Credit Unions

Innovating through the downturn

Mike de Vere
October 27, 2020

As part of our Leaders In Lending Series, Mike de Vere, Zest AI's CEO, had the privilege of sitting down with Jason M. Osterhage, the chief lending and member experience officer of Alliant Credit Union.

At nearly 500,000 members and over $12 billion in assets, Alliant is one of the largest credit unions in the U.S. And it’s an all-digital operation, which in this quarantine era is a gigantic plus.

MdV: Whether the recovery is V-shaped or K-shaped, what do resilient leaders need to do now?

Jason: Resilient teams are able to do two things at once: Practice strategic agility, quickly detecting the disruption, and assessing the next steps, while practicing tactical agility, taking smart risks and improvising while staying on plan. You have to also balance what’s needed now — things like employee and member safety, expense control, social equity — with investments that will pay off 10x down the road. Apple Computer, for example, wasn’t in great shape going into the 2001 recession. Its revenue, I think, went down by a third that year. But Steve Jobs ramped up R&D anyway and kept it high for the next two years. The results: iTunes, iPod, and iPhone. The rest, as they say, is history.

MdV: How are you using the downturn to position Alliant to thrive?

Jason: Great question. We’ve got several broad objectives. One is to intentionally invest in talent by upgrading our skills and developing high-potential leaders. These are all relatively easy things to do in a downturn, when great people can be a bit more available and affordable, especially in the technology space.

We’re also using this time to improve our level of digital automation — make better decisions, accelerate application experiences, and increase account opening volumes all while improving the member experience. We’ve been focused throughout the downturn on removing friction and we’ve seen the benefits in our margins and member satisfaction scores even as we’re responding to record high service volumes. If there’s friction, members aren’t going to put up with it. They will take their business elsewhere. Time is too valuable.

MdV: What do you say to colleagues in the credit union industry who say they’re too small to spend much on innovation and digital/automation?

Jason: I get that not every institution has abundant resources. That’s where the tactical agility comes in, the will to move faster with the folks you have. As an industry, we have to accelerate automation or we’ll lose community share. You guys did a study of mid-sized lenders with Cornerstone Advisors that found some sizable gaps in the innovative capability of lenders when it comes to credit underwriting. Half the mid-sized banks and credit unions in the U.S. have automated only 20 percent of their lending decisions across all product categories. Only 12 percent have reached the 50 percent automation threshold.

Alliant’s automated decision rate has improved by nearly 50 percent over the last year, rising well above a third of all applications for some loan types. One key to this has been the consumer loan origination software platform we implemented in 2018. We take more than 84 percent of all consumer loan applications directly through digital channels, process loan applications in minutes, and fund member auto loans digitally the same day. We’re releasing enhancements to the software every two weeks and have now funded more the $1.7 billion in loans on the platform. We developed the platform ourselves in-house to control and continuously improve as much of the member experience as possible and to give us the flexibility to work with fintech partners.

MdV: Building capability in-house — I like to see that. What’s your take on working successfully with technology partners?

Jason: If we’re going to continue to improve our auto decision rates, further automate processing steps, and reduce service times we can’t do it all alone. We are partnering with carefully selected fintech specialists to achieve the ongoing advancements required to efficiently deliver a great member experience. We’re now working with partners like Happy Money to use neuroscience-based engagement to increase the rate at which members save and with Zest AI to enhance our credit models with machine learning to increase auto decisioning and cut loan processing times to seconds. Machine learning models will allow us to use more of our data like account balance history, asset information, and tenure with the institution when generating risk scores. These initiatives promise to strengthen the personal balance sheets of our members and help Alliant cost-effectively make more good loans to deserving members.

MdV: What’s next on your innovation agenda for the rest of the year and beyond?

Jason: We need to stop thinking about how we can keep up and shift our mindset to how we will stay ahead. This downturn is the time to get far more intentional about our digital strategy. Our members’ expectations for a frictionless experience will only grow. I challenge all of my colleagues in the credit union movement to use this disruptive time to accelerate their own transformation.

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