Q-Cash: 10 Years of Innovation for Payday Loan Alternatives
Payday lending is an emotional subject. We now use the terminology "small loan" because even the term "payday lending" has become toxic when having a fruitful discussion of this business, the value it provides or the policy questions that its use by consumers raises.
WSECU has been a leader in the development of small loan products for consumers with challenging credit histories. We have been in this marketplace for over 10 years - and have learned a lot over that period.
How we got started in the business is a good example of how WSECU goes about its business and how we focus on member need. This is also a story about innovation and technology - terms not often associated with either payday lending or credit unions in general.
More than 10 years ago, one of our tellers identified a problem that we needed to solve. We had a number of members who did not have checking accounts who came into our branches to purchase money orders. Our money orders were very inexpensive- at the time I believe they were only 50¢ each. The problem was that these members would buy a number of money orders and stand at the teller window for a long period of time paying the bills that they owed that month. Other members were then kept waiting as these members completed this lengthy process. The teller's idea was to increase the fee for the money orders to make it uneconomical for the members to use the money orders in this way. I did not like her solution - raising fees and driving members away from the credit union did not seem like a good approach. Instead, I asked her to conduct some analysis including an in-depth look at all the money orders that had been purchased in the prior month.
She completed her research in a few weeks and came back to share the financial results. "Kevin, one thing I did notice when I looked the money orders - a lot of these were made payable to local payday lenders," she said.
That caught my attention. "How many?" I asked.
She said, "I am not sure, a lot." At that point, I asked her to take the additional step of figuring out how much, exactly, "a lot" was.
Now the back story here is that, as my co-workers have learned over the years, this is a question I ask often. I know answering these detailed follow-up questions can be frustrating - and sometimes, as in this case, something good comes of it.
She returned a few weeks later and she was excited. "I can't believe this - it looks like our members spend close to $1 million a year on payday loans!" she said.
And that was how we decided to get into the payday lending business. Our belief was that we could offer a better product for less money. We turned out to be correct in our belief - and it took a lot of time for us to figure out how to do this.
And, our entry into this market was controversial from the beginning. At a meeting of the membership in Seattle during the very first year that we offered the product, a member asked a very pointed question from the back of the room: "Tell me why you are offering payday loans? Don't they make life worse for the borrowers?"
There was murmuring from around the room. We had anticipated the question and I was about to provide our response. Before I could, however, a woman from the front of the room raised her hand and stood up.
"I can answer that question. I got a payday loan from WSECU and it was great. I needed money fast, I trust WSECU to give me a good deal - it saved me from a very difficult situation."
As I stood at the podium, I thought to myself - sometimes it is better to be lucky than good! Of course, I knew that our members appreciated our payday loan alternative products, and I also knew that it is infinitely more credible for a member to answer that question than the CEO.
My preference for detailed research continues today. We keep up on the latest details of payday loan programs from across the country. We serve on the Advisory Council to the Consumer Financial Protection Bureau to advise them on our opinions and experiences with payday lending. We track and incorporate the latest research into our product development.
Today we have evolved our original payday loan alternative into something much different. Members can borrow up to $4,000 unsecured using their mobile phone. We can underwrite and fund the loan in less than one minute. We use proprietary algorithms to approve the loan. Our unique processes mean we can offer the product at a lower price - faster and cheaper than our competitors. We estimate that we have saved members roughly $3.7 million over the past 10 years when comparing our prices to our competitors.
We have even developed the product to share with other credit unions. The earnings we receive from these agreements will benefit our members by covering the costs of other member enhancements like new branches and new mobile products. Today we are researching the possibility of using some of the same techniques we learned from our payday lending experience to make auto lending more convenient and cheaper for members. The operating platform we developed for payday lending has a lot of potential to transform lending in many different ways.
We are very pleased with the development and success we have enjoyed with this program. We have helped a lot of members. One of the keys to our success was listening digging deeper and asking questions of members. Listening is the most important thing we do. We hope you will help us develop new products like Q-Cash by letting us know what you think. We're listening.