Plain Old Checking: Members May Understand Value Better Than CUs

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In the book "Rethinking the Sales Force," authors Neil Rackham and John R. Devincentis argue that service providers shouldn't necessarily try to convince consumers how much they need a product or service-the provider should simply create value and let the customer decide.

I will pause temporarily so all diehard sales people can re-gain consciousness.

The authors begin their book with a story about Rip Van Winkle-the longest sleeping salesman in fictional history. Van Winkle awakes after many years to find that everything has changed. Everything, that is, except sales. Rackham and Devincentis then explore companies who have successfully redefined the attitude of their sales forces to follow the value driven model. These former salespeople now work more on a consultant level.

Bobby Marshall, product manager for Southwest Corporate, believes, "For credit unions, such a radical redefinition isn't necessary. Credit union members are members because they understand the value of that membership. But do we? As credit unions, do we see the value the products we offer now provide our members?"

One product that is quite valuable to consumers today is the share draft account. At first glance, the share draft account may seem simplistic, especially when compared to the share savings account. The share savings account is, after all, a member's foot in the door to credit union value.

However, the doors that open as a result of having a share draft account make it quite possibly the most valuable financial service available today. Consider for a moment all the additional services credit unions are now able to offer their members. Many of these services are offered based on whether or not a member has a checking account. Early on, the savings account was the window through which members saw what the credit union had to offer. Now, however, the checking account has become this portal-a portal comparable not just to a window but a wide open door.

Value For Members

The suite of valuable options offered to members with checking accounts is as varied as credit unions themselves. But several points stand out as common within the industry. For instance, many credit unions offer loan rate discounts to members with checking accounts. Some credit unions offer online banking and/or bill payment. Debit and ATM cards are also commonly offered to checking members. With so many factors contributing to perceived value, how can all members be targeted? They can't, and shouldn't. Instead, providers should concentrate on simply providing valuable services that may be chosen by the member as, when and if needed.

Member Value No. 1-Loan Rate Discounts

To determine the value involved in a checking program, Southwest Corporate conducted an informal survey of local marketing council members. Again and again respondents said that the No. 1 perk offered members with a checking account is a loan rate discount. A loan rate discount adds value to a member's checking account by reducing their cost to borrow. Amounts and types of discounts varied among credit unions, but the availability was universal. While most credit unions do not offer rate discounts of this size, it is common to offer something. This little value-added perk seems to do the trick.

Member Value No. 2-Online Convenience

According to CUNA's CU Environmental Scan for 2000-2001, the top five most frequent occurrences of online transactions are associated with checking accounts. These transactions include viewing cleared checks, transferring funds, paying bills electronically, checking balances, and downloading statements. Several functions work together to add value to the original checking service.

Member Value No 3-Bill Payment

With a checking account and online banking access, credit unions may also offer an electronic bill payment service. Electronic bill payment services usually require a checking account for participation. Data shows that the payment system as we know it is in migration. Of the approximately 80-billion retail payments made annually, nearly 50 billion are paid by check and 30 billion by electronic instruments, according to the Fed. Since the last recorded study in 1979, checks have declined from 85% of non-cash payments to about 60% today.

Member Value No. 4-Debit Cards

A checking account can also provide the option of paperless payment transactions by providing access to a debit card program. With a debit card, transactions are processed as though a paper check had been written but without the time consuming effort of writing out a check and providing additional information to the merchant. It is also a more convenient means of getting cash back.

Member Value No. 5-Acceptability

The acceptance of paper checks can be an obstacle these days. A credit union debit card -with the backing of VISA or MasterCard -equates to ready acceptance. That ease of acceptance causes the value of the card to increase and therefore adds value to the checking account. While the member benefits from the card's credit backer-such as VISA or MasterCard-the credit union benefits by being available to its members around the world.

Value For Credit Unions, Too

Credit unions sometimes consider a member holding only a savings account a liability. But a member with a checking account is considered an instant asset. No longer is the member only an expense-now they generate fee income through ATM usage, NSFs, home banking, debit card usage and check sales. Their active participation in the credit union and its products builds stronger relationships.

Credit Union Value No. 1-Fee Income

Non-Sufficient Funds fee income from checking accounts can be an attractive benefit for credit unions. Fees for low balance and NSF are a substantial form of income. Share drafts make lots of money on fees, reported Shirley Andrew, Manager of Fannin Community FCU. And she's not kidding-FCFCU has gone from earning $914 as a $4 million credit union in 1990 to earning well over $100,000 as an $8.5 million credit union just ten years later. The turning point for this credit union began when they started offering checking accounts in 1994.

Credit Union Value No. 2-Stronger Relationships

Relationship building opportunities such as this increase a credit union's value to its members. Being valuable and providing value to a consumer helps to ensure a longer lasting relationship and increase the possibility of additional product usage. This strengthens the credit unions' very foundation. One valuable area of relationship building is with the small office/home office owner, referred to as a SOHO. The 2001-2002 CU Environmental Scan says that 85% of SOHO owners use checking accounts.

Credit Union Value No. 3-Increased Product Usage

A valuable result of deeper member relationships is the increased frequency with which checking members participate in other services.

The Credit Union Environmental Scan for 1999-2000 states that, "Members with checking accounts are 28 times more likely to use their credit union for debit card services, five times more likely to use it for direct deposit, twice as likely to have first mortgages, home equity loans, and share certificates." With the increased product usage comes the potential for an increase in income.

But what also occurs when some of the products are used is a reduction in operating expenses.

Credit Union Value No. 4-Reduced Operating Costs

Revisiting the debit card option of checking accounts is a good example of how costs are cut. A typical teller transaction costs a credit union $1 in branch, $.54 over the phone and $.27 at an ATM. If just 100 members begin using debit/ATM cards for weekly cash withdrawals instead of visiting the branch, a credit union could reduce its operating expense by nearly $4,000 per year.

Credit Union Value No. 5-Interchange Fee Income

A member using their debit card as a charge card not only has the power of the card's credit backer but also gives their credit union the power of interchange fee income. This fee is not charged to the member or the credit union; it is paid by the merchant accepting VISA or MasterCard and flows back to the credit union as income. On average, interchange fee income is 1.25% or approximately $1.25-PER TRANSACTION-and that can really add up.

Credit Union Value No. 6-Asset Growth

Increased fee income, stronger member relationships, and reduced operating costs have an amazing effect on a credit union's bottom line and asset growth. When a sampling of credit unions with share draft accounts was compared to a group without, the asset growth over a three-year period was staggering.

Credit unions without share draft accounts grew at a much slower pace-on average only $7 million over three years. But, credit unions offering share draft accounts grew on average $60 million dollars during the same amount of time.

This article is an excerpt from a white paper recently published by Southwest Corporate FCU. For more info: (800) 442-5763 or email contactus

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