SCOTTSDALE, Ariz.-A new study indicates a big opportunity exists for credit unions to cross-sell new members, and that CUs have a great deal of room to improve profitability and performance in many operational areas.
But the findings from Cornerstone Advisors also raise the question whether small CUs can effectively address either.
As previously reported in Credit Union Journal's "Great Divide" series, the rich CUs are getting richer and the poor are getting poorer. Growth is concentrated among the very large. Based on data from NCUA and CUNA Mutual Group, 2,000 CUs (29% of the entire industry) reported losses during the third quarter of 2012, the majority (1,692) with assets of $50 million or less. According to data from Moebs $ervices, 17.3% of all credit unions (1,212 out of 7,031) had negative net income for 2012, while another 26.1% (1,832 CUs) weren't growing enough to maintain capital, according to the Lake Bluff, Ill., firm. (Credit Union Journal, Jan. 14). Those results occurred at the same time the industry overall reported growth, indicative of the surging numbers at many larger CUs.
Two Cornerstone analysts, Sam Kilmer, senior director, and Scott Hodgins, research director, agree that small credit unions face much greater growth challenges today than medium and large CUs. However, based on findings from Cornerstone's new Cornerstone Report, they believe there are effective strategies available to CUs of all sizes can leverage some very big opportunities in front of them now.
Big Vs. Small? Not Always
"It's not just about big vs. small, but best practices and high performers in each area of the credit union," said Kilmer. "We do see the large credit unions benefit from their size more in back-office functions. But we feel performance on the front line-member service-is the same across all credit unions."
According to the just-released Cornerstone Report, the median CU in the study averages 1.8 new members for each member who leaves, a 20% improvement over the last Cornerstone Report, published in 2008. However, median products per household is down to 2.5, a 28% drop from the last study. The report revealed, as well, a big gap exists between high and low performance among the study group in numerous operational areas. The report delved deeply into 16 operational areas of 62 credit unions with assets of $250 million and greater, and shares numerous best practices.
"There is a lot of opportunity for credit unions now to cross-sell all these new members," said Kilmer. "Many new relationships have one to two products per household, and that number can be much better."
Kilmer attributed CUs' ability to attract and retain more members, as well as the drop in products per household, to Bank Transfer Day and the anti-bank sentiment that has followed. Credit unions have been able to sign up many more new members since 2008, but often don't have the bandwidth to cross-sell all of them effectively, he said.
"Plus, these new members have been with the credit union for maybe a year or two, some just months. They will not carry the same number of products as members who have been with you for seven or eight years."
Looking To Go Deeper
Kilmer asserted that since 2008 there has been an industry-wide focus on marketing to bring in new members. "Only recently have we noticed a focus on cross-sales picking up significantly at credit unions, and we think we will see a lot more of this in the future-and deeper relationships."
The Cornerstone Report revealed a divide, as well, between high and low performance at CUs across all of the different areas the study analyzed. Kilmer pointed out there were often significant differences in profitability and performance, touching on a few areas that offer significant opportunity for cross-sales:
* High performers have 20% of their share draft members actively using mobile, while the median CU stands at 7%. "The top performers are doing about three times better," said Kilmer.
* At the median CU, 16% of loans were originated online. "That means for most credit unions 84% of loans are being originated the old-fashioned way," Kilmer said. "A lot of cross-sales opportunities are being lost."
* While the study shows the median CU generates $150 per year in fee income per checking account, there is an $85-per-account gap between what high and low performers are earning in checking fees.
Focus For Smaller CUs
Hodgins pointed to specific growth areas small credit unions can focus on. "Payments and fee income, for example. Get visibility into the payments P&L and create and manage to a payments scorecard that includes measures that are tracked, such as debit card penetration, activity and interchange income per card. Small credit unions can see a significant bottom-line improvement by increasing debit card transactions."
Hodgins also recommended that small shops review relationships with card providers and signature associations for benefits, consider instant-issue cards and offer general purpose reloadable cards.
"There is a great divide out there," said Kilmer. "Some of that may be size, some of it may be productivity, but another divide is in willingness to change and improve instead of doing it the same way as always. It's not just about improving once, but creating a culture of ongoing improvement."
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