WEST PALM BEACH, Fla. - In response to reader feedback, CU Journal offers 22 strategies and tips for improving your credit union’s bottom line. As CU decision-makers know all too well, vendors are always claiming their solution can improve performance or revenues. So CU Journal asked, “What one thing can CUs do right now to improve their bottom lines?” Check out their suggestions below.
System Helps Boost Collections
SAN ANTONIO–With delinquencies and negative share balances rising at some of the credit unions it serves, SWBC has developed a program to handle early stage calls to members, allowing credit unions to focus on tougher cases.
“Credit unions we’re working with are having trouble finding enough collectors to handle the business,” explained Mark Hein, CEO of SWBC here. “Their portfolios are getting worse. This program was started to serve lending needs, and delinquencies are increasing. But we’ve also ramped up in the last four months to include negative share accounts.”
With portfolios getting worse, CUs have two options, according to Hein. “They could do nothing with the early stage delinquencies and focus 100% on those over 60 days, or they can outsource the early stage work and focus 100% on later-stage delinquencies.”
Developed a year ago, the program is called Payment Reminder Service and SWBC makes calls on the CU’s behalf to those 15 to 45 days delinquent.
“Our goal is to make as many of those early contacts to reduce the 60-day category and ease the burden on credit union collectors so they can get more creative and have better results collecting on those harder cases, where they often have to do workouts,” Hein said.
SWBC internal collectors contact individuals up to seven times in the 15-45 day period. They’ll take payments over the phone and make notes about promises to pay.
“We have been very successful,” Hein said. “One of our clients decreased their 60-day delinquencies by $3 million in their first month with Payment Reminder.”
Overall, SWBC is successful 13% of the time getting members to make a payment over the phone. If a member promises to pay, that’s added to the file. SWBC either works real time with CUs through Akcelerant, or sends files overnight via batch download.
Cost for the program varies based on the number of calls credit unions require SWBC to make. But the average is $5 to $9 per account contacted, Hein said.
As the service’s name suggests, Payment Reminder is a “softer call,” Hein explained. But as accounts slip later into the 15- to 45-day period, scripts get “tougher.”
SWBC provides a number of financial services to credit unions nationwide, and 42 participate in Payment Reminder.
Growth So Core It's In The DNA
GLASTONBURY, Conn.–For credit unions to expand services and grow, their core data processing systems must have the right “DNA,” offers one data solutions provider.
“The core system is the DNA of the credit union, because everything–all the ancillary products you buy–has to connect to your core,” reminds Mickey Goldwasser, VP of product marketing and communications for Open Solutions here. “We advise credit unions to look at their core system and ask: ‘Does it allow me to address the changing needs of my membership?’”
With new services like Internet banking and CUs expanding into areas such as commercial lending, greater demands are placed on core systems today, says Goldwasser, making it “imperative” that systems easily integrate third-party solutions. CRM tools are also adding complexity, according to Goldwasser.
“There was a big movement by credit unions a few years ago to buy CRM systems. A lot were buying them and many never really achieved what they wanted because the weakest link was the core system, which couldn’t talk with the CRM tool. Core systems are great at storing data but the issue has always been how do you get at that data and parcel it to use it as a marketing advantage.”
Open Solutions’ core system has an open platform and is built on an Oracle relational database, Goldwasser explained. “We are able to store data in the smallest useable components. Our system is designed to answer the questions of the business.”
Can every credit union afford a new core system if the old one isn’t doing the job?
“Sometimes the answer is that they can’t afford not to change,” Goldwasser said. “If they evaluate their current system and determine it meets their future needs, then they’re fine. But if it doesn’t, they really should explore the investment. They’ll receive additional savings through efficiencies, serving members better, and retaining and attracting them.”
Can't Get No Satisfaction (Value)
SANTA ANA, Calif.–When evaluating the level of service being delivered to members, a credit union would be wise to not rely on an old staple, member satisfaction ratings, according to one analyst.
Instead, credit unions should take a “clear snapshot” of what’s happening, says one company that offers mystery shopping programs.
“Challenging times require more refined decisions,” offered Donna Guido, CEO of DSG here, a company that has been providing mystery shopping services for 24 years. “During good times many service errors are obscured by growth and high volumes. At those times you can be doing things less than your best and problems don’t jump out at you because the business is running well.”
Guido said mystery shopping programs tell you what’s happening at the credit union–where problems are or if CU operations are running efficiently. “You need to make decisions based on facts when deciding what you’re going to do about addressing your issues,” Guido said. “This is a huge problem. Many times credit unions make decisions based on what they believe is happening or what they wish were happening. Decisions need to be based on what is actually happening.”
Guido said mystery shopping programs provide a snapshot of what members are experiencing, which allows for better decision-making. They also help CUs see a clear picture of service performance, which is sometimes blurred by member satisfaction surveys.
“A lot of people confuse mystery shopping with measuring member satisfaction,” Guido explained. “Member satisfaction is important criteria in your mystery shopping program, but it’s not the same thing. You can’t run your business simply on member satisfaction ratings.”
Here’s the difference, according to Guido. “If a senior citizen walks into your branch once a week to make a deposit and waits in line five minutes and has a pleasant conversation with a teller, he’s satisfied, and that’s what your survey will show. But take a mother who has two kids crying in her car and she’s late for the sitter, and that five-minute wait will make her unhappy. Your employees provided the same service and got two very different results.”
Telling employees you want them to satisfy members is like saying “hit a moving target,” Guido says. “It often depends on members and their moods, not what employees do.”
Guido recommends setting standards for serving members–such as the time it takes complete transactions–and then check with a mystery shopping program to see if the branch is executing.
DSG provides mystery shopping services to credit unions across the U.S. and conducts mystery shops in more than 3,500 CU locations each year. Costs for the service are a startup fee, which averages between $1,000 and $1,500 based on many factors–including credit union size and the type of shopping program–and then a per-shop fee, Guido said.
Bringing Check Processing In-House
GRAND RAPIDS, Mich.–Credit unions considering bringing check processing in-house shouldn’t be afraid to take the step, advises one CU that reports it saved money, human resources, and time by doing the work itself.
The $1.4-billion Lake Michigan Credit Union here has all of the software and hardware to run check processing inside its headquarters.
“If a credit union has always outsourced, they can be scared to do this themselves,” said Cerry Kennedy, accounting supervisor at the credit union. “I’ve talked with some credit unions and found this to be the case. But they don’t understand how easy it really is. They’re worried that it will be too difficult. But it doesn’t require that much on your part to do it. I think some credit unions become very comfortable with just sending this job out the door. But it’s easy to learn and do, and the software is very user friendly.”
Grand Rapids CU uses ProfitStars’ full solution check processing system, including ATM Manager Pro and Check 21 modules. Kennedy pointed out that smaller credit unions can subscribe to ProfitStars’ online service and connect via the Internet, leaving the hardware maintenance, costs, and software upgrades to the vendor. “This is a good solution for smaller credit unions,” Kennedy offered.
Grand Rapids CU has been handling check processing in-house since the early 90s and switched to ProfitStars Image Center product four years ago to increase efficiencies.
“We ended up scrambling to find work for people since the system freed up time. We’ve also been able to increase our number of ATMs without adding staff to balance them,” Kennedy said.
Connectability A Crucial Factor
SAN DIEGO–John San Filippo, marketing manager for Symitar, acknowledges that there’s no “silver bullet” his company offers to turn around a CU’s bottom line. Instead, San Filippo urges credit unions to leverage the flexibility of their core processing systems to help better manage the credit union.
“I don’t think that we–or anyone–have that one solution that’s going to make a dramatic impact on the bottom line,” San Filippo said. “But what we offer is an open core processing system that has more connectivity options than other systems in the market.”
The ability to add additional products and services–including third-party solutions–provides credit unions with more ways to meet strategic objectives and grow, according to San Filippo.
“I think what it takes to be successful–whether times are lean or not–is to have an IT infrastructure that allows credit unions to customize what they are doing. Because what’s going to make Credit Union A successful is not necessarily going to make Credit Union B successful. So they need to start with an open, flexible core processing system that allows them to do what they need to do and not get in the way.”
San Filippo says Symitar’s philosophy has always been to enable credit unions.
“We want our credit unions to be able to connect to the third-party products they need. And a lot of times those products compete with products we offer, and that’s fine. We recognize that not every solution fits every credit union.”
With today’s economy, San Fillipo understands that CUs have to be prudent with the money they spend.
“Now it’s really key to fine tune what you’re doing and hone in and spend the money where it should be spent and offer the products and services you need to offer. It’s a time when credit unions need to maximize every single thing they do. And from a technology standpoint, that all goes back to an open, flexible core system.”
For more info: www.symitar.com.
Utilizing The Underutilized ATM
ATLANTA–ATMs driven by Windows operating systems can help credit unions reach more members and promote additional services, reminds one ATM manufacturer.
Mark Smith, senior value-added reseller manager for the Long Beach, Miss.-based Triton, says Windows’ flexibility should be leveraged today, especially when credit union growth is a high priority.
“Windows allows credit unions to easily add a number of services to ATMs, such as online bill payment and expanded account access,” says Smith, pointing to increased transaction revenue and the ability to directly reach mass employment areas, such as factories.
The Windows environment also provides a greater ability to target individual members and cross sell.
“Maybe the CU wants to do personalized marketing through their ATMs,” Smith said. “The Windows software is smart, and can identify if the member has a home loan or car loan and recommend a complimentary product. Windows allows the CU to intelligently deliver personalized service at the ATM.”
The approach also saves the CU money in programming expenses.
“In years past (with IBMOS2 operating systems) if you wanted to offer a unique application or product on an ATM screen it required a great amount of customization at a very high expense. Now, with Windows’ open architecture, applications can be easily added at a reasonable cost.
“Take advantage of your ATMs’ abilities and differentiate your credit union.”
For info: www.triton.com
Leasing Primed For A Resurgence
HAUPPAUGE, N.Y.–It may be time to take another look at auto leasing, especially with the quality of dealer paper declining in many markets, according to one company.
Credit unions in the New York metro area, for instance, are taking advantage of a leasing program that’s adding weight to their lending portfolios. One credit union is closing 400 leases a month with a product that focuses on cars the major auto manufacturers are not running specials on.
The program is called Xpress Lease from GrooveCar, which works with 20 local credit unions. “For us, leasing is a niche market,” explained GrooveCar President David Jacobson. “We know we can’t compete with the factories. They own the leasing business. But the factories leave crumbs.”
What that means, Jacobson says, is that if Honda has 14 models and is running leasing specials on 11 of them, GrooveCar works deals around the remaining three.
“These are cars the factories are not pushing,” Jacobson said. “Every day we communicate with the dealer network to find out what cars are not being supported by factories, and the number of these types of cars adds up.”
GrooveCar has the relationships with local dealers and developed the software to drive the leasing program because of the heavy competition that’s made it tough for CUs to keep their auto loan volumes high, according to Jacobson. The large number of financials here has made it difficult to compete on rate and looking at deeper paper is not something credit unions want to do.
“Indirect auto lending (for credit unions) here has suffered greatly because the paper quality is horrible,” Jacobson said. “We had to reinvent ourselves–we needed a way to attract a better quality paper and generate it in volume, not little pieces. Leasing tends to be better quality paper.”
With Xpress Lease, the average FICO score is 762, Jacobson said.
The $2.3-billion Teachers FCU in Farmingville, N.Y., has benefited from Xpress Lease, going from 10-15 leases per month a year ago when the program was being piloted, to approximately 400 in March, Jacobson said. “This is going so well that we’re holding back the volume. Teachers is taking 500 to 600 apps per month.”
GrooveCar is partnering with auto remarketer Fusion, which Jacobson says limits CU exposure. “There is no residual risk to the credit union. The credit union takes the credit risk throughout the lease, but at the end of the lease they are made whole.”
For more info: www.groovecar.com
Better Productivity In Lending
AUSTIN, Tex.–To grow in a tight economy, improving efficiencies and finding new avenues for loan generation are likely at the top of many credit unions’ to-do lists.
Teres Solutions here agrees, and reports that’s one of the primary drivers of interest in its Software Application for Integrated Lending (SAIL), which is designed to increase the loan team’s productivity, and in a new program that’s connecting local retailers with credit unions for small-ticket lending.
“We offer a loan origination system that boosts the credit union’s productivity and profitability,” said Teres CEO Tim Kelly. “We believe a tighter credit market means more denials. If denials increase, in order to maintain your loan-to-share ratio, you’re going to have to look at more loans. If you have to look at more loans, there’s one or two things you can do.”
Kelly says the CU should either adjust staff accordingly or get a tool that allows the same team to handle greater volume.
“We have completed a number of case studies that show how SAIL has more than doubled productivity,” Kelly said. “One institution that handled loan volume of near $20 million a year grew to $100 million without adding personnel.”
The ability of the software to auto-approve loans based on qualification criteria established by the CU is the biggest productivity enhancer, Kelly says. “That means loans that come in from dealers, branches, and the Internet can be auto-approved. The application is browser-based and is easy to use. It gives the credit unions the ability to do more with less.”
SAIL can support most general lending needs, including auto, boat and Visa loans. It also handles home equity, but is not used for first mortgages or commercial loans.
While SAIL can increase productivity, Teres’ new retail finance module is designed to increase indirect lending with local retailers. “This is a natural evolution,” Kelly suggested. “Auto sales were gangbusters the last few years but they’re slowing down. We’ve created a retail finance module to increase small-ticket lending by connecting local merchants with the credit union...We created an Internet application that allows the merchant to take a member’s credit information, submit it, and get a decision back instantly.”
For more info: www.teressolutions.com.
Think Nationally To Grow Locally
CALABASAS, Calif.–Looking nationally for ways to improve product offerings can help credit unions differentiate from competitors in their local markets.
The approach, combined with a close look at how business is being conducted in their own branches, can give credit unions a powerful tool for growth, says Lori Jomsky, SR VP at Informa Research.
“I think the biggest issue facing credit unions is that the marketplace is changing quickly,” Jomsky said. “It’s changing not just in terms of product offerings, but in functionality and usage of them. There are more incentives to utilize debit cards, more promotional products...financials are continually rewarding you for doing transactions and being part of the financial institution.”
Informa, which provides data on deposit and loan rates nationally that is available at www.cujournal.com, shares the national competitive landscape and provides strategies and recommendations so credit unions can implement change. It also delivers a “good understanding of how the credit union is actually performing against its sales strategies,” Jomsky said, adding that work begins with a mystery shopper program.
“We look at the sales strategy and strategic goals of the credit union and then understand what’s the true experience when a member walks into the credit union,” Jomsky said. “Then we take all of the data and blend it together into one actionable document. They don’t have to take the data and normalize it.”
Jomsky said there were no “standard costs” for the service, and that each project was unique, based on the needs of each CU.
For more info: www.informars.com.
Beef Up Your Collections Department
NEW LONDON, N.H.–Lack of strong attention to collections operations may not have significantly impacted CU bottom lines in recent years. But with more members wrestling with credit problems, the same approach could prove costly today, advises one collections expert.
IBS says credit unions should either staff up to avoid problems from increasing debt pressure on members, or turn to technology to improve productivity and reduce errors caused by overworked collections teams.
“A marginal or OK collections team under normal times can feel strained or stressed,” said Rob Daley, president of IBS here, which offers a client configurable and scalable collections and asset recovery system. “But suddenly you put too much traffic on a two-lane road you get fender benders.”
Or worse, observed Daley, who cited the example of one of its credit union clients that experienced problems. The credit union, which Daley chose not to name, recovered $250,000 in prior charge-offs in 2006 when delinquencies “were not a major issue.” But in 2007, when the collections team was “completely consumed” by trying to stay on top of active delinquencies, the credit union recovered “zero dollars” in prior charge-offs.
“When you talk about bottom line, if you can bring in an extra $250,000 in prior charge-off recoveries, that’s significant,” Daley said. “But when your people are completely consumed by trying to stay on top of active delinquencies and prior charge-off recoveries fall from $250,000 to zero, that’s a measurable ouch.”
A key to boosting staff productivity, said Daley, is the IBS system’s ability to consolidate all member debt–regardless of how many different systems in which the data resides–into one system. “You don’t have delinquent loans in one place, delinquent credit cards in another, and negative balance accounts in a third system. The collector doesn’t have to hop between three different worlds.”
Costs for the IBS tool are a one-time, up-front license fee charged per collector, ranging from $4,000-$7,500, and then $800-$1,500 per year for the support contract. Daley said the system more than doubles a collector’s productivity when going from a manual-based process, generally yielding an 18-month ROI. Daley added it could take 24-30 months to recover the investment if the CU already has some level of collections automation.
For more info: www.ibshome.com.
Recapturing Loans From Others
ELGIN, Ill.–If indirect auto lending is slowing in the local market, try boosting the lending portfolio by reaching out to members who recently financed a new car with another institution.
Lending Solutions proposes that strategy and offers Contact Solutions, an outbound calling program for auto loan recapture that’s costing its CU clients about $110 per new loan, based on ROI, the company says. Credit unions leverage list services from major credit bureaus to keep tabs on when members take a car loan outside the CU, and then provide those names to Lending Services to contact the member and offer a better rate.
“That’s cheaper than working with the dealers,” suggested Lending Solutions’ Jeff Frantz, SR VP of corporate development. “Credit unions in the indirect business are paying more than double that amount in dealer reserves. So it’s a great way to go after those members and get them back to the credit union with another product.”
Frantz contends that the opportunity is there, with credit unions typically financing only 20% of members’ new car purchases. The cost for the program is based on an hourly rate and an application fee if the loan is funded. Frantz says Lending Solutions gets results on 8% of its calls.
“This is an opportunity to call members and get them back to the credit union at a better rate,” says Frantz. “And good rates are why they came to the credit union in the first place. We have a lot of credit unions coming to us now for outbound support.”
Lending Solutions supports more than 300 credit unions nationally and in Canada.
For more info: www.lendingsolutions.com
HSAs For A Healthy Bottom Line
ST. CLOUD, Minn.–Here’s a twist: credit unions seeking to expand their business lending portfolio might consider offering a savings product: Health Savings Accounts.
According to Wolters Kluwer Financial Services, rising healthcare costs make HSAs an opportunity for CUs to generate deposits, fee income, and–most importantly–strengthen relationships with small businesses.
“This is going to be a challenging year for many financials,” said Sue Pogatschnik, credit union product manager at Wolters Kluwer. “So they’re looking at ways to offset some of that economic pressure.”
Pogatschnik says business lending and HSAs are two methods to bolster the bottom line, and they go “hand-in-hand.”
“The small business owner is going to turn to the credit union for their business lending and deposit needs,” Pogatschnik said. “They are likely offering their employees health insurance programs that have high deductibles, and Health Savings Accounts become a logical choice for the employer to offer employees.”
Pogatschnik said Wolters Kluwer is seeing slow growth of HSAs in credit unions, but interest is increasing. Megan Morgan, senior product manager, HSA solutions at Wolters Kluwer, says HSAs are not hard to offer.
“It’s similar enough to an IRA from an operations perspective,” Morgan said. “We recommend, though, that the credit union have a clear strategy for how they are going to go about this on the commercial side.”
Both Pogatschnik and Morgan say the product drives fee income, especially if it has a debit card attached to it. In the credit unions they’ve worked with, HSAs have been a “fairly inexpensive” way to attract new members, cross sell, and even add SEGs.
“HealthAmerica Credit Union said offering an HSA helped them bring in five new SEGs and 100 new members,” Pogatschnik said, adding that the cost of working with Wolters Kluwer to establish an HSA product is based on the size of the credit union and is designed to encourage CU entry into the HSA market.
P&L Analysis Eyes Redundancies
TAMPA, Fla.–Adding services without paying close attention to product redundancy can sneak costs into credit union operations, states PSCU Financial Services, which offers a P&L analysis that can improve efficiency.
“We look at profitability opportunities as well as cost reduction,” explained Michael Yatrus, PSCU-FS’ chief client relations officer.
Yatrus says PSCU-FS often finds that credit unions differentiate products by creating “multiples of similar offerings. For example, they may have a classic credit card with a fixed rate and variable rate. They may have a platinum card with fixed and variable rates and one with and without rewards. They have multiple products that get the same result.
“What we are trying to get them to do is reduce those number of end-points and control them through either risk–based lending or segmenting them differently so they don’t have similar programs that are inefficient and expensive to manage,” said Yatrus.
Yatrus says product redundancy has occurred over time as credit unions sought new markets and segmented offerings to track product performance. “With today’s (IT) functionality and systems that’s not necessary.”
Turning to IT, Yatrus noted recent improvements to its fraud monitoring system–including 24/7 live monitoring–are reducing front-end losses and improving P&L. PSCU fraud-loss ratios are better than industry standards, Yatrus said. “Our credit unions’ average card losses are 4.8 cents for every $100 in charges, compared with the industry average of seven cents.”
For more info: www.pscufs.com.
A Better View Of The Balance Sheet
SCOTTSDALE, Ariz.–Managing margins may become even more difficult in the coming months, according to one CU consultant who believes credit unions need to better understand the balance sheet to navigate though a falling rate environment.
“The time of closing your eyes and hoping it works out the way you are assuming is gone. Credit union balance sheets have become more complex,” observed Dr. William McGuire, president and CEO of McGuire Performance Solutions (MPS) here. “It’s not just looking at what the balance sheet appears to show. You need to ask yourself how this stuff actually pays. The contract doesn’t always describe how the asset and liability will actually perform–with prepayments, rollovers, etc.”
MPS services include deposit supply and pricing analysis, ALM model verifications, core deposit behavior and value measurement, and core deposit intangibles and premium values estimates.
Costs vary based on project scope and CU size, McGuire said. If an average-sized credit union wants to know average lives on core deposits, MPS can run a statistical analysis for under $5,000, on average. Larger projects examining multiple deposit and loan categories for a large credit union can reach $30,000, according to McGuire.
“We can tell credit union managers exactly how their deposits and loans have behaved over time,” McGuire said. “This allows the credit union to see exactly the cards they have on the balance sheet and they can play those cards a little bit harder, which is what they need to do to pick up margin.”
MPS reports lay out the credit union’s assets and liabilities and how they have performed, but the decision making is left to the CU. “We are not in the business of ALM consulting,” McGuire explained. “You give credit union managers all of the right insights and they are likely to make the best decisions, which is what we have experienced.”
Lately, MPS is seeing credit unions make “micro- or scalpel-level” cuts in deposit rates based on information MPS has provided.
“If in the past your members have not been sensitive to rates, that tells you they are focusing on the service and product. So if a low-rate or high-rate environment didn’t make much difference in supply of funds for share drafts, then that’s a category that makes a lot of sense to cut the rate on now and pull some of your interest rate expense out of,” McGuire said.
For more info: www.mpsaz.com.
How Brand Helps Drive Revenue
SEATTLE–For revenue and growth to take place, a credit union’s brand must be a high priority that should be closely aligned with the credit union’s long-term strategy and growth plans, advises Weber Marketing Group.
“I think a lot of organizations disconnect the brand from their strategic and growth plans and treat it as something the marketing department works on,” said Mark Weber, president and CEO of Weber Marketing Group here. “That’s a catastrophic mistake. Talk to Fortune 1000 company CEOs and they’ll tell you the organization is the brand.”
Weber says a credit union needs to determine what it wants to be–does it want to be known for service, mortgage lending, financial sophistication, or maybe simple “meat and potatoes” products and services. Then marry that vision with long-term goals. But before the CU gets moving it needs to analyze where its brand is today.
Weber outlined a four-step process that begins with member research and asks more than the typical questions around service quality. “The questions should get more to issues of awareness and perception,” Weber explained. “What do you like about us? How do we compare to other financials?”
Next, Weber recommended, talk to people who are not doing business with the credit union but who could, such as SEGs, to learn why they aren’t part of the CU and what’s their perceptions are.
Follow with research in the community, and then conduct internal research asking the same questions about perceptions of the credit union using staff for their insights on what people outside the credit union think about the organization.
“Ask the same questions of the board, management, and front-line employees,” Weber said. “I take the internal research and compare it with the external and come up with what we call the brand gap. Sometimes the gap is like a crack in the sidewalk and the credit union is spot on. And sometimes the gap is a small canyon. This gives a good sense of the current brand state.”
Weber said credit unions could get away with less emphasis on brand image a few years ago. “But today you can’t afford that. Credit markets have gotten tighter and we have a lot of credit unions struggling. We have to ask, ‘Are we well differentiated?’ Do we know what makes us great and are we focusing on that internally and externally?”
Default Insurance Aids Bottom Line
MADISON, Wisc.–Adding default insurance to consumer loan products can bolster sagging lending portfolios, improve member retention, and increase interest income, offers CUNA Mutual.
“On the consumer loan side, things have really worsened for credit unions,” pointed out Subi Banerjee, senior manager of product finance for CUNA Mutual. “Auto loans grew at negative .6% from March 2007 through February 2008, and overall consumer loans grew at negative .3% in same period . . . Default insurance can improve the bottom line.”
With default insurance credit unions can increase the number of consumer loans they make by reaching out to members who Banerjee says “need the credit union the most. This segment might be slightly credit challenged, the ‘C’ and ‘D’ paper.”
On an average, Banerjee says, a $250-million CU and larger turns away between 50-200 loans per month that could be approved with default insurance.
“If a credit union turned down 100 loans on average per month, and now 50 out of the 100 get approved by adding default insurance, that gives you 600 additional loans per year,” Banerjee explained. “Taking an average of $15,000 per loan and multiplying that by 600, you have $9 million in loans. Multiply that by a 5% to 6% interest rate and you are looking at $540,000 in interest income credit unions are leaving on the table.”
Credit unions are leaving money behind from members who Banerjee contends can be the most loyal and use more services than more affluent members who have greater financial options. Adding that CUs need to do a much better job retaining members and turning around declining growth rates, serving these members will benefit credit unions’ long-term goals as well, he said.
“By making those loans you are not sending a significant chunk of your membership to your competitors. If they don’t get the loans from you when they need them–they have to send their kids to college and buy the cars to get to work–they will find a place to get the loans. And they could well make that new financial institution their primary banking choice.”
So by offering default insurance, CUs are making more loans and minimizing delinquencies and charge-offs, Banerjee reminds.
“When your charge-offs go down, you increase your ROA. And that definitely has a lot of appeal today.”
Growth Begins Right At Home
PLEASANTON, Calif.–Credit unions looking outside their own membership for growth-drivers would be wise to go back to their own members, according to one person.
Harland Financial Solutions here suggests that CUs shouldn’t forget that growing share of wallet with existing members is very often the most effective means of growing.
“It’s easy for credit unions to get caught up in looking for that next best solution to drive growth,” offered David McConney, EVP and general manager for credit union core solutions at Harland Financial Solutions. “Credit unions spend time trying to find new business and they often could do a better job of retaining existing business and mining their membership base.”
One of the best ways to build share of wallet, according to McConney, is to understand what types of services members need along with their behaviors. “And the best way to do that in this complex financial environment is to have a member relationship management tool.”
Harland Financial’s Sales and Service CRM tool works with its UltraData core system and allows CUs to do just that, McConney explained.
“So the right member management tool can help credit unions effectively cross sell and create additional loyalty that leads to even more business.”
McConney pointed to results at the $613-million San Francisco FCU, where Harland’s CRM tool helped the credit union work more effectively with members and improve in many service areas.
“It initially resulted in an overall service rating improvement of three percentage points,” McConney said. “And over a period of time that increased by eight percentage points and directly impacted account growth.”
Credit unions using Sales and Service are charged an initial licensing fee based on the credit union’s size and an annual maintenance fee that includes product enhancements.
For more info: www.harlandfinancialsolutions.com.
Short-Term Help At Little Risk
OLYMPIA, Wash.–Thinking about getting involved in payday lending but concerned about risk given the tough economy? One credit union that’s closing more than 2,000 such short-term loans each month says risk is not an issue as long as you have a tool to help you evaluate members’ credit.
The $1.3-billion Washington State Employees Credit Union watched its “Q-Cash” program grow from 100 a month four years ago to 2,000-2,300 today with only 2% delinquencies. Heidi Tinsley, Q-Cash program manager, says it relies on Teletrack credit reporting for its payday decision-making.
“Teletrack decreases our losses because we have a subprime credit reporting agency providing us with valuable information to determine the status of potential borrowers,” Tinsley explained. “If we see a red flag, like a bankruptcy filing, we don’t make that loan. Our loss rates are minimal and what we pay Teletrack is insignificant.”
Teletrack costs are based on volume, but the average price is about 79 cents per credit bureau pull, the company reports.
Teletrack pulls report information not only from public records, but also from data it receives from payday lenders who provide data on individuals taking payday loans.
While Teletrack protects the CU, what’s moving the product is favorable pricing and repayment terms.
“We structured our Q-Cash product to be one-third below market pricing–$10 per $100,” Tinsley said. “And we also offer a term up to 45 days and two repayments.”
The average balance of Q-Cash loans is $450, but that’s not the only benefit the CU sees.
“When members walk in for a payday loan it gives us the opportunity to discuss other financing avenues,” Tinsley said. “Numerous times members have come in for Q-Cash and walked out with a Visa credit card.”
For info: www.teletrack.com.
Willing To Help, But Ready?
SEATTLE–If credit unions are uniquely positioned to respond to the subprime crisis, as industry experts suggest, are they also prepared to handle an increase in mortgage demand–especially the smaller shops?
That’s the question posed by Prime Alliance Solutions.
“With tightening standards by Freddie and Fannie, and paperwork increasing, are all credit unions up to speed on new guidelines and do they have the staff they need,” asks Kerry Oldenburg, president and COO of Prime Alliance Solutions.
Prime Alliance, which serves 1,400 CUs nationwide, provides a web-enabled mortgage lending solution that automates much of the lending process and decreases the credit union’s cost to originate mortgage loans. “That’s directly affecting the bottom line,” Oldenburg pointed out.
The online tool handles much of the upfront work.
“It takes that paper-intensive, staff-intensive part of the process away,” Oldenburg said. “The member answers about 25 questions and the mortgage staff does not get involved initially. Much of the credit reporting process is automated, as well as the initial underwriting review and disclosure.”
It also allows credit unions to scale loan operations up or down, based on demand, according to Oldenburg. “Because so much of the process is automated, the credit union doesn’t have to rely on adjusting staff to a great extent to address fluctuations in the industry.”
The cost for the service is an initial licensing fee and then a transaction fee per loan originated.
For info: www.primealliancesolutions.com.
Rewards For Issuers, Cardholders
WILMINGTON, N.C.–Debit card rewards programs are rewarding to more than just cardholders, but to credit unions, as well.
“If credit unions analyze their debit card usage, more than likely they’ll find the majority of their transactions are coming from only 15% to 20% of their members,” said Bob Sterner, VP for My Rewards, An Image Products Solution.
The challenge, said Sterner, comes from designing debit rewards programs around the credit card model, giving points based on raw dollars members spend.
“So who’s really getting the rewards?” Sterner asked. “Typically it’s those 15 to 20% who can’t give you much more incremental revenue. Any way you slice it, even if you get a few more transactions out of that high-usage segment that’s already using the card 40 times a month, those tend to be low-ticket items. You are not getting another $100 purchase at the grocery store, you are getting another Starbucks.”
To impact the bottom line, rewards programs “out of the gate” need to aggressively go after the 80% to 85% of members not using the debit card or using it to a small degree, Sterner said.
“All you are asking them to do is make a small behavioral change. Have a targeted offer asking them to slightly bump up their usage or start using the card if they are not doing so. If they do that, give them a reward right away for that behavioral change.”
My Rewards recently acquired Furnace, Giltner & Associates, a debit card rewards consulting firm based in Austin, Texas. For the last three years, the firms have partnered and launched a debit profit model known for its ability to drive revenue, Sterner said.
“We married up so when we bring programs to banks or credit unions they don’t have to develop a strategy or build a team to manage the project. We provide a turnkey service that creates the strategy and we do all of the financial tracking and analysis down to the individual checking level. The entire process gets branded under the financial institution and we’re behind the scenes.”
For info: www.myrewardsinfo.net.
Reach Members In Crisis
RALEIGH, N.C.–While CUs are doing their part to ease the credit crisis by providing financial counseling to members, one person believes there are opportunities to do even more.
The opportunity to prevent loan defaults and bankruptcy filings is there before members make it clear to the credit union that they need assistance. The question is how to proactively address pending crises, suggests one national financial counseling organization.
“We are really working with our credit union partners to make sure they are promoting the availability of counseling not just to the members they identify as being in crisis, but to members at large,” explained Jeannine Moore, VP of marketing for BALANCE.
Moore said that members who are in financial trouble often keep their CU accounts current while letting accounts at other financials slip. As a result, when the credit union sees the member begin to default, it’s often too late to help. Seeking to address such problems in the bud, some CUs are informing their entire membership about counseling are using posters, newsletters, websites, home mailings, checking inserts, and even ATM receipts and drive-up window envelopes, Moore said. “For the member who has all of those payday loans out there, this might be enough to get them to call.”
Moore didn’t disclose the cost of the counseling service, but said it varies based on the credit union’s size. “It’s a critical time for people and we are seeing credit unions being credit unions and stepping up to do what they do for their members,” Moore said.
BALANCE works with 485 CUs across the country, and has seen steady growth in its services, but no major uptick in the last six months in the number of credit unions coming on board. However, Moore said the number of members using their service is up 23% in the first quarter of 2008, compared with the same period in 2007.
For info: www.balancepro.org.
How To Cut Costs, Add Skills
KANSAS CITY, Mo.–To drive the bottom line, credit unions should maximize their strengths and collaborate on operations where in-house skills might be thin, advises Lisa Renner, CEO of CU Holding Company here.
“I think any credit union can examine its back office operations and support types of services and look to outsourcing and collaboration with others in the industry, because of the efficiencies in doing that,” she said. It’s not just the economies of scale that make collaboration a solution to bottom line issues, Renner explained. It’s tapping into a higher skill level.
“Typically, a single credit union can’t always afford to hire the individuals they need to support all of the efforts they have underway,” Renner said. “But when you work collaboratively, it makes those high quality resources more affordable.”
Renner encourages CUs to take a “hard look” at their operations and determine what they are good at and “strive to be great at that. Focus on those things and let go of some of the others that aren’t truly core competencies. Let someone else focus on those…Organizations that try to do all things will likely not have the capacity to achieve great in any area. The CU industry needs to achieve great in order to compete in the saturated financial services market. That requires focus.
“I think many times this approach allows credit unions to focus on member services where they can truly be instrumental in making a difference in members’ lives,” said Renner.
CU Holding Company controls four CUSOs–TruHome Solutions, XtraCash, Co-operative Payroll Solutions, and Beyond Marketing, which Renner says analyzes credit unions’ portfolios, balance sheets, and income statements, looking for gaps and making recommendations on strategy.
“At Beyond Marketing we find the best ways to bolster the portfolio and where a credit union can get the biggest marketing bang for the buck. We do that by balancing each credit union’s overall goals with their growth objectives,” said Renner.
For info: www.beyondmarketingllc.com.(c) 2008 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved.
