A Real “Blue Ocean” Lending Opportunity for Credit Unions: Point of Sale Financing

During the recent Drive ’15 Conference for credit unions, George Hofheimer, Filene Research Institute’s Chief Knowledge Officer, unveiled to attendees exciting new research findings from Filene and CU Direct on point-of-sale financing (POSF).  (POSF is defined as providing financing at the point of sale for large consumer purchases.)  The research examines loan growth opportunities for credit unions by focusing on unmet consumer needs.

The research revealed that the POSF marketplace is driven by the needs and behaviors of three players: financing agents (banks/credit unions, startups) providers (retailers, health care providers), and consumers.

According to Filene’s new report, Blue Ocean Lending for Credit Unions: Point of Sale Financing , there is a great opportunity for credit unions to develop a new growth channel through consumer loans, offering increased value to members in a new space, and, at a low cost.  If tapped correctly, this opportunity could generate significant loan growth for credit unions.

According to the report, the potential size of this market is estimated at $391 billion annually, or approximately 3.5% of annual consumer spending — with health care, electronics and home goods, such as major home appliances and furniture, as the leading spending categories. Other key vertical markets that provide good opportunities include home improvement, heating/air conditioning, and sporting goods.

Diversity is key to maintaining a healthy credit union lending ecosystem. One way to reduce concentration risk and increase profitability is to expand your business to new frontiers with retail lending.  Credit unions can focus on untouched niche markets and be successful – if not a leader — in serving smaller, local providers in underserved industries. Credit unions need to look closely at POSF as a means to grow and diversify a loan portfolio with higher yield retail loans.

The Filene report reveals significant insight to the POSF/retail marketplace, including:

• The POSF market presents a relatively new opportunity for credit union loan growth. Most financing agents currently offer opaque and high priced services to consumers; credit unions have the opportunity to provide a tremendous leap in value to both consumers and providers
• POSF is an effective means to increase provider purchase volume, enable consumers to purchase large-ticket items and generate new loan opportunities for the credit union
• Many consumers who will qualify for POSF have more than one financing option—the easiest being their existing credit card (whether general-purpose or private label). This doesn’t mean a credit card is necessarily the consumer’s smartest financial choice, especially if they carry a balance, but it’s one that involves no further action before purchase

The POSF market is large, and dominated by just a small number of major competitors.  Bottom line, with point-of sale financing, credit unions have a tremendous opportunity to grow loans through a virtually untapped revenue channel, and deepen relationships with existing members, while adding new membership growth opportunities.

CU Direct’s OnSpot Financing  program provides credit unions an ideal opportunity to offer members point-of-sale financing at retail and medical offices. OnSpot gives credit unions the ability to build and maintain strong local business relationships through consumer lending, and become the preferred financial institution for local retail providers.  The program connects consumers and providers by delivering financing through credit unions.

To learn more about the keys to successfully tapping into point of sale financing, download the full Blue Ocean Lending Report from Filene.