Revolutionizing Credit Unions: How ValidiFI’s Risk Management Tools are Changing the Game

As we cautiously wade through 2023, credit risk remains a top concern for financial institutions, particularly credit unions.

Credit unions are financial institutions that provide services such as loans, savings accounts, and checking accounts. These institutions operate on a not-for-profit basis, which allows them to offer more favorable rates and fees compared to traditional banks. However, credit unions face unique challenges, such as evaluating portfolio risk and meeting compliance. With high inflation and rising interest rates looming, borrowers are facing increased financial pressure that could negatively impact their ability to repay outstanding debt.  As a result, regulators have made credit risk a priority this year.

In this blog post, we will explore what credit unions can do to mitigate risk associated with lending and even grow their portfolio in an uncertain economic environment.

The Impact of Consumer Risk

According to a recent report by the National Credit Union Administration, credit unions with higher levels of consumer risk had higher levels of loan losses and lower net interest margins than those with lower levels of consumer or member risk.

Consumer risk is the likelihood that a borrower will default on a loan or fail to repay their debts. This risk is a critical factor in the lending decisions made by credit unions, as it directly impacts their financial performance and sustainability. Determining this risk is a critical factor in the lending decisions made by credit unions, as it directly impacts their financial performance and sustainability. A high level of consumer risk can lead to increased loan defaults and losses, which can have a significant impact on a credit union’s balance sheet. Therefore, it is critical to determine consumer or member risk accurately to make smart lending decisions.

Challenges Faced by Credit Unions

According to a survey conducted by Cornerstone Advisors, credit unions spend an average of 5-10 hours per loan file on due diligence and underwriting. To most effectively evaluate consumer risk, credit unions must have access to accurate and timely data. However, obtaining and analyzing this data can be a challenging and time-consuming process which can lead to delays and increased costs.

Risk Management and Creditworthiness

According to a study by the Consumer Financial Protection Bureau, up to 45 million Americans have limited or no credit history, making it difficult for them to access credit from traditional lenders.

Innovative risk management tools, such as ValidiFI’s vCredit solution, help financial institutions and credit unions alike evaluate their portfolio risk effectively, while helping to expand their portfolios to consumers lacking traditional credit history. vCredit from ValidiFI uses bank account data combined with advanced data analytics to provide a deeper evaluation of creditworthiness by looking at bank account behavior, previous loan history, and payment performance. This enables credit unions to realize lower losses, higher net interest margins, and increased growth.

In conclusion, risk is a critical factor in lending decisions. Access to accurate and timely data is essential now more than ever. Credit unions need a more comprehensive view of a borrower’s true creditworthiness. Leveraging vCredit allows for faster and more accurate credit decisions, making it possible to offer alternative credit options and stay ahead of the competition. 

To learn more about ValidiFI’s comprehensive solution offerings like vCredit, or see the predictive results in action, contact us for a data study.