Analyst: 'Incentives, Other Short-Term Strategies Result In Short-Term Relationships'

Credit unions may be building predatory and fleeting relationships with their members by leaning on incentive programs and other short-term strategies, according to one person.

"Do incentives help your organization grow the way you want, or are you encouraging the wrong type of behavior in the long-term" asked Mark Faircloth, senior consultant at Omega Performance Corp. The question to approximately 225 people at a session of the California/Nevada leagues' Big Valley Conference drew cheers and applause.

Incentives may lend CUs an image of being either friendly or pushy, but not necessarily helpful, he continued.

People want a helpful credit union, one that can give good advice, Faircloth said. "Are your front-line people offering advice or products?"

Members will also stay if the credit union offers appropriate products, he said, before cautioning, "I would not get into a lot of new product development. Instead, watch the Sunday papers and when Bank of America comes out with something that looks cool, copy it."

Using An MCIF

A Master Customer Information File (MCIF) system can be put toward good use in providing members with helpful advice and appropriate products, he suggested. "We need to understand members' financial lifestyles before they do, and attend to them before someone else does. Be proactive, and give your member options."

Disconnected lines of communication across CU departments will hinder good connections with members, said Faircloth. "One credit union I spoke with cannot get the mortgage group to talk to the retailer group. So the same members are getting two different pieces of mail, one about first mortgages and one about seconds."

Building good relationships with members isn't just worn-out vogue-it's value, Faircloth said. "A full three-fourths of your institutional value comes from the retention of current membership," he explained.

For example, the cost of selling a new account to a new member is five times that of selling an additional account to an existing member, he said.

CUs need to prevent new members from closing their accounts, he added.

"Credit unions are not doing enough with the relationship within the first 18 months," he said. It's during that time when 80% of accounts closures occur.

Furthermore, CUs are entering a phase in which they see other CUs as competing for their members, Faircloth said. "It's not just banks that you're looking over your shoulder for, it's other credit unions."

CUs should compare themselves to the competition to figure out how satisfied members are.

"Rate yourselves as to whether you're better or worse, and in which direction you're heading" in regards to convenience of location and hours, accuracy of transactions, wait time for tellers and new accounts, and the quality of advice your staff offers, for example.

Faircloth spent 19 years as a commercial banker before moving into performance consulting and coaching with Charlotte, NC-based Omega. He confessed to the crowd of credit union managers that he has also worked with Sen. Trent Lott attempting to repeal credit union tax laws in Mississippi.