HOLLYWOOD, Calif.-The Bank Transfer Day membership boom has now given way to an increasingly important issue: can credit unions, in the face of an influx of new members, continue to provide a high level of service?
Credit Union Journal spoke with CEOs, executives and industry analysts who say credit unions must make adjustments in response, including hiring to manage the new workload, upgrading technology to boost service and member convenience, and educating members on how a credit union is different and how to use the credit union.
CUs must also walk the tightrope between regulators who want to see tight lending standards and new members who joined because they are looking for loans.
Roy MacKinnon, VP-marketing at the $910-million First Entertainment CU, believes many credit unions' staffs will be taxed to deliver the CU value. "Delivering on our service promise is going to be difficult. When you experience member growth numbers 50% to 100% higher than normal, you have to have concerns," MacKinnon said. "I think all credit unions will put their best foot forward. But can we all do it? I don't see how."
Another concern of MacKinnon's is that the new members' expectations may be higher than what credit unions can deliver. "These newbies are different than the typical new members we get through referrals by friends and family. These are people who have been swept up in the moment and excitement around Bank Transfer Day," he observed. "They know nothing about credit unions-will they be expecting 2% on a one-year CD? No one knows."
This year will be a "gut check" for credit unions when they find out about the new members quickly, insisted MacKinnon. "We'll learn if they are going to be more demanding. We'll find out if they decide that using our shared branch and ATM networks are too much of a hassle, and go back to BofA and Wells Fargo and pay their monthly fees because wherever they see a stagecoach or BofA logo they can get an ATM."
CUES President Fred Johnson, too, questions credit unions' ability to keep pace with all the new members. "I hope credit unions realize that these people transferring their money over to credit unions are going to put them to the task. I think the new members are going to say, 'Can you deliver on your marketing?'"
Johnson expressed concern that some credit unions could be "overwhelmed." "And what happens when you have money you can't lend out? That kills your ratios. Credit unions have to turn these people into loans."
But will regulators let CUs underwrite all those loans members apply for, asks Dennis Dollar. At a time when credit unions need to make more loans for member service and income reasons, they are facing a risk-averse approach from regulators that is arresting their loan intentions, said Dollar, the former NCUA chairman who now heads up Birmingham, Ala.-based Dollar Associates.
Need For Risk Management
Dollar cautioned that becoming too risk averse could alienate many new members who have come over from banks looking for loans. Dollar said credit unions need to show these new members that the CU will make some of the loans that the banks will not.
"The challenge will be to exercise proper risk management sufficient to satisfy regulators without crossing the line into risk aversion. Become too risk averse and you satisfy the regulators but leave members disillusioned. I fear that some new members may begin to feel they are no better off with the credit union."
Bob Giltner, chief DDA strategist for Velocity Solutions, Wilmington, N.C., however, believes credit unions have the capacity to handle all the new business. Citing CUs' economies of scale and that more have turned to automation to relieve teller lines, Giltner said, "I don't see any risk of credit unions being overwhelmed at all. I don't see anything taking credit unions' eye off the ball that this is the year to acquire new members and grow revenue."
Some CUs, however, are making changes to address the sudden member growth by upgrading technology or adding staff. Chris Jackson, director of product management-DNA, for Open Solutions in Glastonbury, Conn., told Credit Union Journal that his company is aware of a number of credit unions are considering branch automation upgrades. Jackson said credit unions, too, are turning more to mobile applications, which will help with capacity and convenience issues. "Credit unions are looking to extend their channel capabilities to address the influx of members."
At the highly automated BECU, which has many branches that leverage kiosks instead of tellers, Toby Travis, senior marketing strategist, said changes are planned. The $9.5-billion Tukwilla, Wash.-based FI has seen new membership sign-ups about double in the final quarter of 2011, and Travis said to keep service levels high it will take process improvements and possibly more staff. "We are very efficient, but we will become even more efficient to serve more members with about the same staffing levels. However, I know we are getting more staff to help with the volume."
Plenty of New Hires
The $2.4-billion SECU in Linthicum Md., plans to add 20 employees, mostly front line. Teshia Williams, senior manager of human resources, said some of the openings are due to growth the CU has experienced all year, but acknowledged that Bank Transfer Day is affecting hiring decisions.
"We have seen a spike in business from the attention credit unions are receiving and as result we see some of our peak times changing, requiring us to change our staffing model to recruit more part-time and peak-time employees."
Kyle Markland, CEO at the $1.5-billion Affinity Plus FCU in St. Paul, Minn., said his credit union is adding 100 employees this year and all will be member advisors. Affinity Plus has enjoyed solid growth from the start of 2011, but Bank Transfer Day has pushed along the decision to hire. "It's not only new members; we were seeing additional participation from our current members. We need to keep service levels high. It would be irresponsible not to bring in the resources necessary to provide the experience you want your members to have."
If service levels fall, the new members may feel abandoned, sources conceded. First Entertainment's MacKinnon summed up the situation by noting that the former bank customers turned CU members have heard the stories about credit unions being a better place to do business.
"Now it's 'show me the money.' Will be we be able to retain all of these credit union newbies? That remains to be answered. It would be pretty sad for a credit union to talk 12 months from now and say we picked up 3,000 members from banks but lost 2,500 of them back."
