Demand for microloans has grown significantly in recent years. It’s how many of credit unions’ digital-first competitors are able to reel in so many millennials and Gen Zers.
For the 77% of people in the US who live paycheck-to-paycheck, microloans can be a crucial lifeline. Credit unions can leverage small-dollar loans to meet the needs of their members and especially remain relevant to younger members. That way, they build lifetime member value as they’re acclimated to the credit union’s offerings.
One credit union lender shared with us that a member received a microloan from the credit union, and eight years later, the family also brought their car loan and mortgage to them. This a crucial way credit unions can attract and keep younger members, who are the vast majority of microloan borrowers!
While at the GAC, host Sarah Snell Cooke sat down with Salus CEO/CoFounder James Chemplavil to discuss the growth of microloans and how Salus’ microloan underwriting program can help credit unions serve and develop long-term members after giving them a chance to build their credit. WATCH
Automated transcript is below the video
Sarah Cooke 00:13
Hello and welcome to the GAC. We’re here live. I have invited James Chemplavil with me today. Welcome.
James Chemplavil 00:29
Thank you. Happy to be here.
Sarah Cooke 00:31
Awesome. And so James is the Co-founder and CEO of a company called Salus. Long A, Salus.
James Chemplavil 00:38
That’s right.
Sarah Cooke 0:37
Why don’t you tell us a little bit more about yourself and the company?
James Chemplavil 0:41
Sure. So I spent 16 years in finance, a totally different part of finance, underwriting really high risk corporate debt. I did that for 16 years, and my path to starting Salus was a little bit unconventional. I’ve got two boys. When my oldest was about 18 months old, we had him in a daycare down the street. We found out that his favorite teacher was leaving, which normally means you’re getting a better job at a private school or one of the big public schools. Went to congratulate her, wish her well, find out where she’s going, and what she told me was not what I expected at all, because it turns out that she had been driving her car every day to get to work. She’d gotten into a car accident, and even though she had car insurance, she didn’t have enough cash to cover the deductible that it actually takes to get a car fixed. So without her car, she tried to take the bus to work, which where I live, in Charlotte, North Carolina, isn’t super reliable, and after about a week of being late, the school told her, as much as we love you, if you can’t be here on time, you can’t work here. So she wasn’t leaving the job. She was losing the job that she loved, and it was nothing she had done as an employee. It was just that she couldn’t borrow money when she needed to. And I was confused. I thought this is the way the financial services system was supposed to work, to help someone like Wendy, but it clearly failed her, and I thought there was a better way. And out of that, Salus was born.
Sarah Cooke 1:53
Okay, that’s awesome, just jumping from a job like that and be like, let’s just do something that pays nothing and it costs a lot of money. So you often say that microloans make members for life, and you would think a microloan is just like, Okay, I got $400 I’m gonna pay you back, and then we’re done, and that relationship might end. So how first, why do you say that? How do you, how do you think credit unions can really use these leverages to make members?
James Chemplavil 2:26
Yeah, I think one of the things that people don’t think about when they think about microloans, and microloans are loans as small as $50 to $400 paid back over one to four months. And most people think about a microloan as an individual transaction. So the net interest income that I can make on that loan is what I’m looking for, but really what you’re doing is you’re creating a member relationship that’s much deeper than any other relationship. For most of these borrowers, 87% of them are Gen Zs and millennials. Median age of a micro loan borrower is 29 years old. 94% of them, when this happens in their life where they need a microloan, they don’t have a prime credit score. So every other financial institution is turning them down at the moment that they need help the most. But where a credit union can stand out, where a credit union can differentiate itself, is by being the source of a solution and not the source of a denial in their moment of need. And that turns that member into a member for life, because now, every time they think about the institution that was there for them, they’ll think about your credit union and not a bank down the street or some other FinTech, neobank, that helped them.
Sarah Cooke 3:28
But it’s not automatic, too. You got to have the right tools and the right, you know, to underlying the whole foundation of member services.
James Chemplavil 3:36
Yeah, I think this is one of the critical things where we come in and where we can help a credit union, is because they have the member relationship. So there are credit union members right now that are applying for microloans across the country. 70% of credit unions over 500 million in total assets, we have actually already scored a microloan applicant from one of their members. It just wasn’t at the credit union, it was at one of our FinTech partners. So we know that members need this solution, but the problem is they don’t have prime credit scores. So how do you underwrite them? And that’s where our underwriting platform comes in. We use transaction data that you already have on your member to make a more informed decision about whether or not that person can afford to repay an emergency microloan.
Sarah Cooke 4:17
And how much does that open up like the lending like, who is credit worthy?
James Chemplavil 4:22
It’s a really important point. In our data, and we’ve made over 14,000 loans, lenders using the Salus microloan platform, we’ve made over 14,000 micro loans to borrowers across the country. 94% of the borrowers that repaid on time and in full didn’t have a prime credit score. So it’s not that they’re not credit worthy, it’s that they need someone to give them the chance to prove it.
Sarah Cooke 4:45
Right.
James Chemplavil 4:45
And our underwriting model can look beyond their credit score, look at the transaction cash flow data, and actually identify those credit worthy borrowers, regardless of what their credit score says.
Sarah Cooke 4:55
And so, a lot of those people with low credit or thin credit files or low credit scores, they might be young people. They might be underserved people that credit unions are really trying to reach really, really need the help to do it as well. So the other side though, some credit unions, I know they hear like payday lenders have ridiculous default rates, ridiculous charge offs. How do you counter that?
James Chemplavil 5:24
Yeah, and that’s why it’s important to think about a proven model for how you underwrite people without a prime credit score. And like I said, lenders using the Salus microloan platform have made over 14,000 loans to borrowers across the country. And what it would say is, if you try to underwrite this bar, we’re using credit score, you’re going to get a, generate charge off rates that just aren’t sustainable. But with the Salus microloan underwriting platform, you can actually generate charge off rates that are much more sustainable, reducing charge off and default rates by over 90% relative to credit score underwriting. And that’s the difference between a program that has really good intentions but really bad performance and a program that’s sustainable for the credit union and the member, which is really what we’re trying to do.
Sarah Cooke 6:06
That’s the point.
James Chemplavil 6:07
That’s the whole point, yeah.
Sarah Cooke 6:08
So, always let my guests have final thoughts. What’s your last words to our credit union audience?
James Chemplavil 6:13
Yeah. I mean, I’m sitting here at GAC, the energy is amazing, and one of the things that’s being brought up a lot is the value that credit unions bring to their communities, and one of the things I saw on a board here was we’ve helped the people that feel like they’ve been left behind. When you think about your younger members, they’re just starting out in their career, so their incomes aren’t super high. They haven’t built up their payment history yet, which is 35% of your credit score. They may need a little help here and there to bridge the gaps that everybody’s feeling in 2025. Salus microloans are an opportunity to start that relationship by proving the credit union difference to that member from day one and turning them into a member for life. That’s what we’re trying to help power at Salus.
Sarah Cooke 6:54
Love it. Awesome. Thank you for your time. James, appreciate it.
James Chemplavil 6:56
Thanks for having me.