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the member ISSUe OCTOBER 2012 VOLUME 7 ISSUE 10 9.95 Under the hood Member Loyalty Great Job Candidates Ask Great Questions Women in Leadership Does Culture Matter The Western Corporate Federal Credit Union Experience CONTENTS Credit Union BUsiness OCTOBEr 2012 V O L U M E 7 I S S U E 10 4 6 8 pov introducing Tim O Hara 23 Cfo CUrrenCy A Word About Kevin Lytle AChIevInG SkILLS Holly Herman member LoyALty Treasury inflation-Protected securities (TiPs) A newly Approved investment Emily Hollis pLAnnInG Great Job Candidates Ask Great Questions Member Loyalty Kevin Lytle 28 30 effective Board Decision-Making A Multi-Faceted Approach Donald H. Curristan CU Content The Western Corporate Federal Credit Union experience 14 19 21 successful new Member Campaign Uses Humor... and a Whole Lot of Listening Background of a successful campaign Laura Enock prodUCt ShoWCASe debIt mAtterS Debit Matters Suzanne Savage Growing Card Based Revenue with Mobile bUSIneSS AnALySIS Ken Schroeder LeAderShIp 32 34 CUsO to Offer Google Wallet to Credit Unions mArketInG mAtterS The Case for Resurrecting Fly Paper Women in Leadership Does Culture Matter Dr. Sandra L. Torres High Performance Tony Rizzo Four Case studies That Can Help You increase Volume and Member Participation in 100 Days 40 CU SpotLIte Pack Your Bags Sharon Sweda shawnee TVA employees Credit Union Offering Low-interest Vacation Loans October 2012 Credit Union BUSINESS 1 ABOUT US Publishing Team Tim O Hara Publisher tim Joyce Moed Managing editor joyce Iliana Nord Operations Manager iliana Patti Manzone Designer Homer Marshman Operations Manager THE MEMBER ISSUE OCTOBER 2012 VOLUME 7 ISSUE 10 9.95 UNDER THE HOOD Member Loyalty Great Job Candidates Ask Great Questions Women in Leadership Does Culture Matter The Western Corporate Federal Credit Union Experience Staff Writers Holly Herman Achieving Skills Emily Hollis CFO Currency Sharon Sweda CU SpotLite Subscriptions Credit Union BUSINESS is published monthly (12 issues per year) by CU Business Magazine inc. A one-year subscription costs 89. An online subscription form is available at Contributors Donald H. Curristan Laura Enock Ondine Irving Kevin Lytle Tony Rizzo Ken Schroeder Dr. Sandra L. Torres Contact Information Credit Union BUsiness Magazine P.O. Box 2223 Palm Beach FL 33480 (561) 282-6015 (561) 588-7711 (fax) info Sales and Advertising Bernie Fitzgerald Advertising executive Bernie or 561-282-6015 1 Greg Halpern Advertising services Manager Greg or 561-282-6015 4 2 Credit Union BUSINESS October 2012 BENEFIT FOCUS We Specialize in Executive Benefits for Credit Unions In today s environment of ever-changing regulations your organization needs someone entirely dedicated to your industry. We understand your needs better than anyone and no one is better equipped to help you develop implement and administrate executive benefit plans that will attract and retain the most talented executives and directors. You can be confident knowing we have designed your plan to be compliant from the moment we put it in place and will work to make sure it remains compliant for its entire life. Let us show you how our focus will benefit your Credit Union. FROM OUR 888-494-8911 tyler FROM TIM T Publisher s POV Here is a terrific quote from the site We often hear people say our product is a commodity or price is all that matters in our category or all of the viable positions in our market have been taken. Don t let anyone convince you that your brand can not be differentiated. After all chicken bananas vodka and even water have been differentiated. Perfect i ve invited Kevin to become a contributor to CU BUSINESS so you can look forward to many more good ideas coming your way Thanks for reading his month s cover story Member Loyalty The Western Corporate Federal Credit Union experience examines how the largest and most successful corporate credit union that ever existed met its demise. its author Kevin Lytle was a senior marketing executive at Wescorp for many years and he was a member of the team that worked very hard to try to save it. He watched it up close and very personal. Kevin takes a hard look at the final two years and the efforts to educate its member credit unions and the ultimate failure of raising sufficient funds to re-launch as United Resources FCU. Lessons learned from the failure of Wescorp according to Kevin Lytle 1. Member trust is sacred. 2. All members want to be understood. 3. Member intentions and behaviors can diverge. 4. Management and staff must agree on the value proposition to be delivered. 5. Use member education to retain members. 6. Educate members on the co-operative principles it matters. As he suggests these points are well taken for any BUsiness i first met Kevin when he was a marketing executive at Liberty Check Printers in Minnetonka Mn prior to his move to Wescorp. and throughout the years i ve always enjoyed his insights. He s a real sharp guy Utilizing his years of experience in credit union successes Kevin has launched a new web-based service to credit unions Member Allegiance LLC which ...provides profitable strategies that retain and grow members by focusing on the principles and values that develop trust and loyalty. Get it for the entire executive team subscription 4 Credit Union BUSINESS October 2012 AChIEVING SkILLS Great Job Candidates Ask Great Questions C By Holly Herman urrently i have several clients that are looking for new opportunities. Most are looking around because they don t like working for whom they are working. When they do leave their jobs most likely their supervisor will attribute their leaving to a multitude of other factors completely leaving off the most important factor how they managed. This article is dedicated to those in search of the opportunity. inc. Online had an article about the five questions great job candidates ask. i ve doctored it up a bit with my own spin. Candidates many times ask questions to make themselves look smart and really don t care about the answers. i ll give you a clue the person interviewing you knows this and is not impressed. Great candidates ask questions they want answered because they re evaluating the interviewer the company and whether they really want to work there. This shows confidence and maturity contrasted with neediness and manipulation. Here are six questions great candidates ask What do you expect me to accomplish in the first 60 to 90 days Great candidates want to hit the ground running. They don t want to spend weeks or months getting to know the organization. They want to make a difference right away. What are a few things that really drive results for the company employees are investments and every employee should generate a positive return on his or her salary. Great candidates want to know what truly makes a difference. They know helping the company succeed means they succeed as well. What do employees do in their spare time Happy employees like what they do and like the people with whom they work. This can be a tough question to answer. What s important is that the candidate wants to make sure they have a reasonable chance of fitting in because great job candidates usually have options. How do you plan to deal with ... every business faces a major challenge. A great candidate doesn t just want to know what you think they want to know what you plan to do and how they will fit into those plans. What are the common attributes of your top performers Great candidates also want to be great long-term employees. every organization is different and so are the key qualities of top performers in those organizations. Great candidates want to know because they want to know if they fit and if they do fit they want to be a top performer. 6 Credit Union BUSINESS October 2012 AChIEVING SkILLS What do you like best about working here This question can build a relationship. Watch the body language and the words the interviewer uses for their answer. You can learn a lot by evaluating their answer. if they don t like working at the organization what chance do you have. Holly Herman is a former CEO of two credit unions Chief of Staff for National Credit Union Administration Chairman Johnson and currently an Achievement Coach helping individuals and organizations. She can be found at www. or contact her at Holly CEO SUBSCRIPTION WItH BENEfItS Benefit your CFO COO CMO CCO CLO CIO HRD With frEE Monthly E-Newsletters Subscribe NOW October 2012 Credit Union BUSINESS 7 MEMBEr LOyALTy Member Loyalty The Western Corporate Federal Credit Union Experience By Kevin Lytle Executive Summary in september 2011 WesCorp (Western Bridge Corporate FCU) announced it fell short of the 200 million in new member capital it needed to re-launch as United Resources FCU. Although more than 320 credit unions had submitted the necessary commitment and raised almost 90 million in new capital the amount fell short of the goal and the nCUA initiated a bidding process to transition the member contracts and services to another corporate credit union. Catalyst Corporate FCU was ultimately selected to purchase and assume WesCorp assets. Catalyst launched its own capital campaign to attract former WesCorp member credit unions and ultimately gained an additional 297 credit unions and raised almost 50 million in capital. By July 1 2012 WesCorp had transferred all of the payment processing investments lines of credit services to Catalyst Corporate. As of July 6 WesCorp was liquidated ending more than 40 years of service to credit unions. When it comes to learning important lessons there is much that can be learned from the WesCorp experience. There are lessons about investment concentration risk balance sheet management the negative impact of hubris on decision-making the unbridled power of regulators and the ultimate price to be paid when members trust is betrayed. The following is a marketing view of what WesCorp knew about its members and the environment within which it competed. it is a view of WesCorp s efforts to differentiate itself in the credit union market to develop stronger relationships with its members in order to grow larger. The following lessons learned from the WesCorp experience can be applied not only to other corporate credit unions 8 Credit Union BUSINESS CUsOs and natural person credit unions but to the success of any business. 1. 2. 3. 4. 5. 6. Member trust is sacred. All members want to be understood. Member intentions and behaviors can diverge. Management and staff must agree on the value proposition to be delivered. Use member education to retain members. educate members on the co-operative principles it matters. Lessons Learned Based on the results of its member loyalty benchmark survey in 2008 WesCorp learned the pilot group of more than 200 member credit unions felt positive about WesCorp and held a high level of trust and loyalty. in the end WesCorp lost its members trust. The members relied on WesCorp to understand the market risks and take the appropriate steps to mitigate those risks in order to protect their interests and capital. it didn t. And when it came time for members to invest new capital and re-launch WesCorp they didn t. The feelings of betrayal and mistrust remained in the hearts and minds of too many credit union managers and board members. shortly after it was placed under conservatorship by nCUA in March 2009 WesCorp embarked on an aggressive communications campaign that included the extensive use of the member online communication web site regular email communications phone calls from relationship managers and management a series of town hall meetings in more than 30 locations and October 2012 WITH C d t U all s s t CU24 Th la g st ati al dt d PIN d b t t k gv s sav a d p t h ad t h ad th th ba k g d st y Th y a th ss th p ativ sp t DO Alv J C a s CCUE MORE FOR THE CREDIT UNION COMMUNITY P s d t CEO M C y F d al C d t U O la d FL MORE th CU Call Judy Lazzerini toll-free email visit MORE OUR MEMBERS GET MEMBEr LOyALTy monthly webcasts. it was not enough to fully understand the deep level of hurt and anger the credit union board members and management felt toward WesCorp. Prior to being placed under conservatorship WesCorp did not have a member-run advisory group other than its Board of Directors and supervisory Committee. Although WesCorp did periodically use formal written surveys it did not have a consistent program to informally solicit continuous feedback from its members. Relying on individual phone calls and hallway conversations with members was not sufficient to understand the attitudes and feelings of the members WesCorp did not hear from. Although a channel of continuous member feedback would have been valuable it would not have addressed the underlying dilemma. The dilemma was the fact that while the management of the credit union (in many cases) may have supported the recapitalization of WesCorp they were unwilling to risk their jobs in the event WesCorp had future losses. The underlying problem faced by CeOs and CFOs who wanted WesCorp to survive was that they were dealing with a board that did not understand the broader credit union structure. Many credit union board members simply did not understand the importance of the second tier of financial services corporate credit unions provided. Many board members and some CeOs believed a corporate credit union was the same as any other payment processing and investment vendor. Throughout many years as WesCorp grew in assets and membership it began to focus its communication on a select few key credit union managers primarily the CeO CFO and COO. Very little education was created and offered to board members regarding the role of the corporate network. More education would have been crucial for board members to better understand the reason corporate credit unions were created and how their existence actually saved many hundreds of credit unions from going out of business by taking on market risk. There is historic evidence in the credit union movement to support the fact that as credit unions grow larger and the membership changes over time they find it difficult to expect the members to maintain their loyalty in terms other than economic. The importance of the underlying cooperative principles are overlooked or ignored by both the credit union and the member. The decrease in consumer confidence brought about by the global economic recession has had an impact on their feelings of loyalty toward other financial institutions including credit unions. When credit union leaders find it difficult to communicate the credit union difference to its members it is more difficult for them to justify expressing increased loyalty toward corporate credit unions including WesCorp. Background Western Corporate Federal Credit Union (WesCorp) was at one point in history the largest corporate credit union in the United states with almost 35 billion in assets and over 1 100 credit union members. During its 40-year history WesCorp established a reputation for providing members with high quality products and services. The product portfolio included a full range of payment services such as check clearing check collection check safekeeping deposit lockbox processing ACH processing wire transfers and corporate checking services. WesCorp also served its members by providing loans for periods when the credit union needed additional funds to meet loan demand from its members and with investment options such as certificate of deposits for times when the credit union experienced lower loan demand and needed to generate interest income on member deposits. in total WesCorp offered 35 products and services to its members. in addition to these products WesCorp offered an extensive catalog of education opportunities for its members in the areas of asset liability management balance sheet management investment portfolio strategy and payment systems management. These education sessions were available to members through five annual conferences (including the annual meeting) and more than 30 free web-based seminars. All totaled more than 9 000 credit union employees attended one or more WesCorp education events throughout the year. WesCorp understood the importance of developing deeper relationships with all of its members by anticipating their needs and match WesCorp products services and education sessions to fulfill those needs. Through an extensive internal analysis of member relationships it had learned that only nine of its 1 100 credit union members use more than 20 of 35 product and service offerings. it also learned that while more than 9 000 credit union employees attended one or more of its web-based education sessions there were several hundred credit unions that did 10 Credit Union BUSINESS October 2012 Short Bio for Kevin Lytle Kevin Lytle is president Member Allegiance a consulting company specializing in increasing member loyalty and profitability by focusing on the unique business principles that differentiate co-operatives and credit unions from the competition. He has led the marketing efforts for WesCorp CUNA Liberty MEMBEr LOyALTy not participate in these free webcasts and on average less Check Printers or friend and several questionscan be reach to level of than league and Travelers Express Co. Kevin pertaining at kevinlytle1 to as driver questions. 200 credit unions were represented at WesCorp s annual meet- service referredor 909-837-8634. WesCorp s top accounts net Promoter score is 64 percent. ing. Based on the results from several member surveys and fo- According to the experts at satmetrix this score is in the top cus group interviews in 2006 WesCorp learned that some mem- quartile of B2B scores. Overall response rate is 20 percent of bers in all asset sizes felt WesCorp did not work hard enough which half are C-level executives (CeO CFO COO etc.) sevto develop deeper relationships with them. some of the smaller credit unions felt WesCorp spent more Net P romoter S core C ompares Well to O ther B 2B S cores resources developing products and services primarily for the larger members and the larger size members felt WesCorp did not spend enough time getting to know their specific needs before offering product solutions. in August 2008 just prior to the most significant period of the Great Recession WesCorp surveyed its top 200 members in terms of total deposits to measure the level of loyalty they felt toward WesCorp. At that time credit union managers and boards were facing difficult financial challenges. Their profits were declining and were looking for any opportunity to generate more revenue from the investments they made enty member CUs are Promoters and seven are categorized with WesCorp. WesCorp made the decision to seek the highest as Detractors. paying securities with an acceptable level of risk compared to other investment alternatives. WesCorp scored higher with members who consider WeThe decision was based on WesCorp s strategic plan to ex- sCorp a strategic partner as opposed to a solutions provider pand its presence in the east and create opportunities to merge or vendor. with smaller corporate credit unions to expand its market footWesCorp learned that its members most frequently cite print and share of market in investment dollars and payment ease of doing business investment yield and safety and processing. in order to be successful WesCorp needed to grow soundness as most highly correlated performance elements to assets and in order to maintain acceptable capital ratios it higher levels of satisfaction. needed to generate appropriate retained earnings. in addition the survey included a question that asked the respondent to indicate which cooperative principles influenced their decision to do business with WesCorp. The respondent was WesCorp s Member Loyalty Survey in 2008 WesCorp launched its own member loyalty survey using instructed to select from a list of five principles they could sethe net Promoter score format. The pilot phase included more lect all that applied. They also had the opportunity to add their than 800 contacts from 250 of its largest depositors including own comments in the space provided. Considering WesCorp s cooperative business model which small medium and large asset credit unions. The survey was delivered on July 29 2008 and members of the following principles influenced your decision to do busihad until Aug. 12 2008 to respond. The purpose of the survey ness with WesCorp (select all that apply) was to obtain input about WesCorp investments Payment sys Democratic control one member one vote tems and Relationship Managers. Members are also owners The survey questionnaire included 15 questions one question was How likely are you to recommend WesCorp to a colAverage B2B NPS Performance Average B2B 9.8% American Express (B2B) 51.6% -100% -50% 0 50% 100% Average B2B Financial Services 13.1% WesCorp 63.8% 25 Data from the Satmetrix Net Promoter Database October 2007 Wave October 2012 Credit Union BUSINESS 11 MEMBEr LOyALTy Access to education and training support for the credit union movement support for the development of local communities Other (Please specify) text box how WesCorp can apply them in its daily decision-making. eighty percent of the respondents selected four or more principles. The cooperative principle selected most frequently (90 percent) was Democratic control one member one vote. Access to education and training was next at 80 percent members are also owners and support for the development of local comCooperative Principles Selected 4 responses 5 responses 3 responses 2 responses 1 response Cooperative Principle Democratic control one member one vote Access to education and training Members are also owners Support for the development of local communities Support for the credit union movement Other NPS 82.4% 80.0% 78.1% 63.9% 48.7% NPS 89.7% 79.7% 75.6% 75.0% 68.3% 42.9% This education program would have ended with an internal certificate which designated the employee has successfully completed the basic understanding of the principles and values of co-operatives and credit unions. The expectation was for WesCorp employees to learn about the larger co-operative movement and see how WesCorp members are one aspect of a larger co-operative picture then they will recognize WesCorp s mission and see how their jobs related to it. The fundamental understanding of co-operative values and principles will lead employees to begin to look for ways to reflect the needs of the membership. This will lead to a greater interest among employees in member participation in the governance of WesCorp. The first and most important lesson is the understanding that co-operative principles and values must live within each co-operative before one can expect to bring about the larger goal of a co-operative economy. munities was selected 75 percent of the time. support for the credit union movement was selected 68 percent of the time. As of 2009 the nation s top 2 000 credit unions had term init is interesting to note that even in a second tier financial servestments totaling 124 billion. An estimated 34 billion were vices cooperative democratic control is still highly valued. invested in corporate credit unions resulting in a market share of 27 percent. This means approximately 90 billion in term Co-operative Development and WesCorp in 2002 WesCorp s first fulltime CeO retired. His departure investments are with other financial institutions and brokers. has left some employees questioning their purpose within We- Total term investments include dollars in U.s. government oblisCorp s mission and WesCorp s larger purpose within the credit gations federal agency securities and mutual funds. in an effort to determine what it would take to capture a union movement. The first significant contribution to co-operatives begins greater share of the 90 billion the Corporate Marketing Forum with WesCorp continuous education of its employees. WesCorp task force the Association of Corporate Credit Unions (ACCU) and U.s. Central coordinated a Web survey to better understand employees needed to be educated on the drivers behind credit unions investment decisions. The survey targeted the top 2 000 credit unions and was co-operative values and principles designed with the following goals how credit unions apply those principles and values and Credit Union Use and Satisfaction with Corporate Credit Unions 12 Credit Union BUSINESS October 2012 MEMBEr LOyALTy of responses elicited the following themes. Recap of Communication Findings from Benchmark Study Broker Attributes 1. Investment expertise 2. Knowledge of CU business 3. Competitive rates Corporate CU Attributes 1. Competitive rates 2. Ease of doing business 3. Safety and Soundness Member Understanding i want an investment partner who understands my investment philosophy and the types of investments we purchase. identify attributes credit unions value most when choosing an investment partner. Compare satisfaction among investment partners on a variety of attributes. Understand the reasons credit unions choose to invest their term investments in corporate credit unions. identify key barriers that prevent credit unions from investing more of their term investments in corporate credit unions. Expertise i want an investment partner who has a good understanding of my portfolio objectives knowledge of our balance sheet structure and ALM strategies. i also want them to have a broad knowledge of investment products and permissible credit union products. Strategic i want someone who will understand the complete balance sheet implications of a trade idea and the need for investments to compliment the asset mix. 11 Consultative i want an investment partner who provides continuous education and who wants to be a long-term partner of our credit union. They are not in it just for the sale. They understand the ALM position and needs of our credit union and integrate investment strategies to address them. trustworthy i want someone who is not pushy but who looks out for the best interests of our credit union s objectives when making a recommendation for an investment purchase. A total of 504 credit unions completed the survey 353 credit unions with less than 50 percent of their term investments in corporates and 151 credit unions with 50 percent or more of their term investments with corporate credit unions for an overall response rate of 25.2 percent. Corporate credit unions are close to credit unions image of an ideal investment partner. Credit unions are well informed regarding investment products from corporates. Overall credit unions are satisfied with corporates in providing term investment products that meet their current investment objectives. What does it take to be a credit union s ideal investment partner Credit unions were asked an open-ended question and analysis Relationship Hierarchy October 2012 Credit Union BUSINESS 13 UNDEr ThE hOOD MEMBEr LOyALTy Overall credit unions think corporate credit unions more closely resemble their perceptions of an ideal investment partner (5.2 for corporates compared with 4.7 for brokers and 2.2 for banks s&Ls). However this advantage fades somewhat as credit union asset size increases. alright but it did not have a one size fits all approach as did most of the other Corporates. WesCorp tailor made the product to meet the different needs of different sized credit unions with varying degrees of expertise and technical knowledge. For that reason most of the individual products and services were not money makers-didn t pay for themselves. Of course thanks to the steady growth of its credit union members WesCorp s investment income was great enough to carry the load. WesCorp practiced what many credit unions struggle with subsidizing one product with profits from another. All for what is referred to as the greater good for members. WesCorp leadership believed that providing good efficient cost effective service was all it needed to maintain retain member loyalty. in addition WesCorp spent a significant amount of time expertise and expense providing education to the management and employees of member credit unions. These efforts did not payoff at the Board level. WesCorp s biggest failure was ignoring the board members when creating and delivering education to member credit unions. By failing to develop relationships with credit union board members WesCorp did not have a high level of trust and confidence upon which to draw when the member s capital was lost. And ultimately that was the primary reason WesCorp failed in its efforts to raise sufficient capital to continue as a separate corporate credit union. Kevin Lytle is president Member Allegiance a consulting company specializing in increasing member loyalty and profitability by focusing on the unique business principles that differentiate co-operatives and credit unions from the competition. He has led the marketing efforts for WesCorp CUNA Liberty Check Printers and Travelers Express Co. Kevin can be reach at kevinlytle1 or 909-837-8634. Relationship Hierarchy The overarching corporate objective is to create opportunities to deepen WesCorp relationships with its members. The relationship hierarchy pyramid below depicts the stages of financial services relationships between consumers and financial institutions. As a financial services cooperative owned by its members WesCorp strives to create a stage 5 relationship with all of its members. At this stage members will look to WesCorp for honest advice and counsel that is in the best interest of each member even if it does not benefit WesCorp. stages 1-4 are necessary steps in the progression to stage five. A consumer (or a credit union decision-maker) must be satisfied in each stage of the relationship before moving to the next higher stage. Conclusion For more than 40 years WesCorp attempted to serve its members with competitively priced products and services and a desire to serve all members with the highest level of service possible without regard to whether or not each product was paying its own way. in hindsight this combination does not represent a good business model. That is to say WesCorp did not create a product or service and tell its members here it is and here are the rules for using the product or service. WesCorp created new products 14 Credit Union BUSINESS October 2012 DEBIT MATTErS Debit Matters Growing Card Based revenue with Mobile C By Suzanne Savage hances are your credit union doesn t offer a mobile wallet but that won t stop you from earning revenue on mobile payments. in this month s column we take a look at how mobile payments can be used to grow card-based revenues from all the plastic issued by the credit union debit credit and prepaid. Mobile payments are currently a small portion of total card based payments but will grow rapidly as device usage escalates and companies find more ways to leverage mobile devices for commerce. We have to stop to consider the contributions of steve Jobs and Apple to the accelerating pace of consumer technology adoption. The iPod iPhone and iPad devices with simple userfriendly features have revolutionized the way consumers interact with technology and have changed the way device makers and application developers deliver new products. We no longer need instruction manuals for feature rich devices. everything is user friendly and intuitive even point and click has been replaced with a functioning finger. Who knew thumb dexterity would be so useful Consider the growth in mobile device ownership shown in the annual survey published by the Pew Research Center. Laptops and tablets are displacing desktop computers and ownership of the single use MP3 player is already on the decline. even the title in this graph is noteworthy. We used to refer to our devices as gadgets the cool in thing used to impress our friends. now our electronic devices are life and work necessities. cell phones and cell phone plans than ever before while cutting back on other items like dining out entertainment and clothing. Shifts in Product and Service Delivery Growing device usage heavily impacts the entire banking industry. Remember the days when we were in control of the products and services we delivered When we thought we knew what was best for members The consumerization of technology is evolving credit union thinking about service delivery. Consider the rapid adoption of social media smartphones and tablet computers. The rapid growth in these new ways to communicate and conduct transactions is driving many new member facing product features like mobile alerts remote check deposit and sMs text banking. Credit unions are deploying mobile capabilities that increase availability of credit union services on a greater number of devices. The bring your own device world requires credit unions to expend more resources to ensure application Credit Union BUSINESS 15 Consumer Device Dependence We are tethered to our mobile devices like never before and consumer appetite for additional functionality does not appear to be waning. And we don t seem to mind that these mobile devices consume a larger share of disposable income. statistics from the Labor Department show that consumers are spending more on October 2012 DEBIT MATTErS providers have attempted to partner with financial institutions through e-wallet licensing agreements most have abandoned that model in favor of indifference to the holder of the funds. Mobile wallet providers have opted to leverage the existing payments infrastructure owned by the major networks (MC VisA AMeX and Discover) as well as the ACH system. There are a number of reasons why the technology companies use the traditional payments infrastructure. First the networks facilitate the connections between merchants and card issuers. The networks provide a settlement vehicle to move funds between the parties and have established dispute processes. second the payment transaction is not the primary generator of revenue for the mobile wallet providers. Their revenue stream comes from advertising loyalty and coupon programs. For most mobile wallet providers merchants bear the cost burden first in advertising costs and second in interchange on the payment transaction. There are two forms of loyalty when it comes to mobile wallets. One comes from the programs developed by the mobile wallet providers and their merchant partners. This is about brand or product loyalty. And the second one comes from the loyalty to an underlying payment card used for purchases. compatibility with a growing number of remote devices. The definition of mobile is also evolving. Mobile is no longer a product to be implemented and checked off a list. savvy credit unions now view mobile as the predominant delivery channel the access method most preferred by members for interaction with the credit union. As more complex functionality is delivered through the remote channels the greater our ability to provide 24 hour self-service banking. Mobile Wallet Providers To date our expansion of the mobile channel provides better service delivery and member retention through ease of use but has done little to contribute revenue to the bottom line. The growth in mobile commerce creates the first meaningful opportunity to generate revenue as members access their accounts to make mobile purchases. Technology companies not financial institutions are making the innovative strides in mobile commerce. Google Wallet and PayPal dominate the fractured market for mobile wallets with many other companies experimenting in various pilot programs around the country. isis a partnership of the major telecommunications carriers is starting a pilot program this fall and all eyes are on Apple s Passbook to watch for clues to the giant market maker s strategy. even though some mobile wallet 16 Credit Union BUSINESS Mobile Payments and Revenues The good news for credit unions is that mobile purchase transactions come from existing cards and ACH. The dollar value of mobile payments is expected to grow rapidly as consumers continue to adopt new applications on remote devices and merchants find value in the coupon and loyalty aspects of mobile wallets. Gartner projects annual sales on mobile devices to be more than 600 billion by 2016. Because the mobile payments are primarily tied to traditional card based payments revenue comes from card not present (CnP) interchange. CnP represents one of the highest interchange revenue categories. As mobile payments displace card-based payments over time the shift in transaction type to CnP will earn credit unions greater interchange revenues under the current business models. At this point in the evolution of the October 2012 DEBIT MATTErS Credit unions will have the ability to participate directly in mobile wallet only the card issuer stands to earn income from the payment transaction leaving the wallet providers to look for mobile payments through programs offered by MasterCard and revenues elsewhere namely advertising merchant loyalty and VisA. MasterCard s PayPass wallet and VisA s wallet allow credit unions to offer mobile wallets to members and provide coupon programs. the best opportunity for top of wallet placement of the credit Credit Union Disintermediation union card. The trusted brand names of these networks coupled With these technology companies playing a large role in the mowith the trusted credit union brand may influence members in bile payments market should credit unions be worried about favor of credit union sponsored mobile wallets. MasterCard and getting cut out of the revenue chain Maybe. For all the major VisA have the ability to leverage large merchant relationships to mobile wallet players the underlying payment vehicle is a netprovide added value above the convenience of a cardless transwork branded payment card or ACH. The use of the underlying action. Mobile wallets provided by these industry giants also payment account generates revenue for the issuers not the walhave the ability to leverage the PayPass and PayWave infrastructure put in place over the last few years for contactless cards. Adoption of mobile wallets will grow with members perceived value. Members will decide if that value comes from convenience loyalty tie-ins transaction security or a trusted brand experience. Credit Union Action Plan for Mobile There are many technical considerations for mobile wallets that we have not touched on here. Will nFC be the primary communications protocol How will eMV requirements affect mobile wallets Will all the wallets play nicely with all the merchants What about mobile security The answers to many of these questions are not yet known with certainty but that doesn t mean credit unions should sit on the sidelines and wait to see how everything plays out. The actions credit unions take today are about solidifying the trusted relationship and creating debit credit and prepaid card loyalty. The mobile strategy should be multi-pronged Mobile Channel excellence it is not enough to allow members to view history and balances via mobile devices. Developing a trusted relationship for mobile payments starts with creating a robust feature rich mobile channel. Think about all the services offered to members and the ability to access those services from an iPad sitting in the living room. Can your members perform bill pay transactions transfer funds to other members or financial institutions and order a custom card with a picture of the cat What about completing a loan application or opening a new share account or conducting an on-line chat with a member service rep in addition to the cost savings created by moving more complex transactions to the remote channel the let provider so credit union opportunity to garner income from mobile payments lies in the ability to make the credit union card the preferred card in the mobile wallet. i suspect with growing volumes that mobile wallet providers will eventually want to partner with a card brand or financial institution to offer cobranded cards or some other tie-in to the payment card to gain a portion of interchange. October 2012 Credit Union BUSINESS 17 DEBIT MATTErS credit union s reputation as a technically savvy trusted partner is strengthened. priced loyalty enhanced debit credit and prepaid cards best positions credit unions for the coming growth in mobile payments. Suzanne Savage founded the Savage Consulting Group ( in 2001 after holding a number of management positions in various financial institutions networks and consulting firms. Savage Consulting Group provides credit unions a wide range of consulting and project management services with a primary focus on the card programs. Savage specializes in strategic development business planning and operations market research and the evaluation of payment systems products services and technologies. She holds a master s from the California State University at Fullerton and a bachelor s in Business-Economics from the University of California at Santa Barbara. Suzanne is also a certified Project Management Professional (PMP). Payment Card Loyalty Mobile wallets have the ability to carry more than one payment card. if your member s card is not the most used card in her wallet today it won t be the one she places in the top of her mobile wallet. Be sure your card product pricing does not hinder usage. Debit cards should not have any per transaction fees. Debit and credit cards should be replaced at no charge if lost or stolen. Prepaid cards should be low cost and easily reloadable. Keep in mind that the mobile wallet s first value proposition is built on merchant or product brand loyalty. Rewards for patronage are built into the mobile wallet product. Members will expect that the underlying payment card will also carry a loyalty component. Loyalty perks and ATM surcharge free access should be made available for all card types. A feature rich mobile channel that demonstrates the credit union s technical competence coupled with competitively 18 Credit Union BUSINESS October 2012 ANALySIS The Case for resurrecting Fly Paper R By Kenneth Schroeder emember fly-paper it was that obnoxious brown sticky tape that hung from the ceiling over the kitchen table back in the olden days before every house had central air conditioning with hepa-filters Low-e windows and air as old as the pharaohs that re-circulated throughout the house. Yes kids this old curmudgeon remembers those days--when only the movies had air conditioning when kids played outside with appliance boxes pretending they were space ships or when they slid down the hill on opened up cardboard in the summer with the same speed and danger as the toboggans in the winter. OK you re saying what s that got to do with anything Why should my credit union be interested in that Bear with me for a few minutes while you ask yourself how you normally get rid of insects in the house. You might use an outside vendor to come in monthly and spray the environment with pesticides that are currently listed as safe which they will use regularly until they are declared unsafe at which point the vendor will sell you some new treatment you can t do without. Or you might buy a bugzapper with the UV light that snaps with life as it takes same out of the insect safely collecting its victims in a collection tray. They work great as long as the power runs right eliminate the electricity and what happens The first thing everyone notices is that the air conditioner quits running. someone quickly opens the doors and windows and lets the old air out and the new air in--along with a plague of mosquitoes moths flies and other critters. in the meantime the barriers of safe chemicals carefully laid down along all entry points to the building are immediately bypassed by the wide open doors and windows. The electric bug zapper has taken a hiatus. The zap in the zapper stopped zapping. What i m saying is that even simple processes that are highly effective in the modern age are vulnerable to threats The loss of electricity a regulatory disruption and vendors impacted by the tough economy. each of these events can cause the process to fail. now apply that mode of thinking to your business continuity program. i ve always said that you have to consider two lists of three to have the start for a program. List 1 The Risk Assessment Process--Threats Risks Mitigations. You evaluate threats that if they occur threaten your processes. You develop mitigations to counter your vulnerability to these threats to help ensure the process can continue. List 2 You need Backups for--People Places Processes. You need to have viable backups for people who do the work. You need backup places for them to sit and effectively work. You need backup processes in the event the primary process fails. Credit Union BUSINESS 19 October 2012 ANALySIS system comes back up (i ll talk about the melting ice cream in the shopping cart at the grocery store when their computers go down in another discussion.) i would hope your backup processes include manual operations with ledger slips and manual recording based on data in the latest edition of your trial balance. Your old community financial institution ran every day this way which is why the passbook was so important (and why teller windows closed at 3 p.m.) i would also hope that every other critical process in your credit union has a similar backup process. Just because you are now using processes that are very iT-centric using core processing programs to move and track money it doesn t mean that when that process breaks you have to sit and wait for another iT-centric process to come up before you can begin processing again. Just like your pest vendor or your electronic bug zapper almost every modern process began with a simple manual process. When the primary process fails often the easiest mitigation is to go back to basics. This holds true for almost every process in your credit union. if you don t believe it ask someone with grey hair who still works there. Consider this when you are working on my two lists of three as you build or review your business continuity plan. As you select the best backup processes or pick some preventative mitigations in your risk analysis remember where that business process came from. Very often that old manual process is your simplest and most easily implemented backup process. so find the fly paper attach it to the ceiling with the little red string that hangs out of it using a thumb tack expose the sticky paper and enjoy the rest of your day. Ken Schroeder is VP of Business Continuity for Corporate One Federal Credit Union. In addition to his duties there he provides consulting services to real-person credit unions. These services include plan reviews staff and board training exercise development and facilitation and complete program and plan development. He developed and teaches a one-day seminar course in Business Continuity Planning for Credit Unions and has spoken for CUNA and Disaster Recovery Journal conferences as well as numerous League and Chapter meetings. He can be reached at kschroeder Right now i want to focus on processes as we take another trip down memory lane. Remember passbooks You know those little ragged booklets that you had to give to the teller along with the 5 grandma gave you for your birthday. The teller would write in the deposit and include an entry for accrued interest and give the passbook back to you. (Then your mom made you immediately sit down and write grandma a thank you note didn t she ) That deposit was in today s terms a process. it had a beginning and end and a result you could measure. now take a time warp back through the start of the space age the advent of computers the internet and smart phones. Any or all of that manual process today is computerized. Whether you deposit the 5 at the drive-up teller window or use your smart-phone to transfer that 5 the grandma sends you via PayPal the result is the same. The computers track your money move it around and calculate your interest (although today it s hardly worth tracking ) it s too bad these same computers don t automatically send your thank you note as well. What happens when that process breaks down What if the internet suffers a meltdown Katrina wipes out communications your data center has a fire a same-day virus wipes out your server bank the gardener digs up your communications lines or all the pneumatic tubes at the drive-up teller window jam hopelessly with your 5 at some inaccessible spot in the ceiling since i m a business continuity guru the answer to that question is that you should be activating your business continuity plan and implementing the backup process for member cash deposits. i sincerely hope your answer isn t just Wait till the 20 Credit Union BUSINESS October 2012 LEADErShIP Women in Leadership Does Culture Matter recent poll posted on Linkedin and intended for women asked What is the most important factor for you while choosing an employer to work for The respondents overwhelmingly agreed that work culture topped the list. Although this was a quick method of data collection and cannot be compared to a scientific study there was a sample population that did indeed have the same opinion that culture does matter Diversity (0 percent) Work Culture (66 percent) Growth Prospects for Women (16 percent) nature of Job (16 percent) Well defined Workplace Policies for Women (0 percent) There are many factors that could have influenced this outcome such as perceived burdens on women in the workplace primarily social expectations fear of sexual harassment gender specific related stress and difficulty in breaking through the glass ceiling. A By Dr. Sandra L. torres and men who interact in normal friendly cordial and helpful ways with no malice intended--but at times still totally misunderstood. Given these basic differences and behavior it is not surprising to find that workplace expectations work styles and characteristics of women and men as groups also tend to differ. The table below depicts the two extremes of a continuum of workplace styles and expectations shared by women and men but considered more typically feminine or masculine. Many women probably will see themselves or be seen by colleagues as possessing certain attributes described as masculine and some men probably will see themselves or be seen by colleagues as possessing certain attributes described in the table as feminine. either way the point is that these are perceptions and should not be considered labels to be attributed to any one group in particular. Gender-Based Perceptions in the Workplace Despite an increased awareness in organizations to avoid defining certain attributes to either gender misunderstandings among women and men in the workplace continue. each gender tends to preserve the position that the other functions with the same set of views and behavioral expectations. There is no doubt that gender-based issues in the workplace will be a source of contention for most organizations and that management will continue to spend precious time dealing with situations arising from or exacerbated by gender-based misunderstandings. Both women and men with useful potential will sometimes leave the organization--or end up being asked to leave. Organizations lose women disproportionately because definitions of what is right and good in the workplace are almost always based on a masculine model. Women may eventually feel unappreci- Social Expectations Unfortunately by the time men and women reach the workplace they bring with them certain gender based life experiences and expectations. From early on boys and girls have very different social lives that result in two entirely different cultures. Thus adult men and women regularly engage in cross-cultural communication just as if they had differing ethnic backgrounds languages or countries. According to Hahn and Litwin (1995) these experiences can result in distinct social expectations that can hinder the progression of women based on the workplace culture. They include communication style expectations and experience-based misunderstandings that occur among women October 2012 Credit Union BUSINESS 21 LEADErShIP ated and undervalued and then they don t stick around. Being aware of and confronting gender issues frees managers to take control and turn things around to the benefit of their staffs their organizations and ultimately society. Fear of Sexual Harassment in a sexist workplace culture harassment is an issue. The real fear women have in reporting sexual harassment is that it can result in retaliation especially if it involves a high ranking executive. This person may have the power to demote them give them a poor work performance evaluation or simply fire them. Worse victims may fear that no one will believe them. sexual harassment can arise in something as innocent and necessary as networking. networking an important career enabler within any business sector often consists of male oriented activities. These can include attending sports events meeting at clubs or bars and often involve drinking. The latter can lead to like loose lips and guy things which are inappropriate when women are present. statistics from the equal employment Opportunity Commission (eeOC) show that the number of claims reported has been on the decline for more than a decade. in 2010 the number of charges reported was 11 717 down from 15 889 in 1997. But several employment law experts say that the numbers don t necessarily mean sexual harassment is less of a problem. These statistics don t reflect the employee who never reported it to the eeOC or settled entirely outside the eeOC system said Fatima Goss Graves vice president at the national Women s Policy Center. it doesn t reflect people who decide it s not worth it to complain at all. The economy also may be a factor said Caren Goldberg a professor of management at American University in Washington When the economy is doing poorly people are much more afraid of initiating a claim. she further stated even though 22 Credit Union BUSINESS October 2012 LEADErShIP they are technically protected from retaliation they re not typically looked on very favorably from their employer. Fortunately a growing number of companies have set up policies and procedures to handle the problem internally and are very sensitive to the issue. The workplace culture has improved greatly partially due to specific laws that protect women and also the changing face of women in the workplace. Baby Boomers who have now have taken over powerful positions came of age during the women s movement and had to fight the fight against sexual harassment in the workplace. Also the rise of women minorities in the workplace has contributed to a changed landscape and paved the way for Generation X to come positions at these companies who will eventually turn the tide. in behind them very assertive very confident and very intolerant Yet according to stephanie Mehta executive editor of Fortune of sexual harassment. don t expect to see parity between the sexes on the Fortune 500 anytime soon. Many women who opt to lead non-Fortune 500 companies and are extremely successful but the fact that Gender Specific Related Stress stress is defined as the adverse reaction people have to exces- only 3.6 percent of women make it into a Fortune 500 company sive pressures or other types of demand placed on them. Many leadership position is still quite disturbing. in the credit union community the evolution of female have suggested that more women report high levels of stress in the workplace compared to men yet a review of the literature executives in the past 20 years has been significant. Today there says otherwise. There is no evidence that gender is a demo- are numerous female CeOs leading credit unions ranging anygraphic consideration when it comes to stress in the workplace. where from 10 million to 1 billion in assets. Yet while the Where there is a difference is in the cause of stress and the results of the 2011 executive Compensation survey indicated a levels of stress between the sexes. Women experience unique wide-ranging increase in credit union executive compensation stressors such as multiple roles lack of career progress home it also reported disparity in male versus female CeO compensawork interface discrimination and stereotyping. Although both tion. The average male CeO salary was 42 000 more than a genders experience common stressors women suffer more female CeO and the bonus difference was 15 000 more for male CeOs than female CeOs. workplace stress because of these distinct stressors. One suggested methodology that may break this ongoing Also women who work in male dominated industries have reported high levels of stress due to the gender ratio of the in- inconsistency is education coupled with experience. There was dustry. This has influenced stress leadership style and mental a time when tenure loyalty and hard work were enough to snag health among women managers. Therefore it is safe to ac- a top position. Advanced degrees in women were not common. knowledge that gender does play an important role in the level not so today currently it takes a lot more to reach the top. Career mediocrity can result from lack of career planning on part of workplace stress. of the contender and financial restrictions. some credit unions have tuition reimbursement plans to assist would-be executives Breaking Through the Glass Ceiling The ranking of Fortune 500 companies had only 18 women along their way to the top enabling many to complete their colCeOs running Fortune 500 companies in 2012 down from 12 in lege education and obtain a Master s or even a terminal degree. 2011. Also one in 10 Fortune 500 corporations has no women Certainly it can be difficult for a woman to hold an executive on their boards. These statistics can be alarming for women position take care of a family and attend college but in the end aspiring to leadership positions in the 21st century. The good it will all be worth it. Adaptation modification and alteration to news is that there is a pipeline of women coming into leadership all of life s components will help make the necessary changes to The average male CEO salary was 42 000 more than a female CEO and the bonus difference was 15 000 more for male CEOs than female CEOs. October 2012 Credit Union BUSINESS 23 LEADErShIP your external (workplace) environment. Therefore if life got in the way of your career planning then now is the time to restore equilibrium to an imbalanced condition. The emphasis should be on the process of creating change and focusing on the desired outcome. during bad weather. An evaluation of the workforce is essential to determine the level of flexibility and training is critical to implement changes across in-house and remote work teams. When it comes to individual levels some of the most important factors leading to change include will skill rehearsal support and rewards. When these finally surface in an organization s efforts to shift their cultures we will know they really are serious about it. Author speaker and leadership consultant Miami-based Dr. Torres has researched leadership practices around the world. More than 20 years of experience in the credit union industry has made her an ardent believer and practitioner of the credit union philosophy people helping people. Leadership Si offers bilingual leadership expertise via her writings training workshops and speaking engagements. Her specialty is women s leadership. Get to know her better by visiting Changing the Culture is Good for Business Culture is essentially a mix of values beliefs assumptions and symbols that define the way a firm conducts its business. What is now being questioned is in what way these need to change in the business world and secondly how to achieve a sustained change. Changing a culture is not necessarily a women s issue. it is a strategic business decision that is good for business and for all employees. Organizations can start with flexibility. Being flexible will benefit employees and companies alike. Flexible schedules will address employee needs allow more time for members to be served and even permit the business to remain operational Dedicated to developing leadership across cultures. Leadership Programs Develop Talent and Achieve Results Studies show that on average leadership development programs have a 20-40% significant impact on the following Personal Ability--Communication - Collaboration--Teamwork Productivity--Quality and Cost of Work Consider how an investment into coaching mentoring or training initiatives will result as a positive ROI on your organization s income statement. Dr. Sandra L. Torres Leadership authority and founder of Leadership Si (see) offers bilingual leadership expertise via her writing training programs workshops and speaking engagements. Become an extraordinary leader October 2012 Develop great leadership skills. For more information contact her at drsandi 24 Credit Union BUSINESS CFO CUrrENCy Treasury Inflation-Protected Securities (TIPS) By Emily Hollis A Newly Approved Investment D uring its meeting on sept. 21 the nCUA Board proposed a 60-day comment period to allow the usage of Treasury inflation-Protected securities (TiPs) in credit union investment portfolios following a long-term investment pilot program in which only a few credit unions participated. The nCUA Board s opinion of TiPs is that they are an appropriate investment for FCUs and can be a valuable portfolio management tool when there are inflationary risks in the economy. TiPs are bonds backed by the full faith and credit of the U.s. government. Unlike conventional Treasury bonds they are uniquely structured to provide some protection against rising inflation. These securities have been issued with maturities ranging from two to 30 years and the interest rate is set at issu- October 2012 Credit Union BUSINESS 25 CFO CUrrENCy Although we have determined that TIPS will perform well in inflationary environments the question is how will they perform with rates rising ance and fixed until maturity. However the principal amount of the bond is adjusted daily for inflation using the Consumer Price index (CPi). At maturity investors receive either the inflationadjusted principal or par value whichever is higher. interest is paid semi-annually on the inflation-adjusted principal. To illustrate assume a five-year TiPs bond with an initial face amount of 1 million that has an interest rate of 2.0 percent. if the inflation rate is zero for the first six months then the first semi-annual interest payment would be 10 000 ( 1 million X 2.0 percent 2). if the CPi for the second six months rises 2.5 percent (or at roughly a 5-percent annual rate) then 25 000 would be added to the principal amount of the bond and the second semiannual interest payment would be 10 250 ( 1 025 000 X 2.0 percent 2). if inflation stays fixed at 5 percent for five years thereafter the inflation-adjusted principal balance would grow to 1 275 000 ( 25 000 50 000 X 5) and for the six-year period the bondholder would collect semi-annual interest payments calculated using the 2 percent coupon rate based on the inflation-adjusted balance. in effect the total annualized return on the bond in this example is 7 percent which is equal to the 2 percent cash coupon plus the 5 percent principal amount adjustment. The cash coupon therefore represents the real rate of return (above the rate of inflation). As an example on March 21 the yield on the 0.125 percent TiPs due Jan. 15 2022 was 2.828 percent while the yield on the Treasury note with the closest comparable maturity the 2-percent Treasury notes due February 2022 was 2.25 percent. The TiPs 2.828-percent yield is comprised of two components the street real yield and the inflation assumption. The street real yield is -0.113 percent and the inflation assumption is 2.94 percent. The difference between the TiPs yield and the comparable Treasury yield specifically 0.60 percent is viewed as the implicit assumed rate of inflation embedded in the 10year Treasury note s yield. if inflation as measured by the CPi is higher than 0.60 percent on average over the 10-year period you would earn a higher rate of return by owning the TiPs. if inflation is lower over that 10-year period you would fare better with the 10-year Treasury note. When the TiPs spread is high it is reasonable to expect that the markets are projecting that inflation will fall in the months ahead or the yield on the 10-year Treasury note will rise. But if the TiPs spread is low (and especially if it is negative) it is probably a safe bet that the markets are projecting that inflation will rise in time or that the yield on the 10-year Treasury note will fall. There are several risks associated with investing in TiPs. if there were a sharp spike in interest rates TiPs would not perform well. if the rise in real rates is high enough TiPs could fall in price and produce negative total returns. However over time TiPs should still outperform most other fixed-income securities in an inflationary environment. second the CPi might not accurately match the general inflation rate so the principal balance on TiPs may not keep pace with the actual rate of inflation. if this occurs the bond market may assign a higher discount rate (e.g. real interest rate) on 26 Credit Union BUSINESS October 2012 CFO CUrrENCy TiPs which would cause them to underperform and perhaps even to decline in price. Third the accrued principal on TiPs could decline if there is deflation (i.e. if CPi declines). However the principal balance on TiPs cannot fall below par value so newly issued TiPs with very low inflation-adjustments are not at much risk. Rather seasoned TiPs issues which carry many years of inflationindexed accruals could theoretically suffer a more significant drop in principal if deflation continues over several years. Considering that there have been no periods of extended deflation in the United states for at least the past 70 years this risk is somewhat low. Although we have determined that TiPs will perform well in inflationary environments the question is how will they perform with rates rising Robert Perry one of ALM First s financial advisers conducted an empirical return analysis to compute the return correlation and the OLs (ordinary least squares) equation of an equal maturity TiPs versus a coupon Treasury. The following chart shows returns for seven- to 10-year TiPs regressed against the returns for the seven- to 10-year coupon U.s. Treasuries. The correlations are fairly high. Approximately 75 percent of the returns for TiPs come directly from the return on the coupon Treasury. in other words using the OLs equation the return on 10-year TiPs if 10-year Treasury rates increased 2 percent over one year would be in the negative 14 percent range with 10-year notes down 17 percent to 19 percent. Although the TiPs price loss is less and therefore they perform better they are not necessarily a good hedge against rising rates. Another thing to consider is that with the low level of current yields on 10-year coupon Treasuries and high break-even inflation levels current yields on TiPs are negative. TiPs investors like pensions have liabilities that have very direct and measurable long run inflation components. Although it appears that TiPs are not the optimal investment choice in today s environment they should be considered from time to time as a viable option. Emily Hollis CFA is a Partner with ALM First Financial Advisors LLC. October 2012 Credit Union BUSINESS 27 PLANNING Effective Board Decision-Making A Multi-Faceted Approach T By Donald H. Curristan he past decade has brought great challenges to credit unions including more competition a demand for more member services and more involvement of regulatory authorities. The nCUA has challenged boards to augment their role in strategic operations and financial oversight. This push for improved governance has led many credit union boards to search for ways to make their decision-making more effective. One way to improve decision-making is with The eight Functions a process or tool originated by Alan W. Boal of idea Transfer inc. This process allows boards to take an integrated approach to addressing important decisions. 3. finance Finance is about the fiscal stewardship. There is always a balance between we can t afford to do something and we can t afford not to do it. The Finance function provides information to make more effective and efficient decisions. Are we using our time talent and treasure wisely An Overview v4. Marketing and Sales Marketing is the quest for ideal Regardless of industry there are certain functions every customers. selling is the placement of services and products. organization should address to improve its decision-making. The ability to execute in these two areas drives revenues. Are The following is a brief description of The eight Functions we applying customer-centric thinking to our client acquisition and retention process 1. Executive Leadership vision and policy setting are the three key aspects of the executive function. When combined 5. Logistics Logistics is about execution and operations. the three will determine the most effective way for the board Getting the right things done right requires a balance between to decide other issues and make sure they are on the best path people process and positions. Can we deliver what we have forward. We define effectiveness as Are we doing the right promised to the customer things 6. Quality Dr. edwards Deming said Quality is made in 2. Administration Administration addresses the role the boardroom. The quality function involves delivering the of management the mission and efficient policy implementa- credit union s products and services with consistency and pride tion. The essence of administration is to find the right balance and in ways customer s value. Are we committed to continuous between control and flexibility. Are we doing the right things improvement right Credit Union BUSINESS October 2012 28 PLANNING 7. Innovation innovation involves the one constant for any organization change. ideas become innovations only when they can be replicated on a meaningful scale at a practical cost. effective innovation is systematic. Can we adapt to (or create) change profitably 8. Communication Communication is derived from the Greek word commune . it means to become one with the audience. Listening is equally as important as speaking. in the boardroom can we talk with not at or around each other As a credit union Can we transfer worthy ideas Many organizations make decisions almost exclusively based upon the financial impact. While this is an important consideration it does not allow decision-makers to conduct the appropriate level and depth of due diligence. A narrow viewpoint can lead to missed opportunities and potentially costly mistakes. When the credit union s decision makers apply the broad view and specific eight Functions the next strategic decision is likely to be the right one. in working with a client recently they asked us to help guide them through a strategic decision. in the case study below we describe the application of The eight Functions tool to their challenge. made sense for the credit union and benefited the organization. Here s how it worked Executive The development of the compensation philosophy reinforced the vision of the organization. The performancebased nature of the short and long-term programs enhanced the ability to measure performance and heightens accountability. Administration The compensation program was flexible enough to allow the organization to measure different incentives for each executive in the plan. finance The plan linked executive incentive compensation to performance. if the credit union does not benefit the executive team is not rewarded. The tie between pay and performance aligned the financial interests of the executive team and the membership. Marketing and Sales The program provided the necessary expansion of products and services for its members as well as measurement tools to determine performance against target. Logistics The plan for implementing additional services utilized the existing executive team and provided a clear path for them to succeed. Quality By increasing services to members and thereby exCase Study panding revenue sources the board met the needs of the memAt ABC Credit Union board s strategic planning meeting board bers and aligned the executives with delivery of those services. members expressed concern about increased competition for The board affected positively their own high quality standards. executive talent. They also felt there was a need to diversify revenue sources by expanding services to members without adding Innovation The board foresaw the ability of the program to to personnel. This would take a dedicated effort by their existing reward innovative thinking by inclusion of incentive-based pay. management team and would need to be measured to ensure Communication The board was able to give the message results. to members that pay-for-performance works. in addition the Once the board determined what member services would members understood and appreciated the new services. be expanded they needed to deliver those services with their existing team. To do that the board hired us to help design a The eight Functions decision tool allowed the board to take a performance-based incentive program. The program included multi-faceted approach to their decision. Based on using the the development of a compensation philosophy creation of tool they felt they made an effective decision and ultimately apshort-term incentives and a performance-based long-term reproved the plan. ward and retention plan. By applying The eight Functions tool to the design of the By Don Curristan is the Principal of Executive Compensaincentive program the board was able to create a program that tion Solutions LLC October 2012 Credit Union BUSINESS 29 CU CONTENT ... and a Whole Lot of Listening Texas Trust CU exceeds new member campaign goal by 190 percent. Background of a successful campaign hat happens when a credit union really has its finger on the pulse of what consumers want What happens when that credit union knows what people in its field of membership are talking about What they re upset about And what happens when that credit union is nimble enough to respond--quickly--with a full-blown marketing campaign The answer to all the above questions success. That s because the combination is a no-fail recipe for establishing new members who will be actively using the credit union s products and services. in October 2011 as the weeks leading up to Bank Transfer Day found consumers angry at big banks and more aware than ever that a better banking alternative exists --namely credit unions Texas Trust Credit Union one of the largest credit unions in the area plugged right into the hoopla. With a community charter and a strategized place in the community the timing was perfect. This campaign was fun says Amber Danford VP of marketing at Texas Trust CU. During a time that consumers were frustrated and didn t like the checking accounts at their banks we responded quickly with the F.e.e. syndrome campaign and people loved it. Successful New Member Campaign Uses humor W By Laura Enock These were animated ads that were placed on radio and local cable station websites. F.e.e. is an acronym for Feeling the effects of the economy. And who isn t it was something with which consumers could really relate. Marketers talk about feeling the pain of their target audience but in this case Texas Trust CU really did feel the pain and they responded. it helps that the credit union was already out in their community talking with consumers. Through careful listening on social networks and email campaigns in addition to community relations officers who were bringing financial education to people in the community the credit union picked up on the consumer frustration. Consumers were asking questions about the credit union difference and why it s important that credit unions are not 30 Credit Union BUSINESS October 2012 CU CONTENT for profit. The timing couldn t have been better. While the timing was right (national media and consumers were very pro-credit union at the time) credit unions responded and were on top of the situation before community banks did and that helped a lot. Additionally Texas Trust CU participates in approxiAmber Danford mately 450 community events every year so people were familiar with the name. We know we can t compete with big bank marketing Danford says. so our strategy has always been marketing person-toperson. if she had to do it again Danford wouldn t change much though she says she d ask for more money. With a budget of just 60 000 the campaign included radio TV social networks coupons at events and retail space. Texas Trust also did some press releases and added a new landing page to the website. The entire planning for the campaign happened in just two weeks. We usually have six weeks to plan a campaign Danford explains. To get it out quickly we had to call in favors and everyone really gave it their best. The talent on our marketing team is nothing short of spectacular. While concept and a lot of the work was done in-house the credit union brought in an agency to produce the television ad. Lessons Learned Don t be afraid of humor Danford says. she believes that at least some of the campaign s success was due to the fact that the credit union wasn t using a stiff formal banker s gray type of concept. By using appropriate businesslike humor new members felt that the credit union understood them. interestingly i ve seen this in real life. For example Credit Union Toolbox offers monthly financial cartoons to credit union subscribers. For some credit unions these custom cartoons alone are worth their subscription. For others that s one part of the toolbox they simply don t use--why be so unprofessional it s a decision every credit union marketer needs to make individually but it s refreshing to see humor used so appropriately and it s encouraging that it was so well received by members. Another lesson learned Have an offer you can measure. A campaign just to raise awareness or build our credit union s brand may be nice but at the end of the day what does it really accomplish Laura Enock Managing Editor of Credit Union Toolbox and founder of provides credit unions nationwide with content for their websites newsletters email marketing and social media communications. Enock moderates the popular CreditUnionToolbox webinars on best-practices and provides credit unions nationwide with social media marketing and PR support on a consulting basis. Contact her at laura or follow her on Twitter CUtoolbox. Results With an aggressive year-end goal of 500 new checking accounts from Oct. 1 through nov. 5 the credit union actually exceeded that goal with 962 new accounts--190 percent of the goal and 240 percent over last year s new checking accounts during the same period. n addition to the new checking accounts Texas Trust saw 1 248 new members compared to 714 for the same time in 2010. Because the campaign was based on a consumer trend it was authentic. There s a possibility that the credit union would repeat the campaign since it was so successful but it would be revised to stay true to Texas Trust CU s marketing strategy of responding to consumer interest and consumer activity and then marketing to that. We keep our members in mind when determining products Danford adds. We may not be first to market with new technologyor but we ask the right questions and we re there for our members. in fact we re in it for our members--that s the only reason we exist. in addition to listening Texas Trust CU conducts surveys regularly. With so many free survey apps out there it s easier than ever to ask and to hear directly from members. The credit union also keeps an open dialog with supervisors and employees. i October 2012 Credit Union BUSINESS 31 PrODUCT ShOWCASE CUSO to Offer Google Wallet to Credit Unions PsCU based in st. Petersburg Fla. announced it has partnered with Google to make card art from six of its credit unions available in the Google Wallet mobile app. When cardholders of the six participating PsCU credit unions add their cards to Google Wallet they will see an actual image of their credit union s card. This brand reinforcement is key to helping credit unions own their share of the mobile channel. The six credit unions participating with PsCU as early adopters include Arkansas Federal Credit Union BCU CFe Federal Credit Union GTe Financial TruMark Financial Credit Union and Vantage Credit Union. PsCU is the first payments industry leader collaborating with Google to bring Google Wallet to the credit union market said Michael Kelly PsCU CeO & president. By working hand in hand with Google credit unions can know that PsCU s relationships with technology innovators give them the edge they need to engage attract and better serve their members. The convenience of a secure digital wallet backed by the power of the trusted PsCU and Google brands sends a strong signal about our commitment to ongoing innovation and growth for credit unions. 32 Credit Union BUSINESS Google Wallet is a virtual wallet that enables consumers to save time and money when they shop. Today Google Wallet is accepted at 200 000 merchant locations across the United states Consumer adoption of the Google Wallet app has almost doubled since early August when Google released a new cloudbased version of the app that supports all debit and credit cards. PsCU is working closely with Google on other initiatives that will enable all of its credit unions to brand their payment cards in Google Wallet. PsCU serves more than 1 500 financial institutions nationwide. As a non-profit cooperative the company is owned by more than 680 member credit unions representing 16 million credit debit prepaid online bill payment mobile and electronic banking accounts. For more information visit the PsCU website at October 2012 MArkETING MATTErS high Performance Four Case Studies That Can Help You Increase Volume and Member Participation in 100 Days i By tony rizzo General Manager and Creative Director MARQUIS Creative f you are looking for high performance marketing ideas look no further. Here are four case studies that have increased volume and member participation in just 100 days. All of these examples are real. All of the results are based on analysis and tracking from an MCiF system. fIGUrE 1 This piece was a classic loan recapture with a twist. it presented savings opportunities across multiple loans. How much can you save each month This 1-billion credit union was looking to recapture loans financed outside the institution. While the concept of loan recapture is not new the strategy was. each member s credit report was analyzed across each consumer loan category. This included looking at current rates terms and payments versus what the credit union could do for the member. This allowed the credit union to focus on those who could reduce their monthly payments on at least two or more consumer loans. Using variable data printing the savings was clearly presented to the member along with a clear call to action. To further demonstrate knowledge of the member lifestage codes were used to vary the photography of the piece. Taking this additional step increases results because the member psychologically identifies with your message to a greater level. To complement the direct mail effort follow up phone calls from an internal outbound call team were also used. This is an excellent way to leverage your direct mail message and open the door for a meaningful conversation with the member. While the outbound call function is often overlooked we have found it to increase overall response rate by several percentage points each time it is used. The results of the campaign yielded eight dollars in profit for every one dollar invested in marketing. From the members perspective it gave them another reason to believe in the money saving message this client reinforces in all of its marketing and sales materials. State the Case Make the Sale This educational based credit union with over 100 000 members faces a not-so-unique marketing challenge reactivating single service members. We know from our analysis of over 35 million households the risk of a member leaving dramatically declines with the more products they have. in fact single account households have a 50% chance of leaving you in the next 12 months. Households with four or more products carry just a 5 percent risk of attrition. Clearly (and intuitively) the more you sell the better the relationship. A model was built that analyzed member demographics and 34 Credit Union BUSINESS October 2012 MArkETING MATTErS psychographics and compared profitable households to this group in order to predict what should be sold in the household. This is a critical step in order to maximize campaign response rate and minimize investment. Historically this group is hard to motivate therefore be cautious with your marketing dollars or you ll end up overspending for little results. Before any marketing materials were sent this credit union also assembled a series of compelling offers to get the member s attention. Once the target market and message were established a series of postcards were sent showcasing the product benefits. The homework has paid off. For every one dollar spent on marketing 1.21 in profit has been returned to the credit union. While this make not seem spectacular it s important to note the campaign returned a profit reactivated single product households and decreased attrition. FiGURe 2 A series of postcards were sent to this educational credit union ing them to your institution. More detailed programs include a series of letters emails and phone calls designed to be deployed over a six month period. We see onboarding programs consistently pay for themselves. This 1 billion credit union has consistently generated 1.86 in profit for every one dollar spent on the onboarding program. The program has a number of product and life stage versions all designed to sell the next most likely product over the first 100 days of membership. note the use of a non-window envelope in figure 3. We have found the elimination of window envelopes for this type of program increase response rates since the message appears more personal and less like junk mail. FiGURe 3 An effective onboarding program increases lifetime value. note the use of a non-window envelope to increase the feeling of personalization. FOM to increase participation and decrease attrition. All aboard the credit union train eighty percent of cross-selling occurs within the first 120 days of the new member relationship. if you are not systematically cross selling your new members you are missing a significant opportunity to increase lifetime value and decrease attrition. At a minimum you should reach out to the new member with a piece of direct mail and a phone call from an officer welcom36 Credit Union BUSINESS Looking for additional income Long a staple of most marketing plans the skip a payment program provides your credit union with additional revenue and the member with some extra cash when they need it. Typically these programs run during the holidays and summer months. What makes skip programs ultra successful is giving the member several ways to skip their payment. For this campaign (see figure 4) a member could skip via phone personal web site or via business reply mail. Most responses were seen through October 2012 MArkETING MATTErS the personal web site. Another item to consider is keeping your communication clean and simple. Ask for only what you need and use variable data printing and programming to have forms pre-completed for the member. The easier you make it the better the response. Also deploy the skip message in as many marketing channels as possible. Consider direct mail email newsletter inserts and point of sale to effectively spread the word about your campaign. This 500-million credit union generated significant results. For every 1 spent on marketing 16 in profit was returned to the bottom line. fIGUrE 4 Generate significant fee income and give the member a break from monthly payments at key points in the year with a skip-apayment program. stay tuned to this column over the coming months for additional ideas on how you can increase profit lifetime value and member participation. Tony Rizzo is the general manager and creative director of MARQUIS Software Solutions. MARQUIS is the largest provider of MCIF CRM solutions to credit unions world-wide with a long-standing reputation for excellence. Get more done in less time MARQUIS will manage everything from start to finish including analysis strategy design production and tracking. It s Not Magic It s MARQ73-05-11-06202011 CU Ad October 2012 Credit Union BUSINESS 37 CredIt UnIon bUSIneSS Marketplace Card Processing Payment Solutions Branch Services Coin Counters Coin Counters Branches still matter Bancography builds branching strategies Branch site analysis Current branch performance Branch network optimization Branch profitability Staffing review Sales goals branch info 205.252.6671 CredIt UnIon bUSIneSS Marketplace Insurance Services Facilities & Design CEO SUBSCRIPTION WItH BENEfItS Benefit your CFO COO CMO CCO CLO CIO HRD With frEE Monthly E-Newsletters Subscribe NOW vISIt the mArketpLACe pAGe At WWW.CUbUSIneSS.Com for AdvertISInG InformAtIon CaLL GreG HaLpern 561-282-6015 4 GreG Cubusiness.CoM CU SPOTLITE Pack your Bags By Sharon Sweda Shawnee TVA Employees Credit Union Offering Low-Interest Vacation Loans ccording to reports from the U.s. Department of Commerce despite the fact that incomes have risen considerably for middle class families since the 1990s those reaching 2000 and later have left incomes stagnant. in addition to the stagnation families are faced with sharp increases in health care housing and college tuitions. in review of middle class aspirations the Department of Commerce sites home ownership an auto for each adult college education for their children secure health care family vacation and retirement. The average one-week vacation weighs in at 1 500 to 3 000 or 3 to 5 percent of a middle-class income. Given the priority of the higher-ranking aspirations it is no wonder that many families are opting for bi-annual vacations or skipping them entirely. The folks at shawnee TVA employees Credit Union in W. Paducah Ky. are not surprised by the fact that family vacations are frequently skipped due to lack of funds or the need to allocate vacation money for the last aspiration of retirement saving. The credit union of approximately 1 000 members has been serving the employees retirees and families of the shawnee steam Plant since May 13 1954 and offers its participants an alternative to the cash-funded or credit-card enabled vacation. shawnee offers a vacation loan at a modest lower-than-credit-card interest rate finance option. in addition the loan is amortized for 10 months enabling a fully funded vacation year after year. shawnee TVA employees Credit Union offers several other products to make financial management easy for members. A second example is the auto re-finance loan aimed at reducing the interest rate of current auto loans. The 1.99 percent rate is usually several points below even the best rates members have access to on the street. A Another member-sensitive offering in the popular skip a Payment plan. Offered by most credit unions and banks during the holiday season shawnee allows members to pick any month to skip. At shawnee it is a 12-month program where members make the choice. The privilege is extended up to three times in the life of the loan. The credit union thrives with employees and volunteers. it is interesting to note that many services are priced at lower than market rates and many have no fee at all. The focus is on low fees backed by the highest possible dividends. The lending portfolio is broad and liberal with low rates for everything from autos to tractors campers and classic cars. Members are wellserved by shawnee s lender options. While borrowing is a prime resource for members the complete menu includes numerous savings programs that mirror traditional banking products. Christmas Club CDs and standard savings plans complete the service options with all returns tied directly to account balances and time. The McCracken County institution provides electronic access that enables them to compete against institutions of greater size and stature. With a direct payroll deposit option and the online account accessibility members are able to facilitate all their financial needs with ease. There is the added security of knowing that the institution boasts a five-star rating. The West Paducah area is well-served by Kentucky s 58th largest credit union. The single-branch shawnee is equipped to help members earn save and manage finances as well as to convert aspirations into reality with a vacation loan Sharon Sweda is a freelance writer who has worked in the real estate and finance industries for the past 28 years. Co tact Sharon at SharonSweda to SpotLite your CU. 40 Credit Union BUSINESS October 2012 Stay one step ahead of risk Steps We ve Taken Over the past 10 years we ve delivered over 120 webinars to more than 25 000 credit union professionals to help protect credit unions from new and evolving risks. Technology is always advancing bringing with it a never-ending stream of security threats for credit unions. Our adept risk management team continually monitors the market and works with our innovative product leaders to design tools and products that help you manage and reduce your risk exposure. Contact your CUNA Mutual Group sales executive From cyber risk to employee practices liability we constantly work to help you tackle today s threats and prepare for tomorrow s challenges. today at 800.356.2644 or visit for details. Based on 2011 CUNA Mutual Group Webinar Participant Survey 10002772-0212 CUNA Mutual Group 2012 All Rights Reserved. Common Purpose. Uncommon Commitment.