It's Spring Cleaning time, and Credit Union Journal asked a variety of experts what cobwebs credit unions should be sweeping away. From moldy policies that need some serious sprucing up to literally cleaning up the branch, here's a look at what these experts suggest credit unions need to be cleaning out in order to clean up.
Review, Revamp Policies, Procedures
Dennis Dollar, principal partner, Dollar Associates, Birmingham, Ala.
"We have a tendency to keep outdated policies in place until a crisis arises which requires us to address them. I believe the spring-cleaning concept is a worthwhile one. Credit unions should make sure their policies are updated.
"A couple specific examples: we encourage our clients to examine their overdraft protection programs-courtesy pay, bounce protection; whatever name the credit union calls it.
"When overdraft protection was first authorized in 1999, all credit unions had to have policies in place. Most credit unions that began offering overdraft protection in 1999 or 2000 have not seriously reviewed their policies since. But, in 2005, the FFIEC, or Federal Financial Institutions Examination Council, issued new, updated guidance and best practices guidance.
"Many credit unions have not gone back and reviewed their overdraft policies. We strongly recommend they review these polices, consult with their attorneys, and perhaps consult with overdraft protection providers to make sure they meet the new disclosure requirements.
"All policies need to be reviewed on an ongoing basis, but another specific area is the standard credit union bylaws. The NCUA is beginning to look at getting into bylaw enforcement-something NCUA traditionally has not done.
"As Chairman Johnson stated in her speech at GAC last month, the regulator is going to take a more hands-on approach, meaning credit unions must make sure their bylaws are modernized and up to date. If a credit union looks at its bylaws and discovers, for example, the number of members required to call a special meeting is out of date due to credit union growth, it will need to update."
Give Your Branch A Spring Makeover
Stan Howe, CEO, Howe Construction, Roswell, Ga.
For credit unions that feel their main office, branch or interior lobby is a bit dated, Howe Construction President CEO Stan Howe said an "interior upgrade" can quickly spruce up a CU's image with the membership.
Howe said with minimal disruption to credit union operations or to its members, credit unions can create a new look with new flooring, expanding the teller line, adding a single member service representative (MSR) work station or simply apply a fresh coat of paint or new wallpaper. A combination of all of these ideas can be accomplished in only two weekends while the CU is closed.
"What's popular these days is more openness. A lot of people are doing away with draperies," Howe said. "Just to make it more open and accessible."
Howe said one example is too move MSR stations to areas more accessible to the members but to include a cash drawer to handle an opening deposit to avoid a situation of telling a new member "welcome, now go stand in line with your deposit."
"More like one-stop shopping," Howe said regarding an improved MSR station.
Many credit unions are replacing curtains and metal or wooden doors with glass, not only to create a long line of vision, but to try to shake the out dated image of credit unions being attached to industrial sites or factories, Howe observed, noting that a full-length glass door, or a half-door featuring a large glass window, creates an open atmosphere plus a modern look.
A typical branch "facelift" would cost around $50,000 to improve lighting, new flooring, some sort of wall covering or paint and possibly an extension to the teller line and can be completed over two consecutive weekends, he said.
"We come in Friday evening and give it back to them on Monday morning," Howe said.
For CUs that serve the membership on Saturday, Howe said a credit union should advertise in advance that the lobby will be closed, but the drive through lanes will be open for business.
Mine Your Data Before Cleaning It Out
Bill Handel, VP of research and product deveopment, Raddon Financial Group, Lombard, Ill.
Before you clean out your files, make sure you're mining them for data that can help you target market to your membership, Handel suggested.
Credit union members who are nearing the end of their current auto loans can be targeted for a direct mail campaign to ensure their next loan stays within the credit union. His Spring Cleaning tips include:
Segment Households to Improve Marketing Efficiency
"Credit unions should use segmentation based on age and income to target members most likely to use specific products. Further segmentation of the member's existing relationship (has checking, has a loan, lives close to branch) will help credit unions narrow their focus to members ready, willing and able to respond to product offers.
"This process can help credit unions target more relevant offers to their members and save on marketing costs."
Begin deepening household relationships as soon as the new account is opened
Research from Raddon Financial Group suggests that additional cross-sales are mostly like to occur early in the member's relationship with the credit union. 25% occur in the first three months, and 50% occur in the first year. Credit unions should work quickly to expand the relationship early through a systematic new household cross-sell campaign and "onboarding" program.
Manage and improve member loyalty
Credit unions that have highly loyal members also experience higher average balances and are more effective at cross-selling services.
"We suggest credit unions evaluate what service quality attributes drive member loyalty for their credit union and prioritize service improvements that will have the most significant impact. The most effective way to do this is through a member survey that delivers strategic and tactical recommendations to improve loyalty."
Focus on "Non-Punitive" Sources of Non-Interest Income
Credit unions can lift non-interest income by increasing debit card activation and usage. Credit union should consider issuing debit cards instantly when a new checking account is opened. Ongoing debit card usage campaigns will help spike interchange income and an ongoing debit rewards programs could provide sustainable non-interest income.
Make On-Line Service Delivery a Core Competency
Credit unions can improve operational efficiency and member retention with an effective online banking and bill pay strategy. Credit unions may consider evaluating their bill pay pricing strategy:
* Totally free
* Free with e-statement
* Free with relationship balances
* Credit unions should also consider making e-statements integral to credit union accounts:
* Default for new accounts
* Offer incentives to convert existing accounts to e-statements
Gear Up For Car-Buying Season
Jerry Neemann, EVP, CUDL, Rancho Cucamonga, Calif.
"Since spring is a key car sales timeframe, credit unions should look for ways to further promote their indirect dealership partners to their membership," Neeman suggested. "Credit union membership is a true advantage they have and should be used as an indirect lending source. When was the last time Bank of America sent a customer to their dealership partners?"
Now is also a good time to freshen up auto-related information on the credit union's website.
"Credit unions should also review their web-strategy regarding providing automotive purchasing information for their members," Neeman advised. "Again, since spring is a good time for members to purchase a new vehicle, providing them internet-based automotive resource information will assist them in ultimately getting another car loan for the credit union."
Expenses, Risk Need Attention
Wade Painter, executive managing director of CU services, RSM McGladrey, Minneapolis
Painter offered two areas that could use some serious elbow grease this spring cleaning season: gaining operating expense efficiencies through staffing models and reevaluating risk management.
"We work with a lot of credit unions that need to reduce their operating expense ratios, which means increasing efficiency. We serve many credit unions in the over $100 million range," he advised. "As they keep growing, they add staff, and the hiring models that used to work for them do not get updated."
The real need, then, is to do a thorough business process improvement analysis.
"They need to understand the role technology can play in their processes. By enhancing the business processes, they probably can reduce headcount. The Holy Grail is doing better member service with less cost and less resources," Painter suggested. "Many credit unions are feeling tremendous pressure on their interest rate spread, and if they are going to end the year with a satisfactory bottom line, the area they have the most room to drive improvement is their operating expense ratio."
For all that risk management has become something of a buzzword, Painter said one good spring cleaning project credit unions tend to ignore is identifying their appetite for risk.
"We don't see a lot of thinking about it," he related. "A thoughtful approach involves giving risk management some thought and measuring risk throughout the entire organization. Many credit unions do the same old thing each year: they do an internal audit, which may not look at all of the riskiest areas. They do not do a formal process of identifying the areas of greatest risk. We see a disconnect there."
One example: indirect lending. "It is a terrific program for credit unions, and for those that understand the risk it is a tremendous driver of value for both the credit union and the members," Painter offered. "But those who do not examine the risk, or don't manage it well, tend to take greater losses in that area."
Another example: protecting data-especially when a third party handles confidential member data or information. "Many credit unions have never stepped back and performed a vendor management inventory. Credit unions must make sure they know all the vendors that touch member data. That would be a good starting point for analyzing risk management."
