Will Minnesota credit unions’ growth plan catch on elsewhere?
A new statewide partnership to help boost share of wallet at credit unions across Minnesota could serve as a template for other states.
The Minnesota Credit Union Network has partnered with ClickSwitch to make the company’s switch kit service available to any member institutions in order to automate the process of converting consumers’ direct deposits and automatic payments over to a credit union.
Minnesota is believed to be the first state credit union league to launch such a campaign. Credit union member growth has slowed in recent years and with deposits increasing and revenue falling, many institutions are looking for new ways to add to their rosters and boost revenue.
“Credit unions are likely to be up 20% in deposits this year and that’s creating some interesting issues for them with what’s going on with loan demand,” said Kris Jacobsen, director of business development at the league.
"This to us is a no-brainer: You’ve got all these folks with deposits coming in and there’s still this need to attract, maintain and create sticky relationships," he added. "What better time than now to look at the credit union’s indirect membership — for them to be able to take a look at all the memberships that don’t have direct deposit and put together a campaign to tell the credit union story and capture some of those folks?”
Switch kits increased in popularity at the beginning of the last decade when credit unions began to see a surge in membership in the wake of the Great Recession and lingering resentment against the big banks. But the process varied from institution to institution and was frequently paper-based. ClickSwitch’s process is automated and allows new members to work with credit union staff to quickly convert automatic credits and debits to their accounts. The company works with about 500 credit unions across the country.
While new memberships themselves aren’t necessarily profitable, becoming a consumer's primary financial institution can better position a credit union for future lending and noninterest income opportunities.
“When you think about the measurement for [primary financial institution status], that’s really based on the direct deposit,” said Tom Snyder, regional VP of sales for ClickSwitch. “If you get the direct deposit you’re about 50% of your way to capturing the rest of that relationship. If you have the direct deposit at the time of account opening … that new member is going to sign up for additional products much more quickly,” which helps with things like bringing in more interchange revenue.
Jacobsen indicated some CUs are likely to focus on using the service to increase relationships with members who have indirect auto loans through credit unions. At many institutions, indirect customers may have little to no interaction with the credit union beyond the car-buying process. In some cases, they are even unaware that they joined a credit union in order to get their car loan. A tool to help bring those members into the fold and get them more active with the credit union could help increase profitability.
North Shore Federal Credit Union, a $201 million-asset institution in Silver Bay, Minn., has been a ClickSwitch client since around the beginning of this year. CEO Cassie Ernest said the credit union has been able to become the primary financial institution for about 75% of new members since launching the product.
While it does use ClickSwitch for members who join via indirect loans, she observed that in many cases those members are the most difficult to convert.
“We built in required training [for member service representatives] and recorded this training from Day 1, so they were all required to participate,” she explained. “We provided them the language and the script and how to explain this process to our members. … [P]art of that is why we’re successful. But if you’re solely utilizing it for indirect and not necessarily for those that are coming in the door with the intent of opening an account, obviously your success rates would be less than what you would potentially have the ability to do.”
While talk of switch kits may have slowed in recent years, some industry observers say interest in them has not.
“What could the credit union want a consumer to do more than pick them as their primary financial institution? There’s basically nothing,” said Sam Brownell, founder and CEO of the consultancy CUCollaborate. He suggested that automating the process, similar to Amazon’s “buy now” button, might play in many credit unions’ favor.
Dennis Dollar, a credit union consultant and former chairman of the National Credit Union Administration, suggested that as consumers’ financial lives grow increasingly complex, the value of switch kits increases.
“It helps a credit union be able to convert the business of members with a greater usage of accounts and services at another financial institution,” he said via email. “If a member only has one service at another institution, you normally don't need a switch kit. However, if the member has multiple services, loans and deposit accounts, it is much harder to get them to switch to the credit union and bring all those services. That is the member that the switch kit is designed to target.”