BOSTON-The City of Boston CU is looking into how members' relationships translate into profits in the hopes of moving to relationship-based pricing.
To accomplish this, it has turned to a tech suite called ProfitMagnifier, developed by Profit Resources, Lakeland, Fla.. The company said its tool ties together different sources of expense and revenue, and weights the sources of expense in an effort to produce a more precise profitability measurement. CoBCU has started accumulating member transaction data and said it will gradually extend use of analysis and branch profitability measurements.
"We want to look at each branch as more of their own little business. If there are 5,000 members tied to a certain branch, those are the members we want you to work on, to get members on the lower profitability scale to use more profitable products," said David Cox, chief financial officer for the $295-million credit union.
Included in profitability measurements on the cost side are the general expenses of running branches and other channels, the delivering and maintenance of specific financial products and services, and the shared costs of general member service.
On the revenue side is the net interest income and fees collected for services or transactions. When the data on both the revenue and cost side of the equation is combined, the goal is to produce granular, cross-referenced profitability reports on members, products and branches.
To use the new system, CoBCU will export individual account data and general ledger data-such as assets, liabilities, revenue and expense-from its core system into ProfitMagnifier's cost accounting software, ProfitEntree. This software then uses calculators developed by the tech firm to analyze the net interest income of loans, the non-interest income from transactions, expenses for each account and product, and loan losses as calculated by credit score and delinquency data.
Additional expenses are calculated based on a weighing system that computes the impact of disparate activities on profits differently, the company said.
