Why a Tight Budget Didn't Derail This Small CU's Online Service Promotion

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"Word-of-mouth" - it's the "better bet" for small credit unions struggling to switch members over to electronic services, according to one $24-million credit union.

"The benefit of being small is the one-to-one information flow," said Brian Smith, manager of Information Technology at Cutting Edge FCU.

The 4,200-member CU is SEG-driven, drawing primarily from a local chain saw manufacturer, Oregon Cutting Systems.

"Because all of our members have a tie to one another, our adoption rate for electronic services increases through word-of-mouth," he explained.

Still, the advantage of word-of-mouth is challenged by Cutting Edge's member profile: Members aren't entirely equipped to use newer technologies, and would just as soon walk into a branch and "get a bag of popcorn and talk to someone they've known for 15 years," said Smith.

For example, in early 2001 Cutting Edge introduced online banking to balance organizational costs associated with face-to-face branch transactions. "Members resisted the service, because they could still walk into our branch and do same thing," said Smith.

One of the CU's two branches is located at a nearby Oregon Cutting Systems' plant, where 25% of its membership works.

In addition, "Our expectations were unrealistic, because of the technology infrastructure in members' homes," he explained. "We were expecting members to have Windows 98 or later and the latest version of Internet Explorer to use online banking. And members aren't willing to spend that much time on dial-up connections on their PCs."

Cutting Edge didn't give up, however. The CU sparked word-of-mouth advertising by getting member service representatives to talk to members about online banking.

"Credit union staff has to share the new technology with members," Smith said. "We generated a lot of enthusiasm from our members by spreading the word during one-on-one interaction through our MSRs at the teller counter. We set up our MSRs with swivel monitors to show members how easy it is to log in and use online banking on a demo account. And then we gave them a handout to supplement the conversation."

Though the CU supplemented word-of-mouth education with newsletters, flyers, and posters advertising online banking, print materials "depended on the member reading something" and therefore didn't seem as effective, he added.

Word-of-mouth is superior for a few reasons, Smith explained. "Members are much more willing to listen to one another than to read a bulletin board. If they experience technology through human interaction, it seems to stick with them better. They get more information in a shorter period of time. There's the voice inflection, there's an excitement."

During the three-month initial adoption period, "We counted on the word-of-mouth hype among members to help us build awareness of the ease and convenience of online banking," he continued.

'On The Right Track'

About 15% of Cutting Edge's membership signed up. "We knew we were on the right track when members would ask us when they could start accessing their account via the web."

Cutting Edge now has a respectable 20% of its membership signed up for online banking, he said. Part of the adoption increase was due to a merger with a smaller CU, whose members requested online banking access.

"Our adoption rate is about where we expect it to be, but we want it to be much higher," Smith added.

Additionally, Cutting Edge isn't yet able to measure active usage. "We are accurately measuring the number of transactions performed online and have noticed the number is steadily increasing. That means members are using it more and more. We just don't know if it is the same users who are using it more often or if we have more members trying it for the first or second time. Hopefully, a more accurate reporting method will emerge soon."

In hopes of increasing usage of e-services such as online banking and audio response, Cutting Edge Federal is considering supplementing the word-of-mouth approach.

"In August we introduced relationship pricing to drive us on a three- and five-year plan," Smith said. "We had to have electronic services in place before we implemented this relationship program. Members will make the choice of how they make transactions. If they want to walk into a branch, that price may be higher."

Other CUs are seeking similarly creative ways of persuading members to use e-services. Last month, 60,000-member Purdue Employees FCU, West Lafayette, Ind., announced it would build an online course to teach members how to use online banking and bill payment.

Smith said smaller CUs don't have the same opportunities. "A $24-million CU is not thinking the same way a larger CU is thinking. We don't have the ability to change markets as radically as other CUs."

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