By: Lou Grilli, Senior Innovation Strategist, PSCU
The coronavirus (COVID-19) pandemic has wreaked havoc on our daily lives and devastated the U.S. economy in a very short amount of time. However, we do see a light at the end of the tunnel. Unlike the Great Recession of 2008-2009 when the mortgage crisis was responsible for the economic downturn, there are no underlying financial reasons that would prevent a full economic recovery when the virus subsides. Still, life and business, as we know it, will be different.
When we all eventually re-emerge from isolation, here are three ways credit unions could be reshaped from this pandemic.
Normally, card issuers and loan department officers monitor 30-, 60- and 90-day payment reports, and take action on late payments accordingly. Now, with a record number of out-of-work credit union members and the national unemployment rate skyrocketing, the sheer volume of card and loan accounts appearing on past due reports are guaranteed to balloon.
In these dire circumstances, just about every financial institution is offering some type of program to waive late fees and penalties for cardholders. Even the big banks, typically not known for their compassion toward customers, have announced suspension of mortgage payments for those impacted by COVID-19. Meanwhile, credit unions are helping members by automatically deferring consumer loans and credit card payments for 60 days, and offering up to 90-day deferments on mortgages and home loans. In this unprecedented situation, loan officers should monitor these reports to plan for charge-offs and adjust their Allowance for Loan and Lease Losses (ALLL).
In addition to consumers suffering, small businesses are teetering from a lack of customers – and deferring payments may not be enough. Extending additional credit and asking members to support businesses specific to them are two ways to help these Main Street businesses. Credit unions have always existed for the financial well-being of their members, and this period of uncertainty is an extreme test of this mission.
Changes in Commercial Real Estate
Nearly every company and business across the U.S. has asked employees to work from home. Many of these businesses have had to quickly adapt their processes to accommodate a remote workforce, as well as respond to a new normal where new employees are on-boarded remotely, which requires everything to be done digitally – from electronic documents to virtual interviews and meetings.
Depending on how long the virus keeps employees remote, two changes will happen. First, workers might realize that they can be just as productive at the kitchen counter as in a cubicle, and that commuting is a waste of gas and time. Second, employers could realize that a remote workforce is manageable, and expensive commercial real estate is not necessary. This will mean higher commercial vacancy rates and a decreased need for commercial lending. Credit unions should consider adjusting their loan portfolio revenue to reflect this potential scenario.
Credit union members in nearly every state are under stay-at-home orders. As a result, branch traffic has dropped immensely, and members who may have previously shied away from digital banking channels have discovered the benefits of performing every payment function (with the exception of cash transactions) from their computers or mobile devices. Meanwhile, the need for cash has diminished, as people fear transmission of the virus from handling paper currency. In the short term, this is driving an increased dependency on digital and remote channels. In the long term, this will mean assessing branch density.
The U.S. economy will recover from this crisis, yet some aspects of credit unions’ business could forever be changed. It’s important to stay adaptable and responsive to what our new normal becomes.
Lou Grilli is a Senior Innovation Strategist. Lou is tasked with building and shaping a superior payment and member experience capability for PSCU and its Owner credit unions. Lou’s long career in payments includes product management, product development and thought leadership in credit, debit, loyalty, mobile payments, digital wallets. Lou has spent the last 6 years in roles dedicated to the credit union industry.