SPRINGFIELD, Mass. — Freedom Credit Union said it has introduced automated microloans as part of an effort to compete with fintechs that have been successful in capturing lending business from younger consumers, particularly Gen Z and Millennials.
The $764 million credit union has partnered with fintech Salus to offer small-dollar loans as it seeks to attract and retain younger members while providing an alternative to high-cost short-term borrowing in financially underserved parts of its market.
The initiative reflects a broader challenge facing credit unions as younger consumers increasingly turn to digital-first fintech providers for borrowing and other financial services rather than relying on a traditional financial institution.
Freedom said the microloans are intended to give it another way to establish relationships with younger consumers before they need larger products such as auto loans or other traditional credit union services.
Seeking to be ‘Connection’
“In banking, everyone does the same thing: deposits, loans and services that spin off from those two things,” Freedom Credit Union CFO Lee Craig said in a statement. “To appeal to these markets, you must position yourself as the connection between members and the adjacent financial services they seek. This product fits perfectly into that space.”
The Salus program will provide automated loans typically ranging from $500 to $1,500 for expenses such as car repairs, medical bills and short-term cash-flow needs.
Freedom said the objective isn’t primarily to generate income from the loans. Instead, the credit union views them as a way to establish relationships with consumers who may later need auto loans, checking accounts and other products.
“We’re not doing this to make money,” Craig said. “This is about planting seeds and building trust.”
Seeking Future Business
Craig said consumers using the microloans may not yet need Freedom for a major financial milestone, but the credit union wants to be the institution they consider when that changes.
Salus Founder and CEO James Chemplavil said the strategy could help credit unions compete for younger consumers who otherwise might establish their primary financial relationships elsewhere.
“Gen Z and millennials want to be met where they are,” Chemplavil said in a statement. “A microloan at the right moment is how a credit union can earn decades of loyalty from a member who might otherwise never have walked through the door.”
Not Just About Younger Members
Freedom said the initiative isn’t limited to attracting younger borrowers.
The credit union said its microloans are designed as an alternative to payday loans, which can carry triple-digit annual percentage rates.
Freedom said it has experienced strong asset growth in recent years but membership growth has been more incremental, making Gen Z and millennials an important target for future expansion.
The credit union selected Salus partly because its technology already integrates with Freedom’s core processor. Freedom also consulted GFA Federal Credit Union and Metro Credit Union, which already use Salus, about their experiences implementing the platform.
Freedom Has Nine Branches
Originally chartered in 1922 as Western Massachusetts Telephone Workers Credit Union, Freedom adopted its current name in 2004.
The credit union operates nine branches and serves people who live, work or attend school in Hampden, Hampshire, Franklin and Berkshire counties in Massachusetts and Hartford and Tolland counties in Connecticut.
