There is nothing new about generating new revenue.

Take it from credit union executives and experts who saygenerating new revenue is about getting back to basics, taking onmore risk, looking for untapped markets and exploring technologyoptions to attract millennials and Generation Z.

Although car loans keep the revenue engine humming for mostcredit unions, Mark Lynch, senior program manager for the NationalCredit Union Foundation in Madison, Wis., pointed out during CUNAMutual Group's seventh annual Discovery Conference last month thatcredit unions are missing a big opportunity to sell car loans tomembers with less than stellar credit.

Part of the Foundation's research was to identify those membersthat need a car but have low credit scores.

“One of the things that really shocked us is that the majorityof people below, say, [the age of] 45 have a credit score of around630,” Lynch said. “You then look at the loan portfolios that creditunions have and we find that many credit unions are not wanting todo loans below that [credit score]. That bascially means that ifyou look at the range of people, you find around 55% of our membersor potential members have credit scores below 640. So that meanscredit unions are missing out not only on serving an important partof the population who needs these loans, but they are missing anopportunity to do good business.”

If managed carefully and appropriately, Lynch said theFoundation's research shows providing car loans to members with lowcredit scores could yield a net rate of return as high as 10%.

A two-year pilot study conducted by the Foundation and theFilene Research Institute included the participation of 10 creditunions that made 7,605 loans worth $101 million. The average loanwas $12,000 to consumers (average age 37) with an average creditscore of 585. The average term of the loan was 53 months with anaverage interest rate of 11.7%.

The net income generated was $3.7 million, according to thepilot study.

“The other thing that we found from the pilot was that incomegenerated from these types of loans was much higher than incomegenerated from members that had stellar or very high creditscores,” he said.

However, credit unions should have two distinct policies forhigh score members and low score members. In lending to low creditscore members, credit unions also need to have a dynamic risk-basedlending program to cover higher loss rates and a strongunderwriting process to gather more information to determine themember's ability to repay the loan. Credit unions also need toclosely monitor the performance of the loans and immediatelycommunicate and work with members who are showing signs of paymentlapses.

For Gary Wahlgren, vice president of lending for the $557million USF Federal Credit Union in Tampa, Fla., finding revenuegeneration opportunities is all about getting back to basics bytaking a closer look at the details.

“These are things that sometimes aren't always right on thesurface. You forget about them because you have turnover and noone's really thinking about it,” Wahlgren explained. “In this case,we really tried to dive into where the efficiencies are that we canget associated with lending.”

At the end of 2014, USF posted a loan-to-share ratio of 74%. Tomaximize its earnings, the credit union set a strategic goal inJanuary 2015 to increase its loan-to-share ratio to about 90%.

In the past, USF was making exceptions for certain risks, butwhat Wahlgren found was that the credit union wasn't getting paidfor different risks that it was taking on.

“We tried to identify all of those risks and then attached rateadjustments to each one of those risks,” he explained. “If you hada higher LTV and we still wanted to do the loan because we thoughtit made sense, maybe you get a half a point rate adjustment. Thattiered LTV rate adjustment could go as high as you wanted it to go.It could start at half a point and it could go to two points, as anexample. We might add another point for a previous bankruptcy orrepossession. We might add a half a point for mileage over 100,000.If we are going to take on that risk, we wanted to get paid for it,which would offset the collection losses, instead of saying, 'We'rejust going to raise our rates by a point and hope that we can stillmake loans.'”

Making these rate adjustments, along with raising some autolending-related fees to market levels, which were still well belowthe fees charged by subprime financing businesses, and reducingcosts through renegotiating indirect and direct lending contracts,enabled USF to increase auto loan revenue from $115 million to $238million within 18 months. In a year and a half, the total number ofnew and used car loans increased from 8,253 to 14,485.

Improvements in its auto loan portfolio, which accounts fornearly half of the credit union's total loan portfolio, enabled USFto reach its primary goal of increasing its loan-to-share ratiofrom 74% at the end of 2014 to 89% by the end of the third quarterof this year.

Another potential revenue generator is microenterprise loans of$50,000 or less for work-at-home, self-employed freelancers,contractors, consultants and other service providers who run amicrobusiness in the emerging gig economy.

Advances in mobile and online technologies have substantiallysimplified and expanded ways for freelancers across many industriesto find work projects, deliver services and market their ownproducts on the web. More than one in three workers, or 53 millionAmericans, are freelancers, a 2014 research study by theFreelancer's Union and Elance-oDesk revealed.

According to the NCUA, 25% of employers are small businesses and88% of them have one to four employees. Though 58% of theseentrepreneurs are searching for loans of more than $50,000, 41% ofthem are looking for loans of less than $50,000.

Melissa Marquez, president/CEO of the $18.1 million GeneseeCo-op Federal Credit Union in Rochester, N.Y., began makingmicroloans in 1999 because the community it serves has manyself-employed members who needed personal loans to support theirbusinesses.

Over the last 15 years, the Rochester, N.Y.-based cooperativehas made 200 microloans totaling $1.5 million.

Currently, Genesee manages 36 loans and 80 business lines ofcredit totaling $335,000 and $100,000 in credit for its businesslines of credit. The cooperative's average business line of creditis $2,500 with a maximum of $10,000 and its average loan is $6,500with a maximum limit of $25,000, unless the loan is secured by acar or real estate.

“Microenterprise lending is seen as a risky endeavor, and in ourearly years we did take some hits that were difficult,” Marquezsaid. “However, we have really focused on staying in touch with ourmembers as soon as they are late on the payment, which has helpedus manage our delinquency. As of December of 2015, our delinquencywas 1.8%, and we had a net charge-off for the year of 0.76%. At theend of March, we had no delinquent loans over 30 days and as of theend of June, we had a 2% delinquency and losses of $600.”

What's more, the credit union's loan yield for itsmicroenterprise loan portfolio was 9.7% in 2015, and in the firstsix months of this year, it was 9.5%.

“And this yield is very important to our profitability and makesit a very worthwhile loan product to offer our members,” shesaid.

However, before a credit union ventures into microenterpriselending, it needs to develop a strong program foundation that issupported by a strategic plan, knowledgeable personnel andappropriate policies that determine the loan initiative's structureand limits.

“It is key to keep in mind that the training and personnel wouldgreatly depend on the size and complexity of the loan program beingoffered,” NCUA Regional Lending Specialist William MacMaster said.“At minimum, the loan officer must understand basic cash flow,balance sheet analysis and what is expected to manage the businessloan relationship.”

Millennials and the kids coming up behind them, Generation Z,who were born between 1995 and 2010, live out of their smartphones.That lifestyle creates opportunities for credit unions to figureout ways to leverage smartphone technology to not only attract andretain young members but generate new revenue such as noninterestincome.

Filene recently tested a noninterest income opportunity with apilot program, Larky. This weband mobile loyalty platform enables credit unions to providemembers with point-of-sale discounts at local and nationalmerchants via a credit union-customized and branded app thatfeatures location-based smartphone alerts and personalizedmessaging. The member receives the merchant discounts by utilizingthe credit union's credit and/or debit card.

According to Filene, 82% of smartphone users consult theirphones while they are in a store deciding which product to buy.

Filene's pilot project involved 10 credit unions from a diverseasset size mix. They each introduced the Larky app to their membersand collected data to determine its impact over 20 months.

Although the adoption rate of the app among active mobilebanking users ranged from a low of 3.4% to a high of 38.8%, theaverage adoption rate was 7.6%.

The pilot found that credit card penetration increased 5%.Though Larky was part of that increase, these results cannot solelybe attributed to Larky usage. The pilot credit unions saw only amarginal increase among debit card interchange and penetration,however.

Nonetheless, the credit unions also shared ideas for improvingthe Larky app, such as location-based promotions at autodealerships or credit union branches, smarter notifications to meetmembers' needs and an analytics dashboard to leverage data aboutLarky usage to improve member engagement.

In partnership with Larky, the Northwest Credit UnionAssociation developed the CU Values app to help credit unionscooperatively build a mobile platform rather than forcingindividual credit unions to take on the cost alone. Participatingcredit unions purchase “shares” each for $150 per month. Each shareincludes a location-based notification to promote a product fortheir credit union. What's more, each share includes three uniqueoffers at merchants in their communities along with mobileadvertising within the platform.

The process does not include enormous setup or implementationfees or lengthy contract terms, according to the Northwest league.Because the CU Values app was deployed last month, there is no datayet on the app's performance.