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Interest Rates Have Increased

We’ve all noticed that interest rates have risen over the past several months. The Fed isn’t done with rate increases, and this limits the number of prospects that qualify to refinance their vehicles. In some markets, available prospects have been reduced by more than 50% because some lenders have been aggressive with their rate increases. The decision that lenders need to grapple with is whether the yield is more important than their growth. There seems to be a consensus that you can’t have both. On the surface, that seems to make sense, but what appears to be an obvious assumption may be quite misleading.

Marketing is a Game of Pivoting

As markets change financially like we are seeing today with interest rates, financial institutions must anticipate future market changes and be prepared to pivot. Waiting until the market has already changed is frankly too late. In addition, when one segment of the market hits a downturn another segment offers an opportunity. Let’s explore how that is playing out in this market.

Home Equity Values Create a Huge Opportunity

Interest rates are up and will continue to increase in the near term. Since the beginning of the pandemic, the value of homes have spiked. We’re now seeing consumers relying more on credit cards to deal with the inflated prices at the pump and the grocery store. That leaves consumers with a tremendous opportunity to utilize that newfound equity in their homes to eliminate high-interest rates and payments on their credit cards. I recently had a conversation with a senior marketing executive at a large credit union that I consider to be one of the brightest marketing minds in the business. He is determined to grow his membership base by acquiring loans. This is his primary growth strategy for the upcoming year. Let’s be brutally honest, if you don’t help improve the financial situation of your members or customers, someone else will.

Enhanced Data Analytics is the Key

Let’s get back to the main topic of the article. The auto-refi market has declined due to increased interest rates. So, where do we pivot
to compensate for the reduced market size? To be quite honest, you shouldn’t have to pivot. The
tools should already be in place to extract the data that can offset the market downturn. So, consider these three questions:

1. Do you have a plan in place to ensure you retain every customer and protect them from being poached by another financial institution?

We typically hear that clients and prospects have this capability but rarely is it included in a comprehensive plan.

2. Related to prospect marketing, do you know your consumer profile is based on FICO, savings, balance, etc?

That’s a tough one for most institutions to develop internally, but it can be done very effectively with the right tools, knowledge, and resources.

Finally, ask yourself this question.

3. When markets turn, and they always do, do you have the tools and infrastructure to effectively deal with the downturn and pivot
as needed?

My guess is, given all that is involved in running a retail operation you simply don’t have the time and resources to make the necessary changes quickly enough to ensure the downturn is limited in its effect on the bottom line.

If You’re Not Growing, You’re Dying

That’s a phrase I’ve heard for years. Unfortunately that is the banking environment we live in today. Growth is imperative, especially for institutions that are smaller with fewer resources. But, saying that also applies to larger institutions. In many cases, these institutions have created a formula that requires constant growth. They must FEED the BEAST. Due to the inevitable churn created, failing to maintain a level of growth quickly accelerates a decline in revenue and the customer base.

Let me give an example. In a recent conversation a prospect stated that loan volume was down $50MM per month from 2021 levels. Knowing the ability existed in a very short time frame to address 20% of that decline, the response I received was this:

“We have a lot going on, so let’s revisit this in the fall.” WHAT!!! Your business of making loans has tanked and you’re too busy to address it. So, I probed a bit. What is going on that makes dealing with this very serious issue not a priority?
The answer will shock you. The first response was “it’s summer, and we have a lot of vacations.” WHAT!!! The final response was “We’re understaffed and can’t find people to hire.” I stopped there because we weren’t discussing solutions, I was hearing excuses.

I sincerely believe given this market in which we find ourselves, it will not be tolerant of inactivity and lack of growth. The game has changed with the growth of fintechs. Keep in mind, that they are driven by a different set of principles. Money and growth are their driving forces. They don’t care about vacations and hiring issues. That’s our competitor base these days. We as an industry
need to match that intensity. The alternative will eventually be death by inactivity and lack of creativity. As the founder of Stellar, which has
been in business for 22 years and worked with over 1,800 financial institution, I’m pulling for you guys. You have to want it. If you do, we’re here to assist. ■


Craig Simmers is the Managing Partner of
The Stellar Financial Group. Contact him at
craigs@stellarfg.com or 410-990-0172.

Outsourcing: Near-Shore Operations

Is this the answer to staffing shortages?

To be honest, hiring has become a very difficult proposition here in the states. In addition, the
demographic make-up of our population has changed. How do we deal with these two very
important changes in the US market? To my surprise many financial institutions and
fintech’s have taken parts of their operations “offshore”. The actual phrase is “near shore”.
These operations are throughout Central
America and the Caribbean. Having some of
the same issues, I explored this opportunity.
Wow was I surprised. First of all, the security
measures utilized are far superior to what most
financial institutions employ for both their
facilities and data utilization practices. Imagine asking your employees to empty their pockets upon entry to your branches and go through the same detection protocols we endure at the airport. Second, imagine not allowing paper, pens, and cell phones inside your facilities.

Finally, could we all work efficiently with no printers, hard drive ports, computers, and no written notes? That’s the level of security I experienced. Having stated the above, let’s consider an environment where hiring bilingual staff in whatever volume is needed is no issue. Imagine a supervisor, QC manager, and trainer in every work group. All of this with command of the English language that is equal to most of us in the States. This is critical as we estimate 21% of all auto refi applications completed require a bilingual capability. Can you afford to not service this consumer segment? For more information on this potentially valuable service, please reach out directly to me, Craig Simmers,  to request an initial conversation.

Data Analytics: Taking it to the Next Level

We are often asked in presentations, “What is the secret sauce?” Since our founding 22 years ago, we have always answered this question the same way. The secret sauce is in the data, which is the foundation of any marketing campaign. Without consistent analysis before and after a campaign, you
have a recipe for failure. In most marketing and sales organizations, a group of very talented data analysts work tirelessly behind the scenes to ensure the success of their companies. I’d like to introduce you to our data analytics team.

Josh Luongo

Josh Luongo
VP of Data Analytics

Sai Karteek Edumudi

Sai Karteek Edumudi
Performance Data Analyst

Bansari Shah

Bansari Shah
Performance Data Analyst

Stuart Zellin

Stuart Zellin
Programmer/Analyst

Other Articles from Stellar Insights Fall 2022

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