By Roy Urrico
Nearly half of U.S. adults lack a prime credit score, forcing them to seek alternative credit from neobanks and digital lenders, according to Salus, which provides an automated digital underwriting platform for credit unions that removes barriers to real-time microlending. This gives credit unions the capability to look past credit scores to identify emerging prime borrowers and meet their members’ needs in a timely manner.
Charlotte, N.C.-based Salus, a portfolio company of TruStage Ventures’ Discovery Fund – the venture capital arm of insurance and financial technology provider TruStage – set out to create financial inclusion through credit unions. “We recognize credit unions as institutions that put the wellbeing and betterment of their members and communities first. Our common purpose forms the foundation of a strong partnership,” Salus states in its mission statement.
“We have two main products to help credit unions,” James Chemplavil, founder of Salus, which launched its first model in 2023, explained to Finopotamus. “One is helping them underwrite microloans. And the second helps them to understand when a member is in need. And that is where the stress score comes in. It is predictive analytics that help credit unions identify members in financial stress.”
These challenges are real and impact people's lives every day, suggested Chemplavil, “At Salus, we empower individuals with solutions to manage these problems and achieve greater financial stability. We believe in simplicity, transparency, and impact.”
Tapping Into a Market Opportunity
Salus defines microloans as $50 to $400, repaid in equal monthly installments of 1 to 4 months. Salus found microloan borrowers tend to be 29 years old, with $46,000 in annual income and request an average loan size of $174. Their average credit score is 575.
“The market opportunity is pretty large. If you look at the large macro statistics, 60% of Americans live paycheck to paycheck, 37% cannot afford an unexpected $400 expense,” said Chemplavil. “Those are the large national numbers that speak to people with low to middle incomes that struggle with financial emergencies.”
Chemplavil noted digital neobanks are growing at an impressive rate, particularly amongst Gen Z and millennials. “One of the ways that they actually can attract and retain those Gen Zs and millennials is by offering them access to short-term credit. We know that 87% of microloan borrowers are Gen Zs and millennials.”
However, Salus believes there is a strong case for credit unions to provide microloan solutions to build lasting member relationships. Gen Z and millennials can also benefit from credit union relationships. By offering microloans now, credit unions can stay top-of-mind for these borrowers as their future financial needs evolve.
How Salus Works
“Salus is not a balance sheet lender. We are not interested in retail relationships with the member. We are a white labeled product. So, when a credit union is giving a microloan to a member, it is the credit union's experience, the credit union's balance sheet making the loan. We are the software platform that works behind the scenes to make it happen.”
Chemplavil emphasized Salus knows from its data, because it has worked with fintech partners across the country, “members are actively applying for microloans outside of the institution because they need the solution. They are just not getting it from their credit union.”
Salus can integrate with the credit union's existing infrastructure. “When a member needs a microloan, we facilitate the scoring of that microloan application using alternative data that the credit union has on that member,” Chemplavil explained.
“From the member experience perspective, they are just going to their credit union and getting the solution that they need. And the credit union is simply using the Salus platform to make a better-informed decision on whether or not to give that member a microloan.”
Credit Unions Already Have the Member Data
Despite their size, microloans can make an enormous impact in a member’s life, suggested Chemplavil. They can increase financial stability, keep someone on the path to financial wellbeing, and deepen their relationship with the credit union they trust.
The reason that credit unions can do this better than the digital banks and neobanks is that the credit union already has the member’s information. “The credit union already has the relationship, they already have the data they need to underwrite them, and they already have the member focus to actually give them the product before they have to go to an alternative like a digital neobank.”
This is how it works: When a member uses their credit union’s digital banking platform, they will see an option for a microloan. “When they click on the button to start that microloan and application, they are passed via SSO (single sign-on) into a digital application flow that we make for the credit union,” said Chemplavil. It is white-labeled with the credit union’s own branding and colors. “To the member, it feels like a genuine credit union experience; it's just being powered by us on the back end.”
Chemplavil pointed out the Salus underwriting model can look past credit scores to make sure that they are finding credit-worthy borrowers, even with low credit scores. Salus takes any data that the credit union has on a member, including traditional credit report, member transaction, and checking account data. “What we found is that information is much more reliable in terms of showing people without prime credit scores are still good credit risks,” Chemplavil explained.
“We give the credit union the ability to 100% configure that risk tolerance so they can say how far the reach of their microloan program goes,” Chemplavil maintained. “We take the loan application; we bump it up against the credit union's risk tolerance.”
If they are approved, Salus electronically signs for that loan agreement. “And because we are integrated directly to the core processor, we write the loan to the core using the terms determined by the credit union and disperse the funds into the member account,” said Chemplavil. Then it goes into the credit union’s normal loan servicing system.
Recognizing a Need
Chemplavil maintained, the other question that credit unions need to ask “is when do I help a member? How do I know they are in financial stress before they go to a predatory option or a digital neobank alternative? And that is where the stress score comes in.”
The stress score allows credit unions to monitor their members for signs of financial stress so they can reach out and connect in their moment of need. It allows credit unions to show them the solutions that that credit union has available to that member, such as financial counseling or skip-a-payment options. “Reaching that member in their moment of need deepens the member relationship and helps them get the solution that they need in the moment that they need it,” said Chemplavil.
“Since we went live, 95% of the people that have paid back a microloan on time did not have a prime credit score when they applied. It was not that they were not credit worthy, it is that someone needed to give them the chance to prove it. That is what we want to help credit unions do, to help their underserved members get the chance to prove that they are credit worthy in a financial emergency.”
The most important thing is to pair the resources that a credit union has with the know-how to reach them, even if they do not qualify by traditional credit standards, Chemplavil said. He emphasized the Salus platform is certainly something that is useful for credit unions that are looking to better serve the underserved members of their community.
“Microloan borrowers are 30 to 50% more likely to be LID (low-income designation), community development financial institutions (CDFI) fund and Community Reinvestment Act (CRA) eligible,” said Chemplavil. “For credit unions that are focused on serving that market, this is a key arrow in the quiver of helping those underserved members of the community."
Although Salus does not have any credit unions using its products yet, Chemplavil noted the company is in discussions with pilot partnerships with a few credit unions.