Wednesday, November 8, 2023

SECU - Risk-Based Lending: A Weak Business & Marketing "Strategy"! # 9  Refresh:  1) SECU has been highly successful for the last 85 years - without RBL, 2) SECU has been financially successful - last 5 years "most profitable ever" per CEO Brady - without RBL, 3) SECU members - per SECU Loan Administration estimates - will pay literally hundreds of millions of dollars in excess interest on loans - with RBL, 4) the same rate, "A-paper for all" lending approach is a superior "marketing" strategy - without RBL, 5) " everybody else is doing it" (aka "industry standard") is not sound reasoning, and 6) there are no financial nor operational reasons for the SECU Board not to pause future RBL implementation in order to review its  RBL decision with the SECU membership. 

But, let's return to yesterday's post [RBL #7] and prove why the "same rate for all" lending strategy is a superior business and marketing strategy for SECU, - especially given the 5 points above. As an added benefit, SECU will not have to deal with the fairness and discrimination issues which arise with risk-based lending - that priceless reputational value of SECU being viewed as a fair, principled lender, right?

Put on your business cap; this one is easy! SECU Loan Administration (LA) has proclaimed that it can offer SECU members a market competitive A-paper loan rate under RBL. I looked around yesterday based on SECU' s posted new/used car rates and SECU A-rates do look competitive! SECU LA has also proclaimed that the newly competitive rates will bring "A-rate" borrowers flocking back to SECU - let's hope so! 

✅ Here's the first "no-brainer", ready? Offering that "A paper", competitive rate under either the RBL or "same rate for all" model will bring those A-rate folks flocking back - either model brings that group back! LA has fixed its loan mis-pricing problem of the past, by moving back to the "best rate around" reputaion SECU had. So, having made that pricing correction, by again offering competitive rates - now let every member win again!

✅ The second "no-brainer" is from a marketing perspective. If LA offers that same competitive A-rate under "the same rate for all" model, SECU should make more qualified member loans in the B, C, D, E, F, G. H, I, J, K "tiers", too - everybody will come flocking back! Why? Because obviously SECU will be offering the best loan rate in the market to all those members too! And, members like to talk...! "Same rate for all" = best rate for all members!  Told you this was easy!

✅ But let's throw in the "no-brainer" financial aspect for the naysayers. SECU has @ $10 billion sitting in T-bill investments earning on average less than 1%! - earning less than $100 million annually. Under the "same rate for all" model, if those investments are converted into "flocking back" used car loans of any tier, SECU earnings will soar by over $500 million each year. 

How can SECU lose by being fair to all members?


... some factual data from LA at this point would be most helpful, instead of more LA-LA-LA...