How to Attract Younger Members with Relevant, Digitally Optimized Services

Matt Potere, CEO, Happy Money

As the average member age continues to rise, credit unions are struggling to attract and retain younger generations, posing a risk to the industry as a whole. Exacerbating the issue, the competitive landscape is more crowded than ever, with large national institutions, neobanks, fintechs and even major retail brands vying for member wallet share and loyalty. It’s imperative for credit unions to start to think outside of the box, identifying and leveraging new strategies to acquire members (especially from younger demographics).

Of course, the first step is understanding more about who these consumers are and what they’re looking for. Millennials, Gen Z and the emerging cohort of younger consumers are generally characterized by their digital savviness, demand for convenience and lack of patience for clunky or inefficient processes. When it comes to finances specifically, these digital natives are increasingly looking for digital-first services that streamline financial management, helping them meet their goals and reduce the financial anxieties many have grown up with. However, in research from MX, a mere 47% of Gen Z respondents—versus 75% of Baby Boomers and 70% of Millennials—claimed to have an account with a traditional bank, credit union, neobank or technology company. 

Our Founder Sarah Snell Cooke sat down with new Happy Money CEO Matt Portere. Watch the video —->>

Ironically, there are many aspects of the credit union ethos that have the strong potential to appeal to this group. The sense of community, the dedication to supporting local neighborhoods, and the ‘people helping people’ ethos are all things that would appeal to younger generations who tend to seek out purpose-driven brands. Additionally, 73% of Gen Zers say customer experience plays a critical role in determining their favorite brand, according to research from the Oliver Wyman Forum. And research from Happy Money found that credit unions were perceived as the most ethical financial institutions, even though awareness was generally low. However, this clearly aligned set of values doesn’t always come through in digital channels, and there is a general lack of awareness about credit unions with younger demographics.

One strategy an increasing number of credit unions have embraced to engage potential members is unsecured lending, offering personal loans to help consumers pay off credit card debt more quickly. This is especially meaningful as younger generations find themselves saddled with debt through credit card spending and newer credit options like BNPL. According to a recent Experian study, Gen Z credit scores are on the rise along with debt balances, with an average credit card balance of $3,262, auto loan balance of $20,305 and student loan balance of $21,574.

While many credit unions have historically shied away from personal loans due to concerns around perceived risk, such an asset class has notable potential to strengthen the portfolio with a favorable return/risk. Credit union portfolios today tend to be heavy with indirect auto loans, but personal loans can offer a healthy complement. In addition to attractive risk adjusted returns, these loans offer better balance sheet diversification and more likely potential for a longer-term member relationship (including with younger members). Such an offering is especially attractive if it’s accompanied by a quick, easy application process and a digitally optimized experience from end to end. While many younger consumers mistakenly view credit unions as digitally behind, offering these types of services will help correct that misconception and foster long-term loyalty.

Such a tactic doesn’t just benefit the member, but also credit unions holistically. Credit unions have historically avoided unsecured lending because of perceived risk; however, this type of lending represents a notable opportunity for growth and portfolio optimization. If approached the right way, unsecured lending can diversify and optimize balance sheets and generate a strong risk/return. And when partnering with a digital-first fintech, credit unions can attract members from across the country, overcoming limitations of their current geographic footprint or charter restrictions while better engaging with younger generations and demonstrating the credit union value to them.

However, effectively taking on unsecured lending is easier said than done. Many credit unions already find themselves stretched thin, with staff juggling multiple responsibilities and limited resources. This makes it crucial to rely on a trusted partner who can seamlessly and efficiently handle the fulfillment of these loans, which are already quite complex. When determining a partner, it’s important to look for a provider that not only leverages modern technology to streamline the lending process but also aligns with the credit union's mission and understands its unique culture. The ideal partner should be one that views the relationship as more than just a transaction—they should be deeply committed to supporting the credit union’s long-term success and helping its members thrive.

While the aging of credit union membership presents a challenge, it also offers a unique opportunity. As younger generations increasingly look for financial products and services that align with their lifestyle, offering digital-first unsecured lending can become a key differentiator for credit unions. This type of lending appeals to this younger cohort, who often prefer the flexibility and accessibility it provides over traditional loan products. And convenient, accessible digital experiences aren’t just for the young; generations across the board increasingly look to digital channels (including aging populations who might experience mobility issues).

Credit unions stand at a crossroads where embracing innovative strategies such as unsecured lending can play a significant role in securing future relevance and success. Offering impactful services in a digitally optimized way can help credit unions better demonstrate their inherent strengths—community focus, member-centric approach, and commitment to helping people— in a digital landscape. Those that prioritize such initiatives will be well-positioned to attract new members, optimize their balance sheets and grow in an increasingly competitive financial market.

Read the full transcript:

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Sarah Cooke 00:00

Hello and welcome everybody. I am Sarah Snell Cooke, your host at The Credit Union Connection. I am here today with the brand spanking new CEO of Happy Money, Matt Portere. Welcome.

Matt Portere 00:33
Thanks, Sarah, thanks for having me.

Sarah Cooke 00:35
How did I do on that pronunciation?

Matt Portere 00:38
You did well. You did really well.

Sarah Cooke 00:40
Thank you. So you're new to Happy Money, why don't you give it? Tell us, our audience, a little bit about your background. Yeah.

Matt Portere 00:48

Well, I've spent my whole career in consumer finance in just about every consumer credit asset class, from personal loans to auto to mortgage to credit card and small business. Most recently, I, before joining Happy Money, I was the CEO of a solar finance business, which I joined in 2015 as the sixth employee, and took it public in 2021. We funded about ten billion dollars in loans, and nearly all of that through partnerships with credit unions. So it's a space I know really well.

Sarah Cooke 01:21

That is awesome to hear that credit unions are working on, you know, greening the planet with, they're putting their money where their mouths are. And so, how now you're into the personal loan business and talk a little about how that's different from what you've done. And that's obviously still consumer lending, but it's not an auto it's not a, you know, something with collateral. And then also, how does Happy Money do things a little differently from your competitors?

Matt Portere 01:51

Yeah. So, you know, interestingly, I was doing personal loans in the early 2000s sort of before personal loans were a thing. When I was at NBNA, was a $15 billion plus portfolio, and I was running risk for for that business. So I know the I certainly know unsecure personal loans have done a lot of other things since then. You know, if you look at my background, I, as I said, I spent my whole career in consumer finance. And while people often call us a FinTech, I really think of us as a consumer finance platform, which means that originating high quality assets in partnership with our capital partners, like our credit union partners, is really the foundation of our business, and I think that makes us a little bit different than, than some others in the market. We're really focused on originating assets with attractive risk adjusted returns, yeah,

Sarah Cooke 02:41
while offering it through a high tech platform. Exactly right. Both big benefits for credit unions, that's right. And so what are some of the benefits for offering personal loans to begin with?

Matt Portere 02:56

Yeah. So first for the consumer, the consumer gets an opportunity to consolidate their debt into a single payment and to save money over time. And so there's a real financial benefit, and certainly convenience benefit, by making making one payment onto an affordable loan for our credit union partners, they get access to a new member. They also get an asset with a, with a great return profile for it that's well underwritten. And as you mentioned, our tech platform makes that process easy and efficient for consumers, well underwritten, but in the simple process. So our credit union partners, you can almost think about it as they're plugging into, into Happy Money, and they're getting access to this volume so they have no marketing spend. They're not building the tech infrastructure. And you know, from a, from a people perspective, it's a very light lift, and so we make it really simple for them to originate those assets.

Sarah Cooke 03:50

That's really cool, because certainly credit union's marketing budgets aren't always the biggest compared to a B of A or somebody like that around you. So how many credit unions? How many lenders are you working with? How many of those are credit unions?

Matt Portere 04:05

Yeah, so we have about a dozen credit union partners and, and today that's exclusively how we how we fund our business. You know, ethos of people helping people. And that really fits well what we do at, at Happy Money. Oh, sweet. So 100%

Sarah Cooke 04:21

so yeah, I mean, right now, you know, you know credit unions, their liquidity is tight. You know consumers, their liquidity is tight. Some can't afford or may have issues paying back their loans. So how are you mitigating all that in times like these? Yeah,

Matt Portere 04:45

so, you know, we're certainly, as I've mentioned a couple times, really focused on on risk and making sure that we're well, that we're underwriting these loans appropriately, and not just underwriting them well, pricing them appropriately. You know, we're focused on a high quality borrower, our typical, typical borrower, you know, has a FICO score well into the seven hundreds. Although our credit strategies more sophisticated than just just FICO, give you a sense. You know, these are employed customers who with strong credit and and strong income, and we're really focused on those fundamentals to make sure that the loan will perform well through a cycle. And fortunately, the economy's been been pretty strong, and hopefully consumers are going to get a little bit of relief now with some rate cuts, and I think that's also helping our partners balance sheets, but we're really focused on through the cycle performance.

Sarah Cooke 05:36

Yeah, yeah, and that you led perfectly into my next question. So what is coming for lending as the rates are starting to trend downward and liquidity is still tight, but it's, you know, could very well loosen up, as we mentioned, and then we have an election coming up, and how will all that change people's attitudes towards their money and their credit? Well,

Matt Portere 05:57

we're finally in a different part of the cycle. So the focus, what we're hearing from our credit union partners, is the focus is shifting. The last couple of years, balance sheets have been really tight for credit unions as well as for banks, and they've been really focused on how to manage that loan to deposit ratio. But now that we're starting to see the Fed cut rates and the pretty aggressive cut, that 50 basis point cut was on the high end of the expected range. You know, we're, we're recording this on on October 1st, and Powell made some additional comments about today, about expecting rates to continue on that downward, downward trajectory. You know, it changes the focus. And so our credit union partners now are shifting from, you know, a very tight balance sheet to how do I originate assets with a good return and start to think about growth again, and so starting to think about getting in front of it, especially when many of them are overweight in direct auto, which is a, you know, having spent some time in the auto business is a tough business. Those margins are tight. There's nothing proprietary about it, and that's a, that's a tough asset to originate, and so many of them are thinking about diversifying, and, you know, getting, getting some other assets on their balance sheet. Yeah,

Sarah Cooke 06:18

and you make a good point too about the auto lending, indirect auto lending, kind of being similar. One of the problems, or one of the challenges credit unions face with those is making those members more complete members, not just having it on loan and walking away. Do you all work on that at Happy Money as well?

Matt Portere 07:34

Yeah. So you know, certainly if, well, there are two ways a credit union can partner with us. One is through direct originations, where we memorize the borrower, they become a member of the credit union and increases the number of members for our partners. And some credit unions prefer to start off with participations and so on a piece of the loan they want, on the whole loan. And in that case, they don't get the member they get. They get just the, the asset itself. But if you look at the profile of the member that we're, that we're bringing on, tends to be a significantly younger demographic than the typical credit union partner, so it really sets it up for a good long term relationship. You know, we never like to promise that there'll be a certain amount of cross selling, but, but what we do say is there'll be a new member that fits a good profile, and the loan itself and the asset will, will have an attractive return profile. Well,

Sarah Cooke 08:26

in addition to the asset itself, having those younger members is really important for credit unions that are averaging 53 years old for their average membership or member, right? Do you know the average age of the people who are taking out the personal loans? Yeah, typical

Matt Portere 08:45

our, our typical customer member is around 40. You know, give or take, a couple years. So, yeah, significantly younger. Tends to be a significantly younger demographic, which makes sense if you think about the profile for helping consumers consolidate, consolidate their debt, and they're doing it online, through a fully digital process. It tends to skew to a bit of a younger demographic, right? And

Sarah Cooke 09:11
and then you said, also they still have good credit scores, though, because you tend to think of younger people maybe not having much of a credit score at all. That's right.

Matt Portere 09:19

Now, you know, of course, we don't discriminate on the basis of age, but it tends to not be a very young, you know, a very young consumer. The typical loan is about $20,000, so you think you know that consumer needed to have an, had, have good credit and be able to get over $20,000 in credit lines available to them so that they can consolidate it, and I mentioned some of the demographics of the customer and the credit profile. So it's a strong, it is a strong borrower, for sure.

Sarah Cooke 09:50
Okay. And so with these videos, I always offer my guests the final thoughts. So Matt, what's you? Anything we missed? Anything you want to just close out on? Yeah,

Matt Portere 10:00

so this is a unique time, you know, we mentioned that the Fed is finally starting to cut rates and, and our credit union partners are getting the opportunity to start to think about growth, which is a little bit more fun in diversifying their balance sheet. And so at Happy Money, you know, those, those credit union partnerships, are the cornerstone of our business, and we really appreciate the partnerships, and of course, are looking to grow along with our partners, new, new and existing.

Sarah Cooke 10:29
Yep, yep. Cheers to fun. Cheers to the fun times. Alright. Thank you so much for your time. Matt. Appreciate it.

Matt Portere 10:36

Thanks for having me.