THORNDALE, Penn. — Citadel FCU here is making more money off a broader chunk of its membership-and keeping 75% of its members "extremely satisfied" despite the nation's economic crisis.
A profitability solution that identifies member behavior is helping Citadel rely on a larger percentage of its membership in order to make money: in 2005, before using the technology, 20% of Citadel members supported 120% of the CU's profitability, whereas now those members are responsible for ensuring 70%, according to Mike Schnably, SVP of Citadel.
That's because Citadel uses "carrots"-such as rewards for using a particular product-to gradually change the behavior of the remaining 80% of the membership that is eating away at profitability, he said.
Citadel's newest checking account product is a case in point. The $1.3-billion credit union created ten product scenarios, explained Schnably. The CU then examined a complete profit and loss (P&L) statement for each scenario before settling on one scenario that contains three checking account products, he said.
"We drove each product down to the net contribution of each member," Schnably said. "We knew what to expect in terms of profitability from net income and net interest income. We looked at interchange income, relationship and courtesy pay fees-all possible revenue items tied to the profitability of each product."
Member's Way Of Doing Business
The costs of each product are also assigned to each member's way of doing business. "This solution drives profitability directly down to each member's activity," he said.
Product and account P&Ls and analysis are delivered by West Chester, Penn.-based CorePROFIT Solutions, Inc., a provider of behavior-based costing and profitability solutions.
"We can isolate behavior down to the individual member who is contributing, who is not, and then change behaviors in the context of each credit union's culture," said Joseph Prunty, CEO, CorePROFIT.
Conversely, CorePROFIT is not a general allocation model, said Prunty. "In an allocation model, you and I have the same balance, and the expense of everything we do is split equally into the share draft costs, which doesn't tell you anything about each member's behavior."
Before CorePROFIT, Citadel had become accustomed to "ambiguous numbers" conveyed by MCIF systems and reports of industry trends, said Maria Steffy, CFO, Citadel. "Our models weren't as tightly tied to our financials."
Now, the CU is "making smarter decisions, justifiable decisions, whereas before it was a hunch or a guess. We can do an ROI-modeling that is specific to each product before we launch it, and we can show you the P&Ls for each of our 130,000 accounts."
The increase in profitability, in the end, may be related to an increase in member satisfaction. "We've made more members profitable, so we can return more to our high-end members," Schnably said. About 75% of the membership gave the credit union the highest rating in terms of their satisfaction last year, up from 69% in 2007, he said.
Fewer Members Are Leaving
And fewer members are leaving the CU, Schnably continued. "We reduced our attrition rate from 15% to 11% last year-that's huge."
CorePROFIT helped on that score, as well, said Mike Haldeman, VP-finance, Citadel. "We can determine flags as to when a member is about to shut down an account." Flags are raised by changes in balances, direct deposits and debit card activity, as well as by members who have certain combinations of products, said Schnably.
CorePROFIT's services-underway at CUs ranging from $125-million to $5-billion in assets-take into account the cost of each transaction, product, member and channel, based on data from every transaction system at the credit union, said Prunty.
