Former CEO of GDS Link Paul Greenwood Discusses the Evolving Partnership Between Credit Unions and Fintechs at GAC

As the median age of the credit union continues to rise, credit unions may need help to reach younger potential members. In order to reach those younger members and offer them products and services they want to use, incorporating technology and social media is required, and it must be done so in a way that is convenient and easy for them. However, some credit unions might not have the resources in house to provide such services, and that can be where fintechs come in.

Sarah Cooke had the opportunity to sit down and talk with the former CEO of GDS Link Paul Greenwood and discuss how credit unios partnering with fintechs can be a solution for smaller credit unions hoping to bring in younger members. He also talks about the new Loan Exchange program to help those seeking a loan get a second chance after getting turned down.

Read the full transcript below:

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Paul Greenwood 00:00

Hi, my name is Paul Greenwood. I was the co founder and CEO of GDS Link until recently. GDS Link started 17 years ago, and was in the business of providing credit decisioning software for any kind of lender, lending any type of product. We had most of the big FinTech companies, a lot of banks, and some credit unions, as well. So we had some experience in the credit union space, but credit unions were not our main driver. So fintechs, the lenders such as Best egg Lending Club, Prosper, Goldman Sachs before they decided to get out of business. So we've seen the lending industry in general really evolve over the last 15 years.

Sarah Cooke 00:53

Yeah, and a lot of that evolution has been the technology behind it. I mean, having been in FinTechs for 17 years, you've seen a lot. So many people, I mean, I you know, just maybe 5, 10 years ago, people around this exhibit hall would not know the word FinTech and you've been in it for 17 years. So talk a little bit about the evolution of fintechs as you've seen it over the years. So

Paul Greenwood 01:16

fintechs were really born believe it or not out of the payday industry. So payday was one of the first industries to get to really lend online, really automate everything end to end, not just the credit decision, but KYC fraud, the goal was to kind of get somebody through the door as quick as possible. And then a lot of FinTechs started attending the Payday industry conferences to understand how they were managing to really scale talking tens of millions of applications a month without any human interaction whatsoever. Very little touch. So the fintechs really piggybacked off that industry. But obviously, they were more focused on prime, super prime. And the other big thing with the fintechs was the marketing machine that goes behind it. Credit Karma, Lending Tree is all that all of those start to evolve at the same time as well. And it's a generational thing as well. So what I heard in today's sessions this morning, was there's a lot of generational differences between the CEU industry and what the fintechs see, a lot younger generation coming through. Nobody wants to walk into a branch. Everything's online, again, the way that the fintechs market is all on Facebook, Instagram, Snapchat, right. So they're constantly appealing to the younger generation and driving a lot traffic through that. So that's where the fintechs see so much more of the population wanting different credit products to their credit unions. Yeah,

Sarah Cooke 02:57

yeah, no, you're absolutely. It's interesting, because I was looking the other day at the stats. And I think when I started in credit unions, maybe 20 years ago, the average age of a credit union member was about 47. And now it's 53. Right. So we went backwards from what we had been talking about. So this is a great opportunity, not only to make some loans that probably have better yield, and that they wouldn't see because they don't have that marketing engine. Right. At the same time, they will be able to make them in a way that is convenient to the consumer, because it's going straight through, you know, the the mobile app that they're using. Exactly, yeah. And so how do... how can credit unions work better with fintechs?

Paul Greenwood 03:46

Yeah, so fintechs fintechs, look at credit unions and banks, as, as partners more often than not, right. So. So one of the things that we're here to talk about today, is the ability to work more closely with the fintechs. So one of the fintechs, I work really closely with declined 90% of their loans. And because they're only lending to prime and super prime, there's such a large quantity of borrowers that are still very good quality of credit, or credit quality, but the fintechs just declined them because they're not 720. So So one of the things that we're looking to put together as a program around helping credit unions and banks, look at the loans that these fintechs are declining. And again, we're talking tens of millions of just one fintech alone, I know declined 6 million applications a year and building a mechanism or a marketplace where these credit unions and banks are able to look at these loans that have been declined, still fit within the credit criteria, still quality borrowers, but they would never see through any of these market charts, because now the borrowers are just going direct online through all the various channels that are now available. And, again, if you're a small credit union, to get onto Credit Karma and Lending Tree, there's a lot of technical help and expense that you would need to be able to do that.

Sarah Cooke 05:30

And so I'm talking a little bit about Loan Exchange, which is a program a new new platform that you're going to be bringing to credit unions and banks. So talk a little bit about the origin of that the origin story, if you will,

Paul Greenwood 05:47

yeah. So again, over the years, just seeing a gap where a lot of these big fintechs just decline these loans. There are a couple a couple of specific second look lenders, but not many. But the majority of these loans, and again, there's still good borrowers with good credit quality, just get dropped, right, so they don't get looked at. So what we're looking to put together is a program where we would house the credit criteria for the credit union, within our platform, the fintech would send us all their declined loans. And we would go through and see if any of the credit unions would be able to approve this borrower, that fit with their criteria within their criteria. And again, any loan product for mortgage, small business, student loans, personal loans, etc, credit cards, and, again, what's important within the geographic location, so we would get the declined loan, see if it fit the criteria for that credit union. If it did, send that loan offer back to the fintech, the fintech would say, unfortunately, you've been declined with us today, but one of our partner credit unions has approved you, it might not be the exact loan amount that they're asking for. But it might be close. And if the borrower would like to accept that loan, they would click on the offer on the fintechs website, and it'd be simply redirected to the credit union's loan origination system, whether that's Meridian Link, or one of the other loan origination, origination systems, and then the borrower would have to fill out the application again, but they've already been pre approved by us on the backside. So they know that once they fill out the application, that they're going to be approved. Yeah. So it's a really easy way for the credit union, to capture some of that decline application pool that they would never see. Yeah. And as low touch, there's no integration needed, they would simply give us the credit criteria that we would house loan exchange, and we would do the rest. Now,

Sarah Cooke 07:50

I was gonna say it sounds like a pretty light lift on the credit unions. And yes, it is. And that's something that they need to be because, you know, the fintechs, in particular, at least, before probably this past year, a lot of money to put into marketing, right, and to put into building those platforms and to put into paying the talent, right, because I mean, credit unions talk generally speaking about the war for talent a lot. But finding people in these high demand high paying jobs, it just doesn't make sense. A lot of times for credit unions, right? To have them in house. It's not their expertise, their lenders, right? Especially the really small, right, right.

Paul Greenwood 08:30

And they have four or five branches in a in a geographic location, they're just not going to have the marketing budget, or the talent or the people that have time people, but they just don't have the resource bandwidth to do what's needed to do to be able to compete. Right. So partnering isn't the easiest.

Sarah Cooke 08:48

Yeah, and I think that's part of the evolution of fintechs, too, I feel like when they first came out, it was a lot more us versus them kind of thing. And now it's more like working together with the banks and the credit unions, which I think is a really good evolution, because, you know, credit unions have the trust of their members, banks have the trust of their customers. And then the fintechs they have the technology and the convenience, and all this stuff that the banks and credit unions rarely do in house right, you know, on their own. I think too one of the important things that we focus on at The Credit Union Connection is highlighting the business partners that can help keep credit unions relevant. I mean, and this is like a perfect fit for that. And so, especially when you're talking about the age of membership going up and up and up, right, but you're and you talked about smaller credit unions, too. So with small credit unions. How do you ensure that the pricing is going to fit for that? Because that's often a problem.

Paul Greenwood 09:50

So the way that the pricing would work and again, I keep talking to the fintechs they would charge a small percentage fee of the overall loan amount, which is very standard and that is a way for them to recoup their marketing spend, and also helps helps their bottom line, right. So if they can monetize their declines in a very low touch, efficient way, that's why they would love to partner with a credit unions. And again, I've talked to the fintechs. And they're really interested in this program. And

Sarah Cooke 10:21
so what kind of credit score buckets are you looking at to below

Paul Greenwood 10:26

720? Right, which is their cut off? So, and again, a lot credit unions go down all the way into the low six hundreds, even below that for some products. So, so the the band between where the fintechs are declining? And where the credit unions decline? It's quite large.

Sarah Cooke 10:44

Yeah, yeah, it sounds like a lot of opportunity there for sure. And not only new loans that you wouldn't see otherwise, but a margin better margin for on those loans, too, which is always important. So I'm thinking what else, I'm going to let you have the final word final thoughts on.

Paul Greenwood 11:06

So again, it's a new program, we're just putting this program together. So what we're looking forward to get the program off the ground. And again, we have the buy in from the fintechs is, you know, several credit unions that are willing to do a test with us. And again, this is a no risk test, we're looking for them to just give us their credit criteria for the different loan products that they're wanting to offer. And we can tell, we can then go and look at the term. So based on your five credit unions in this geography, we see that you would have this 20 loans that this lender that declined that you would have approved. So it's really understanding the market size in by credit union and geography. So we're really looking for credit unions that are willing to work with us, just to give us a credit criteria, so we can do a market sizing. So that's step one. Yeah.

Sarah Cooke 11:55

Yeah. Great. That sounds awesome. So if a credit union were interested in how could they get in touch with you? So

Paul Greenwood 12:00
they just need to go to loan hyphen exchange.com and just fill in the contact us form?

Sarah Cooke 12:05
Awesome. Excellent. Well, thank you. We will definitely include that in the show notes as well. Appreciate having you today. Paul. Thank you.

Paul Greenwood 12:11

Thank you for having me.