In 2003 WSECU’s (Washington State Employees Credit Union) President, Kevin Foster-Keddie, noticed an alarming portion of the credit union’s members were utilizing local store front payday lenders for their short-term cash needs. He wanted to know more, “Why are our members going outside of the credit union?”. A deeper dive was taken to understand what products our members wanted and how we could meet that member need. What was discovered was alarming. Not only were WSECU’s members going elsewhere for a product that was not being offered at the credit union, but a six month internal review showed that they were paying fees in excess of $1 million dollars just to have access to short term cash! The onerous terms and predatory lending practices to which WSECU’s members were being subjected did not sit well with Mr. Foster-Keddie. It stands in direct opposition with everything WSECU stands for. Something had to be done immediately.
In true credit union spirit, WSECU assembled a team with one goal: provide WSECU’s members with the best option for short-term cash. The teams’ entire focus was to create an in-house solution for our members’ short-term cash management needs at a fraction of the payday lender cost, and in a consumer friendly way. In doing so, QCash was born. Providing this type of product to WSECU’s non-prime members wasn’t easy, nor was it profitable initially. Even though WSECU was losing money, the objective to address a need membership clearly demanded was met. It was all about the member, so when the program was being built the entire focus was providing our members with a more affordable solution.
QCash is up and running. Members love the option of an affordable short term cash solution. WSECU is happy because the segment of membership that truly needs a financial advocate now has affordable options. We’ve developed, implemented, and delivered a product that is entirely member focused. All of which are very positive points to be proud of as an organization. The focus though needed to shift to making the product profitable on its’ own. Something had to be done to create sustainability for QCash. Traditional means of raising the APR or increasing fees wouldn’t work. That would only make the pain point even greater for membership, and not to mention eliminate the QCash product as a differentiator.
QCash had helped countless members in a consumer friendly way, but changes had to be made for WSECU to continue to offer this program. The challenge was to do so in a way that aligned with the organization’s cultural values. In 2007, we started to analyze every step of the QCash process down to the granular level, analyzing costs, processes, policies and profitability metrics from the data we collected over the past few years. We quickly and clearly saw opportunities to enhance both the product for the member, and the program for the organization. Then the adjustments came and QCash started to evolve. Within a year of refining its processes, the QCash program became profitable.
When asked, most of the executives involved in refining the QCash program will tell you it was a simple adjustment here and there that brought it into the black, but in reality it was much more complex than that. First, QCash was made more affordable for the member, which sort of defies logic in terms of bringing the product out of the red ink and into the black. We then focused on automation and started analyzing every detail of the process to see what can be automated and what still had to be done manually. Over time more and more of the QCash process became automated until, eventually, technology caught up and now the entire process is fully automated. Now WSECU’s QCash program generates more than $1 million net per employee annually and expects to exceed the $4 million net profit mark in 2015, a remarkable improvement from the programs early stages.
The ‘Secret Sauce’
One of the more interesting challenges was to design a relationship based underwriting decision engine. Since lots of good people were negatively impacted by the recent financial crisis and we didn’t feel that the credit reports, as they exist today, truly reflect a person’s creditworthiness, we decided to come up with our own algorithms. After trial and error, the QCash loan loss ratio has consistently maintained in the single digit range. Today WSECU’s QCash program books over 30,000 loans annually, maintains loan loss rates in the 6-8% range, provides financial education for members using this product, and generates a $4 million/year, net.
Time to Share
Once the relationship based decision engine was developed and the process fully automated, it didn’t take long for other credit unions to start asking how they and their members can benefit from the QCash technology. The Program Director, Heidi Tinsley, has been on the team since day one and has successfully navigated the program through all the changes and is extremely knowledgeable about this industry. There are so many rules and regulations that impact this product from state to state and they had the foresight to develop the QCash LOS with customizable features to enable QCash to remain compliant regardless of the state in which you lend. And it doesn’t stop there. The credit union can set their own pricing, terms, and white label so it’s aligned with your credit unions brand or apply it to an existing manual process. It’s entirely automated, no FTEs required.