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The MOrTgage LendIng ISSUe OCTOber 2013 VOLUMe 8 ISSUe 10 9.95 Durbin Debit Interchange and Rewriting Regulation II Will History Repeat Itself business decisions in the Mortgage rule Implementation Process OFFERING LOANS BUT NOT INSURANCE It s like offering burgers without fries. If you re not offering insurance with every auto mortgage and business loan you close you re basically giving your borrowers money away to someone else. Think about it--you wouldn t go to one place to buy a burger and then another to buy fries so why make your borrowers do just that when purchasing a car or home IF YOU D LIKE TO START OFFERING INSURANCE BUT DON T HAVE THE RESOURCES TO SUPPORT AN IN-HOUSE AGENCY CALL SWBC INSURANCE PARTNERS AT 866-316-1162 OR SCAN THE QR CODE COnTenTS Credit Union BUsiness OCTOber 2013 V O L U M e 8 I S S U e 10 4 6 8 pov The Good Job Tim O Hara acHIevIng skIlls Holly Herman cU sHoWcase 25 28 31 35 44 MaRketIng MatteRs (And Why You should start Doing Them) Tony Rizzo lenDIng lIne The Top 5 Campaigns You re not Doing What s important Durbin Debit interchange and Rewriting Regulation ii Will History Repeat itself Norman C. Patrick Jr. How to Tell if Luck Plays a Role in Your success David L. Tuyo II cU HIgHlIgHt McGraw-Hill Federal Credit Union Pays it Forward Shawn Gilfedder tecHnIcally speakIng 12 cU content How superior FCU Achieved a 30% Market share in Home Loans Laura Enock Case study self-service is not Just for Grocery stores Anymore Roy W. Urrico cU spotlIte Sharon Sweda 15 18 21 cU RegUlatIon Business Decisions in the Mortgage Rule implementation Process Jeff Andersen cfo cURRency Tinker Federal Credit Union is Rock solid Get it for the entire executive team www.cubusiness.com register Rates are Higher Has Your interest Rate Risk Profile increased Emily Mor Hollis cU cReDIt DeBIt caRD MaRketIng Ondine Irving Forget BiG Data--Understand The Basics www.cubusiness.com October 2013 Credit Union bUSIneSS 1 abOUT US Publishing Team Tim O Hara Publisher tim cubusiness.com Steve Magnuson Managing editor steve creditunionbusiness.com Iliana Nord Operations Manager iliana cubizmag.com Patti Manzone Designer Ashok Kumar Circulation Director THE MORTGAGE LENDING ISSUE OCTOBER 2013 VOLUME 8 ISSUE 10 9.95 Durbin Debit Interchange and Rewriting Regulation II Will History Repeat Itself Business Decisions in the Mortgage Rule Implementation Process Staff Writers Laura Enock CU Content Holly Herman Achieving Skills Emily Mor Hollis CFO Currency Tony Rizzo Marketing Matters Sharon Sweda CU Spotlight Roy W. Urricho Technically Speaking Subscriptions Credit Union BUSINESS is published monthly (12 issues per year) by CU Business Magazine inc. A one-year membership costs 89 for print or 69 for Digital. An online membership form is available at www.cubusiness.com register. Sales and advertising Bernie Fitzgerald Advertising executive Bernie cubusiness.com or 561-282-6015 1 Greg Halpern Advertising services Manager Greg cubusiness.com or 561-282-6015 4 Contributors Jeff Andersen Shawn Gilfedder Ondine Irving Norman C. Patrick Jr. David L. Tuyo II Contact Information Credit Union BUsiness Magazine P.O. Box 2223 Palm Beach FL 33480 (561) 282-6015 (561) 588-7711 (fax) tim cubusiness.com 2 Credit Union bUSIneSS October 2013 www.cubusiness.com We see the same things you do. We see members who want ... Help not hype. Useful tools and information that make life easier. Anytime service that gets it right the first time. Satisfying interactions with people who care and products that work. A trusted partner for today and tomorrow. That s what your members want from you. That s what you expect from us. Payment Card Programs Fraud Management Digital Wallets Strategic Consulting Loyalty Rewards eCommerce Solutions 24 7 365 Contact Center Support pscu.com 888.918.7357 FROM tiM Publisher s POV The Good Job Two days ago we wrapped up our first iPad Mini giveaway contest and--after working on the project from concept to conclusion for many many months--Operations Manager iliana nord asked me if i wanted to be the bearer of good news and call our very first winner to tell her she had won. Well i sure did i telephoned Pam swope Director of Marketing and Compliance at Financialedge Community Credit Union in Bay City Michigan right away and told her that she was the winner of a brand new Apple iPad Mini tablet computer and a free one-year subscription to CUB. i never won anything before she exclaimed. Wow That felt really good i loved being the hero and being able to brighten Pam s day by giving her a first win. in case you haven t heard about the contest every month for the next 16 months--from now until December 2014--we will reward one member of our loyal readership with an iPad Mini and a free subscription to our magazine--both print and on-line versions. That s a monthly prize package worth over 500 To enter all you need to do is 1. Read the magazine 2. Go to www.cubusiness.com and answer a few very easy questions about the month s contents 3. submit your form. That s it Three easy steps are all it takes to enter our monthly prize drawing. Allow me to digress just a bit. i sort of own an iPad already. i bought my iPad when Apple first introduced the device years ago but only after packing up my old Kindle e-reader-- loaded with 25 very good books i had already read--to send to my favorite uncle who lives in Chicago. The reason i wrote i sort of own is because my wife Tierney took an instant liking to the iPad the moment i brought it home. now if i want to use it i must get up at the crack of dawn and grab it before Tierney wakes up. We don t battle for it it clearly belongs to her unless she s asleep. We both love it. Anyway back to The Contest. All good magazines are constantly looking for new and novel ways to increase readership and stimulate reader engagement. There is an entire team of talented people who labor for months to find write package and promote interesting information just for you. And we all know that credit union people are very smart. We also know how busy you are running your credit unions and living your lives. And we know there is a lot of competition vying for your attention. so we work hard to keep you interested. each month we gather great information from such excellent writers as Laura enock of CU Content Holly Herman of Achieving skills emily Hollis of CFO Currency Ondine irving of CU Credit Card Report Rex Johnson of CU Lending Line Tony Rizzo of Marketing Matters sharon sweda of CU spotlite and Roy Orrico of Technically speaking along with many others to provide in depth coverage of every aspect of running a successful credit union. Plus now we re throwing in an iPad Mini along with a free subscription to sweeten the deal Please take a few minutes each month for the next 14 months to go to our website answer a few questions and enter our contest. i hope i ll get to call you next month and ask you to join Pam swope in the Winner s Circle Thanks for reading 4 Credit Union bUSIneSS October 2013 www.cubusiness.com CROSSWORD CROSSWORD ACROSS 2.....Company that was a ATM pioneer (37) 4..... _ _ _B in annual online and mobile transactions. (18) 7.....With The Members Group discover payment solutions and unexpected customer service that makes life _ _ _ _ _ _. (36) 8.....A Collateral Protection Insurance Program with _ _ _ _ -day Claims Turnaround (5) 10...Offering _ _ _ _ _ BUT NO INSURANCE (2) DOWN 1..... _ _ _ _ _ _ _ _ Decisions in the Mortgage Rule Implementation Process.(cover) 3.....Forget Big Data - Understand The _ _ _ _ _ _. (22) 5.....How Superior FCU Achieved a _ _% Market Share in Home Loans. (13) 6.....We see members who want __ _ _. not hype. (5) 9.....For more information visit Allied Solutions.net or call _ __._ _ _.1480. (45) Pam Swope says reading Credit Business especially like format. isI enjoyeasy to navigate UnionI find greatMagazine and leading industrythe digitalthat are It very and resources for trends beneficial to me in credit union marketing and development. They have great appeal to the next generation of credit union leaders. Director of Marketing and Compliance at Financial Edge Community Credit Union Join Pam in the CUB Winner s Circle... ...and win an Apple iPad Mini Tablet and a Year s Subscription to CUB Read it and Reap Contest 1. Read this magazine. 2. Submit October crossword puzzle answers at www.cubusiness.com 3. Contest runs each month until Dec 14 2014. Winners announced on the last day of each month. www.cubusiness.com October 2013 Credit Union BUSINESS 7 aChIeVIng SkILLS What s Important i By Holly Herman same is true in life. spending all your time and energy on the small stuff means you will never have room for the things that really matter or the things that are important to you. Remember to take care of the golf balls first--the things that really matter. set your priorities. The rest is just sand. Pay attention to whatever is essential to your happiness. spend time with your children. spend time with your parents. Visit with grandparents. Take your partner out to dinner. Play another 18 holes of golf. smell the flowers. There will always be time to clean the house and mow the lawn. One of the students raised her hand and asked the professor what the beer represented. The professor smiled and said i m glad you asked. The beer just shows you that no matter how full your life may seem there s always room for a couple of beers with a friend. 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.AchievingSkills.com or contact her at Holly AchievingSkills.com. recently ran across this story and thought it was a good reminder that we all need to remember what is truly important in life. i hope that you enjoy it as much as i did. A professor stood before his philosophy class with a few items spread across the table in front of him. He began the class by wordlessly picking up a very large and empty mayonnaise jar which he proceeded to fill with golf balls. When he was finished he asked the students if they thought the jar was full. They agreed that it was. The professor then picked up a box of pebbles and poured them into the jar. He shook the jar lightly. The pebbles rolled into the open areas settling in the spaces between the golf balls. Again he asked the students if the jar was full. Again they agreed it was. The professor next picked up a box of sand and poured it into the jar. Of course the sand filled up the remaining space in the jar. Once more he asked if the jar was full. The students responded with a unanimous yes. Finally the professor produced two bottles of beer from under the table and poured all of the beer into the jar effectively filling the empty space between the sand. This time the students laughed. now said the professor as the laughter subsided i want you to recognize that this jar represents your life. The golf balls signify the important things that really matter--your family your children your health your friends and your favorite passions-- and if everything else was lost and only they remained your life would still be full. The pebbles represent all of the other important things in your life--your job your house and your car. The sand stands for everything else all the small stuff. if you put the sand into the jar first there will be no room for pebbles or golf balls. The 6 Credit Union bUSIneSS October 2013 www.cubusiness.com CU ShOWCaSe Durbin Debit Interchange and Rewriting Regulation II Will history repeat Itself T By Norman C. Patrick Jr. he Durbin Amendment and Federal Reserve Regulation ii which spelled out the ways in which the provisions of the Durbin statute would be codified into law transformed the debit landscape two years ago by Capping interchange rates for financial institutions with over 10 billion in assets and Mandating network non-exclusivity (i.e. requiring the use of more than one transaction network) for all financial institutions regardless of size. As a last-minute addendum to the Dodd-Frank Wall street Reform and Consumer Protection Act (Dodd-Frank) the Durbin Amendment was conceived of as a means of reducing costs to consumers by capping the size of interchange fees that non-exempt card issuers could charge and that banks and merchants would then build into their pricing and pass along. Durbin The Law of Unintended Consequences Things didn t quite work out that way however once the new debit interchange caps took effect in October 2011. no constituency--from Big Banks to credit unions Big Box retailers to mom and pop stores--was happy but users of traditional bank services would turn out to be the least happy of all. Big banks and non-exempt financial institutions over 10 billion in assets saw their debit interchange rates reduced by over 50% on signature-based transactions while brand-exclusive arrangements with Visa and MasterCard required modification. Credit unions and community banks which generally fell into the loosely-defined exempt category of financial institutions under 10 billion in assets under Regulation ii moved into a worst-of-both-worlds gray area characterized by declining interchange rates coupled with increasing uncertainty due to the lack of specific enforcement provisions for exempt institutions. Merchants were also unhappy partly because they felt that their regulated interchange rates were 8 Credit Union bUSIneSS October 2013 www.cubusiness.com CU ShOWCaSe too high but also because in some small-ticket merchant categories the capped rates actually ended up being higher than rates prior to Regulation ii. Consumers doing business with large non-exempt banks felt the greatest pain of all as the free checking accounts and debit rewards programs that had built their original loyalty became relics of the past. meaning of non-exclusivity. The plaintiffs contended that the Durbin Amendment requires that all debit transactions have the ability to be run over at least two unaffiliated networks while Regulation ii requires that all debit cards be able to be run over at least two unaffiliated networks. in other words the plaintiffs argued that at least two unaffiliated networks must be available for each transaction type--signature and Pin. From Wall street to Main street Regulation ii The District Court Ruling and the Appeal Becomes a Lightning Rod it didn t take long before the reaction to the adverse economic and policy consequences of Regulation ii forged an unlikely unprecedented and strongly motivated consensus of key stakeholders who believed that as originally worded Regulation ii needed to be challenged. in retrospect the Fed should have realized the depth of negative constituent reaction when it received over 11 500 letters during its formal comment period prior to release of the now-current Final Rule. indeed the unanimity of the coalition was underscored by the fact that it took exactly one month from the time Regulation ii was implemented for a group of merchants which included the national Retail Federation the Food Marketing institute the national Association of Convenience stores and a group of individual merchants to band together to file a major lawsuit against the Fed aimed at striking down Regulation ii. The lawsuit argued that Regulation ii was unlawful on the grounds that there were key discrepancies between the language of the original Durbin statute and the language of the Fed s regulatory interpretation. specifically the plaintiffs contended that 1. The Federal Reserve went beyond its authority by including costs in the interchange cap calculation that were not allowable under the statutory language of the Durbin Amendment. in other words the plaintiffs argued that the Federal Reserve had set regulated interchange rates too high. 2. in the area of network non-exclusivity the Federal Reserve did not comply with the statutory language of the Durbin Amendment in its interpretation of the in late July 2013 Richard J. Leon U.s. District Court Judge for the District of Columbia handed down a 58-page opinion that minced no words in ruling on behalf of the merchant plaintiffs and pointedly called Regulation ii fundamentally deficient and unlawful. By making that ruling Judge Leon essentially set the stage for a rewrite of Regulation ii to bring its language into compliance with the Durbin Amendment which remains law. The Federal Reserve ultimately decided to appeal the verdict although it waited until the last moment to do so. Judge Leon stayed his district court verdict pending the appellate court s decision which means that nothing changes with the existing Regulation ii until the Fed s appeal is ruled upon. In late July 2013 richard J. Leon U.S. district Court Judge for the district of Columbia handed down a 58-page opinion that minced no words in ruling on behalf of the merchant plaintiffs and pointedly called regulation II fundamentally deficient and unlawful. Credit Union bUSIneSS 9 www.cubusiness.com October 2013 CU ShOWCaSe A new Definition of Fed Watching What Happens now What hangs in the balance--however uncertain the time frame--is the tantalizing opportunity to rewrite history and get it right this time. Will that happen For credit union managers who have followed the twists and turns of the interchange court case through two years of litigation at this juncture three key questions emerge 1. What is the most likely case for the appellate court decision given the range of possible outcomes and timing scenarios 2. What could happen to interchange rates and network non-exclusivity if the Fed loses its appeal 3. What can and should credit unions do to be proactive while awaiting the appellate court verdict and a possible rewrite of Regulation ii certainly some degree of decrease in interchange rates will find its way to credit unions as exempt issuers. effect on network exclusivity While recent news and commentary on the district court verdict and appeal has been laser focused on interchange rate implications very little attention has been paid to the issue of network exclusivity itself which actually impacts all debit card issuers regardless of asset size. The District Court ruling stipulates that the Federal Reserve will need to require two or more networks for each type of debit transaction versus two or more networks for each debit card. Thus if the district court verdict is upheld merchants will be able to decide whether to route signature-based transactions to MasterCard or Visa Visa or Discover etc. in addition to the similar decisions they currently make on Pin-based transactions. Possible Outcomes Given the Fed s lack of vested interest in defending the policy behind Regulation ii its initial reluctance to appeal the verdict the strength of Judge Leon s expressed bias against the existing language of Regulation ii and the Fed s historical lack of success on appeal Advisors Plus believes that credit unions should be prepared to consider the possibility that the Federal Reserve will be unsuccessful in the appellate process. Managing Your Credit Union for Change Credit unions have not only been put into a holding pattern as they await the Regulation ii appellate court decision to resolve it is a holding pattern in which critical decisions affecting them will be made without their consideration. instead those decisions will be made in consideration of non-exempt institutions such as large money center banks. it will be the job of the credit union managers--with a fraction of non-exempt institution assets and resources--to live creatively with the consequences. At Advisors Plus we have given considerable thought to steps that credit unions can take to mitigate the risks and take advantage of the opportunities inherent in this uneven but unchangeable state of affairs. My debit consulting team www.cubusiness.com effect on interchange Rates if the Fed loses its appeal it will cause the interchange bar to be lowered even further for non-exempt issuers. Moreover almost 10 Credit Union bUSIneSS October 2013 CU ShOWCaSe As debit consultants Advisors Plus doesn t claim to have a crystal ball when it comes to knowing the outcome and timing of what will happen with rewriting Regulation ii. However we believe that the more valuable perspective for any credit union is to be aware and prepared regardless of external forces. By remaining in a position where your credit union s resources-- financial operational and interpersonal--are optimized and can be nimbly deployed it will always be in a position to create value and delight for its members. Visit us at AdvisorsPlus. com to read more and learn more about our range of debit consulting services including our innovative instant insight Debit Diagnostics . Norman C. Patrick Jr. is Director of Debit and Checking Strategic Consulting at Advisors Plus. With over 20 years in the financial services industry Norm originated this practice area in 2007 based on his experience in managing one of the largest debit card portfolios in the U.S. Before joining Advisors Plus Norm was VP of National City Bank (now PNC Bank) where he held P & L and product development responsibilities for a portfolio of over 3.5 million consumer and small-business debit cards driving more than 250 million in annual revenue. Norm also has expertise in consumer loan operations through his management of project teams and loan servicing units at National City Bank and Chase Manhattan Bank (now JPMorgan Chase). Norm holds a B.B.A. in Business with a concentration in Finance from Cleveland State University where he also completed MBA-level coursework. Credit unions have not only been put into a holding pattern as they await the regulation II appellate court decision to resolve it is a holding pattern in which critical decisions affecting them will be made without their consideration. has prepared a detailed POV white paper entitled Are Changes Ahead for Debit interchange Helping Your Credit Union Be Aware and Prepared that outlines a comprehensive action plan. The plan includes the following elements Appointment of an internal debit interchange policy guru to follow future developments in the pending court case via Advisors Plus white papers e-mail and Twitter postings to keep your credit union in the loop. A game plan to analyze and reserve for possible financial risk exposure associated with interchange rate fluctuations. Ways to work with Advisors Plus debit consultants to optimize existing payment networks and plan for the future for compliance purposes as well as to maximize financial and operational efficiencies. emphasis on marketing and branch programs to attract and educate a possible next wave of disillusioned and disenfranchised Big Bank customers who may be seeking the value and transparency of the credit union member experience in the wake of a new wave of bank service cuts and fee increases. About Advisors Plus Advisors Plus works with credit unions to help them meet business challenges and grow. Our industry experts create insightful data-driven financial and marketing solutions that lead the industry in measurable results. With over 200 years of combined financial services experience and proprietary analytics Advisors Plus consults on marketing growth campaigns credit cards debit & checking and contact center & operations optimization. Advisors Plus is a subsidiary of PSCU. www.cubusiness.com October 2013 Credit Union bUSIneSS 11 CU COnTenT case study how superior fcU achieved a 30% Market Share in home Loans lthough credit unions did not play a significant role in the mortgage crisis they haven t enjoyed their fair share of the mortgage market either. The number one depositor in the mortgage market is JP Morgan Chase yet superior Credit Union--a 450 million Ohio credit union--realized 3.5 times more home loan volume in their field of membership than Chase did. in fact superior Credit Union closed as many mortgage loans as the second third and fourth lenders (by volume) in their markets combined. so how did superior Credit Union achieve a 27% market share when many credit unions are struggling to reach a mere 5% Credit Union Business spoke with Kurt neeper Vice President of Business Development for superior Credit Union in Lima Ohio to find out how they were able to achieve these impressive numbers and asked what best practices they recommend to other credit unions looking to increase home loan volume. neeper began by pointing out Wells Fargo always saw mortgage lending as key to the relationship. When you have the mortgage you have the long-term relationship. Building relationships is the primary reason home loans became a primary focus at superior FCU. Of course neeper believes there are other advantages to A By Laura Enock mortgage lending as well. indirect auto lending has a commodity pricing structure which can be problematic because the lowest rate nearly always wins. While mortgage lending is also competitive neeper says all lenders are selling to the secondary market so there s less of a pricing difference and it s more about the relationship . Checking accounts may be the trickiest product for credit unions but mortgage loans consistently bring members back to the credit union for other products. One of the key reasons for neeper s success with home mortgages is that he views mortgage lending competitively instead of treating it as just another loan product at the credit union. Competitors vie for member business in every market and CUs should ask themselves what those competitors are doing and how they are winning business. Asking questions like these reveals that the marketing environment for home loans is very different than that for any other financial product. 12 Credit Union bUSIneSS October 2013 www.cubusiness.com CU COnTenT Typically consumers contact a real estate agent or homebuilder before they even think about getting a mortgage. Whether or not that makes sense is irrelevant consumer behavior isn t easily changed. so it s important to establish and develop relationships with realtors and builders in your community. Realtors are required to refer homebuyers to three different lenders and are not allowed to steer homebuyers to one specific lender. However if a realtor is comfortable with your credit union as a lender she will communicate that to homebuyers in a variety of subtle ways. Realtors are on commission and they want to get paid neeper explains. every realtor we deal with has a point person--an originator--they know and trust who works with them on each loan. While it may be a challenge for your staff or even your board to understand that spending time with realtors is not a waste of time it is time you should be spending if you re serious about growing your home mortgage business. You should develop these relationships. How do you engender realtor and builder loyalty One strategy worth emulating is considering the title listed on the loan originators business card. everyone wants to talk to the manager neeper says. We didn t change compensation or anything else but giving management titles to our originators when we were starting the mortgage department made a significant difference in building our business. Realtors and builders felt we were sending our big wigs out to them. Try printing up business cards for your originators who are going out to meet realtors that include titles such as Construction Loan Manager or Loan Production Manager . neeper acknowledges that building a network of referral sources is easier when your membership field is geographic. it s more difficult to build relationships with realtors when your CU has a closed membership field since you may not be able to provide services for many of their clients. Another key to neeper s success is surprisingly adjustable rate mortgages or ARMs. While ARMs are not currently in favor with the media or most consumers they do have some advantages and any member who trusts their credit union remains open minded and is often ready to learn more about what those advantages might be. When a young couple purchases a starter home for example a 5 1 ARM saves them interest and allows them to build equity more quickly than a conventional fixed rate mortgage could. This means they will be able to make a bigger down payment when the time comes for them to purchase a larger home for their growing family. since the average person stays in a house for 12 years a 30-year fixed rate loan may not be in their best interest. ARMs are a win for any member who doesn t plan on staying in their house for more than a few years and it s a loan that credit unions can keep on its books. As long as the documentation is done correctly there s no reason why you can t hold onto a loan like that neeper says. hile the refinance market may not be what it once was whenever members come in for refinancing superior FCU helps them focus on a shorter-term loans rather than lower payments. if members are able to pay off their loans in 15 years neeper reasons it s in their best interest to do so. While a lower payment might sound nice issuing them shorter-term loans means you ll have happier more loyal members who have paid off their mortgages earlier at the end of the day. every credit union should make the most of every opportunity as they arise by screening credit reports each time they are run. Look for outside mortgages and offer refinancing. Another best practice--and one that is somewhat controversial--is commission. if you re not commissioning sales reps neeper asserts don t expect the best results. While some credit unions feel they can t afford to pay commission it s actually one of the safest HR strategies possible. Mortgage loan officers are sales people and truly great sales people want to be rewarded for their work neeper says. Commission for sales reps is also a marketplace expectation. if you want to be competitive in the marketplace neeper believes you ll have to offer what the market offers. As a CUsO neeper has seen great originators leave their credit unions for banks simply to get commission. neeper has seen MsRs promoted to mortgage origination positions at many credit unions. However without the mortgage-specific knowledge and networking their competitors have these loan originators are at a disadvantage. A better idea for credit unions looking for mortgage originators is to hire current originators who can bring a network of referral W www.cubusiness.com October 2013 Credit Union bUSIneSS 13 CU COnTenT Facts about superior in 2012 superior was the 84th largest CU mortgage originator in the country (2nd in Ohio) according to American Credit Union Mortgage Association magazine despite having only 450 million in total assets (9th largest CU in Ohio). When ranked by total servicing portfolio superior FCU is probably closer to 50th in the country (currently 700 million) in a market where the average home sale is under 100 000. superior FCU s CUsO superior Financial solutions currently works with 16 partner credit unions in Ohio indiana Louisiana Minnesota Mississippi Montana and south Dakota. They are also in contract talks with credit unions in Florida idaho Michigan and north Dakota. The CUsO provides custom mortgage programs for credit unions and because all credit unions are different they do not offer cookie cutter solutions. The CUsO offers origination services (they will hire train and place an originator in your office or consult with a CU to do the same) processing services underwriting services (which is the only required service for ALL credit unions) closing services and servicing. By itself the CUsO currently services over 174 million in mortgage loans with Fannie Mae for partner credit unions and helped partners originate more than 100 million in mortgages in 2012. The CUsO was recently Fannie-approved and is pursuing Freddie approval. in 2014 they intend to apply for FHA VA approval. The CUsO can be found online at www.superiorcuso.com. sources with them. While you pay a premium for contacts and experience neeper believes that in the long run it s worthwhile since you re also getting the originator s existing relationships. superior runs ads in the real estate section of local newspapers where all lenders list their interest rates. They also teach the classes so it s natural that people come to them for the loan. in 2007 superior FCU created superior Financial solutions a full-service mortgage credit union service organization (CUsO). Wholly owned and operated by superior FCU superior Financial solutions was created to offer client credit unions the ability to make fixed and adjustable rate mortgage loans first-time homeowner loans construction loans bridge loan blanket mortgages and second mortgages available to their members while earning income with no exposure. Arguments for working with a CUsO are compelling. it s difficult for a small credit union to staff a mortgage department which is why a CUsO can be helpful. A complete mortgage department includes an originator processor underwriter closer and more. if your credit union is looking for the right originator for example superior s CUsO offers a unique service they ll come in and interview potential candidates for you. i don t think a small credit union could get approved for Fannie Mae Freddie Mac anymore neeper says. He himself just received authorization from Fannie Mae and it took 9 months--and that s for an entity that already services 700 million in Fannie Mae loans. superior s CUsO currently works with credit union partners ranging in size from 20 million all the way up to 550 million. They might be just right for you. Laura Enock Managing Editor of Credit Union Toolbox and founder of CUcontent.com 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 individual credit unions with social media marketing and PR support on a consulting basis. Contact her at laura cucontent.com or follow her on Twitter CUtoolbox. 14 Credit Union bUSIneSS October 2013 www.cubusiness.com CU regULaTIOn Business Decisions in the Mortgage Rule Implementation process n By Jeff Andersen repay bucket or the qualified mortgage bucket--you need to decide which standard you will use going forward. Will you make both ATR and QM loans going forward The majority of credit unions that sell their 1st lien loans to Fannie Mae or Freddie Mac or that underwrite in accordance with Fannie Freddie standards for portfolio loans they can temporarily rely on the eligible loan exception and get those loans into the QM bucket. Home equity loans and other loans that are not underwritten in accordance Fannie Freddie standards however and which are often on a different processing and underwriting platform will not qualify as eligible loans. The decision of whether to use ATR QM or both can involve many factors including the needs of your members the level of risk you are willing to take (considering QM s safe harbor and ATR s rebuttable presumption) and how to most efficiently underwrite loans. in addition to the product questions (ATR and QM loans are already becoming distinct products) there are potential pricing decisions. if after analyzing the new points and fees threshold you determine that you have loans approaching the threshold (3% of the loan amount for loans 100 000 or greater) you may need to consider a process for eliminating some fees to keep you below the threshold which could mean raising the APR. Doing that however could bring you closer to the higherpriced or high-cost mortgage thresholds. if you do not currently make higher-priced loans the new points and fees threshold could force you to reconsider as more of your loans may qualify as higher-priced. These are decisions driven by compliance but which ultimately will involve decision-making by business units or senior management. o matter where your credit union is in the new mortgage rule implementation process-- whether just starting or finishing up--you have likely faced some important business decisions. Will you offer higher-priced mortgages What points and fees will you charge What valuations will you continue to use The new rules involve more than just changes to your policies and procedures they force you to make important decisions about your entire home-secured lending program. in working with credit unions of varying sizes and in different stages in the implementation process i ve found that each rule often boils down to a few key business decisions. even if you do not have all of the information needed to make these decisions cataloguing them and keeping track of your progress towards making these decisions can help guide the implementation process. Outlined below are some of the most common business decisions facing credit unions pertaining to the new mortgage rules. Ability-to-Repay (ATR) Qualified Mortgages (QM) The ATR QM rule gives consumers a right of action if the creditor does not consider the consumer s ability to repay a mortgage loan. Creditors have two primary ways to underwrite loans in order to get some legal protection from such claims ability-torepay and qualified mortgages. ATR QM is a high priority item in most credit union implementation plans because it involves so many business decisions. After figuring out where your current loans would land under the new rules--either in the ability-to- www.cubusiness.com October 2013 Credit Union bUSIneSS 15 CU regULaTIOn Regulation B Appraisal Rule This rule requires credit unions to provide applicants for most home-secured loans with a copy of all appraisals and valuations developed in conjunction with the application. everyone knows what an appraisal is so the rule is simple enough in that regard--you have to provide a copy to the applicant. The more difficult issue is determining what practices within your credit union meet the definition of valuation. if you have a staff member drive out and value the property for example that is a valuation that will need to be provided to the applicant. Given that you need to decide if you want to continue such practices or if you need to change your valuation procedures to more efficiently value the property while minimizing the burden of providing additional documents to the applicant. even if you decide to continue with your current valuation practices you may want to consider amending the format of those valuations since they will now be sent to applicants. overlook potential fair lending issues--denying all applicants that do not qualify for non-higher priced loans or non-high cost loans could raise disparate impact issues. Adjustable Rate Mortgages The new rules require new disclosures and new timing for delivering disclosures when a payment changes due to a rate adjustment. One of the primary business decisions you must make with regards to ARMs however is tied to the ATR QM rule. For QM underwriting under Appendix Q the payment is calculated using the maximum rate within the first five years after the first payment is due. That means that for ARMs with adjustments within 5 years you will have to take the maximum adjustments into account in calculating the payment. Depending on your ARM product offerings this could have a big impact on qualifying borrowers for those loans. Given that if you are seeking to qualify your ARMs as QMs you will need to analyze your ARM offerings with adjustments within 5 years and consider whether your borrowers will still be able to qualify under the QM criteria. ATR underwriting uses the fully indexed rate instead of the maximum rate so the impact may be lesser if you are seeking to use the ATR approach but it will still need to be considered. Higher-Priced and High-Cost Rules Although as stated above the higher-priced loan threshold has not changed the new points and fees threshold has been adjusted which could force you to move more charges into the APR bringing you closer to the higher-priced threshold. Unlike higher-priced loans the high-cost thresholds have changed. While few credit unions currently offer high-cost mortgages the expansion of the threshold along with the revised scope now covering HeLOCs may cause you to reconsider whether providing high-cost mortgages is appropriate. in considering whether to make higher-priced or high-cost mortgages do not Periodic statements if you do not qualify for the small servicer exemption and are thus required to provide periodic statements the decision of how to comply with the rule will likely come down to cost and efficiency. The rule gives you multiple options to comply but 16 Credit Union bUSIneSS October 2013 www.cubusiness.com CU regULaTIOn each has its own potential issues. The rule allows you to send periodic statements electronically to members that receive other statements electronically but your e-statement system may not be designed to communicate with your mortgage servicing system. The rule allows you to continue to send combined statements but the timing within which mortgage periodic statements must be provided may make that difficult without making other changes such as lengthening your courtesy period for payments. Finally the rule gives you the option to provide coupon books that contain certain information in lieu of a periodic statement but that will not work for ARMs and for many is not a viable option for loans handled in a consumer loan department. that could affect how (or if) you make mortgage loans. And of course we are still waiting for the TiLA ResPA disclosure regulations which could raise new issues and impact some of the decisions you ve made under these rules. Jeff Andersen is Regulatory Counsel for PolicyWorks. PolicyWorks an Iowa-based firm known for providing solutions to credit unions regulatory compliance needs and influencing critical public policy issues through our government affairs services. Our firm is committed to being a valued dependable business partner to our clients. Loan Originator Compensation The new rules define loan originator much broader than under the sAFe Act. Loan originators under the new rule are not required to register under the nMLs but are subject to certain compensation restrictions qualification requirements and a continuing training requirement. Given this broad definition you will need to analyze the job duties of employees involved in the mortgage process and identify those positions that perform loan originator activities. if you have employees who engage in very little loan originator activities but who technically meet the definition you may want to remove loan originator duties from those employees and consolidate them into a fewer number of loan originators. Conclusion This is just a sampling of some of the important decisions that will need to be made at your credit union. These complex business decisions may involve multiple people within your credit union so be sure to keep them at the forefront of your implementation plan. Keep in mind that the decisions you have to make concerning new mortgage rules will not cease on January 10 2014. As the industry tackles these new rules and the market responds your credit union may be faced with new decisions www.cubusiness.com October 2013 Credit Union bUSIneSS 17 CFO CUrrenCY rates are higher has Your Interest rate risk Profile Increased F By Emily Mor Hollis CFA Partner ALM First Financial Advisors LLC rom May 1 to June 26 2013 the 10-year Treasury bond increased 100 basis points to 2.60 percent. now it is hovering at 3.00 percent. subsequently some credit unions saw fairly significant movements with their June net economic value (neV) results. Rates are higher so it seems intuitive to add longer cash flow assets however if your risk measurements direct you to decrease risk what should you do in general it s challenging to determine the level of risk your credit union should take whether you re dealing with credit interest rate or liquidity risk. even more challenging is managing risk when interest rate movements change your risk profile. each credit union is unique with different risk tolerance levels capital levels and member needs. While some institutions holding a majority of loans in fixed-rate mortgages might garner too much interest rate risk others will be fine. We also find that generally financial institutions with high amounts of capital or high amounts of share drafts have little to worry about. Let s face it the more capital you have the more interest rate risk you can take. But that s not always the case. The key to correctly assessing your institution s risk profile lies in understanding the basic concept of duration mismatches and stress testing. The Basic Concept of neV net economic value (neV) analysis attempts to measure the level and slope of the capital price line. it s important to know that neV analysis is nothing more than this a specific measurement at a specific point in time. it isn t a predictor of interest rates so the argument that rates won t move up by 300 18 Credit Union bUSIneSS bps is irrelevant. Parallel interest rate movements are needed to back into these effective durations effective duration volatilities and mismatches. When you think about it in these terms it s easier to see why it s a helpful tool to use as a barometer for risk measurement especially when comparing portfolio-managed funds or credit unions with one another. Many other market participants (banks hedge funds and pensions) regularly use this type of analysis to show their simulated risk positions. Financial institutions can t use sophisticated tools to mitigate interest rate risk such as borrowing or hedging without these measurements. www.cubusiness.com October 2013 NCUA guidelines). Although in Base 20 000 the up 300 scenario an NEV percent change of negative 38 percent is a NEV ratio of 12.50 percent is great the risk is somewhat masked. Th union has assets that continue to extend in duration (i.e. step up long-te high coupon mortgages) and their duration mismatch increases as rate below the NEV ratio quickly falls to unhealthy levels as rates continue t CFO CUrrenCY With rates imperative The concept of stress testing is fairly simple it s really just an anticipated exercise to help determine what if scenarios. examiners are changes be 3 500 -83% 3.5% requesting these fairly simple stress tests such as an up-500 bp Up 500 so you change. At first glance this appears extremely conservative. But Up 400 8 000 -60% 8.0% impact on remember this test is not predicting rates to rise by 500 bps it This can b Up 300 12 500 -38% 12.5% is a predictor of a risk profile in an up-200 bp rate movement. using wha 15 500 -23% 15.5% Longer-term rates rose 100 bps in a month so a 200 bp Up 200 help unde movement within a relatively short time period is not unlikely. increase in Up 100 18 000 -10% 18.0% the balanc With assets of 200 million the up 300 neV ratio of the Base 20 000 20.0% have on N credit union is 8.2 percent and falls to 6.3 percent even if rates NEV percent changes. By doing so your credit union will have a more rise by 200 bps. The risk looks is fairly simple it s really just an exercise to help determine The concept of stress testing acceptable. of its exposure to interest rate risk and will be better prepared to manage what if scenarios. Examiners are requesting these fairly simple stress tests such as anhas assets that continue to extend in This sample credit union up-500 bp (i.e. step up long-term securities and high coupon duration change. At first glance this appears NEV Percent NEV Ratio Forward Net Economic Value Analysis NEV Value mortgages) and their duration mismatch increases as rates rise. Change from Base Assets of 200M extremely conservative. As shown below the neV But remember this test isratio quickly falls to unhealthy levels Up 500 12 500 -38% 6.3% not predicting rates to rise as rates continue to rise. by 500 bps it is a predictor Up 400 14 500 -28% 7.3% With rates changing it is imperative to model anticipated of a risk profile in an upbalance rate movement. Up 300 16 300 -19% 8.2% 200 bp sheet changes before they occur so you can gauge the Longer-term interest rate100 impact on rates rose risk. This can be accomplished using increase in loans held on the balance sheet would have on NEV ratios and NEV Up 200 17 800 -11% 8.9% bps in a month so a 200 bp understand what an increase in what-if scenarios your credit changes. By doing so to help union will have a more accurate picture of its e movement within a Up 100 19 000 -5% st glance this appears extremely conservative. But remember 9.5% to interest rate risk and will be better prepared to manage it effectively. loans held on the balance relatively short time period sheet would have on neV ratios and rates to rise Base bps it is a predictor of a risk profile in an 10.0% by 500 20 000 neV percent is not unlikely. changes. By doing so your credit union will have nt. Longer-term rates rose 100 bps in a month so a 200 bp a more Net Economic Value Analysis Forwardaccurate picture of its exposure to interest rate risk and vely short time period is not unlikely. With assets that the credit union up 300 NEV ratio in assets A unionprecisepreparedandmanage it effectively. conduct a forward NEV analy of 200 million the has 100 million of the credit more better analysis of a risk measurement is to Let s assume will be is 8.2 percent to falls to 6.3 percent even if rates rise8.2 200 bps.and risk looks aacceptable. your balance sheet and book rates after a gradual rise of rates over a by percent The snapshot of ion the up 300 NEV ratio of the credit union is NEV Value NEV Percent Change from Base NEV Ratio Assets of 100M stress Testing Better can ex NEV Percent NEV Ratio useful NEV Value 200 000 Change from Base Assets of 100M conduc 12 500 -38% 12.5% The credit union to the right has a Up 300 forward 150 000 Up 300 12 500 12.5% ight has a very high capital assets ratio of 20 -38%200 Assets Up 15 500 -23% 15.5% incorp Mortgages ratio of 20 percent and depicts a low interest -23% 100 000 your Up 200 15 500 15.5% Up 100 18 000 -10% 18.0% As w interest rate risk profile (according to the 50 000 ex Up 100 18 000 18.0% NCUA guidelines). Although in -10% Base 20 000 20.0% ing to the suppose though in the up 300 scenario an NEV percent change of negative 38 percent is acceptable and an Base 20 000 20.0% over a NEV ratio of 12.50 percent is great the risk is somewhat masked. This sample credit year p NEV percent change of negative 38 percent is acceptable and an union hasis somewhat masked. This sample credit (i.e. step up long-term securities and assets that continue to extend in duration credit cent is great the risk budgets high coupon mortgages) and a very duration mismatch increases as rates rise. As shown their high capital assets ratio of The credit union to the right has tinue to extend in duration (i.e. step up long-term securities and increase its mortgage holdings. Income simulation modeling can be used to gr below the NEV increases as rates unhealthy levels and their duration mismatchratioaquickly fallsrate risk profile (according continue sheet and mortgage loans using rising projected market rates. In the e 20 percent and depicts low interest torise. As shown as rates balance to rise. ckly falls toto the nCUA levels as rates continue to rise. 300 scenario an neV below mortgage loans increase gradually from 25 percent to 48 percent of unhealthy guidelines). Although in the up With rates changing it Treasury rate is held constant for a period of 18 mont Concurrently the 10-year is NEV Percent NEV Ratio percent change of negative 38 percent is acceptable and an neV imperative then gradually rises upmodel 100 basis points per year. NEV Value to With rates Base Assets of 100M Change from changing it is NEV Percent NEV Ratio ratio of 12.50 percent is great the risk is somewhat masked. anticipated balance sheet imperative to model The hange from Base Assets of 100M changes before they occur Treasury Rate Up 500 3 500 anticipated balance sheet -83% 3.5% 10- Year NEV wou so 7.00% can gauge the you snapshot -83% 3.5% 8 000 changes before they occur Up 400 -60% 8.0% impact October 2013 on interest rate risk. 19 ending www.cubusiness.com so you can gauge the Credit Union bUSIneSS 6.00% -60% 8.0% 12 500 sheet afte This can be accomplished Up 300 12.5% impact-38%interest rate risk. on 5.00% if rates rise risk. bps. The risk looks acceptable. by 200 Let s assume that the credit union has 100 million in assets and subsequently a higher 300 000 capital million in can take onsubsequently a higher ratio and assets and more dit union has 100 NEV Percent NEV Ratio 250 000 NEV Value Change from Base Assets of 100M e on more risk. and subsequently a higher capital ratio and can take on more of time of time. Better yet it can be extremely useful to 200 000 conduct a forward NEV 150 000 Assets incorporating Mortgages 100 000 your budget. As an A more precise analysis of a risk measurement is to conduct a 50 000 example suppose that forward neV analysis with a snapshot of your balance sheet and over a threebook rates after a gradual rise of rates over a period of time. year period a credit union Better yet it can be extremely useful to conduct a forward neV budgets to incorporating your holdings. an example suppose that can be increase its mortgagebudget. As Income simulation modelingover a used to grow the balance sheet and mortgage loans using rising projected mortgage three-year period a credit union budgets to increase its market rates. In the example below mortgage loans increase gradually from 25 percent to 48 percent of assets. holdings. income simulation modeling held constant for a period Concurrently the 10-year Treasury rate is can be used to grow the of 18 months and then gradually rises mortgage loans using year. projected market balance sheet and up 100 basis points per rising 300 000 250 000 CFO CUrrenCY Forward net economic Value Analysis 10- Year Treasury Rate 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% Whether you use simple or forward what if scenarios remember that simulated neV and neV sensitivity analysis was never meant to be used The as aforward measure of performance NEV would be a snapshot of the and actually lacks two key ending balance sheet after five ingredients needed for years. The balance sheet is used performance simulations with yearend 2019 account balances time and probabilities. and the book rates. NEV values are calculated given rates. in the example below mortgage loans increase gradually from 25 percent to 48 percent of assets. Concurrently the 10year Treasury rate is held constant for a period of 18 months and then gradually rises up 100 basis points per year. The forward neV would be a snapshot of the ending balance sheet after five years. The balance sheet is used with year-end 2019 account balances and the book rates. neV values are calculated given the new base rates and the new base rates plus 300 bps. You then have a snapshot of what your neV up 300 bp scenario would look like in three years a much more realistic scenario. Whether you use simple or forward what if scenarios remember that simulated neV and neV sensitivity analysis was never meant to be used as a measure of performance and actually lacks two key ingredients needed for performance simulations time and probabilities. Probabilities of large continued instantaneous rate moves are generally very low making the probability-weighted risk for that specific event also very low. if you consider this you ll better understand how to use neV analysis. Most institutions face many higher probability events on a daily basis that can and do impact earnings as well as the economic value of capital over time. Keeping an eye on 3 the neV sensitivity for large rate moves is a healthy exercise for assessing interest rate risk and is truly needed to actively and efficiently manage a sophisticated balance sheet but is no replacement for solid day-to-day balance sheet management. Emily Mor Hollis CFA is a partner with ALM First Financial Advisors LLC. CEO SUBSCRIPTION WiTh BenefiTs Benefit your CFO COO CMO CCO CLO CIO HRD With free Monthly E-Newsletters Subscribe NOW www.cubusiness.com register www.cubusiness.com 20 Credit Union bUSIneSS October 2013 CU CredIT debIT Card MarkeTIng forget BIg Data Understand the Basics are the right People Steering Credit Card Portfolio growth decisions T By Ondine Irving Owner of Card Analysis Solutions and CreditCardConnection.org here are two main ways to go about to determining the marketing needs of a credit union credit card program either focus on portfolio based marketing--understanding the performance and profitability metrics of a strong credit card portfolio--or cardholder based marketing--trying to analyze cardholder usage and sway cardholder behavior. People are creatures of habit and naturally resistant to change including their credit card usage behavior so trust me you will never sway cardholder behavior. Here is another credit card fact. There are two types of cardholders those who carry a balance (revolvers) and those who pay in full every month (transactors). it is that simple. Too often the industry attempts to complicate this very simple premise. This article will focus on the benefits of portfolio based marketing tactics. Does Marketing Really Understand Credit Card Portfolio Analytics Typically credit union marketing departments are responsible for marketing credit cards--along with every other credit union product--by default. When executive teams want to grow balances marketing teams start working on balance transfer or account acquisition campaigns without delving into portfolio metrics. Usually even the most creative efforts produce mediocre results. i am a staunch believer that the person who best knows and understands portfolio performance metrics should direct credit www.cubusiness.com card marketing campaigns. While i have enormous respect for marketing professionals if they don t know basic credit card portfolio metrics i don t believe they are qualified to market a credit card program. With appropriate supervision however portfolio metrics can be learned well enough for the marketing pros to understand the basics and develop effective campaigns. so what actually drives portfolio growth and income for credit unions Credit Union bUSIneSS 21 October 2013 CU CredIT debIT Card MarkeTIng Would your Marketing department or whoever is responsible for growing your credit card portfolio be able to answer the following questions or know how to get the answers What is our current average credit line 9 500 is ideal when you average the highs and lows across the entire portfolio. What is our average balance by program 2 600 should be your target. What is our credit line utilization ratio Any number below 35% is good. What is the ratio of our credit card loans as compared to total loans if it is ten percent or higher you re in good shape. How have our card loans increased in the past is it true organic growth which comes from new balances or is it coming from existing finance charge and fee income in other words do your payments exceed sales leaving the job of growth to finance charge and fees How is our credit card program income--finance charge interchange fees or other fee income-- allocated ideally your target should be 70% finance charge 15% interchange fees and 15% other fee income. What percent of accounts carry balances You should strive for 60% or more. What percent of accounts generate finance charges The ideal is 50% or greater. What percent of credit card accounts have never been activated This answer may well surprise you. Check out your Accounts not Activated report that is available from all processors. Take a look at your Debit accounts while you re at it. This report lists all of the accounts never activated by the cardholder via the activation sticker yet are included on your total inactive account lists. What percent of accounts are frozen lost stolen replaced closed or blocked yet still remain in the system inflating your total accounts and outstanding credit lines on file Many credit unions have as many as 40% of their total accounts in some sort of permanent blocked status making them unusable to the cardholder but still part of their total inactive account lists. Lack of database management will distort overall portfolio analytics. in addition many credit card portfolios have excess credit line liability from credit lines still assigned to closed accounts thereby distorting the average credit line. By taking time to understand the strengths and weaknesses of your credit debit card portfolio your marketing requirements will become crystal clear. My biggest beef with many outside marketing advisers-- consultants analytic companies processors etc.--is that they promise to increase balances and income for your credit union by selling you the latest and greatest cardholder behavior and analytic tools. You know who i m talking about the BiG Data buzzword people. We don t need BiG data we need credit union staff to understand basic credit card analytics. The sum of the whole not individual metrics provides the best marketing direction. A fact based portfolio analysis will tell you the complete story and quickly identify credit card portfolio marketing needs. The 1 Factor Affecting All Credit Card Marketing Campaigns The secret to achieving marketing results that yields increased balances and higher income remains with the credit union-- the issuer--because it controls the credit lines You can spend all kinds of marketing money and be promised all kinds of results but if your credit line is less than adequate no amount of marketing will grow your program. Any marketing effort will get mediocre--if any--results when credit lines and an overall portfolio credit line utilization ratio exceed 35 percent www.cubusiness.com 22 Credit Union bUSIneSS October 2013 CU CredIT debIT Card MarkeTIng a number indicating most cardholders don t have the capacity to act on your promotions. Don t waste your marketing dollars when your overall credit utilization ratio is too high and credit lines are too low. Review credit lines and try to get them up to the five-digit range for qualified cardholders. Credit line assignment will drive portfolio growth more than any other marketing campaign. Would you believe me if i told you that any promised method of growing your card loans is a lost cause whenever a credit union s average credit card line (all lines outstanding divided by the number of accounts on file) is just 4 800 the average balance hovers at 2 200 and the average credit line utilization ratio is pushing 45% Would you use a credit card with an average line of 4 800 Perhaps you would use it as a back up--like a department store card. if banks are offering 5 digit credit lines with better perks it is easy to understand how credit lines play a big role in growing balances loyalty and income. it is all about perception and the value it represents to members. But that is another article for another day. The single most effective strategy credit unions can initiate right now is to review their average credit line average balance and current credit line utilization ratio. if your existing credit line utilization ration is above 35% guess what even the best marketing campaigns will have little effect on your portfolio balances. instead implement a credit line increase Depending on the size of the program credit line increase costs run a few thousand dollars. scoring and evaluating cardholders for line increases is where you should be spending your marketing dollars. And yes this is permissible under the CARD ACT. The income verification offered by income estimators at most credit bureaus has been deemed acceptable as proof of income. a downward shift of 5% in the finance charge category due to the CARD ACT. This metric which will clearly shift according to card type should be measured for each program rewards nonrewards premium and secured programs. The results by program may surprise you and offer a relatively easy way to boost your numbers. For example if you have a rewards program where just 45% of revenue is derived from finance charges why not offer these cardholders a balance transfer offer they can t refuse Why keep drilling them with usage campaigns when interchange is only a fraction of the total card program revenue required to maintain profitability On the other hand if your entire portfolio suffers from low finance charge income it doesn t take a rocket scientist or a BiG DATA firm to tell you to increase your balances. And yes interchange is nice but other than offsetting some expenses don t expect interchange to add much to your bottom line. The big number for credit unions is finance charge income--the core of your program s profitability. Generous responsible credit lines will bring in the balances needed to boost finance charge income--the main driver of your bottom line. so ask your marketing people if they know what percentage of your card program revenue is derived from finance charge income. i bet we both know what their answer will be. Marketers should have a good basic understanding of credit card portfolio metrics. Let your analytical people drive the decisions for credit card marketing when marketing doesn t know the answer. Don t Fall Prey to Consumer Analytics on Cardholder Behavior Please please please make sure your credit union has a complete grasp of its credit card portfolio performance and key metrics. insist that your staff understands the story behind the numbers before getting knee deep into some crazy cardholder behavior analytic program. if you can be sure that those two factors are covered then--and only then--i might recommend that a credit union begin delving into cardholder behavior. i am a huge cynic of how effective cardholder based marketing with credit card portfolios can be. Remember there are just two basic users--revolvers and transactors--and the credit union controls the usage and growth potential through credit line management. Certainly there are strategies that can be tailored and applied to specific groups at specific times Credit Union bUSIneSS 23 How is Your Total Card Program Revenue Apportioned Apart from the credit lines balances and utilization factors revenue allocations are another great indicator of what your card portfolio may require. For credit unions as a whole card program revenue is typically apportioned 70% finance charge income 15% interchange fees and 15% fee income. i am beginning to see www.cubusiness.com October 2013 CU CredIT debIT Card MarkeTIng such as offering revolvers promo rates for holiday purchasing transactors reward program strategies and post holiday balance transfers for everyone. Just remember while these strategies might make members feel good they have limited revenuegenerating potential. Credit unions must learn to stay focused on acquiring balances rather than transactional usage. Fancy and expensive cardholder behavior analytic programs may increase usage for transactors thereby increasing interchange income but don t forget that interchange income typically represents just 15% of total card program revenue. You derive your bread and butter from acquiring and retaining balances. Because 70% of your card program revenue is derived from finance charge income your core focus should be kept on increasing credit card loans. Cardholder based marketing focuses on transactional usage and will do little to really move your bottom line. With cardholder analytic based marketing usage may or may not increase and the interchange might offset the marketing expense but you re still left with no organic balance growth. There are many resources out there pushing us to change cardholder behavior and dig deep into cardholder transactional data . While some credit unions may be fine with this approach i m not a huge fan of this type of analysis. in fact i think it is a big waste of time resources and money for most credit unions. Why Because most credit unions don t really understand what it takes to grow their credit card program or increase usage. Forget cardholders and just focus on the bottom line Look at what is best for your portfolio and what will make it more profitable and perform better for the greater benefit of your credit union and its member owners. Before committing to any overpriced marketing campaigns or cardholder data analytic programs make sure your credit union has a complete grasp of its credit card portfolio performance metrics. The control remains with the credit union and your bottom line is to continue minimizing expenses and maximizing overall profitability so that you can continue offering your members fair and ethical credit cards. Ondine Irving founded Card Analysis Solutions (www. cardanalysissolutions.org) in November 2003 after a 12year career at Baxter Credit Union 5 years at Certegy Card Services (now FIS) and a short time with Raddon Financial Group and in 2010 worked for Suze Orman. Ondine is the creator of the original School of Credit Card Program Management which debuted in 2008. These popular classes sell out 60 days in advance. Upcoming sessions include Chicago December 16-18 2013 and Las Vegas January 2729 2014. Her focus is to teach credit unions in an objective manner the expense savings and income opportunities of the credit card portfolio and strongly believes credit unions should issue and manager their own card programs. In 2010 Ondine created www.CreditCardConnection. ORG--a tool for consumers to find fair and ethical credit union card programs. This is the largest aggregation of Credit Union Credit Cards on the Internet with over 1 064 fair and ethical credit union card program options for consumers. 24 Credit Union bUSIneSS October 2013 www.cubusiness.com MarkeTIng MaTTerS the top 5 campaigns you re not Doing (and Why you should start Doing them) i By Tony Rizzo t s the end of the year and you re busy strategizing for 2014. Where should you start What should you focus on And what kind of results can you expect Let me make it simple for you There are five campaigns that will bring in new accounts and reduce attrition. Chances are you re not doing any of them right now. You really should be doing all five. These campaigns are data-driven targeted and highly strategic. Rather than throwing out an offer and hoping it gets some attention they start with actionable intelligence and build from there. it s not rocket science--it s just smart marketing. so what are the five campaigns Let s look at them one at a time. Campaign 1 Bill Pay Data Mining Your online Bill Pay system (FIG 1-1 1-2 1-3) is a gold mine of information. Why not tap into it You can find out which members are making loan payments to other lenders and then send them an offer. For example if a member uses Bill Pay for their monthly auto loan payment they would receive a letter reminding them of your low rates and explaining how easy it is to refinance their auto loan. You might even include a payment chart to give them an idea of how much money they could save. This strategy extends to credit cards mortgages home equity loans and personal loans as well. it s an easy way to target members who are already borrowers encouraging them to save money by refinancing or consolidating their outstanding loans. (FIG 1-1 1-2 1-3) Campaign 2 Daily Credit Triggers every day members apply for loans outside your institution. Wouldn t it be nice to talk with them before they sign on the dotted line Daily credit triggers give you the opportunity to do just that. if a member applies somewhere else you can send a marketing piece the very next day. You know they re in the market for a loan. now you re in the running for their business. (FIG 2-1 2-2 2-3) www.cubusiness.com October 2013 Credit Union bUSIneSS 25 MarkeTIng MaTTerS (FIG 2-1 2-2 2-3) Daily credit triggers translate information from the credit bureaus into timely and relevant communications offering the perfect loan product at the perfect time. Again it s not difficult--if you know how to do it. (FIG 3) Campaign 3 Onboarding The richest opportunity for cross selling occurs within the first 90 days of a new household s relationship with your institution. An onboarding program provides consistent communication during this critical time period while introducing products and services while making the new member feel welcome. (FIG 3) Onboarding can include letters postcards and or emails typically spanning several months. Life stage versions help the recipient relate to the message and QR codes or PURLs can facilitate responses. if you don t have an onboarding program in place look closely at your attrition rate. instead of constantly battling to find new members onboarding lets you concentrate on building strong relationships right from the start. 26 Credit Union bUSIneSS Campaign 4 next Best Product How can you tell what someone is going to do Look at what they have already done. This is the logic behind a next best product campaign. For example when members open new checking accounts research tells us that they have a propensity for getting an auto loan. if they take out an auto loan they are also good potential targets for a credit card. This strategy uses historical data to pinpoint your target and narrow down your offer. A next best product campaign can use letters postcards or self-mailers to respond to new account activity on a monthly basis. An email follow-up helps boost response rates even further. (FIG 4-1 4-2 4-3) October 2013 www.cubusiness.com MarkeTIng MaTTerS (FIG 4-1 4-2 4-3) (FIG 5) Campaign 5 Auto Loan Retention via Vin Analysis This campaign (FIG 5) is the perfect example of specific personalized marketing that gets results. it s a unique way to promote auto loans while providing valuable information at the same time. By appending vehicle value data via a members Vin number the campaign provides each recipient with a range of value estimates for their current vehicle. Their loan balance is then subtracted which gives them an estimate of how much equity they hold in the vehicle. For maximum impact the letter can make a pre-qualified offer for a new auto loan or it can simply be an invitation to apply. either way the equity estimates make the offer much more compelling. Don t Forget to Measure Your Results. When it comes to marketing if it s not measured it never happened. You must always track your results. Then you can refine your strategies for future campaigns and prove the value of your marketing efforts. All five of these campaigns generate direct measurable results. Because they start with a targeted list and a specific offer they are easy to track. And with your results in hand just think how much easier your planning will be when you come to the end of 2014. not only will you have your strategy nailed down you will know exactly how to explain it to your Board. 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 worldwide with a long-standing reputation for excellence. www.cubusiness.com October 2013 Credit Union bUSIneSS 27 LendIng LIne how to Tell if Luck Plays a role in Your Success s an avid golfer one of my all-time favorite movies is Caddyshack--a movie released in 1980 and starring the legendary comedians Rodney Dangerfield Bill Murray Chevy Chase and a young Michael O Keefe. it remains one of the most highly quoted movies of all time. The movie centers on Danny noonan--played by Michael O Keefe--a soon-to-be high school graduate and summer caddy as he tries to pay for college by getting lucky and earning the caddy scholarship at the upscale Bushwood Country Club. Bushwood s best golfer is a gentleman named Ty Webb-- played by Chevy Chase--an independently wealthy philosopher who enjoys moving to the beat of a different drummer. Ty has been mentoring Danny noonan as Danny tries to figure out what direction his life will take. in one memorable scene Ty offers Danny the following advice There s a force in the universe that makes things happen and all you have to do is get in touch with it stop thinking let things happen and be the ball. Ty Webb is telling young Danny noonan that he needs to visualize what he wants to accomplish as well as how it is going to happen then-- and this is the tough part--learn to not force the outcome. i try to practice this with my son as i caddy for him when he competes in junior level golf tournaments. i want to teach him the game that has given me a lifetime of enjoyment and how to appreciate the message it teaches all who play. Currently credit unions are performing extremely well and setting high water marks in many categories ranging from consumer loan to mortgage loan market share and including membership growth. The question we should all be asking ourselves is what have we done differently to produce such historically good results. A By David L. Tuyo II CIMA AIF MBA CCE CUDE CLE My life as a caddy in the land of statistical analysis there is a great tool called R-squared or the Coefficient of Determination. R-squared explains the variability of one factor caused by its relationship to another factor. in plain english the Coefficient of Determination is used to explain what percentage of your credit union s success is due to your firm s specific strategies and what percentage can be explained by market conditions. Cost of funds expense and Provision for Loan Loss expense continue to provide the majority of the year over year increases in income. This is largely due to macroeconomic performance rather than any silver bullet strategy implementation. According to www.creditunions.com 28 Credit Union bUSIneSS October 2013 www.cubusiness.com LendIng LIne cost of funds expense has decreased 578 973 000 year over year ending June 2013 and the provision for loan loss expense has decreased 513 226 000 for the credit union industry. While this should translate into more than 1 000 000 000 of increased income the industry has seen an increase in income of just 202 799 000--a difference of 889 400 000. Those credit unions that are growing income at higher levels than the decrease in expenses are truly implementing and executing superior strategic initiatives. Do you know what is driving your income growth i have the privilege of working with credit unions throughout the country each week and it is refreshing to see that many Board of Directors and executive Teams are operating with significant increases in confidence levels as well as an increase in the number of hours they sleep each night. Loan growth is near an all-time high at many institutions and they are starting to make significant additions to staff. Light vehicle sales are projected to reach sixteen million units this year for the first time since before the Great Recession. Last month Autonation reported the highest monthly sales in its history. These are all definitive signs that the recovery is taking hold and credit unions should be seeing auto loan origination volumes near all time highs as well. if you are not aware of the how much of your success is dependent on the market and how much is based on your own strategy then luck is playing far too great a role in your organization s growth. At a minimum credit union s should consider having a strategic planning audit conducted by a third party in order to ensure that luck whether good or bad is not the reason for its results. in life as in golf there are good and bad bounces. The discipline of practicing through various scenarios best prepares golfers to either successfully recover from a bad bounce or take advantage of a gratuitous situation. This strategy is summed up best in a famous quote from Bill Murray s character Carl spackler golf course assistant superintendent so i jump ship in hong Kong and make my way over to Tibet and i get on as a looper at a course over in the himalayas. A looper . . . you know a caddy a looper a jock. so i tell them i m a pro jock and who do you think they give me The Dalai Lama himself twelfth son of the Lama the flowing robes the grace bald . . . striking so i m on the first tee with him. i give him the driver. he hauls off and whacks one--big hitter the Lama--long into a ten thousand foot crevasse right at the base of this glacier. Do you know what the Lama says Gunga galunga . . . gunga gunga galunga. so we finish the 18th and he s gonna stiff me. And i say hey Lama hey how about a little something you know for the effort you know And he says Oh uh there won t be any money but when you die on your deathbed you will receive total consciousness. so i got that goin for me which is nice. now is not the time to relax and lose focus we must make sure that the credit union movement is prepared to take advantage of this market-based gratuitous bounce. David L. Tuyo II is Vice President of Solutions for Lending Solutions Consulting and can be reached at dtuyo rexcuadvice.com or on LinkedIn and Twitter. He specializes in working with credit unions and is the creator of the Advanced Lending Institute Certified Lending Expert designation. He has worked in executive management positions inside credit unions for more than ten years. Credit Union bUSIneSS 29 My son trying to be the ball www.cubusiness.com October 2013 CU hIghLIghT Mcgraw-Hill federal credit Union pays it forward T By Shawn Gilfedder President and CEO he tagline for the 1990 s movie Pay it Forward read When someone does you a big favor don t pay it back pay it forward. And that is the philosophy of McGraw-Hill Federal Credit Union which this year moved up in the Callahan & Associates Return of the Member index (ROM) to 77th from 525th place out of 6 817 credit unions nationwide placing it in the top two percent of credit unions for the first time in its 78-year history. McGrawHill is using the accolade as a springboard for discovering even more ways to reward existing members and foster relationships with new ones. They are using their success to pay it forward. Through satisfaction surveys social media and personal interaction McGraw-Hill FCU members have told the credit union that its investment in mobile payment solutions innovative accounts and vast financial education offerings hold high value for them. These investments resulted in the CU s third consecutive dramatic rise in the Callahan & Associates study. Of particular note is the credit union s performance in the following categories versus all credit unions in the U.s. Growth metrics (3-year growth) Loan growth of 12 % vs. 3.34% for all credit unions in the U.s. Deposit growth of 9.80% vs. 6% for all credit unions in the U.s. Member growth of 7% vs. 2.61% for all credit unions in the U.s. President and CEO Shawn Gilfedder Dividends income McGraw-Hill FCU is paying 13% of its income in dividends above the 11.09% average among all credit unions in the U.s. Fee income Member McGraw-Hill FCU members pay just 11.72 in fees less than half the national average 38.43 among all credit unions in the U.s. President and CeO shawn Gilfedder puts it this way We credit our empowered caring employees who strive to make a difference in members lives. This recognition continues to validate McGraw-Hill FCU s mission-driven caring approach 30 Credit Union bUSIneSS October 2013 www.cubusiness.com CU hIghLIghT Gilfedder has been an influential advocate in broadly advancing the benefits of credit unions. He is a past board member of the new Jersey Credit Union League and served as its chairman from 2009 to 2011. During that time he used best practices in Board governance to lead and help transform the organization which now includes 160 credit unions--a 30 percent increase in affiliation over just two years--serving the financial needs of more than 1.2 million new Jersey consumers. in the competitive northeast market his efforts have stood out and are paying off in this latest peer recognition study as well as in increased memberships. But the true feather in the McGraw-Hill FCU cap is the no-fee no-minimum balance s3 account introduced last year which Gilfedder says is primarily responsible for the escalation in growth. We stripped away all of the fees and fine print and eliminated offering all other checking accounts to make our engagement simple for members and easier for employees to communicate value. He adds The culmination of consumers and members responding to financial accounts that present value and convenience is truly unmatched in the financial services industry by design. The account has experienced an 11.7 percent growth in deposits while its peers have averaged around 6%. The s3 account was designed to be incredibly simple and full of added value. Gilfedder explains it is a truly free checking account which is rare at most financial institutions. While we do require direct deposit the minimum is manageable because the minimum is one penny. Yes that s one cent. We have found that most members deposit more than just a penny once they are fully engaged in the product s online mobile features. s3 stands for save spend simplify and members vote with their dollars and loyalty whenever they re engaged. McGraw-Hill FCU has also bolstered its exclusive s3 ATM network from 30 000 to 70 000 stations. McGraw-Hill FCU has enhanced the membership loyalty features of the s3 account and the new s3 Visa Debit card offers rewards such as an enhanced cash-back gift card option. The card also features increased daily limits on cash withdrawal and point-of-sale purchases gift cards at over 200 shopping and restaurant locations a cash-back option and points that never expire. Mcgraw-hill FCU has enhanced the membership loyalty features of the S3 account and the new S3 Visa debit card offers rewards such as an enhanced cash-back gift card option. to delivering financial wellness that propels growth. it s a confirmation of how consumers are reacting to our business model our values and the positive outcomes we drive with our membership. shawn Gilfedder was appointed President and CeO six years ago and during that time it has been his mission to provide MHFCU members with innovative low or no-cost solutions to their financial needs. Through these actions McGraw-Hill FCU has achieved significant growth by championing a consultative approach with consumers to strengthen their personal finance knowledge and overall financial health. Gilfedder has focused McGraw-Hill FCU on providing high levels of individual member service offering frequent financial literacy seminars on important personal finance topics and consistently harnessing emerging technology--such as mobile banking services--to provide members with a more convenient banking experience at the not-for-profit financial institution Gilfedder s focus on serving the best interests of his members has resulted in a groundswell of consumer acceptance. Over the past five years--and during extremely challenging economic times--Gilfedder has led McGraw-Hill FCU through a period of significant sustained growth in members loans and deposits. since becoming president and CeO in 2007 McGraw-Hill FCU s assets have increased more than 57 percent to 307 million in March 2013 and membership has nearly doubled. Additionally the national Credit Union Administration and the Credit Union national Association recognized McGraw-Hill FCU for delivering extraordinary member value through their financial wellness efforts. www.cubusiness.com October 2013 Credit Union bUSIneSS 31 CU hIghLIghT in addition to such high-value products as the s3 checking account McGraw-Hill Federal Credit Union offers a full complement of products and services designed to retain existing members and generate new ones including the following (offering up to 100% financing new car terms up to 84 months and used car loans up to 72 months and refinancing for existing loans from other institutions) fixed and adjustable home loans up to 1 500 000 and student loans. Pilot Program for Mobile Payments McGraw-Hill FCU is exclusively piloting intuit s Mobile Money service in the northeast. With Mobile Money members have a convenient way to pay for point-of-sale purchases with their iPhone 4 4s at stores and restaurants just by waving the device over a secure Visa payWave or MasterCard PayPassTM terminal. says Gilfedder since its inception our members have reacted positively towards the product and members enjoyed being given the opportunity to test-drive emerging technology. The CU has received feedback such as this from Paula Deverell Member since 2005 Just wanted to drop you a note to say i have been using Mobile Money and i love it i hope this will be a permanent addition to all of the excellent services that you offer at the credit union. Keep up the good work Financial Planning and Advice Lifecycle Financial Advisors LLC a wholly-owned subsidiary of McGraw-Hill FCU offers comprehensive goal-driven financial planning and advisory services. The team seeks to align life stages with sound disciplined financial planning that encompasses retirement planning education funding personal savings and debt management in addition to investment management budgeting and spending plans. Financial Wellness in the Workplace McGraw-Hill FCU is at the forefront of the workplace financial wellness movement. Their recent research has shown that over one-third of all Americans spend half their day managing and or worrying about personal finances. To assist employees and companies McGraw-Hill FCU provides no-fee employee financial wellness programs that include on-site money-management and financial planning educational seminars across a range of topics as well as introductions to potential partners who can help employees with a no or low-cost and caring approach to smarter personal financial planning. Financial Literacy McGraw-Hill Federal Credit Union is committed to providing financial literacy to the community. The CU offers free monthly seminars--the Financial Literacy series or FLs--on various and compelling topics which draws hundreds of members educators and families who want to learn more about financial literacy from some of the area s leading financial experts. The series is lauded for providing educators with professional development credits toward the new Jersey 9.2 Financial Literacy standards for all public schools. nJ teachers credit the seminars with providing them with the necessary tools to help their students develop a healthy relationship with money as they prepare to move from high school to college and beyond. Over 700 people have attended one or more seminars this year alone which have featured speakers that included top financial journalists authors and media personalities. The seminars have also directly contributed to an increase in membership. Member service At McGraw-Hill FCU members receive free online bill pay refund of ATM surcharges up to 5.00 per month a full suite of financial products and financial check-ups so that members can analyze loan payments rates consolidations etc. employees are trained to listen to members particularly those who have come from big banks. Member service goes beyond branch interaction for many McGraw-Hill FCU members. The CU has helped families recover from financial hardships and business owners improve their bottom line. For example Good Morning America s elisabeth Leamy met with the shoblock family which was in deep financial crisis due to job loss. Leamy took the family to McGraw-Hill FCU whose financial advisors helped the shoblocks refinance their auto loan at 7.5% saving the family 1 995 per year. They helped the smart Loan Products The CU offers market-leading loan product rates as well as value and convenience across all loan categories personal auto 32 Credit Union bUSIneSS October 2013 www.cubusiness.com CU hIghLIghT family pay off high interest credit cards and transferred the rest of their debt saving another 16 801. Finally they helped the shoblocks slash their mortgage by refinancing their mortgage through the credit union saving another 55 203. in fact the family saved an astounding total of 108 000 through the financial guidance of McGraw-Hill FCU. Young entrepreneurs Brian and Carrie Packin pursued the American dream of becoming small business owners and quickly learned that credit unions were the best way to save money. The couple opened an upscale nightclub called 48 Lounge in new York City and watched as their savings and earnings were slowly being eaten up by monthly fees while they earned little to no interest at a big bank. The Packins turned to McGrawHill Federal Credit Union for help. McGraw-Hill FCU offered the young couple a 0.6% rate on its s3 free checking account--that also rebates ATM fees--which allowed the couple to manage their cash flow more efficiently. Their previous financial institution paid just 0.1% interest on their savings account. McGraw-Hill FCU is steeped in similar anecdotes from members whose lives have been improved and enriched by their membership in the credit union and each member story becomes a strong personal motivator for Gilfedder and the entire McGraw-Hill FCU team to develop new products and services that pay it forward. That is what makes shawn Gilfedder most proud Shawn Gilfedder is President and CEO of McGraw-Hill Federal Credit Union and is nationally recognized as a leader in the Credit Union movement. As president and CEO of McGrawHill FCU Shawn is an advocate of the mission to help individuals and their families achieve financial wellness. He can be contacted at sgilfedder mcgrawhillfcu.org. McGraw-Hill Federal Credit Union is a member-owned cooperative and a leading and progressive financial institution. It is committed to its members and the community at large through financial technology financial education and literacy and a consultative approach to banking. The credit union offers a full range of banking investing and insurance services to more than 20 000 members worldwide and serves more than 120 companies as a valued financial wellness benefit. For more information visit www.McGrawHillFCU.org. www.cubusiness.com October 2013 Credit Union bUSIneSS 33 TeChnICaLLY SPeakIng self-service is Not Just for Grocery Stores Anymore i By Roy W. Urrico t is difficult to imagine a world without automated teller machines but back in the 1970s Diebold was at the groundbreaking beginning when self-service really took off and 24-hour banking started to change the banking industry. By 1973 there were an astounding 2 000 ATMs operating in the U.s. Today the number of ATMs is approaching 500 000 in the U.s. according to the national ATM Council inc. Once again Diebold is at the forefront of a new trend involving self-service but this time it is inside the branch not outside or at a remote site. Addressing an increasing consumer craving for more self-service and individual exchanges at the branch Diebold is delivering customized ATMs to facilitate an open environment streamline basic member-driven transactions inside the branch and permit members to scoot past teller lines to free up service reps to help members with more advanced financial service needs. The timing could not be better. A recent Cisco Customer experience Report reveals an increasing hunger for selfservice among consumers with a majority (61 percent) of global population willing to shop in completely automated environments with stations offering virtual customer service. At the same time credit unions are also facing the same financial Becky falconer senior Director Portfolio Management at Diebold challenges that we Diebold Remote Teller System are seeing in the industry overall explains Becky Falconer senior Director Portfolio Management at Diebold. That makes them very interested in operational efficiencies cost savings and revenue generation as well. Our primary focus is on helping them achieve those operational efficiencies in such a way that members are really delighted with the credit union says Falconer. Five steps to Help Credit Unions The credit union space is unique Falconer explains Credit unions are very interested in the members and member satisfaction. Therefore Diebold talks with credit unions as 34 Credit Union bUSIneSS October 2013 www.cubusiness.com TeChnICaLLY SPeakIng they are defining their strategy and before we try to sell them anything. Diebold uses a five-step process to guide them to operational efficiencies 1. Define the strategy Diebold works with CUs when they are in the process of reexamining how they want to represent themselves to their members. 2. Assess current performance Diebold analyzes how the CU currently operates if and how their current system is working and whether or not it fits into their new defined strategy. 3. Develop a road map forward it is important that CUs examine people and processes as well as technology as they develop new strategies. 4. implement those solutions Diebold considers more than the hardware and software perspective it assists in writing processes and helps create necessary metrics. 5. Monitor the results Make sure you ve set up benchmarks to check progress and measure effectiveness. Our process is unique in that it says we are not here to sell you a bunch of solutions. We are here to solve your business problems says Falconer. define the strategy diebold works with CUs when they are in the process of reexamining how they want to represent themselves to their members. value in a secure environment and use pneumatic tubes to process transactions. The Remote TellerTM system and Opteva The Opteva is an ATM and is self-service while the RTs needs to be manned by a teller in the back room. The RTs and Opteva systems can be used together and often branches use both. The Opteva was recently released with a new concierge video screen which allows members to talk to an MsR for assistance or to get more information. CUs can use the screens to cross-sell and up-sell or to promote other financial products and services. Falconer points out that Maybe a member has just finished paying off their mortgage loan... perhaps they would like to have a home-equity loan. i can target some appropriate product directly to them. Members just need to press a button and the MsR helps them fulfill their request. Because the RTs is very much connected to the existing core-banking infrastructure it can be integrated with CRM or triggered automatically at certain intervals in the transaction. Opteva with concierge has flexibility although it performs most transactions through the ATM driver. Concierge is simply a button that is connected to the backroom call center with video capabilities. This allows transactions to go through the ATM driver core or teller platform whichever is best for the credit union. Remote TellerTM systems at Work Diebold s Remote TellerTM systems is a solution that has been available for well over a decade. it is a non-card-based approach to in-branch banking that uses pneumatics and two-way closedcircuit television (CCTV) that allows tellers to be located in secure remote locations. it is similar to the drive-up experience where the member can see the member service representative on the screen the difference is that it is designed for a walkup environment. Credit unions use the Remote TellerTM system for two primary reasons They want operational efficiencies. it is very similar to the drive-up where one teller can take care of multiple lanes. With Remote TellerTM one teller can take care of multiple walkup systems. Because of security concerns. Diebold s system allows credit unions to put tellers and all items of in Play Lacamas Community Credit Union s new Andresen Branch in Vancouver WA features five deposit automation-enabled www.cubusiness.com October 2013 Credit Union bUSIneSS 35 TeChnICaLLY SPeakIng Diebold Concierge Video System Diebold Opteva ATMs including three compact ATM stations that streamline basic member-driven transactions inside the branch. Within Lucamas concierge-style branch credit union personnel direct members to appropriate areas to transact their banking needs. At the self-service stations members complete envelopefree cash and check deposits as well as traditional ATM transactions. For more advanced needs Lacamas personnel can assist members directly. Our open interactive branch concept allows members to complete convenient transactions on their own right inside the branch. At the same time our staff will be available to assist those with self-service transactions and to also work one-onone with members to review their financial goals and complete more advanced transactions said Kathleen Romane president and CeO Lacamas CCU in a press release. We expect to not only speed up transaction times for members but to also give our staff more time to spend nurturing member relationships. Lacamas first introduced deposit automation to its members in 2012 with three drive-up ATMs installed at existing branches. We expect to not only speed up transaction times for members but to also give our staff more time to spend nurturing member relationships. Lacamas ATMs feature Diebold s anti-skimming card readers which are designed to protect member account information. in addition the ATMs are equipped with europay MasterCard Visa (eMV) card readers which Lacamas can activate in the future without upgrading hardware. LGe Community Credit Union s new Roswell GA- 36 Credit Union bUSIneSS October 2013 www.cubusiness.com TeChnICaLLY SPeakIng based branch features four banking stations equipped with customized Opteva ATMs and a collaboration area where LGe representatives can interact with members. in total Diebold and CashTrans will replace LGe s entire self-service fleet with 15 Opteva ATMs including 13 deposit automation-enabled terminals and two cash dispensers. The credit union has been transforming its branch model over the last few years working with CashTrans an exclusive Diebold certified dealer serving accounts in Alabama Georgia and Florida to install Diebold RemoteTellerTM systems at several branches. The RemoteTeller system replaced traditional branch teller counters with stations that integrate pneumatics and two-way video. A single teller attends multiple customer pneumatic tube stations delivering direct service to members while reducing LGe s staffing needs. LGe s deposit automation-enabled ATMs allow members to complete teller-like envelope-free cash and check deposits. At the new Roswell branch members can manage transactions on their own or request assistance from in-branch representatives. Results so far show anywhere from a 70-71 percent to well over 400 percent improvement when comparing the number of new members checking accounts loans and products using the RTs compared to other typical branch openings. We know what we did helped them serve their new members says Falconer. to an expert suggests Falconer. With that in mind the credit union needs to make sure the skill set of the experts enables them to properly coach members to achieve their goals. sometimes credit unions will choose to have fewer people serve the members some credit unions use the same number of personnel but focus more on coaching members helping them achieve their goals. Part of the battle is getting the right technology. But if your people don t believe in it and don t help your members use that technology you may not realize the full investment benefit states Falconer whereas if your people are behind it are trained well and have the skill set you need your results are bound to be significantly improved. Roy Urrico is a freelance ghostwriter and byline writer of books articles newsletters guides case studies and white papers about financial institutions financial technology compliance information security credit and collections foreign exchange and many other financial topics. To find out more about how Roy can help your organization check out Roy s profile on LinkedIn visit his Web site at brightideaswriting.com or email him at roy brightideaswriting.com. To self-serve or not self-serve These self-serve kiosks are similar to self-checkouts at the supermarket. it is there if members want to use it or they can have direct interactive contact with a person. We are really dedicated to self-service. We know members like self-service for the most part and we know people like the speed by which self service works . . . but we also wanted to add a personnel component while still keeping the speed and efficiency of selfservice protected says Falconer. Diebold says some credit unions want to move transactions from the standard teller lines to the self-service environment with concierge video capabilities so they can free up personnel so that MsRs can have more significant in-depth conversations with members. it is intended to help with member satisfaction because they can now talk to an expert when they need to talk CEO SUBSCRIPTION WiTh BenefiTs Benefit your CFO COO CMO CCO CLO CIO HRD With free Monthly E-Newsletters Subscribe NOW www.cubusiness.com register www.cubusiness.com October 2013 Credit Union bUSIneSS 37 vIsIt tHe MaRketplace page at WWW.cUBUsIness.coM MArKeTPLAce Card Processing Payment Solutions CLICK TO ACCESS PODCAST How Your Colleagues are Preparing for EMV www.themembersgroup.com chipstrategies TMG has flexible innovative card processing and payment solutions for your credit union and members that make life easier and INSPIRE HAPPINESS. 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Self-Service Coin Centers Currency Dispensers Currency Recyclers Proven Performance and Quality Facilities & Design Lending A Nationwide Lender with the Expertise to Get Your Deal Closed Business Partners is a nationwide provider of commercial real estate lending services with years of experience funding loans. We provide financing for most property types in primary and secondary markets Loan amounts of 500K to 20MM Competitive rates Terms of 3 5 7 or 10 years 25 year amortization Up to 75% LTV of appraised value or purchase price of the loan amount Loan fees 1% Atlanta GA - Los Angeles CA - Chicago IL - Dallas TX - Denver CO - Stamford CT CU SPOTLIghT tinker federal credit Union is rock Solid By sharon sweda Adversity Often Brings Out The Best in People. A whopping eF5 tornado struck Tinker Federal Credit Union in Moore Oklahoma on May 20 2013. While it may have delivered peak winds clocking speeds up to 210 miles per hour neither the wind nor the storm could stay the heart and soul of the credit union community. Tinker FCU swept in with aid almost the moment the tornado left Moore in ruins lending support to the town and determined to rebuild its popular branch. The Moore tornado was part of a violent weather system that swept through Oklahoma s Tornado Alley causing a stream of violent storms and tornados that spanned a two-day period in May 2013. The tornado touched ground for well over half an hour destroying nearly everything in its path--everything except the Tinker FCU safety deposit bank vault. The vault was the only remnant of the credit union s building left by the storm. it also sheltered 19 Tinker employees a security guard and a random visitor from the tornado s devastation saving many lives. People outside of tornado country may not be aware that an eF5 label identifies the strongest tornado category a label chillingly apparent in the wake of the destruction left in its wake. Two schools were destroyed 23 lives were lost and nearly two billion dollars worth of property damage have been reported. We find humor in New Moore OK branch under construction the news reports of tornados that cause much less damage in other regions here in Oklahoma mused Matthew stratton senior V.P. of Marketing at Tinker. This tornado destroyed everything in its path. Hundreds of homes were lost including entire neighborhoods. We are in the heart of tornado alley but with today s weather reporting capabilities we are usually able to take cover before a storm actually hits. Oklahomans have a sophisticated system for riding out these storms. Most homes do not have a basement Tinker FCU safe deposit vault because of the combination clay soil but many have storm shelters. According to stratton shelters are often safe Rooms built within homes that are a lot like closets constructed of steel or underground shelters buried beneath garages with trap doors and stairs. in both 40 Credit Union bUSIneSS instances residents register their shelters with first responders assuring that families are not left undiscovered once a storm passes. The 2013 eF5 is just one of several such violent weather systems to hit the state in recent history making re-building seem almost routine and something that Oklahomans have learned to handle. Tinker Federal Credit Union is wasting no time rebuilding its lost structure and plans to re-open the branch in early 2014. Of course there was plenty of work to do in the On March 20 1946 a small wake of the disaster. group of tinker AFB civilian The plan to rebuild employees were looking for was an immediate a different way to save and decision on our part stratton reports. Moore borrow money. together they was a popular branch that pooled their resources and served our members well. founded the institution now We had no doubt that we known as tinker Federal would want to replace the facility. But it takes time Credit Union. that single We had to remove all the tinker Field branch has since debris the slab and start grown into 27 full-service from scratch. locations with over 270 000 The first thing that members and 2.9 Billion in we did was to secure our location. The vault that assets. Based in Oklahoma sheltered the twenty-two City tFCU is now the largest people was our safety credit union in Oklahoma deposit vault. We hired security to guard that serving tinker Air Force Base structure round the clock and the employees of over as another recovery team 600 area companies. set out to locate the teller drawers cash machines coin machines and our cash vault. While under heavy security we proceeded to move everything to another branch location where it awaits the completion of the new Moore branch stratton tells. Given history Tinker FCU accepts the fact that tornados are bound to strike again. The upside is that they are prepared and ready to ride out the storm. Sharon Sweda is a freelance writer who has worked in the real estate and finance industries for the past 28 years. Contact Sharon at SharonSweda Sweda.com to SpotLite You CU. October 2013 www.cubusiness.com