Branch growth—could it be true?
That's likely because more are realizing that a more actively engaged member is more actively engaged across all channels. No doubt this is because members increasingly desire to bank on their own terms. They seek the convenience of researching, inquiring, transacting and exploring as they go about their day.
This new flexibility manifests in many ways to include: sitting on the couch with their tablet to review their spending and saving patterns, paying their electric bill while enjoying their favorite coffee shop or swinging by the branch on the way home from work even though it's past normal operating hours.
There is also evidence that credit unions are growing their loan portfolios at nearly double the rate of their bank counterparts. Wait, I thought the national banks were pretty much gobbling up the little guys, quickly making them obsolete?
Although the largest national banks continue to improve their share position, it's most often at the expense of community banks, not credit unions. Credit unions reversed a deposit growth trend by outpacing banks for the first time since the fourth quarter of 2013. Again, these data points don't necessarily indicate a complete turning of the tide but it does show that credit unions are remaining viable and growth-oriented in times of economic churn.
More than 15 years ago, when I started in financial services, it was all about achieving primary financial institution (PFI) status and driving acquisition, retention and growth. Given that the average household has eight to 12 financial relationships, there is a lot of wallet share being split across multiple FIs.
Yet we don't hear about PFI as much anymore and I recently reflected on the lack of meaningful discussion in the market on this topic. Is it passé? Does it lack the sizzle and buzz of things like geo-location and branch transformation?
On the contrary, I would argue these more popular topics still point back to the central theme of getting someone to engage the FI on a deeper level. Far too many credit unions have secondary status with their members. In our Digital Insight profitability studies, I've seen many credit unions with only 40% to 50% of their member base actively transacting with a checking account. Higher performing institutions achieve rates of greater than 65% as the member treats them as primary.
There is a host of reasons why a financial institution might fall into a secondary position. I believe the root causes result from legacy pushes for loan growth, child savings accounts and the improved ease of aggregating one's financial life.
On the loan growth side, many credit unions offer compelling loan rates that effectively hook new members. Unfortunately, many of those members never expand their financial relationship beyond the initial loan which means lost opportunity for the credit union.
We all have either been the direct beneficiary of or know friends or family members who have accounts opened for them by parents or grandparents. These most often manifest as child savings accounts which is a great way to teach children financial literacy. What too often happens, though, is that these children grow up and establish financial lives of their own, often untethered from that original savings account their grandparents started for them years ago. Meanwhile, the savings account continues on, slowly accruing interest but too rarely attracting other services.
Finally, there is the ubiquity of financial management tools. These tools provide an interactive way for people to set goals, observe spending patterns and visualize financial progress. There's another side-effect of these tools as well- they blur the lines of PFI.
Imagine an FI that has an inferior financial management offering. The consumer seeks a way to aggregate his accounts and view them in one location. It is common for them to do so at FIs that are not their traditional primary FI. Digital Insight data show that users of financial management tools are some of the most loyal and highly engaged. But if they are doing so through an FI (or non-FI) that is neither primary nor even secondary, it results in lost mindshare and lost relevance. So how does an FI recapture primary status?
The key to unlocking primary status is acquisition, account funding via direct deposit and attaching bill payment to the account. Once members do so, they will be more highly engaged with you providing you the opportunity to present them with relevant offers that will further grow their financial relationship. I know what you're thinking—this is obvious. Yet, with many credit unions having the majority of their members not treating them as their primary FI, it would seem that, while obvious, it is far from easy.
Perhaps step one in becoming top-of-mind to the member begins with going back to the roots of growth. Let's reinvigorate the focus around PFI and ensure that investments, processes and offerings carry the focus of securing or maintaining financial dominance in the wallet-share of the account holder. Sometimes, in the midst of cacophony of priorities, the best thing to do is take a walk down memory lane back to the basics.
Russell Lester is chief of staff for NCR Financial Services, parent company of Digital Insight, a provider of online and mobile banking solutions.
