BOULDER, Colo. - It's the Holy Grail for many credit unions: converting members gained through indirect loans into full-fledged, engaged members.
Two credit unions participating in a pilot test of a program to achieve that goal report they haven't found the Grail, but it has come a bit closer into view.
"The reason it is such a challenge is because the dealership handled the paperwork so you have no opportunity to...demonstrate [your] level of service," observed Rich Jones, VP-marketing for Elevations Credit Union "That is completely a foreign concept to that indirect borrower."
As Credit Union Journal reported June 30, CUNA Mutual Group has been piloting an effort "focused on helping credit unions deepen product relationship with indirect members in an effort to turn them into profitable members."
In the pilot, 13 credit unions have been working to transform indirect borrowers into full participants in the respective credit unions by following up on the auto loan with an outbound calling system that pre-screens the new members, giving representatives a bevy of information about the borrower.
"With the indirect member, as long as you can get in front of them and you have a product that is of value to them, then it works," said Jerry Petersen of Chicago-based Alliant Credit Union, which participated in the pilot program. "[But] what we found is that although there was some success with the outbound calling, it wasn't great enough. It's a lot of phone calls for a few sales. We've gotten much more realistic with our expectations."
In a white paper analysis of the program CUNA Mutual concluded that the new members welcome calls from the credit union, and even calls that did not yield a successful cross-sell nevertheless had "a relationship-building effect" with the indirect borrower and opened up future opportunities. The study did not come to a conclusion on the feasibility of other credit unions implementing such a system on their own.
Petersen believes that the outbound calling program does not make sense for Alliant because of the nature of his credit union - Alliant is based in the Chicago suburbs but offers services to members worldwide. With few geographic connections to its members, Alliant may be at a disadvantage.
"We struggled on our structure, on not having that location," said Petersen, adding that he does think a community-chartered credit union or one with a stronger local connection could make an outbound calling system to move indirect members to direct membership work well. "Somebody who is local can really sell that [message]-'Hey I'm local, come in and stop by.'"
Amplify Credit Union has been very aggressive in approaching indirect members, but one executive is blunt in assessing how those members view "membership" and whether the credit union can ever be their PFI. Still, the credit union believes there is tremendous potential in members who join at an auto dealership.
The Austin, Texas-based community credit union, which also took part in the CUNA Mutual pilot, has used its call center to contact indirect members as part of a retention strategy.
Senior VP-Retail Pierre Cardenas said Amplify moves quickly to contact those new members shortly after the car loans are completed. He noted that about half of Amplify's membership growth is through indirect loans, but also believes that such members should not really be counted.
'Quit Fooling Ourselves'
"The majority, if not all the indirect members who are financing a vehicle with us, already have a financial relationship, not necessarily with us, and we know how difficult it is to pull somebody away from a checking account that they've had for...years," he said. "It's very easy to grow membership through an indirect channel, but it doesn't mean much if it is coming from there. If they don't have a checking account with us and direct deposit, I question whether they are members are not. We have to quit fooling ourselves. They don't know that they even have loan with you; all they know is that they have a new car."
Though it may seem counterintuitive, Amplify has found its greatest success in gaining greater walletshare from indirect members by offering credit cards and lines of credit in phone calls following the initial car loan. Cardenas noted that Amplify recently sold off its credit card portfolio, but is still getting bites on the "hook" when it comes to guaranteed signature loans.
"You can't go to them directly and say, 'We want your checking account business,' because you're not going to get it."
With its strategy in place, Amplify sees about a 7% penetration into its indirect membership. Cardenas says he will always press for more because of the vast untapped potential in the indirect channels and believes that the program to move indirect members to direct membership can be tweaked enough to reap huge rewards.
"If we can refine it, it will give us a tremendous value," he concluded.
Elevations Credit Union pursues the opposite strategy as it quickly offers a checking account to its indirect members. "Everyone needs one...It's an easy product to adopt," Jones pointed out.
To better target its indirect borrowers for direct membership, the credit union no longer allows individuals to purchase a vehicle through its indirect program if they do not live in a ZIP Code where Elevations has a branch footprint. The credit union then pursues the new indirect members with matrix mailings and phone calls from employees at the closest branch.
'Weeding Out' Process
This "weeding out" process appears to be producing strong dividends and increased efficiency; just over 7% of households outside the branch footprint area who joined the credit union indirectly now have checking accounts compared to more than 25% of indirect members within the branch areas.
Jones believes that new members are more receptive to cross-selling and accepting more products within the first 120 days of joining a financial institution, so a full court press must be made immediately instead of slowly cultivating the member.
"The idea of trying to engage them early and quickly with a checking product is essential," he said. "The key to establishing a long term relationship is a checking account and getting that debit card into their hands."(c) 2008 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved.http://www.cujournal.com/ http://www.sourcemedia.com/
