'll just add to that, to Barry's point, the consumer is getting that offer from the Sofis before they're getting the offer from the credit union, which puts the credit union in the position of chasing the business after the fact. If that consumer has gotten the SoFi credit card, it's so much harder for the local credit union to come in and say, but our card's better. You know, they've already made the decision. They've already moved on. So it's very hard to chase that business after the consumer has already moved on, so to speak. So having our products presented at the point of sale, at the time that the consumer is making the decision keeps us from, it puts us in the game, basically, but it also keeps us from having to go behind and chase that member to try to earn that business back. It's very hard to do. It's very hard to get it back after the fact. So it puts us in that decision making point? Yeah,

Sarah Cooke 08:41

that's a, that is a great point. You know? That's the same problem we have with indirect lending, where you're at the dealership already, right? Yeah. So, yeah. So that's great, and it, very innovative way of capturing those folks ahead of time. And how long have you been up? You're up and running live, right? With Union Credit, yeah, since November, since November, since November. Yeah. And so what's been the reaction from your members?

Emily Gibson 09:07

You know what it's it's a little bit surprising to us, because some of those, those acceptance offers are our own members that may just like, like Barry was saying earlier, don't understand the difference in our card and a Chase card or another bank card. So it's allowed us to push to our own space and introduce those products. But we're also seeing large adoptance from Prime members and other areas that are outside of our space, high income earners that are looking for the benefits of that card, which we're able to introduce through the Union Credit platform. So we've been surprised at just the prime borrower opportunities that we have outside of our space that are actually interested in doing business with us. It also gives us the opportunity to follow those leads and sell other products. We have an outbound team that works aggressively on the Union Credit leads and calling and offering our CD rates and our high yield checking accounts, so yeah, positive feedback all around. And the process seems to be, you know, well, it's too easy. Honestly, it's when we first started. It was a little scary easy. We're like, wait a minute, is this really working? But just in making sure that we keep our eyeballs on the, the quality of the members that we're getting in and making sure that we follow up with that contact. You know, that's our responsibility, is, is the platforms out there, the consumer adopts the offer. It's our responsibility to go behind and capture most of that business and really deepen that relationship so, and those are, those are opportunities we wouldn't have we, I mean, we just wouldn't have them unless we push a marketing campaign out there and hope for that, you know, one to 2% response rate. So, it really is a good channel for us to, to follow up and make sure that we deepen those relationships, look at those opportunities.

Sarah Cooke 10:53

And you were talking about the follow up. That's so important. Everybody talks about that with indirect and again, it applies here as well, and that is good. I mean, it's on you, like you like you said, it's on the credit union itself, yeah, make sure they do that interacts

Emily Gibson 11:05

even a little harder, though, because you're you're you're relying on that F and I person at the desk to represent you. So in this situation, we get to create that first impression. We get to call that, that person, and say, here's who we are, and fully represent what we have to offer. So that's an advantage, yeah, very, very important. I

Sarah Cooke 11:25

also want to confirm the your, Y-12 is a CDFI community. We are financial institution which is awesome, great. Um, how? How is embedded finance working for for you all as a CDFI and Barry, I want you to follow up as well on that to meet, meet the goals. I mean, obviously, to qualify as a CDFI, and then to continue to qualify, you have to have a certain level, yeah, yeah, in those areas. Well,

Emily Gibson 11:52

just like I mentioned earlier, the CDFI is in those outreach areas. And, you know, creating a brand in order to meet those goals in the time that they're required is difficult. So this allows us to go there quick, go there faster and much more streamlined. You know, we'll, we'll follow up in those areas, within direct relationships and and present those digital offers. But it's, it's as hard as it, it shouldn't be as hard as it is, but sometimes it's very hard for us to get marketing out into those areas and just push aggressively. So this allows us to do it in a quick, easy way. So and you know, it's important to put that, that information where consumers are looking. They're looking at Experian. We can tell when that Experian drop happens. We can see it in our work queue. So again, just making sure that we identify those areas of need and include them in our in our platform offers yeah

Barry Kirby 12:48
and Sarah, from our point, we recently added in census tract data into our pre-screen campaign. So now what we're trying to help our credit unions do is, if somebody accepts like their Y-12 credit card or some other product we're able to report, are they covered within Y-12 census track in maybe a low income area? Because one of the big challenges right now for credit unions is they're coming up on their five year recertification for their CDFI, and that's a big deal to prove to the regulators that we are trying our best to get out to these communities. And sometimes the hardest part for folks like Y-12 is showing that they're trying. Like, how do they show that they are doing that? And so these, these communities are serving are on digital devices. They're on phones. They may not have a brick and mortar location there, but these folks are trying to reach there. And so our, the biggest thing we can do from our side is tell folks like Emily, like, hey, these 10 people that accepted your card today. Three out of five of them were in a CDFI covered community, and that's the best tool we can give them, so that she can show her, her team, her regulators, that they are making a concerted effort to serve those areas right. Agreed,

Sarah Cooke 13:57

and I imagine I'm going to mention the other the four letter word: bank. Imagine that it can help banks with CRA as well. Unfortunately, credit unions don't have to follow through that. So this question is for both you. Well, I'll throw it again to Emily first. How are credit unions, how does this help you balance your portfolio and leveraging embedded finance? I mean, as you, you were saying a minute ago. You know, liquidity was tight. You couldn't lend. So how is this helping you to to balance that portfolio as you're going forward, and hopefully the Fed lowers rates and people might be able to afford to borrow again, you know,

Emily Gibson 14:41

yeah, our area is pretty competitive as far as rates go, and we're seeing them soften just a little bit. But, you know, it's good to be in the lending market again. I said, the lenders have been kind of quiet in the corner for a couple of years, but now we're ready to go back to market. And that's how you, that's, loans are sticky. It's a sticky product and and so if you can, if you could get into the wallet of that consumer and then cross sell those other products, you really create a loyal relationship. And so, making sure that that member has our option, or that consumer has our option when they're making the decision is, is very important. And again, you know, making sure that we are able to present the best the best options on our cards, our features. Cards are also a huge revenue source for us, so that helps out in our interchange income. We're leading in the market right now with credit cards. We hope to be more aggressive in the auto loan market as we move into these new areas, but just being able to do multi products through the channel is is super important to us. It's a strategic initiative for us this year.

Barry Kirby 15:49

Yeah. And from our side, Sarah, we've seen primarily, I mean, like Y-12 as well. We're seeing primarily, we're targeting younger consumers, is ideally what we're trying to get in, the next generation of membership. And we are seeing they're responding quite well to credit cards. Credit cards were kind of something that we as credit unions have kind of put on the back burner because we're super heavy focused on auto. But obviously as inventory became extremely low and people started paying over dealer asking price, auto become over the past couple of years, it was a little bit difficult to focus on so I mean, to Emily's point, I mean, we're here just to give them a distribution hub to put whatever products out they need to distribute, and then, from the credit union's perspective, they can decide the allocation by asset class. So she says we'd like to slow down cards, but pick up home equities. It's a matter of just kind of pulling a few gears and then making the adjustments.

Sarah Cooke 16:41

That's cool. That's very cool because, yeah, as Emily was talking, I was thinking, wait a minute, you lead with credit cards? That's not a credit union thing to do. Most of them are too scared, so that's great. And the, so as we're coming to our final minutes here, I always allow my guests, their final thoughts. So then, starting with Emily, I'll start with Barry this time. What are your final thoughts as we're wrapping up here?

Barry Kirby 17:08

No, I mean, I am super appreciative the opportunity to share the mission of Union Credit. Emily and I have worked together for a while, and she's been a, Y-12 has been a huge supporter of ours, and just touching back on liquidity, and to Emily's point about getting inside of the wallet, 80% of credit union members came through a loan to the credit union. So exactly, whether the liquidity crisis is in your challenge or what it is, but that's how we're going to reach people at a time of need. And that's why we were chartered as credit unions, was to serve our communities at times of need. So we're just trying to provide that that hub for folks, and then allow them to really execute on the vision of helping their communities.

Emily Gibson 17:48

And I'll just add to that, Sarah, you had asked why lead with cards. You know, the younger generation is not necessarily in the auto market yet. They're not making that decision. They're not making those home decisions and auto decisions as earlier as maybe our generation. I say our generation, but it's true. And so, that's a card that they're looking for. It's a product that's attractive to them right now. So that's the opportunity for us. It's exciting to be in this space. I'll just say, because we've talked about, this is not typical Credit Union. This is not typical credit union to put that that offer on an app platform. In fact, I've been a little challenged explaining it inside our organization of how it works. How does it work? Well, we're putting offers out there. Well, yes, they're offers, but they're being offered on an app platform that that Union Credit is partnered with. So it's a very different feel. It's a very different way of doing business that's non typical to credit unions. But we also have to go there. We have to go there in order to be able to deliver to to multiple consumers outside of our area, to meet those demands for those underserved areas. And this is a great channel to do it. It, it's different. It's, it's different than what we've been used to in the past. But it's also, it's the next thing. It's the next level thing to be to have the opportunity to get in front of those consumers at the point of transaction. We're excited to be an early adopter, like Barry said, we, we've known each other a long time, and he was tapping me on the shoulder for a long time about this product. You gotta get on board. You gotta get on board and and of course, we looked at it and it's just really cool. It's just a really cool way to deliver loan opportunity. So we're excited to be a partner. Yeah, absolutely

Sarah Cooke 19:33
great way to keep credit unions relevant. So thank you all for your time. Appreciate it Barry, Emily. Have a great rest of your day.

Barry Kirby 19:40

Thank you. Okay.

Emily Gibson 19:41
Thank you. Thanks guys. Bye.