Opening Remark & Building High-Impact Small Business Banking Programs Within Credit Unions

Credit unions often get overlooked as local "bit players" in the small business banking arena, but don't be fooled: Credit unions are quickly eyeing a high-touch, member-focused approach to serve their chartered communities. The keynote will cover how credit unions can build a small business unit with advanced segmentation, sophisticated cash management suite of products, segmented, geography-based portfolio management for high-value existing members, and a holistic approach to deepening the entire relationship by winning the main operating balances. The session will also explore investing in advanced technology for account opening, tiered credit risk-based pricing strategies based on individual members, and how to use vendors and third parties to round out member solution offerings to attract small business banking customers. 

Transcription:
Transcripts are generated using a combination of speech recognition software and human transcribers, and may contain errors. Please check the corresponding audio for the authoritative record.

Holly Sraeel (00:08):
How's everybody doing? God, the lighting in here is so bright. Okay. For those of you who are joining us for the first time this morning or who had a lot to drink last night and enjoyed our food and don't remember me, I'm Holly Sraeel. I'm the Senior Vice President of American Banker Live Media. Yesterday we had a robust day of dialogue, debate, and discussion, and we had some excellent peer-to-peer roundtable discussions. If you missed those, do attend them next year. Before we get going this morning, I'd like Chris Ward of TD Bank to join me on stage. We have something special on the agenda. Hurry up, buddy. We'd like to recognize Nick Miller, president of Clarity Advantage, who for more than 20 years has been our partner in producing this conference and has been an advocate for advancing small business banking in the industry.

Chris Ward (01:09):
I've known Nick for, gosh, I think over 20 years. Nick has been an absolute champion for the entire small business banking and small business segment space. He has been foundational to this conference for decades, and I consider him a close and very personal good friend. So I would ask all of us to stand up and give Nick—Nick, where are you? Right there. Give Nick a round of applause, please. Thank you, Nick. Thanks, Holly.

Holly Sraeel (01:39):
Thank you. Nick definitely has earned that recognition. All right, let's start today's terrific programming. Tom Sebok, Chief Commercial Banking Officer with Citadel Credit Union, is with us this morning. He's going to talk about building high-impact small business banking programs within credit unions. Please join me in welcoming Tom to the stage.

Thomas Sebok (02:05):
Thank you very much, Holly. And good morning, everybody. I'm pleased to be here with you to talk about some of the evolution happening in the small business arena in our industry. It's not just around commercial banks; it's happening very rapidly and at a high technological pace for the credit union industry as well. Today, here's a short agenda of what I'd like to talk a little bit about. First, today's credit union: we're going to define what makes us a little bit different today than what we've been in the past or what we seem to remember. We're going to talk about member segmentation; an opportunity to differentiate ourselves by how the credit union can be more local and tactical with the use of high-level technology.

(03:00):
Developing a cash management suite: we've heard this here already. Chris Ward's presentation yesterday was really fantastic. When you think at length about what was embedded in all of the dialogue, it is about the sophistication of payments and technology, but most importantly, fraud protection, which seems to be rampant across the industry. The next is geographic-based coverage.

(03:27):
Then effectively managing capital, which is a core component of being able to look for income, navigate interest rate compression, and create strong, lasting relationships. Leveraging limitations as an advantage: my mother used to say, "You've got to be able to make lemonade from lemons." In some cases where we have limitations as a credit union, we can play them as our advantage. This is what you'll see in the local markets surrounding you. Differentiating member experience—how do we make it a unique experience—and then attracting top talent to a credit union, which has historically been a challenge. One of the most paramount things often said at Citadel Credit Union among our senior leadership team is: this is not your grandparents' credit union.

(04:29):
When we think historically of credit unions, we think of passbook savings. We think of people who have an embedded front with knitting clubs, book clubs, small individual nonprofits, or sole proprietors. Today, the credit union space has evolved with strong economic, technological, and regulatory dimensions to be both technologically aggressive and member-focused on how we deliver in the communities where we work and live. You'll find that we have a member-centric approach today, focused on personalizing member experiences using data analytics and AI to tailor solutions and improve retention. Branch optimization is also a core function. As we all know, we're all trying to untether small businesses from the branch network in a way that allows them to have their banking relationship any way they'd like it.

(05:45):
But branch optimization has come to us in a way where we have taken an opportunity to look at how we deliver, not just in our branches, but how we deliver commercial banking and small business banking in the branch network as an added touchpoint for our overall member experience. Fintech partnerships are a big piece. In the past, in your mindset, you could see long teller lines, Social Security day check cashing, and people coming into institutions with large check deposits or leaving with large cash. Today, Fintech relationships have allowed us to become much more specific around how we supply solutions on a transaction basis through high-level cash management suite products, but also how we deliver credit in a way that's rapid, has better KYC controls, and delivers at a speed that is competitive with or even faster than a traditional commercial bank.

(07:03):
AI and personalizations: the use of AI delivers smarter, more personalized membership, including predictive financial advice and automated savings tools. Currently at Citadel, you can go to a chat on our website to begin a conversation. At any point that you feel you'd like additional information, you can press video conferencing and, during the appropriate hours, you'll get someone live in our headquarters to speak to you about your relationship. We talked about that a little bit yesterday when we discussed AI in our industry. It's about having the advantage of delivering a high-technology approach in the way they want it, while still being there in a personalized way. Our size, scope, charters, and member segmentation allow us to take that next level regarding personalization.

(08:05):
For those of you who may not have worked in a credit union, the major thread is that our role is to deliver for our members and the communities we're chartered within, not for shareholders. That's a completely different mindset than the way we go to business through the commercial banking space. I spent 25 years at multinationals and large organizations. When you start to think about how you can embed technology through events like digital giving, it allows credit unions to build an emotional connection with customers while they continue to embed themselves into the community for charitable donations and high engagement projects. It's a great way for us to differentiate ourselves and grow organizationally.

(09:06):
The last piece is around cybersecurity enhancements, which we're all going through as an industry at a very rapid pace. I wanted to put this up here to think about what's available to our customers. When I say customers, I mean on the commercial space, and when I say members, I'm talking about our credit union members. The financial solutions available look almost linear or, in some ways, even enhanced compared to what you can offer to commercial small business and branch-based customers. At Citadel, we segment our customer base in three spaces. The first is small business, which is branch-based business banking. Business banking is the core and backbone of our business, defined around $1 million to $10 million in annual sales.

(10:04):
Then our commercial space includes customers up to and over $100 million in total annual sales. What you'll find is that the suite of products available are very similar to what you'd find in a commercial bank. These attributes allow a credit union to continue to build, attract talent, and grow their member base. SBA is a core component, alongside the entire gamut of lending, merchant services—which is a huge part of transaction business tied into receivables management—payroll integrations with integrated HR solutions, and remote deposit and digital banking options.

(11:02):
Lastly, there are opportunities in the specialized space with extended insurance coverage, nonprofit accounts, and yes, cannabis banking as well. Member segmentation is an interesting component. For someone who spent so much of my career chasing sales revenue to define the customer base, this is an opportunity to look at it in a different arena. That arena is broken out in five specific ways: the attribute-based segment defines the business through geographic location, life cycle, industry type, and business size. We also add a behavioral segment built around product usage, transaction volume, digital engagement, and branch visit frequency versus remote options.

(12:12):
Profitability is always going to be a core component. The goal is always to retain, expand, and acquire new members in a profitable segment, looking at deposit and loan performance and cross-sell potential. A component that defines us in giving back to the community is the psychological and lifestyle segment, defined by values and motivations. When we go to market, we do so through the thread of both our community partners and our members. That may sound like mumbo jumbo, but it really is what defines a credit union as a differentiating factor. Those values and motivations are a core component, along with communication styles and branch channel optimization.

(13:29):
This ties back to the dialogue from yesterday regarding developing a cash management suite. For credit unions today, it's table stakes to be able to go to a customer's place of business and talk to them about financial solutions to grow their business. Many of us started our careers lending to defend deposits. In today's arena, when you think about fraud exposure, cyberattacks, speed of payments, and the ability to slow down payables while speeding up receivables, cash management becomes the absolute core necessity for a small business owner. It allows them to make a decision on where they park their relationship.

(14:35):
You've really got to frame up your organization's goals. Step one is enhancing the member experience for business clients. It's an opportunity to think about what you want to deliver and what product takes are necessary to help a business operate with greater efficiency. The second goal is increasing non-interest income. A cash management suite is not just a way to protect low-cost deposits in operating accounts; it's an opportunity to take advantage of recurring fee income and create a stickier relationship.

(15:40):
The third goal is improving liquidity and cash flow visibility. This is where we're making a real change, talking to members about reducing their cash conversion cycle. Showing them that these digital products will enhance their ability to manage and consolidate their relationships is a newer approach for credit unions. Lastly, we offer competitive treasury services. Citadel is a larger credit union and we are heavily involved in expanding our cash management suite. We are literally a week away from a huge product launch we've undertaken for the past five or six months.

(16:35):
I broke down the core components of key offerings: payments and transfers, receivables, liquidity and sweeps, fraud protection, and reporting and analytics. In the payment space, this includes ACH origination, wire transfers, and defining what the real-time payment space looks like for you, such as FedNow. Customers are beginning to expect that as table stakes, along with bill pay integration. Receivables management is key because collecting money is a core component of keeping cash flow fluid. Remote deposit capture, lockbox services, and integrated invoicing are all part of the way forward.

(17:36):
When we think about liquidity and sweeps, credit unions have sophisticated ways of leveraging cash management and deposit accounts together. Fraud prevention and security is an investment that will bite you if you don't make it. Credit unions are investing major stakes here. Regulatory reform states that if you don't give members the opportunity to protect themselves from check and ACH fraud, it creates liability for the institution.

(18:50):
I think you're going to see a rush of folks moving in this direction; it will become a core component for all business members. Regarding reporting and analytics, integrating swiftly with QuickBooks and creating cash flow forecasting tools through customized dashboards differentiates the experience. It's no longer the institution where you just get a lollipop or a dog biscuit when you visit. It becomes an institution that provides sophisticated solutions. Whether you have 300,000 employees or are an 800-employee credit union, geographic-based coverage is a core component to being both efficient and local.

(20:08):
For us, this can become an added advantage by looking at regional and segmented prioritization. We take an opportunity to create specific verticals within our relationship management strategy to service communities and provide solutions. Local relationship management is a game we've all tried to be in for a hundred years. For us in the credit union space, specifically with geographic limitations, you've got to deliver a differentiating in-person experience combined with electronic chat or video conferencing for convenience.

(21:26):
This allows us to have localized expertise, community presence, and assigned customers. We also use regionalized product customization. When we think about localized lending, we can get after local grant programs, economic development corps, and SBA loan service providers to make it all about a local network. Effectively managing capital is also critical. For years, community banking and credit union lending happened in investment real estate where commercial banks wouldn't play. Today, we're all after the same thing: providing solutions, consolidating relationships, and acquiring more operating balances.

(22:35):
Smaller credit unions may have to be very thrifty in how they manage capital using strategic planning. The best credit unions today use a sharp liquidity and funding strategy with high regulatory oversight. SBA is a backbone because keeping the loan for the long term or selling it provides options. In the past, most credit unions hadn't been preferred 7(a) or 504 lenders, but today that is becoming an active component.

(23:58):
Differentiating the member experience comes from dedicated business member services, tailored financial products, digital enhancements, and community-centric branding. I previously worked for an organization that did a national podcast that felt "scripted." You could tell the people weren't in the same room; it sounded like a product commercial with more disclosures than dialogue. To become community-centric, you should create member spotlights and platforms for networking.

(25:04):
At Citadel, we developed a podcast where members talk about their business challenges. Our most recent podcast reached almost 60,000 people. Community-centric branding isn't just a tent at a local event; it's about providing a community platform. Advisory and value-added services are a huge piece, and tailored solutions allow us to be flexible. Understanding how to leverage limitations can make a credit union a superior choice.

(26:20):
Smaller scale creates an expectation of personalized service. "Sundown rules" don't define us; it's about knowing your member in a completely different way. While we have fewer branches, we have high-level staff capable of creating a high-touch environment. Limited product suites allow for geographic specialization. For example, a lot of people don't know the NCUA doesn't allow us to charge prepayment penalties on term loans and commercial mortgages.

(27:27):
When you go to a term sheet with a member and show them where our limitations become a benefit for them, it creates a differentiating factor. The non-profit model is about providing services to members, not just fee income for shareholders. Finally, attracting top talent is about the brand you create. In the words of Bill Walsh, the score will take care of itself. We use a strong marketing approach to keep our communities aware of what we're doing.

(29:31):
We get phone calls asking, "What the heck are you guys doing over there?" That buzz attracts talent. A purpose-driven culture with career growth is a big piece. Since we can't issue equity, our compensation strategies must be flexible and extraordinarily competitive. Showcasing success stories allows the credit union community to celebrate together. I've spent 26 years in the commercial arena and one year in the credit union space, and I've seen how institutions come together to help one another because we are non-profits at the end of the day.

(30:39):
That is the totality of my presentation. I want to convey that your grandparents' credit union is not the place we are evolving to today. Regulatory changes are allowing us to take a sophisticated approach to solutions. It's been an absolute pleasure to be here with you today. I'm proud to represent the credit union space here at American Banker. If you have any questions, I'd be happy to take them. If not, we can give back 56 seconds. All right, everybody.