There are two basic ways to boost the bottom line: increase profit, decrease expenses. Credit Union Journal asked a variety of vendors serving the credit union movement to share how they help credit unions do exactly that.
Eric Porter, EVP, business development for CO-OP Financial Services, Rancho Cucamonga, Calif., said his best advice is to "Keep it simple, make it safe."
"Help protect members against fraud while at the same time make it easy to access their accounts," he explained. "If you give them easy access and protect them from fraud, the credit union will grow."
Porter recommends giving individualized control of the payment method, while at the same time providing a "higher touch" with concierge-style services. He said this can include mobile apps, or any method/channel that puts control in the hands of the member.
"Technology gives credit unions and members the ability to set alerts and preferences, configure one-on-one marketing and rewards, along with fraud alerts," he said. "Have wallet-enabled products be the top of the wallet. Get your debit card in the digital wallet so the credit union comes up first before a bank card. Make sure they use your card first, through education and by having 24/7 call center access."
If the credit union does not have 24/7 call center access, outsource it, Porter advised.
"People demand it."
Give The People What They Want
The first step toward increasing profitability: learn what members want and then figure out how to give it to them.
At St. Petersburg, Fla.-based PSCU's Advisors Plus, Directors of Strategic Consulting Norm Patrick and Kari Anne Arnosk said it is clear what members want is constant access.
"It is time for credit unions to embrace all digital channels, and how they interact with each other," Patrick said.
Members' expectations have changed over time, Patrick continued, and now they want a consistent experience across all channels. "They want 24/7 access, and they want to design the experience," he advised. "Long gone are the days people could only come to the branch between 9 a.m. and 4 p.m."
Arnosk said given the momentum of the switch to a mobile environment, CUs have to "embrace it and understand it" or it will pass them by.
"Credit unions are letting people open and fund accounts online," she noted. "The mobile channels are cheaper than people walking into the branch. They need to make the branch a consulting place, while getting members to automatically perform transactions using mobile channels, including mobile deposit capture."
Let the staff in the branch handle the more detailed inquiries, Patrick agreed.
"Some credit unions are all over this, others are not getting there," he declared. "We are going to have to get there, because the larger players are there. All of these channels have emerged over the years, and now is a good time to take a look at those and make sure the experience is consistent. There should be no conflicts between the channels, and drive transactions to the lower-cost channels," he counseled.
Member-Friendly Insurance
Corrin Maier, director of the MemberCONNECT program at CUNA Mutual Group, Madison, Wis., suggested credit unions can grow non-interest income through member-friendly insurance protection. She offered three examples:
1. Leverage natural member touch points to increase non-interest income (NII) with insurance.
There are "easy and unforced" times to mention the insurance program the credit union makes available, Maier explained. She said CUs need to think about the obvious interactions with members around loan applications and the necessity of insurance to protect the asset.
"Beyond face-to-face interactions, there are other member touch points that work well," she said. For example, most CUs will kick off a marketing blitz for auto loans in the summer.
"Do those campaigns mention the availability of auto insurance through your credit union?" she asked, noting a "sizeable percentage" of members take advantage of these opportunities when they are presented. "Our data show that when members are made aware of the TruStage auto insurance program at the end of their electronic loan application, one in eight choose to start a quote. That is why a conscious mention of the credit union's insurance program can build awareness and lead to an easy — and member-appreciated — way to earn more non-interest income," she said.
2. Make sure the front-line staff understands the member benefits behind NII products such as insurance.
According to Maier, while the frontline staff may know about the existence of the CU's insurance program, they may not be fully aware how those products actually impact the members' lives.
"An understanding of these benefits, not just the program's availability, can make a big difference," she asserted.
At a higher level, CUs need to share the annual insurance claims paid to members, or perhaps highlight a few member stories about the importance of insurance coverage at critical times in their lives, Maier said.
"Understanding the benefits and believing in the value will help the staff refer insurance to more members and drive greater NII income."
3. Highlight the credit union difference to the members.
With increased marketplace competition, even small competitive advantages can yield rewards, Maier said, adding an excellent time to showcase the CU difference is during the new member enrollment process.
For example, many credit unions make a complimentary accidental death and dismemberment (AD&D) policy available to every adult member. "While the face amounts are small, these policies differentiate the credit union in a crowded market — they send a strong message to members and demonstrate concern for their overall well-being, protection and financial security," she said.
Spring Cleaning
The Members Group family of companies, headquartered in Des Moines, Iowa, offered perspectives on managing credit card portfolios, dealing with the switch to EMV cards and every CU's favorite topic: compliance.
Brian Scott, VP of sales for The Members Group, said most CUs could benefit by cleaning up portfolios and deleting closed, inactive and old bankrupt accounts.
"Many credit unions we see have 15% or more of their portfolio that could be cleaned up. They can save expenses by deleting those accounts," he said.
Most credit unions could benefit by increasing the lines available to their credit cardholders, Scott continued. In some recent promotions TMG has implemented, its clients have been able to increase the spend, balances and interchange on their portfolios simply by raising limits.
One CU in particular did this type of promotion and was able to increase its profit by $5.16 per card per month, just by increasing the members' line and ability to spend.
"Focusing on member cross-sales, especially in transferring balances to a credit card, can help," he said. "Even debt consolidation to the credit union's card benefits both the member and the credit union."
The reasons: member credit scores stay high from a debt consolidation to their CU credit card and the credit union benefits from greatly increased balances, which drives high profit increases. A recent example: one TMG client increased spend and balances 57%.
With EMV right around the corner, Scott suggested using the reissue to upgrade cardholders into elite programs, such as a MasterCard World Elite or Visa Signature program.
"If credit unions do this at the same time it will help offset the costs of the upgrade with higher interchange income earned on these portfolios as well as higher spend and balances," he said.
Karan Bhalla, managing director for IQR Consulting, a TMG affiliate that provides data analytics services to credit unions, had three tips to improve to credit card portfolios:
1. Focus on truly understanding credit risk.
Today, credit unions are under-leveraged and could actually approve more higher-risk accounts, Bhalla said. "This, in turn, will generate much better returns, and also aligns with the credit union philosophy of enabling more consumers access to fair, friendly financial services," he said.
2. Leverage data analytics to derive and understand transaction behavior.
CUs compete with big banks on credit cards, and Bhalla said if they do not learn how to leverage transaction behavior — which the big banks already are doing — they are not in the best possible competitive position.
3. Invest in system upgrades that will mean cost savings down the line.
According to Bhalla, many CUs have grandfathered systems that are no longer supported and really weak. "Taking a look at their systems is an investment but will lead to future savings," he said.
Brian Godwin, senior compliance officer for PolicyWorks, another TMG company, noted compliance very rarely "makes" credit unions money, but it can "save" credit unions a lot of money.
"Obviously, the first way this may occur is through the prevention of costly errors, including reimbursements, fines and other potential negatives," he explained.
However, Godwin continued, one fact credit unions may not readily acknowledge is a strong compliance program can provide a CU with greater flexibility and allow it to quickly respond to changes in both the regulatory environment and the marketplace.
"A strong compliance program allows credit unions to mitigate risks inherent to rolling out new products, while also responding in a timely manner to opportunities that present themselves," he said.
According to Godwin, an effective compliance program also may allow a CU to attain a strength in a particular area, one that other credit unions may find to be outside their area of expertise. For example, with the unparalleled number of regulatory changes affecting mortgage lending throughout the last year, some lenders may be discontinuing mortgage lending. And, others may have had to increase fees to offset the increased risk.
"A credit union with a strong compliance program may have responded to these new rules in an efficient manner, allowing it to grow its mortgage lending programs as others were pulling back, resulting in an increased market share," he said.
Marketing is another tool credit unions use to grow their membership, and increase attention for specific products. Unfortunately, Godwin noted, this is an area in which many compliance violations occur.
"An effective compliance program may allow a credit union to increase its marketing presence while avoiding mistakes that could result in harm to the credit union from either a financial or reputation standpoint," he said.
The compliance program also may aid the credit union in implementing cost-reducing measures, such as complying with the E-Sign act for electronic disclosures, Godwin offered. He said a well-run compliance program may assist a CU in effectively implementing increased fees through proper disclosure of changed terms.
Accountability, Vendor Management
Eric Weikart, managing director for Scottsdale, Ariz.-based Cornerstone Advisors, said high-performing credit unions drive operational efficiency by having 1. metrics to help instill accountability, and, 2. "really strong" project management to help manage technology investment priorities.
"On the cutting expenses side of the efficiency equation, credit unions can find great opportunity among current vendors, including those providing core systems, PC banking, mobile, ATM debit/credit processing, data/telecomm backbones, and document imaging," Weikart said. "If you are going to pay money for something, make sure you are getting the most you can out of it. Keep in mind that just because the vendor cuts your cost by 20% does not mean that it is a good deal — maybe they should have cut it by 50%."
Weikart said one way to "push the envelope" with vendors is to impress upon them the CU intends to shop the competition. Credit unions also can expand their relationship with existing vendors. He reported that one credit union had one of its current vendors evaluate how the CU was using that vendor's solution. The result: The CU got five solid ways to use that company's product more effectively.
"While this credit union paid for the visit, many times a vendor will do a systems review for free to help keep a credit union client in the fold," he said.
On the increasing revenue side of the equation, Weikart recommends comparing Visa and MasterCard and perhaps leverage the competition between two card companies.
"They are fierce competitors right now, so if your credit union is ready to say it will use one or the other for a time, the company might kick in some incentives," he said. "Over the last year or two, these incentives have gotten bigger, so even if you already have an agreement with one or the other, there might still be opportunities here."
Weikart said CUs should take a look at how they compare to benchmarks, such as loans serviced per full-time equivalent or deposits per full-time equivalent, to look for ways to improve processes. Thinking creatively about staffing can drive process improvement, too, he added. For example, using today's telephone technology, a branch staff person could push a particular button when he is able to take overflow from the call center.
"In every credit union I go to, there are opportunities to increase revenue, decrease expenses and improve processes," Weikart said. "It is worth taking a look."
CFO: Look Beyond COF
Gabe Krajicek is CEO of Austin, Texas-based BancVue, a wholesale financial services company. One of BancVue's products is the "Kasasa" checking account, which in turn is offered by BancVue's client banks and CUs to consumers.
Krajicek said he and his company have been evangelizing the following idea for a decade, but he finds there still are a large number of CFOs at community financial institutions who have not fully examined all parts of the cost-of-funds equation when considering rewards or interest checking products.
"The typical rate on checking is 1.5%. Many CFOs see that as way too high a cost of funds, but there are reasons that mitigate," he explained. "Cost of funds is only half the story — there are other non-interest expenses, and $1 paid in interest is the same as $1 paid in expenses."
According to Krajicek, because of Kasasa's rewards system, non-interest income on its accounts is 43% higher than typical free checking because the account is designed to encourage use of debit cards.
"When you sum up the net-net true cost, for most of our clients' revenue exceeds interest plus expenses," he said. "The deposits are cheaper than free because they generate revenue. They also are great for the consumer because they get free checking plus interest. The institution has a great cost of funds, and we encourage e-statements, online banking, mobile banking and other self-serve channels."
The use of online and self-serve channels gives a secondary benefit, Krajicek said, as the attrition rate goes down and the consumer stays at the credit union for a longer time.
What CUs need to do, he said, is look at deposit pricing from a full cash inflow/outflow perspective. "If the CFO looks beyond just the interest rate when considering cost of deposits, rewards checking accounts pay for themselves on average because the non-interest revenue exceeds non-interest expense and interest expense."
Co-Opetition With Community Banks
Krajicek said it is "silly" that CUs and community banks spend so much time worrying about each other, when what they both really should worry about is to stop losing their respective market shares to mega banks.
"There needs to be co-opetition, or working with other community financial institutions," he said. "Do not throw stones at each other; send missiles at the big competitors. Our Kasasa FIs, credit unions and banks, open up 60% more new accounts than our rewards checking users. The change is the name and the co-opetive nature of marketing because multiple financial institutions are promoting the same product."
According to Krajicek, co-opetive marketing helps fight the consumer perception that a small CU might not have products as good as a mega bank.
