UK Credit Union lending at highest level on record - can their tech cope?

As The Association of British Credit Union declares in its vision statement: “Credit Unions will become the primary source of affordable, high quality and ethical financial services for the people of Great Britain”.  To achieve that, they will need affordable, high quality tech.

According to statistics released by the Bank of England on 30 August 2024, Credit Union loans increased to over £2.5 billion, the highest level on record.  This looks like a continuing trend because, also reported, was an increase in adult Credit Union membership for the sixth consecutive quarter.  Can their existing technology cope with that rate of growth?  What happens in the future, with ever-increasing demand?

Rapid growth is a challenge for any business but, for one that operates on very narrow margins and provides a much-needed service to some of the most vulnerable in society, Credit Unions are more acutely exposed.  The service they are providing though, is hugely valuable and they must be supported to continue to provide finance to many excluded by other financial institutions. 

Let’s look at the challenges facing Credit Unions and other community lenders:

1. Managing low margin lending – offering affordable loans to those who have restricted credit options, means the margins of Credit Unions have to be tight. They simply don’t have the luxury of pricing-in credit risk as heavily as traditional lenders.  Diluting their margins by buying-in credit risk analysis and payment services, for example, is not a practical option.  The technology they choose must include Open Banking to deliver credit referencing and payments, which will enable them to be self-sufficient across the loan lifecycle and hold on to every penny they earn.
   
   
2. Managing increasing volumes – to maintain profitability in high volume environments, the heavy lifting must be done by technology.  Higher levels of automation mean smaller teams can still manage increasing volumes.  That is vital because keeping headcount down means not just payroll savings but a whole host of other ancillary costs like office space, healthcare, pensions etc. 
   
   
3. Managing volatility and market demand - we have seen so many examples of firms throwing people at the challenge of increasing volumes, only to discover that market volatility results in redundancy costs in an ever-repeating loop.  So Credit Union technology must bear the brunt of the swinging pendulum of market demand, not the painful solution of increasing and decreasing headcount.
   
   
4. Staying relevant in an ever-changing financial landscape – the pace of change in financial services is staggering at the moment.  New products are emerging all the time and Credit Unions must be able to keep up – or even better – innovate on their own terms.  Technology that can bring new products to market at speed, tweak existing products based on market dynamics, and route members to the products that are the right fit for them, will help to future-proof Credit Unions.
   
   
5. Compliance and reporting – compliance is mandatory and an ever-increasing burden.  The cost of compliance is not insignificant but the threat and cost of failing to comply is huge.  Credit Unions should be able to rely on technology that automates compliance.  Tech that ensures every member is considered individually and is automatically and intelligently routed through the system, compliantly.  The provision of reports should be instant, such as client money reconciliations, or matched to reporting cycles for management and regulator reviews.  Not only does that reduce risk but it reduces the cost of compliance too.
   
   All these are vital for the sustainability of Credit Unions but perhaps one of the most important of all is…
   
   
6. Managing credit risk within their existing loan portfolios – inevitably Credit Unions manage more than their fair share of borrowers in challenging circumstances.  The technology that supports their lending must be capable of helping them to support those borrowers. 
   
   The technology must enable Credit Unions to be flexible, with options available for temporary repayment relief or longer-term solutions – triggered at any time during the loan lifecycle.  That could be repayment holidays, re-defining and re-calculating regular payment amounts, and flexing loan duration periods.  Having that flexibility can mean arrears are better managed and defaults avoided. 
   
   The technology must calculate these options automatically to avoid swamping customer service teams with the hours, even days, to do it manually.  Once agreed the system needs to update the whole plan and all associated workflows, compliance checks and debt recovery processes.  Without this level of automation, Credit Unions will struggle to deliver their vital service.

If that is the shopping list for Credit Union tech buyers, how do they achieve all that with the often small budgets available?  They start small with technology providers that will enable them to add products and services as they go.  That way, they take each sustainable step at their own pace. There are providers, like Madiston and others, that will do exactly that because they believe very much in the goal of affordable, high quality, ethical financial services.