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THE E-BANKING ISSUE AUGUST 2014 VOLUME 9 ISSUE 8 9.95 Building an E-channel Roadmap Mark Vipond Accurately Measuring Profitability Becomes a Key Strategy Roy W. Urrico Recruiting Millenials Activating the Under 25 Crowd Laura Enock Buried Under A Mountain of Paperwork and Regulatory Red Tape With SWBC Mortgage s outsourced lending program you can increase the number of mortgage loans in your portfolio while mitigating some of the administrative hassle of paperwork or compliance-related risk. Our turnkey outsourced lending program provides you with a loan officer as well as processing underwriting and closing services for your members. Best of all we take on the full scope of the compliance and regulatory burden that accompanies mortgage lending. Let SWBC Mortgage help you with the administrative and regulatory hassle of your institution s mortgage lending efforts. Call 800-460-6990 for more information CONVENTIONAL VA FHA 2014 SWBC. All rights reserved. Loans are subject to credit and property approval. Certain restrictions and conditions may apply. Programs and guidelines are subject to change. Rates change daily. SWBC Mortgage Corporation NMLS 9741 Corporate Office located at 9311 San Pedro Suite 100 San Antonio TX 78216. CONTENTS Credit Union BUSINESS AUGUST 2014 V O L U M E 9 I S S U E 8 4 6 8 13 15 PUBLISHER S POV Tim O Hara CU COMMENT It s Time to Count My Blessings 24 28 32 35 38 40 42 48 August 2014 CU E-BANKING Mark Vipond Building an E-channel Roadmap TECHNICALLY SPEAKING The Law of Unintended Consequence Regulator Version James Collins LENDING SOLUTIONS A. Rex Johnson CFO CURRENCY Accurately Measuring Profitably Becomes a Key Strategy Roy W. Urrico CYBER SECURITY It s Time To Go All In There is no Cyber Security Easy Button Debunking the Myth of the Unmanaged SIEM Paul Caiazzo CU MORTGAGE Keith Kelly CU TRAINING Paul Nunn CU INSIGHT Gary Walston CU SPOTLITE Best Practices For Liquidity Risk Management Robert Perry COMPLIANCE UPDATE Mortgage and Auto Lending Strategies Three Ways Your Trade Association Can Help You Manage Proposed Rules Erin O Hern Raise Your Voice Making New Employees Feel Welcome Coping with ATM Compliance Aloha from Valley Isle Federal Credit Union Sharon Sweda CROSSWORD 17 20 CU CONTENT Recruiting Millennials Activating the Under 25 Crowd Laura Enock CU CREDIT Ben Rempe Interest Rate Risk www.cubusiness.com 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 E-BANKING ISSUE AUGUST 2014 VOLUME 9 ISSUE 8 9.95 Building an E-channel Roadmap Mark Vipond Accurately Measuring Profitability Becomes a Key Strategy Roy W. Urrico Staff Writers James Collins CU Comment Laura Enock CU Content Paul Nunn CU Training Sharon Sweda CU Spotlie Roy W. Urricho Technically Speaking Recruiting Millenials Activating the Under 25 Crowd Laura Enock Subscriptions Credit Union BUSINESS is published monthly (12 issues per year) by CU Business Magazine Inc. A one-year membership costs 99 yr x 3 for Print ( 297.) or 75 yr x 3 ( 225.) for Digital. An online membership form is available at www.cubusiness. com register. Contributors A. Rex Johnson Keith Kelly Erin O Hern Robert Perry Ben Rempe Mark Vipond Gary Walston 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 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 August 2014 www.cubusiness.com FROM TIM Publisher s POV It s Time to Count My Blessings In case I haven t mentioned it before I consider myself blessed in many ways. For starters I was blessed with having been born into a large and loving family. I was one of eight children--fifth in birth order--so you know I tend to be a calm well-balanced person. My father was the oldest of 10 children therefore he was the authority figure and ruled his siblings. My father s brothers and sisters also averaged eight children per family which made my dad the leader of a very large pack. My grandfather sold his upstate New York dairy farm a dozen years before my birth and moved the entire clan to south Florida where I grew up surrounded by hundreds of cousins. Early on I learned to answer yes automatically whenever I heard someone ask Hey you re one of those O Hara kids aren t you This is a roundabout way of telling you that my birthday is July 31st and it s always been a big deal for me. Why Because I don t have to share it with anyone else in the family. My birthday belongs to me and only me. Readers who come from large families know about sharing everything except birthdays. Although it might seem as though the topic of my most important day of the year has absolutely nothing to do with credit unions I m pretty sure I can tie credit unions into the theme. Don t forget the subject of my birthday came up because I mentioned that I m blessed in many ways. I tend to count my blessings at least once a year usually around my birthday and this year has been no different. As I set off on my daily seven and one half mile bike ride to work this morning I started wondering what it would be like to retire from work and why I don t feel any desire to do so. I find my lack of interest in retirement especially perplexing since I still live in sunny south Florida where many people come to retire. In fact I know lots of retired people some of whom actually appear to be enjoying themselves. Whenever an acquaintance asks me if I m retired I always answer the same way Heck no I m just getting started The fact is I ve been working in the business of journalism for a lot of years and have been in the credit union business for the last 20. And those years have been my best. I launched CU BUSINESS 10 short years ago and need to put a few more years into it before I can even think of retiring. In truth I never feel like I am working because it s so thoroughly enjoyable Whenever I reflect back on specific sales trips I ve made-- New York Chicago California and the great state of Texas immediately spring to mind--I am reminded of the great times I ve had with my CU supplier customers. I think I m happiest when sitting across the desk from a potential customer presenting my product. My enthusiasm is real. And now my product is Credit Union BUSINESS which is an excellent multi media information source catering to the industry s largest group of credit union decision-makers. And the greatest asset for CU suppliers is you--the decision-makers who make up our audience of top-level readers. So I get to work at something I enjoy in a field I love with people I care about I am truly blessed. Thank you for reading Get it for the entire executive team www.cubusiness.com register 4 Credit Union BUSINESS August 2014 www.cubusiness.com Ready for more value from your ATM provider Open your doors to a new ATM provider For decades Cummins Allison has helped you make the most of your branch resources. Now we re excited to offer a complete line of highly reliable secure full-function ATMs to fit any branch configuration from drive-up to walk-up. And best of all our ATMs are backed by the responsive dependable local service you need and have come to expect. So open your doors and give us a try. When you re ready to replace add to or expand your ATM network let s talk. Visit cumminsallison.com letstalk 2014 Cummins Allison Inc. All rights reserved. CU COMMENT The Law of Unintended Consequence Regulator Version T By James Collins he British had a problem when they ruled India Cobras. Not the Ford muscle car variety but the slithery poisonous variety. Thinking the way of all good bureaucrats they decided to offer a bounty on every dead snake to keep down the number of deadly cobras slithering about. The scheme worked until a few enterprising young souls decided to breed the serpents for money. The breeding was so successful that it forced the government to stop paying a bounty. Now worthless the breeders quickly began releasing the cobras en masse into the environment. The Indian cobra problem was now much worse than when the British initiated their plan to control it. This is an example of the idiomatic warning known as the Law of Unintended Consequences whereby one good idea may cause unexpected and detrimental effects. It can also be used to describe getting married and then having children. We don t need to look far to find our own examples of unintended consequences in the credit union world. Take the Durbin Amendment for example. Cobbled together in 2010 out of an unholy alliance between merchants and the rib of Senator Durbin the Durbin Amendment limits interchange rates for large financial institutions to about 0.21 per transaction. Institutions below 10 billion dollars were technically exempt and able to enjoy whatever interchange rates they had previously enjoyed. And fairies ruled the land while innocent children played with unicorns. The Amendment also stipulated that debit cards had to include at least one non-affiliated network to be legal no matter what the size of the financial institution. This would allow merchants to route transactions in the least cost fashion saving them money. The money saved would be given back to the children playing with their unicorns. And this is where the Law of Unintended Consequences chimed in to everybody s--and no one s--surprise. VISA saw the legislation as a direct assault on its business model since it undermined their proprietary PIN network Interlink. And as an HR manager once told me during times of real change an organism has but three choices adapt move on or die. To which VISA added another option reinvent. 6 Credit Union BUSINESS August 2014 www.cubusiness.com CU COMMENT One might also think that we should all be playing with those unicorns too. The current regulatory environment for community banks and credit unions can be summed up by one phrase Anti-Risk. Whether that means shortening loan or investment lives buying only higher-grade paper or having only low loan to values-- regulators are focusing on all of these areas one only needs to look at the new capital rules to find evidence. And as we do all of those things we watch as yields--and profits--drop. The law of unintended consequence strikes yet again. Which makes me want to parachute out of an airplane while signing for a long-term sub-prime real estate loan on property located in a swamp--just to prove a point. But that may have an unintended consequence as well-- especially if I forget the parachute. James Collins is CEO of O Bee Credit Union based in Tumwater Washington and can be reached at jcollins obee.com. The Amendment also stipulated that debit cards had to include at least one non-affiliated network to be legal no matter what the size of the financial institution. Let s set the stage. Durbin had just gone into effect and due to the non-affiliated network rule Interlink traffic revenue dropped 52 billion in just one quarter--a whopping 54 percent decline. That sent VISA stock into a free fall and rumors were flying around headquarters declaring that caviar and champagne lunches would be limited to just two per week. These were trying times indeed. But VISA had an old trick up its sleeve. Pin Authorized VISA Debit (better known by its acronym PAVD) would allow any merchant to route PIN transactions over VISA s signature network. This boosted volume--and profit--to VISA while killing regular PIN networks like ACCEL and NYCE. It didn t help Credit Unions much either. Interchange rates for PAVD are roughly comparable to PIN interchange rates but because it travels over a signature rail it has additional costs from processors and VISA. That means less net income for credit unions at the end of the day (so much for being exempt from Durbin Amendment consequences ). This isn t the only rule that has had unintended consequences. The CFPB s Remittance Transfer Rules for example were designed to make international remittances less costly and safer. However the rules were so demanding that many small banks and credit unions simply withdrew the service from their customer base. One would think that looking at a new rule and anticipating its potential consequences would be part of regulators due diligence efforts. www.cubusiness.com August 2014 Credit Union BUSINESS 7 LENDING SOLUTIONS It s Time To Go All In O By A. Rex Johnson ne of the best things credit unions have going for them is knowing what results they are likely to realize if they continue to do what they have always done. And credit unions get lots of unsolicited advice telling them what they should be doing. I have given them lots of advice over the years too so I should know. Of course there s nothing wrong with asking for advice I ve looked for advice too. I will occasionally take a golf lesson which never seems to help but I continue taking random lessons because I m desperate to improve my game. Maybe someday something will click and my swing will magically improve. The truth is there are credit unions that desperately need help. Nothing they ve tried has worked and they are ready to listen to anyone try anything. They operate from a sense of urgency and feel they must do something--anything--NOW And it seems that everyone is ready to offer advice even when they haven t asked. Who is offering unsolicited advice 1. Examiners give unsolicited advice. There are regulations we must follow of course but most of the advice examiners offer has nothing to do with regulations it s simply one examiner s best suggestion. Should you listen to those suggestions simply to maintain good relationships with the examiner 2. Board Members and other executives who go to conferences. Attendees often come back with solutions that some expert presented at a conference and well if it worked for that other credit union I bet it will work for us too. You know you ve got a real problem if several Board Members hear the same message and they all agree it s the magic bullet solution. Chances are change will--and should--take place however it doesn t always work. Why Often because there was no buy-in from the management team or employees. They were never sold on the idea and didn t believe it would work from the day the changes were announced. 3. Employees who ve attended Lending Solution schools. (This is one area in which I have a lot of experience ) They get really excited about everything they ve learned yet many of them tell me that almost none of it will ever be tried at their credit union. They will never do this or let us do that. We would sure like to do these things but we were told before coming to school that we shouldn t expect management to agree to implement everything. One example that I hear quite a lot has to do with incentives Offering incentives might really improve results but we will never be able to try it out and see if it works. So what s the answer I believe it s something called All In which means getting everybody at the Credit Union-- Board Members CEO s senior and middle management and all employees--to buy into your ideas support your cause and believe that what they do matters. Those organizations that go All In usually get great results. www.cubusiness.com 8 Credit Union BUSINESS August 2014 LENDING SOLUTIONS An example of this is an employee who comes up with a great idea and brings it their boss. The boss listens and before offering any explanation and giving it little thought quickly answers We are not going to do this we have tried it before. That supervisor may not realize how hard the employee worked on putting the plan together or that he didn t deserve having his idea so cursorily denied. Nor did he bother to consider that his thoughtless response meant this was probably the last initiative he would see coming from that employee. Would the idea have worked We don t know but chances are that because it came from an employee and not from management it had a better chance of flying. The employee would have done everything possible to make it work including energizing his co-workers he probably would have gotten their total buy in. Credit unions have to understand that total buy in or as we say All In is one of the keys to successfully managing change. So how does a credit union get started on an All In approach Here are the steps you need to take Once you have looked at these line items ask yourself if your trends are going up or coming down. Step 1 Start with the NCUA s financial performance ratios better known as FPRs . You can go back five years and look at each year s trends such as Delinquencies Charge Offs Return on Assets (ROA) Loan Growth Loan Yield Loan Income Other Income Makeup of the loan portfolio broken down into - Mortgage loans (low yield) - Unsecured loans (high yield) - Car loans (low yield to A & A members) Asset Growth Share Growth Membership Growth Earnings after Expenses Average Loan Balance Average Share Balance Note Credit unions that usually have the lowest loan balance and share balance usually make the most money because they are serving the underserved. www.cubusiness.com Step 2 Once you have determined the last five year s trends look at Whether your earnings are going up or down What is happening with loan growth many credit unions are growing loans yet generating less loan income. Look to see if loan yield has dropped dramatically loan yield is far more important than loan growth. Examine delinquencies and charge offs Are they going up or down Determine if your CU has been rejecting more loans taking less risk and more focused on getting A and A members very low rate car loans from indirect lenders. Step 3 Examine your current Cost of Funds. Are they less than 0.50 percent or below 0.25 percent Are your members happy With such small returns how much longer do you think they will keep their money at your CU Step 4 Review income gains and where it is coming from Are there big savings in your Provisions for Loan Loss Most credit unions have extremely low delinquencies and charge offs. They were able to increase their earnings by not having to fund charge offs due to low delinquencies. That is not going to happen as we go forward. Are there big savings in your Cost of Funds As members want more that will most likely not continue either. Are you still offering excellent service with reduced staff If you plan on making more loans and open more accounts you are going to have to start hiring more people. Member service in credit unions is not what it should be. Ask yourself how important loan growth and loan yield are to reaching your goals. Can you continue to operate the way you have been Would maintaining the status quo sustain your business I believe that without loan growth of at least 10 percent per year and a loan yield of at least 07.5 percent per year after charge offs you are likely to have problems moving forward. I know that the last eight years have been extremely difficult for credit unions and that they did what they thought they had Credit Union BUSINESS 9 August 2014 LENDING SOLUTIONS refused to count income that was not verifiable even when they knew it existed. 3. Their Fair Isaac score was too low why They had some small collections such as medical bills student loans etc. They lost their home because they lost their job. It didn t matter that they also paid everybody and were now back to work. They had to go bankrupt because of illness in the family or some other major unexpected expense. There were lots of reasons and I could go on and on however one factor most members had in common was that they continued to pay their credit union. But because of their lower Fair Isaac score they didn t have a chance. Remember they were not behind in payments to their credit union. Members won t forget that the door was closed when they most needed help and will remember being helped when they were most in need. If you turn down someone who never missed a payment they may never forgive you. Sam Walton who founded Walmart was fond of saying When everyone is moving in the same direction the real opportunity is moving in exactly the opposite direction. to do in order to continue serving their members. A lot of past CU problems came from mortgage loans and the huge number of foreclosures short sales deeds in lieu etc. The first advice examiners gave CUs was to tighten up rewrite policies lower the amount they loan to members cut expenses freeze salaries etc. Putting money into the insurance fund took away a lot of CU earnings. Many credit unions cut back training. Boards of Directors were told what they could or could not do by examiners. Credit unions had to sign letters of understanding and provide examiners with a lot of new reports. And new rules were coming in faster than ever. Corporate credit unions were being merged into other corporates. We were all concerned and many believed the sky was falling. So what was wrong with this strategy Sam Walton who founded Walmart was fond of saying When everyone is moving in the same direction the real opportunity is moving in exactly the opposite direction. I think it s great advice and Sam Walton was one of the best businessmen that ever lived. Unfortunately most people don t follow his advice. They want examiners to tell them what they need to do turn the faucet down or off. And who paid the price for all this Credit union members--also known as the CU s owners--that s who. Members were being turned down like they had never been turned down before. Everyone who makes loans it seemed had a new box they lived by and unfortunately the new box was a lot smaller than the old box. Members who had always paid their credit union were now being denied. Why 1. Perhaps they had a delinquent loan somewhere not necessarily with the credit union but somewhere. 2. Their debt to income ratio was too high. Credit unions It s Time To Go All In And Get Back To What We Do Best. The loan interview provides you with a lot of opportunities. Are employees simply collecting data and passing it along to someone else for decision-making or are they taking advantage of every business opportunity Employees should be encouraged to conduct a quality interview every time they sit down with a member to discuss any type of loan and any employee who fills out a loan application for a member should have an ownership stake in the decision-making process. You do not want employees taking loan applications without telling you how they recommend proceeding. Focus on the following to get started serving the underserved and increasing your CU s loan growth and loan yield so you can continue offering members low rates and employees competitive salaries 1. Interviewing Skills Teach your employees how to take and analyze loan applications. You will never make as many loans as you should if the employees taking the applications are only asking the questions written down on the form. Of course simply making sure employees fill out every loan applications completely would be www.cubusiness.com 10 Credit Union BUSINESS August 2014 LENDING SOLUTIONS a huge improvement and would make the decision maker s job much easier. Make sure you are spending enough time with members who come in to apply for a loan. Everyone is in a hurry and wants to get members in and out as quickly as possible but don t be too quick to say yes or no. The loan process is not a horse race Remember you re dealing with your members and should be coming up with solutions they might not have considered themselves. Do they have equity in their house Can you pay off their house or car and save them money Where is their checking and savings account if not with you Would they move it over to your CU Are they willing to set up direct deposit and give you all their business What questions not on the application should you be asking i.e. did they recently move 2. Questions you should be asking members What motivated them to come in and ask for a loan How they answer is critical and should be the first thing you focus on. Why did they come in today to request a loan Why did they choose your CU How did they pick this loan amount Do they like their job Is it likely the job will continue Is the employer laying people off If they have student loans where did they go to college Did they graduate Will they be making more money What is the condition of their car How many miles does it have on it If they are trading in a car they purchased 6 months ago why are they trading it in after just six months Did they put money down when they purchased the car they are now trading in Are they upside down Are they putting any money down on the car they are buying Do they own their home Do they have a mortgage if so did they make a down payment Has their house gone up or down in value www.cubusiness.com 3. Closing Loans Ever since my training days at Household Finance I ve never forgotten that a loan well closed is half collected . Understand that most members will make their payments on time and a small percentage of members who have missed payments with other lenders will also test you. If they ve gotten away with missing a payment before they will likely try it at your CU. However the promise of future credit is very important. If members with delinquent loan payments know up front that they will be able to get future credit if they pay on time they will probably will which means you ll be happy and so will they. If you are lucky enough to have had more than one child you quickly learned that they are not the same. And neither are your members. When you close a loan you will have to spend twice as much time on marginal members than members with perfect credit. Care enough to get involved. Do you or does anyone in your credit union ever observe your employees closing loans Are loans for A members closed the same way as loans for E paper members I will close this session by telling you the following We control our destiny. Leave your ego at the door let your numbers speak for themselves. Make a commitment to be the best of the best not just good. Credit Union BUSINESS 11 August 2014 LENDING SOLUTIONS Educate everyone--Board Members CEO s and staff--by letting them know that your CU s goal is to go All In . You will love the results. Change is what you must be all about not making changes should scare you most. In our next article we will give you real examples of credit unions that made big changes who went All In and got incredible results. One credit union we work with went from having a negative income of 5 000 000 to a positive income of 7 000 000 simply by retraining staff and learning to take appropriate risk. Their loan to share is now 96 percent delinquency has been reduced by 50 percent and charge offs have been reduced by 75 percent. They ve increased their capital ratio from the 07.7 percent range to the 10 percent range in five years and their assets have grown 35 percent in three years. Their 2013 ROA exceeded two percent after all expenses. Perhaps what is most interesting is that the CU serves members who live in an area with high unemployment and a higher than average foreclosure rate yet it managed to overcome every obstacle. Even better they helped create a lot of jobs and pay for 75 percent of their employee s undergraduate and graduate degrees. They have virtually no staff turnover and serve the underserved well. Tune in to our next article where we will give you the formula they used to turn their business around a formula you can easily duplicate. CU BUSINESS magazine prides itself on being the best of the best and wants to provide you with ideas that work and that you can easily adopt. Remember Every day is a good day to make loans let your members know. Be aggressive. Approve 90 percent or more of your loan requests let us show you how. A. Rex Johnson is the Founder Owner of Lending Solutions Consulting Inc. (LSCI) C M Y CM MY CY CMY K 12 Credit Union BUSINESS August 2014 www.cubusiness.com CFO CURRENCY for Liquidity Risk Management Best Practices By Robert Perry T oday many credit unions are awash in liquidity largely due to recent years of strong deposit growth and a decline in lending volume. While planning for liquidity contingencies may not be at the top of your agenda it shouldn t be overlooked. Clearly regulators feel the same way because as of March 24 of this year liquidity planning is a new NCUA requirement for all federally insured credit unions. NCUA s new Liquidity and Contingency Funding Rule is intended to promote sound liquidity management within the credit union system given changes in the industry s funding sources. The rule s specific requirements vary based on asset size but all credit unions must have board-approved written liquidity policies that address potential shortfalls in emergencies. For those greater than 50 million in assets a formal contingency funding plan is needed. Beyond regulatory requirements a well-thought-out contingency funding plan should be an industry best practice as a whole. It s important to remember that liquidity risk-- whether real or perceived--can affect an institution s financial condition or safety and soundness. Now while liquidity isn t causing concerns is the best time to plan for contingency funding. CFPS Sound Liquidity Risk Management The requirement for a contingency funding plan is not intended to be a guide for day-to-day liquidity management rather it s meant to ensure a credit union s liquidity sources provide sufficient funding during potential incidents. We ve identified five key steps for developing a comprehensive contingency funding plan as a blueprint to help credit unions manage various stress events establish clear lines of responsibility and outline implementation procedures. 1. Identify stress events Liquidity issues can take many forms when they arise. All credit unions should monitor and be prepared to manage the following Inability to fund asset growth Inability to renew or replace mature funding Unexpected withdrawals Changes in market value and price volatility Changes in economic conditions or market perceptions Dislocations in the financial markets Disturbances in payment and settlement systems due to operational error or local disasters. 2. Assess levels of severity and timing To help determine the significance of potential illiquid situations and how they would play out in specific environments many credit unions conduct detailed scenario analyses. These exercises help institutions prepare for contingency events by determining the most appropriate responses and identifying modifications to manage a range of various market conditions. Credit Union BUSINESS 13 www.cubusiness.com August 2014 CFO CURRENCY Exhibit 4 The outputs cFO cUrrENcy cUrrENcy cFO are calculated figures not assumptions. The have significant implication on the ALM conclusion. The need plan in progressive to 3. Assess and identify funding sourcesan end maturity objective of the used shouldfundingof time. Credit willsources be assumptions contingency be changed is to ensure intervals inputs allow the user to model cash flows with and needs reviewed and authorized and In planning for a are similar to amortizations. and the output should be operational to determine during and decay rates thatcontingency event credit unions should have are sufficient to fund normalrecalculated requirements the impact this can take weeks. a thorough understanding of both allow for the present value emergencies so assumption. have tools in place to evaluate the of a different it s critical to Dividend and discount rates the primary and secondary if you are uncertain as to sources of funding available and what these sources scenario. calculations (premiums) in each modeled interest ratecan and effectiveness of your plan and to identify any adjustments that the many requirements of cannot duration calculations might include share deposit effective provide. Primary sourcescan then mathematically be may be needed. A monitoring framework along with regular Conclusion applying and using derivatives growth to loan income secondary source examples are lines comparedand that of the institution s assets. in this case effective testing allows for deposits can be viewed as a enhancements non-maturing continuous improvements and franchise value consider engaging an external of credit and available-for-sale investments. Larger credit unions to the plan. duration is calculated by merely backing into the price change or benefits generated from loyalty of the membership when service provider to help Liquidity may not seem like a pressing issue when funding is you also can turn to federal liquidity sources during contingencies formula. For example if the liability present value is 100 in the deposits are retained when dividend rates are low in a higher through the should readily available but preparing for contingenciessteps. never such as the Federal Reserve Discount Window. base 101 in the up 100 basis point scenario and 99 in the down market environment. And vice versa A financial derivatives institution back from the used 4. basis point scenario the effective duration is one percent take theoffers burner. One key take awayProperly financial crisis Establish a liquidity management process 100 that a non-maturity dividend rate higher than market can offset interest rate In addition to having a formal process to follow when liquidity is the importance of preparing for the unexpected. Building arisk (i.e. (101-99) 200). to attract hot money will decrease and or a contingency its sound liquidity risk management policy the economic within ofthe that is inherent value becomes tight credit unions should be able to identify the key liabilities. a crucial--and model these accounts for a more credit plan it is imperative to now vital because as competition personnel needed and define requirements. The if liquidity competencies to meet the finaltheir changing roles second part funding unionisindustry today. This is required--responsibility. accurate need would allow and unions sensitivity Analysis submitted when all requirements are Ignoring derivatives can be unsaferate risk. to compete more grows thedepiction of interestcredit unsound. issues escalate. and final application is The regulator strongly suggests sensitivity analyses as a means effectively. completed including dealer contracts. 5. Establish a monitoring framework Emily Mor Hollis CFA a partner Portfolio Strategies to quantify the effects of changing assumptions. sensitivity Robert Perry is ManagingisDirector - with ALM First Financial setting up the importance of is similar to becoming Don t overlook a line at a dealer monitoring liquidity levels a Advisors Management partner with First Financial analyses are essential because the core share evaluation may Investment LLC.CFA is a Group at ALMALM First Financial member of the and after can be laborious and takes a goodThe both during FHLB--it unexpected liquidity crunches. deal Emily Hollis Advisors LLC. Advisors LLC. 14 Credit Union BUSINESS August 2014 www.cubusiness.com www.cubusiness.com www.cubusiness.com March 2014 January 2014 credit Union BUSINESS credit Union BUSINESS 17 13 COMPLIANCE UPDATE Three Ways Your Trade Association Can Help You Manage Proposed Rules Raise Your Voice By Erin O Hern I t s often been said that over the last few years the financial industry has experienced the greatest regulatory change since the Great Depression. The Dodd Frank Wall Street Reform and Consumer Protection Act not only required new regulatory restrictions it also created a new agency--the Consumer Financial Protection Bureau (CFPB)-- to study issues impacting consumers and write new regulations. The CFPB comes as an addition to existing regulatory agencies such as the National Credit Union Administration (NCUA) and State Supervisory Authorities (SSA) that are also endowed with certain rule making authority. In order to ensure a sustainable future in these times of regulatory change it is crucial that regulators hear the credit union perspective. Finding the necessary resources to address proposed rules in this regulatory environment can be a challenge especially as credit unions are already weighed down with implementing final rules. However the significant impact that the proposed rules could have on the long-term growth and direction of the credit union does not allow them to be ignored. Trade associations can help your voice be heard and ease the burden imposed on credit unions. Here are three ways you can use credit union trade associations to simplify and enhance your credit union s participation in the regulatory process. 1. Submit a comment letter. Your trade association at the national level and often your state credit union league has resources to help you learn about the proposed rule--the first step to submitting a comment letter. Check out their websites for tips on the most impactful provisions of the proposal. Resources to get your comment letter started are also available www.cubusiness.com August 2014 such as sample comment letters tips on writing your own comment letter rule summaries and upcoming comment deadlines. You can also contact your league individually if you have questions. Reach out to them Many CUs feel their comment letters do not make any impact however this is not true. While rules are not always changed in the credit union s favor certain regulators such as the CFPB and NCUA will read each unique comment letter and will often make adjustments to the final rule based on these comments. Trade association and credit union comment letters are critical as they often explain a potential consequence of the rule or operational issue that regulatory agencies may not have considered. For example the safe harbor provision in the 2012 proposed remittance transfer rule was changed due to comments the CFPB received. Credit unions and trade associations submitted comment letters explaining that the threshold was too Credit Union BUSINESS 15 COMPLIANCE UPDATE low to be meaningful and urged the CFPB to re-write the provision. The threshold was originally set at 25 remittance transfers in the previous calendar year and 25 remittance transfers in the current calendar year. After reviewing the comments submitted by credit unions the threshold was increased from 25 to 100 remittance transfers. significant changes from the proposed rule that benefited credit unions. One of the most impactful changes that the feedback encouraged was a higher single originator concentration limit. Following comments submitted to NCUA the final rule increased the concentration limit from 25 percent of net worth to the greater of 5 million or 100 percent of the credit union s net worth. This not only allowed larger credit unions greater flexibility in purchasing loan participations from a single originator it also created more possibility for small credit unions to participate in these types of loans. While individual credit union feedback and participation is critical to the process your trade association is constantly working to ensure that the credit union perspective is heard. Consider the recent risk-based capital proposal issued by NCUA. Over 2 000 comments were submitted to NCUA. The coordinated effort among individual credit unions state and national trade associations and others within the industry demonstrated the impact the proposal could have on credit unions. While we await the outcome of the comments and listening sessions I encourage credit unions to stay in touch with their trade associations to help shape the future of regulations. Erin O Hern is regulatory counsel for PolicyWorks. She oversees PolicyWorks credit union league compliance services managing compliance inquiries informing credit unions of new compliance requirements and providing a comprehensive resource of federal credit union regulations. She previously held the position of Compliance Attorney at PolicyWorks. Erin received her law degree from University of Iowa College of Law and is a member of the Iowa State Bar Association. Erin has also earned CUNA s Credit Union Compliance Expert (CUCE) designation. As a national leader in credit union compliance solutions PolicyWorks is known for having the vision and expertise necessary to assist with the most challenging compliance issues. For more information visit www.policyworksllc.com. The services provided by PolicyWorks should not be construed as legal services legal advice or in any way establishing an attorney-client relationship. 2. Attend town hall meetings and listening sessions hosted by regulators. If you are planning to attend a town hall meeting let your trade association know. They can help you develop talking points and coordinate with other industry colleagues who are attending. The CFPB conducted extensive consumer testing for the new mortgage rules as well as hosted town hall meetings in various cities. Comments voiced to the CFPB explained the operational difficulties and unintended consequences of certain provisions contained in several of the proposed rules. One of these issues involved the proposed change to the definition of a finance charge which would have included more fees than the existing definition. After reviewing comments and coordinating town hall meetings the CFPB elected not to include a change to the definition of a finance charge in their recent integrated mortgage disclosure final rule. 3. Provide feedback to your trade association. Your examiners are in your credit union this week or you are short an employee and there is no time write a comment letter or attend a town hall meeting. One of the best ways a trade association can assist you with the commenting process is by aggregating your feedback with the comments they have received from your colleagues. This is not limited to a proposed rule either if your credit union has difficulty with a specific regulation let your trade associations know. Providing specific examples of how the rule or regulation may impact your credit union and your members is valuable information that your trade association can use when communicating with regulators. Credit union trade associations coordinated efforts after reviewing NCUA s proposed rule concerning loan participations. The final rule issued in 2013 had 16 Credit Union BUSINESS August 2014 www.cubusiness.com CU CONTENT Activating the Under 25 Crowd By Laura Enock Recruiting Millennials How South Carolina Federal Credit Union is Using Technology to Get Young People Excited About Finance I t s always difficult to sell young people on the future but it has never been more challenging than it has been with millenials. Because they ve been raised on the instant gratification of pocket communication and high speed Internet access the promise of a potential reward-- thirty years into the future--does little to ignite their passions. This is especially challenging for credit unions which excel at establishing themselves as lifetime financial partners in their communities. Part of the problem is age-old Many young people do not realize they need financial services until they re mired in debt or have credit problems at which point it may be too late even for credit unions to do much more than help them pick up the pieces. Of course it s far better for everyone involved if teens get started down the path of financial security early on in life. And that early involvement is just what South Carolina Federal Credit Union aims to achieve. Rebekah Pieper (Marketing Segment Manager) and Meredith Siemens (Executive Director of Public Relations and Communications) worked with the SCFCU team to develop a new marketing strategy to help make finances more approachable. After experiencing success targeting this market while working with the Young and Free credit union group the SCFCU felt they had developed the necessary skills to create an inhouse program. They appropriately named their program smpl. (pronounced simple) and so far their initiative has worked like a charm. They ve gained more than 1 000 new members in their targeted age range of 15-25 year olds (nearly 30% of total new member enrollments) since the campaign kicked off in September of 2013. Credit Union BUSINESS 17 www.cubusiness.com August 2014 CU CONTENT Inspired by abbreviated hashtag language smpl. was designed to help the credit union keep up with millennials and their desire for the next big thing. It s focused on being quick to the point and how South Carolina Federal can help young members of their community. South Carolina Federal realizes that it s easier to recruit and engrain responsible financial behavior in younger people and begins recruiting new members at age 15. Siemens recognizes that once out of high school students often travel in radically different directions and says At the age of 20 one member might be entering college while another is starting a family or serving in the military or working a 40 hour week. That s why it s ideal to attract younger members before they set off on their separate life tracks. It s a very smart generation. They know what they want and will find out how to get it. We are tasked with directing their attention and ability into financial pursuits reports Siemens. An example of this kind of direction is South Carolina Federal s graduation promotion. They recognized that graduates get a lot of money as graduation gifts probably more cash than they re used to having. South Carolina Federal offers new graduates a 50 matching deposit for opening an account. They use it to encourage savings and allow members to reach longerterm goals or purchases. A quick tour of the website smplsc.com reveals a dramatic shift in tone and content from other credit union marketing 18 Credit Union BUSINESS sites. The SCFCU staff has posted candid pictures along with their bios that often list their favorite TV shows. The page designed to appeal to young people includes a blog educational materials and information about the CU s annual scholarship. They ve labeled the events section of the page happenings and it includes dates locations and times when millennials can meet the SCFCU staff. They held their first happening which were major smpl. brand motivators just one week after launching its website and were astonished by the turnout 150 people attended the launch party which was held at a restaurant bar bowling alley in downtown Charleston. The credit union went where these young people go says Pieper. At this and subsequent happenings SCFCU s goal was to establish a millennial community presence rather than advertise their financial services. While pictures and posters bear the tag line Powered by South Carolina Federal Credit Union there s no aggressive selling. Instead Credit union staffers circulate through the crowd and converse with attendees personally spreading information about the credit union s services whenever appropriate. They also hold raffles and give away gift certificates and other items in exchange for contact information. Siemens and Pieper believe their efforts have been successful. In addition to signing up new members smpl. has increased member subscriptions to other services and on average smpl. members use roughly one more service than www.cubusiness.com August 2014 CU CONTENT the overall member population (3.76 services per member on average 4.67 in the smpl. segment ). Members of this segment also have a 25 percent higher adoption rate for checking and debit cards and a 24 percent higher enrollment rate in online banking services and eStatements. They take out fewer loans probably due to their having more limited capital needs compared to other groups but SCFCU hopes to grow this business as the members mature and enter their borrowing years. Siemens points out that their style of interaction is likely the way of the future. She says There is an interesting takeaway [from these online numbers] about the next generation credit union member. They deposit on the go check balances outside of brick and mortar establishments and value services that expedite their schedule. In order to keep up with the technologically savvy consumer more credit unions may need to develop platforms like smpl. Fortunately other technological advances make the smpl. strategy easier to adopt on a budget. They use weekly blog posts daily Facebook and Twitter status updates and frequent Instagram photos to advertise their message. By using a competitive internship process to hire staffers for their program South Carolina Federal is able to generate interest and keep labor costs down. Their next move is assembling an expanded street team of six to ten members at college campuses who will bring presentations into classrooms and group meetings on credit related topics car purchasing credit monitoring resumes and so on. Hopefully by doing that they ll think of us when getting a car loan or a mortgage Pieper adds. Other credit unions looking to follow the smpl. plan need to look at new modes of marketing. A clever flier that comes in their pizza box may sway them more than a costly billboard Siemens points out. Branded neon slap bracelets Wayfareresque sunglasses and chunky watches have also helped South Carolina Federal spread the word by branching out from traditional promotional swag. The most important piece of advice from the South Carolina Federal case is this be present. This demographic has a strong sense of branding and logos. They intertwine the brands they utilize with their personal brand says Siemens. Credit unions can t be afraid to show who they are and how they are eager and able to serve young motivated people. Laura Enock is Founder and Publisher of CUcontent.com a credit union-specific content service. Join hundreds of credit unions getting FREE monthly content Email her at laura cucontent.com or visit CUcontent.com. 20 Credit Union BUSINESS August 2014 www.cubusiness.com CU CREDIT Interest Rate Risk By Ben Rempe ith minimal effort credit card accounts and balances have grown as financial institutions have taken advantage of market opportunities as well as low charge-offs and cost of funds. The result has been a nice revenue stream and ultimately your credit card portfolio has bolstered your loan to share ratio. However consider for a moment whether your portfolio is positioned for the future. How will your credit card portfolio perform when interest rates rise Have you maximized the potential of your credit card portfolio or have you just enjoyed the benefits of the status quo Have you analyzed your portfolio to determine who is using your credit card Have you examined your risk management profile to ensure the most credit-worthy card members are being rewarded with the best rates and credit lines Has your marketing strategy included a direct mail campaign that is segmented based on credit scores and other pre-screening criteria Have you adjusted interest rates and credit lines How soon will you be migrating your portfolio to meet the EMV standard If your credit card portfolio s performance is benefitting your bottom line then you may not see these issues as relevant. However in the near future questions such as these will inevitably shape your conversation about how to maintain a successful portfolio. There is an interest rate storm brewing. When CARD Act was first introduced in 2009 there were predictions about the negative effect this landmark legislation would have on credit W Managing Community-Based Credit Card Portfolios Has Been Rewarding For Financial Institutions Over The Past Few Years. card portfolios. Instead after the initial changes CARD Act has largely been a non-event for one reason rates have remained at historic lows. It is important to remember the impetus behind CARD Act was to protect the card member which in the case of interest rates was controlling how an issuer can make changes to the rate on current and future balances. Specifically issuers cannot increase or decrease rates without a 45-day notice nor can interest rates on existing balances be changed. In addition unless the card has a variable-rate pegged to an external index like the Prime Rate the rate cannot be adjusted. Prior to the CARD Act implementation financial institutions were able to change rates overnight and have the new rates immediately applied to existing balances now changes can only be implemented on new balances which means the protected balance or the balance at the lower rate can be carried on your books for years. How do we know TMG Financial Services (TMGFS) has been aggressive in managing the realities created by CARD Act and we have documented the length of time it takes for a portfolio to adjust to a target yield. Without fail www.cubusiness.com August 2014 Credit Union BUSINESS 21 CU CREDIT it has taken nearly three years for a converted portfolio to reach the target yield. The chart below demonstrates this. So at this point we again ask How will your credit card portfolio perform when interest rates rise Why Compression Will Come While we are not in the business of predicting economic futures we are students of what has happened historically. This much we know the United States is currently in the least volatile period of Fed rates ever. Because the balances are protected and often at a lower rate we cannot make any adjustments to the balances we assume. We have to wait for those balances to roll from the books while we add new balances that are priced according to our risk models. Even with consistent marketing and other efforts to offset the lower-rate balances it takes almost three years for the portfolio to rise to the target yield. A higher yield in your credit card portfolio will take time and you should contemplate that it will take three years to achieve target yield in today s environment. How much longer will it take to achieve target yield when rates become volatile This observed three-year timeframe has come at a time of unprecedented stability in rates. Because rates have remained at all-time lows offering an interest rate below 10 percent on a fixed-rate portfolio hasn t been a problem. All things considered there have been few reasons to make adjustments to your portfolio. We certainly understand the allure of a low rate. For years many financial institutions have operated under the belief that a fixed-rate low-rate credit card is consumer friendly and critical to attracting potential card members. Unfortunately we haven t seen any evidence that this strategy is effective. It is true that savvy cardmembers look for the best offer but their decision isn t based on rate alone. A competitive card includes a combination of factors including rewards cardmember service rate fees and consistent marketing. Success will hinge on a sophisticated balanced approach over a sustained period of time. This is not a surprise as the Federal Reserve has been deliberate in keeping the rates low to assist in the economic recovery. But look at where the rates are today. They are historically low and stable and if you use past data as a guide it is inevitable rates will increase. CARD Act provisions deliberately limit the options of credit card issuers. In the three years since CARD Act became law the rates haven t moved from historic lows which means there hasn t been a need to make interest rate adjustments to your portfolio. If you are still not convinced imagine the chairman of the Federal Reserve had announced that rates would rise in the first quarter of 2014. If rates had increased 25 basis points how would your portfolio perform What if the rates increased 100 basis points How about 200 basis points The conventional belief is rates will only go up a few basis points at a time and most financial institutions can weather that--so long as the few points are not a frequent occurrence. 22 Credit Union BUSINESS August 2014 www.cubusiness.com CU CREDIT Let s look at it another way using the two charts above. One is the average fixed-rate credit card portfolio the other is a variable portfolio. The primary drivers are charge-offs and rates. In the fixed-rate portfolio as soon as rates begin to rise the margin immediately disappears because the portfolio was already priced into whatever cushion existed. In the variable-rate scenario there is considerably more time to make adjustments because there are already triggers in place that allow the rate to adjust upward. Ultimately the variable-rate portfolio is in a better position to make the necessary adjustments to remain a strong asset. The fixed-rate portfolio is left with few options because CARD Act rules remove many options. Next Steps Anticipating future interest rate environments is a critical factor in whether your credit card portfolio will remain a vital piece of your product offering. Right now it appears time is on your side because the best guess is the Federal Reserve will not begin to raise rates until mid- to late- 2014 (some are even saying 2015). If you changed your portfolio from fixed to variable today and if rates rise in 2015 we project only 50 percent of your balances would be repriced to rise with interest rates. Determining when rates will increase isn t your only time consideration. Everything about running a successful portfolio takes time. As part of normal risk management you should conduct a periodic rate shock analysis of your portfolio. Additionally you should evaluate the overall pricing and risk management strategies in relation to your credit card portfolio. Once you ve determined the changes needed they will take time to implement. Even if you are simply making adjustments in a variable-rate credit card portfolio time is a factor because existing balances remain protected from the new interest rate and pricing structure--up to three years in our experience. For those moving from a fixed-rate to a variablerate pricing structure the road is more difficult and will become increasingly so once rates begin to rise. And make no mistake this conversation isn t just for those financial institutions with a fixed-rate portfolio it is also for those who do not have the resources to manage a successful credit card portfolio. To compete in the future you must have a reasonable long-term strategy for attracting new accounts or increasing balances. The competition is fierce. Six of the country s largest issuers still hold approximately 90 percent of the market. Why They offer low variable rates and they are aggressively pursuing your best cardmembers with continuous marketing. They are singularly focused on increasing market share that incorporates sophisticated marketing and risk management strategies available to card issuers with the appropriate resources. Changing from fixed-rate to variable-rate pricing won t immediately address market share but it will remove an obstacle to the future success of your program. Take the steps now to strengthen your credit card portfolio. We are here to help and are committed to ensuring success in your financial institution with an effectively managed credit card program. If you d like to receive a no cost risk free analysis of your credit card portfolio contact us at 888.428.4720 x5288 or marketing tmgfinancialservices.com. Ben Rempe is Vice President of Business Development for TMG Financial Services. He helps financial institutions examine their credit card portfolio options specifically focusing on how to grow the credit card asset. Credit Union BUSINESS 23 www.cubusiness.com August 2014 CU E-BANKING Building an E-channel Roadmap By Mark Vipond P Many of the online and mobile technology decisions made by credit unions have been reactions to rapid member adoption of digital devices and increasing industry competitive pressures. Now credit unions find themselves in contracts with a handful of vendors who don t always work well together. In addition the pricing models and disparate digital channels in place are increasing costs and often create poor member experiences. channels resulting in a poorly optimized member experience increasing per user costs and rising complexity within their operational environments credit unions in this situation are sacrificing their competitive advantage while spending too much money. Now is the time to consider remodeling your e-channels to incorporate a more strategic seamless and cost-effective approach to providing members with the digital experience they expect. ublications and online forums are filled with debates over the future of the branch. Some advocate for remodeling strategies that lower costs by providing the minimum needed to support those members who continue to frequent the branch. Others argue that turning the branch into something more akin to shopping at an Apple store will drive more revenues through personalized member experiences. With branch traffic flat or declining it is remarkable how much thought and planning is given to a channel whose future is questionable. This effort to sort out how to build the branch of the future too often eclipses the amount of time being spent by institutions on developing a digital strategy for delivering e-channel services. Today more than 60 percent of those with access to the Internet access and manage their accounts online and a third of these use mobile devices to conduct banking transactions. Since the introduction of the iPhone in 2007 members have demonstrated a growing appetite for digital devices that deliver convenience and access to the services they depend on to organize their lives. As expected credit unions have worked hard to provide the digital tools and services their members demand and have developed an impressive range of e-channel offerings. But all too often these services have been rolled out--one on top of the other--with the absence of a long-term strategy. The result is an unsustainable digital services model. With disparate service Exploring the ROI For some credit unions gaining better access to member data and providing those same members with a more seamless experience might be reason enough to replace their legacy e-banking platforms. However most organizations need to cost justify before beginning such an undertaking. To properly analyze costs you need to know what you re currently spending on e-banking services. In many cases credit unions rely on a consortium of vendors for digital service each with different reporting and pricing structures ranging from one-time charges to usage fees which makes it difficult to track the bottom line. Those that have waded through the morass of pricing strategies and fee levels are often shocked by what they discover. 24 Credit Union BUSINESS August 2014 www.cubusiness.com CU E-BANKING By the time all the costs associated with digital services-- including online mobile bill pay PFM services and more-- are added up some CUs will discover they are paying up to 5 a month for each digital user. And that is not necessarily the worst of it. The cost per user rises as members adopt new digital devices that demand their own point solutions. Continuing along this path only increases the cost of operations. One financial institution I spoke with has 70 000 online users. They pay 1.10 per month for each online user plus an average of fifty cents for bill pay transactions and an additional 1.50 for mobile banking users and transactions. By the time you add in PFM person-to-person and account-to-account service charges this institution pays more than 4 per user per month. The executive I spoke with at this organization said that it was cheaper to serve his customers at the branch than to give them all the digital access they wanted. But of course that is not an option since consumers not financial institutions are driving the digital revolution. You might find yourself in a similar position and feel the cost structure is manageable. But be warned Even though this approach might be acceptable today inevitably your CU will reach a breaking point as more digitally savvy Millennials become members and member digital adoption grows. If the FI previously mentioned doubled its number of mobile users the organization would see its cost to serve mobile members rise dramatically with little to no decrease in the charges associated with other e-channels such as online banking. Implementation fees are another area where costs quickly multiply. One-time implementation fees have become excessive and add up quickly when you work with multiple vendors. These fees are derived from various components including Online and or mobile banking implementation Host system certification Fees charged by the core vendor Security entitlements and integration Payments solutions and single sign-on implementation Secondary language options Data conversion COMPLIANCE IS OUR POLICY PolicyWorks is a national leader in credit union compliance solutions. Our team of experienced professionals offer a wide array of compliance services. We re your partner to make compliance easy. Visit us online to learn more policyworksllc.com. www.cubusiness.com August 2014 Credit Union BUSINESS 25 CU E-BANKING whether they are using a PC smartphone tablet Google Glass or other devices able to access the Internet. Truly knowing members--their financial activities lifestyles and demographics--is arguably the most valuable asset a credit union can hope to attain. Mobile optimization PFM App development Training Estimating conservatively gradual e-banking implementation costs can range from 225 000 to more than a million dollars in one-time fees depending on the size of the credit union. In addition to escalating implementation and user fees keeping disparate e-channels updated and in compliance with Federal regulations can be a serious drain on IT resources. The idea of managing apps and sites for online mobile and tablet devices each with unique qualities and usage preferences can be overwhelming. According to Javelin Strategy while consumer tablet adoption hovers around 38 percent--much higher than smartphone adoption--more than half of the top 25 banks do not have specific apps for tablets. This is a sign of app fatigue or the reluctance on the part of a financial institution to provide native apps for each new digital device given the overhead involved in app upkeep across multiple devices for multiple app stores. If the largest 25 banks cannot manage these volumes it is difficult to imagine that CUs will be able to over the long run. That is why many credit unions depend on one or more vendors to deliver and maintain their apps. Of course the downside to that approach is that you are captive to vendor timelines for upgrades and new feature functions. With one in six consumers changing financial institutions based on their digital experience this limitation can be significant. It takes a comprehensive digital strategy to get out of this quandary if credit unions are to live up to member expectation of an Amazon-like experience across all digital channels 26 Credit Union BUSINESS Knowing Your Members Implementing an Amazon-like experience is more than a long-term cost containment strategy. Amazon was a pioneer in leveraging customer data to market and cross sell which it did effectively thanks to its omnichannel infrastructure. Truly knowing members--their financial activities lifestyles and demographics--is arguably the most valuable asset a credit union can hope to attain. Having this data can help credit unions win wallet share increase loyalty and gain access to new generations of members. Knowing more about members becomes exponentially more difficult as the number of digital channels increases since member data is stored in different locations on different platforms. These data jails are made even more impenetrable by the fact that many credit unions use third-party vendors and single sign-on strategies to control their brand the user s experience and all associated data. I am stunned whenever I see financial institutions allowing some of these providers to brand websites with their logo. The logic behind allowing this escapes me and it seems to be a clear dilution of the credit union s brand value. Money movement is one area where surrendering the user s experience and data has become an accepted industry practice. By outsourcing bill payment P2P and even A2A credit union s force members go to multiple screens each having a different user interface. Not only is this inconvenient for members but CUs also lose access to any data that would allow them to route some of those payments through less costly channels. I work with one institution that decided to take back control of the user experience and data for their bill payment offering. This made new data available that revealed the institution was its own single largest bill pay recipient. Each month it was paying six figures to the bill pay provider who was sending paper checks to the institution so that its own customers could pay mortgages held by the financial institution itself Taking Action If you assume that the limitations inherent in using a disparate multi-channel approach make it an unacceptable strategy for servicing member needs what steps should you take to www.cubusiness.com August 2014 CU E-BANKING Learning When The Time Is Right According to Aberdeen Group Inc. institutions with the strongest omnichannel customer engagement strategies retain an average of 89 percent of their customers compared with the 33 percent for companies with weak omnichannel strategies. There are a variety of technology implementation options--such as using a hosted or on-premise infrastructure--available for deploying a strong omnichannel strategy regardless of an institution s size. However if your organization is going to commit to this approach then it will need an appetite for working with innovative and often smaller companies. Legacy suppliers are limited on what they can offer in terms of solutions that position financial institutions for the digital future by their size and success. Most of their time and money must be invested in maintaining their existing products and they rely on strategic partnerships and acquisitions to maintain relevancy. Every credit union should reevaluate its e-banking strategy to ensure a better member experience and enable more members to take advantage of their mobile and online services. But if your institution s online users are not growing by at least three percent annually and your mobile users are not at least 30 percent of that online total then you must reevaluate your offerings for ease of use convenience and productiveness. A McKinsey & Company research study entitled The Future of U.S. Banking Distribution shows 65 percent of customers interact with their banks and credit unions through multiple channels. This number will increase exponentially as technology advances and members become more comfortable with new devices. Having a single comprehensive digital platform positions your credit union to take advantage of a growing market and leverage the data necessary to grow deeper relationships with members. Mark Vipond is chief executive officer of D3 Banking an innovator in omnichannel data driven digital bankingTM. Prior to founding D3 Banking he was president of ACI Worldwide Inc. He currently resides in Omaha with his wife and six children. For more information about how Vipond is rebuilding the e-channel roadmap visit www.D3Banking. com. consolidate e-channels As with most strategic decisions the C-suite is often in the best position to understand the benefit of integrating the e-banking channels since they operate on a level more concerned with sustainable business models than whatever turf wars might exist and it is important to get them onboard. Even with C-level sign-off it may not be practical to consolidate all of the digital channels delivering services to your members at once. Vendor contracts and IT infrastructure may make it more practical to design a staged or hybrid implementation. For example you may want to replace your legacy online system because of its age and limitations while waiting for your contract with your mobile banking vendor to expire before moving that service over to a new single platform solution. If you go this route you must make sure that the strategic platform solution you choose is truly omnichannel i.e. able to support a comprehensive set of banking services without needing to integrate third party solutions such as PFM or data analytics. Integration strategies inevitably limit options and impact the timing of new initiatives you might launch. Regardless of the course a roadmap that leads to a single platform allowing for the consolidation of all e-banking channels positions credit unions to better meet the needs of a member base whose appetite for digital devices is not likely to abate in the near future. Credit unions that elect not to go on this journey in the next 12 to18 months will likely be at a distinct disadvantage viz a viz competitors who do. www.cubusiness.com August 2014 Credit Union BUSINESS 27 TECHNICALLY SPEAKING Accurately Measuring Profitably Becomes a Key Strategy By Roy W. Urrico M As the volume of transactions at branches plunge and the cost of doing business rises understanding profitability correctly becomes even more important to each credit union s survival. Properly analyzing how different contributing factors influence profitability produces more knowledgeable and accurate decision-making product pricing and other major facets that determine an institution s precious bottom line. How Axiom EPM Helps a Credit Union What sets us apart from other vendors is a certain level of analytics to our FTP model (beyond the typical FTP model) explains Levey adding that through analytics the system can assist in determining the profitability of every single product loan and deposit. Levey explains that most vendors look at FTP as one dimensional reporting FTP gives us the what our analytics help tell us the how and the why. Axiom EPM is unified system that includes FTP profitability budgeting and planning incentive compensation strategy management and capital management. They are all integrated on one platform one database explains Levey. So whether a client is running full profitability or just FTP processing their budget or simply running management or financial reporting we have one system that does it all. Axiom EPM offers it as both cloud based or on premises. Our solution is the exact same either way most clients have it on premise but recently we ve been getting more cloud requests he adds. Axiom handles data whether it originates from accounting systems a general ledger system or core application systems. We have different methodologies to load data what is called ETL--an extract transfer and load process--built right into the application so we can grab data from their accounting core systems or general ledger files and load them into the Axiom systems points out Levey. Typically FTP systems are not real time and this process takes place at the end of the month. easuring profitability is not a new process. However in the past profitability models were often bought and left on the shelf because financial institutions either did not know how to implement them effectively or obtaining the necessary data to make them work was too difficult. Today credit unions understand they need to analyze the data and find out what accountholders channels and products are profitable. Funds Transfer Pricing (FTP) is a critical element in the calculation of profitability within a financial institution points out Ken Levey industry vice president of Financial Institutions at Axiom EPM. Numerous financial institutions focus on attaining precision when calculating the FTP rate but they overlook the analysis of the resulting calculations. According to Levey deeper analysis of FTP results leads to improved pricing decisions and allows the credit union to better comprehend and dissect performance. It also provides clearer insight into how these factors contribute to a credit union s net interest Ken Levey VP of Financial Institutions at margin. Axiom EPM 28 Credit Union BUSINESS August 2014 www.cubusiness.com TECHNICALLY SPEAKING Implementation Cloud or on premises implementation does not matter to Axiom. It is all about the data says Levey. To set up the Axiom system we receive data files from clients and cleanse it. We then notify the clients what needs fixing. The biggest pitfall to FTP implementations is always the data getting data that is clean and making certain the data works in usable formats. This includes calculations used to measure the FTP rate. Once we get past that point FTP implementations are really about passing on knowledge to the [credit union] points out Levey. Axiom offers clients their opinion on what rates and yield curves to use as a basis for FTP calculations but encourages them to talk to their peers to find out how they are doing things. A lot of FTP is about the data and the assumptions you use in the model. According to Levey this should include 1. Analysis of Risk-Based Pricing--Traditional FTP reporting includes balances rates FTP rates and FTP spread for the portfolio. However by integrating other fields such as each member s FICO score risk ratings and zip codes credit unions can decide if its loan officers departments or channels are utilizing riskbased pricing (lower credit score loans should show a higher FTP spread higher quality loans should show lower spreads). 2. Analysis that Considers the Time Dimension--by employing a vigorous database a credit union can achieve greater insight into historical and current pricing decisions made by the institution. A credit union gains a great deal of information by also analyzing historical trends. By incorporated these elements into the FTP process credit unions mine significant additional value from their transfer-pricing system which is the major piece in the institution s profitability structure. Axiom FTP report screen Axiom report screen The Challenge The challenge for credit unions is not just calculating FTP rates but determining how to analyze and leverage the data to make more informed decisions. According to Levey many institutions focus solely on calculating precise FTP rates which underutilize the analytical value that a deeper FTP reporting tool provides. Levey explains that installing an intricate well-structured FTP Axiom Report screen 3 tool supplies credit unions with margin precision throughout all facets of the institution. In order for credit unions to develop an accurate and reliable measure of member business unit product or officer profitability it must start with a theoretically sound approach to calculating FTP says Levey. This means having an FTP system www.cubusiness.com August 2014 Credit Union BUSINESS 29 TECHNICALLY SPEAKING with all-inclusive calculation methodologies using proper assumptions that reflect the institution s products such as FTP rates a FTP yield curve and even spread adjustments. Credit unions (and banks) have an assortment of transactions created over a long period of time. As such transfer pricing systems price each customer record based on the expected cash flows at the time of origination utilizing the interest rate environment at that time. For example to price the entire balance sheet the institution needs to have all the historic term structures for their selected transfer pricing yield curve going back as far as their oldest asset or liability. This is where it gets a little complicated but a firm understanding helps to better understand the bottom line. An institution begins implementing transfer pricing by defining their transfer pricing curve. The curve according to Axiom should represent the institution s capacity to source funds of diverse terms on the wholesale market. The broadly utilized LIBOR Swap Curve contains the credit worthiness of non-governmental entities approximating an A rating which is a good proxy for a strong financial institution according to Axiom. Each institution should adjust their transfer pricing curve to reflect their ability to source funds in the market. The process of deriving an accurate theoretical cost of funds for a loan or an earnings credit for a deposit has evolved over the years details Axiom. Well-designed FTP systems will transfer price for each customer record based on the cashflow characteristics of the record. These are essential for FTP to correctly process each individual record level based on that product s uniqueness. The process enables credit union executives to make more informed decisions regarding its profitability drivers and effectively determine product pricing. The hardest part about an FTP model suggests Levey is getting that corporate buy-in. You are changing the whole mentality of the credit union. For example typically financial institutions look at loan officers as the rock stars or profit makers of the organization and the deposit gatherers as people causing expense. With an FTP model the organization evaluates each transaction based upon the selected FTP curve. The inclusion of a transfer pricing curve drastically changes the understanding of the makeup of net interest margin and how the credit union s activities contribute to it. Essentially the process rewards deposit-gatherers for realized cost savings compared to sourcing the same funding in the wholesale market. New World of Profitability In the past financial institutions typically used Axiom EPM for budgeting and planning reporting. Today FTP budgeting and planning and profitability are the three main areas of purchase. Some clients use the model in conjunction with its incentive compensation program. Axiom EPM built up a very strong team of consultants sales organization thought leaders and developers to aide credit unions desiring to implement Axiom EPM s solutions. Among the credit unions that already implemented parts of the Axiom EPM suite are the University of Wisconsin Credit Union United Nations FCU and Security Service FCU. We have clients who use our product and model profitability down to the customer level says Levey. This becomes the basis for how they pay people within the organization. They may no longer pay loan officers on volume originated but on profitability and the risk adjusted return they bring to the organization. If there are two things we learned from 2007 it is that not all growth is good and that getting all employees thinking about profitability will lead to better results for the credit union. Roy Urrico is a freelance ghostwriter and byline writer of books Web content including blogs articles newsletters guides case studies and white papers about financial institutions financial technology compliance information security credit and collections foreign exchange and many other 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. 30 Credit Union BUSINESS August 2014 www.cubusiness.com See what you re A Collateral Protection Insurance Program that pays you up to 20% more in claims See the complete story at www.seewhatuaremissing.com Based on State National Companies analysis of actual competitor claims paid between September 2011 to August 2012. 2014. State National Insurance Company underwrites all coverages and endorsements available through the CUNA Mutual Group State National Companies Tracked Collateral Protection Insurance alliance in all states except Texas where National Specialty Insurance Company a State National company also provides underwriting services. Product availability and features may vary by jurisdiction and are subject to actual policy language. All statistics included in this ad were provided by State National and are based on internal statistics customer surveys and industry benchmarking studies related to Collateral Protection Insurance. CP-875779.1-0314-0416 CYBER SECURITY There is No Cyber Security Easy Button Debunking the Myth of the Unmanaged SIEM By Paul Caiazzo C 32 As a culture we often prefer taking the easy way out of solving complex or difficult challenges. Why go through the hassle of eating healthy and putting in hours at a gym when we can just pop a prepared frozen diet dinner into the microwave and watch TV as we look at the unused treadmill sitting in the corner As most of us quickly learn easy button solutions usually don t work regardless of what a salesperson or infomercial may say. yber security is no different. Good Cyber Security Governance requires that you balance your CU s operational needs against protecting member data financial transactions and the systems that support them. Getting it right changes regulatory compliance from an arduous task to an automatic by-product of a well-functioning program. Security Information and Event Management (SIEM) is the process of collecting analyzing correlating storing and alerting security event logs from network devices or applications. SIEM addresses several requirements of the NCUA FFIEC and PCI standards and is a key component of every mature cyber security program in existence. A good SIEM will capture logs from a huge array of devices and applications apply advanced analytics against those logs correlate events logs across a network generate alerts that a human being must then act upon and summarize this information via interactive dashboards. They can be used to provide real situational awareness to an organization and are a crucial component of the Incident Response Process. SIEM can be delivered as a pure software solution as a standalone appliance or even as a managed service. Credit Union BUSINESS August 2014 www.cubusiness.com CYBER SECURITY This means SIEM can help pull the proverbial needle from the haystack of event logs. A typical CU environment can generate hundreds of millions or billions of event logs per day. Of those billions perhaps 1 000 represent some potential security relevant event. Those 1 000 events can be correlated aggregated and will often reduce down to 100 or fewer that are more likely relevant and of those anywhere from five to 10 represent actual security incidents to which the organization must respond. However building and maintaining a sound and compliant cyber security program is not easy and it is perfectly reasonable to look for viable shortcuts that will help ease the process. In fact if you take the SIEM salesperson s word for it there are easy buttons all over the place just waiting to be pressed. The misconception--and often the sales approach--is that once the SIEM is installed the job is done in fact it has just begun. SIEM requires ongoing attention from trained security analyst staff. Failure to budget for and allocate the appropriate human resources to its implementation and maintenance will result in failure and a wasted budget 100 percent of the time. Ongoing operational and support tasks can require anywhere from a partial full time equivalent (FTE) in the most basic environments to multiple FTEs in organizations seeking to implement an around-the-clock detection and response capability. Make sure to account for these tasks when planning a SIEM purchase and honestly assess whether existing staff has the necessary skill and bandwidth to add this responsibility to their current workload. If you anticipate a shortfall plan to hire and include that expense in your budget planning as well. After evaluating your needs existing systems and staff you may decide that a managed service that includes the technology processes and people makes more sense than building and maintaining your own system. Organizations seeking a 24 7 365 detection protection and response capability will almost certainly realize significant savings using a managed services partner since the costs of staffing a 24 7 Security Operations Center are high. Even smaller organizations with lower need often benefit from using a managed services partner because it can free up internal resources to focus on other critical operational tasks. Make no mistake SIEM can simplify several cyber security tasks and when properly implemented and correctly integrated into your operational processes they are an invaluable addition to your defense tool kit. But SIEM solutions usually represent significant capital expenditures with high operational costs which must be considered in your evaluation. Here is a list of the ongoing critical tasks you ll need to be cognizant of before you implement and operate a SIEM Incident Response The most critical ongoing task is responding to alerts. Containing security incidents as quickly as possible can turn a potential total disaster to a security success. Optimization and Performance Tuning Tuning the SIEM to your environment will reduce false positives and false negatives and reduce the number of alerts to which the analyst must respond. This maximizes the efficiency of the log collection process and ensures comprehensive coverage. False Positive Analysis SIEMs will generate false positives no matter how well tuned. Skilled analysts are a requirement to determining if an alert is a false positive or real event Custom content creation The best SIEM implementations include custom alerts based upon the specific environment being monitored. For example alerting when data flows from a PII-storing database server to an unknown host. Custom Report Generation Most SIEMs have canned reports but security is best served by creating reports displaying content tailored to your needs. Examples include Admin login activity to the Core Server after hours Human Resources Database access report etc. SIEM maintenance The SIEM itself--including server storage and the networking infrastructure required to make it work--must be monitored and maintained. Maintenance should include signature updates version updates new device or application log integration appliance firmware updates etc. SIEM Analyst training SIEMs are often very complex tools with many moving parts. Your SIEM staff will require training in order to use even the most basic tools and advanced usage will require advanced training. This should be budgeted as an ongoing expense. www.cubusiness.com August 2014 Credit Union BUSINESS 33 CYBER SECURITY Report Review Management must review the executive reports. We recommend driving SIEM investment value by reviewing summarized security dashboard reports at quarterly board meetings. Finding the right SIEM solution is a difficult process for everyone and especially tough when attempting to use it with mature cyber security programs. And having a SIEM without sufficient system and operational support simply won t get you where you need to be. As much as we would all like it there is no easy Cyber Security button you can push. Plan for the critical ongoing tasks I ve laid out here and you ll derive real value from your expensive SIEM purchase. Paul Caiazzo CISSP CISA CEH is a Cyber security expert entrepreneur and strategist. As Principal and co-founder of TruShield Security Solutions Inc. Paul is responsible for developing corporate strategy and leading the technical product and service development efforts. As TruShield s service lead he brings many years of experience solving complex cyber security challenges within the Federal space. Paul participates in a number of Federal-level working groups aimed at defining the standards and technologies the US Federal Government will use to protect the security of government networks. Paul is actively engaged with strategic clients in the Federal Government and banking sectors working closely with senior executive staff within the Office of the CIO and CISO at a number of Government agencies and providing cyber security subject matter expertise in the areas of Continuous Monitoring Vulnerability Management Incident Response and Cyber Security Operations Center to support TruShield s growing commercial practice. 34 Credit Union BUSINESS August 2014 www.cubusiness.com CU MORTGAGE Mortgage and Auto Lending Strategies I By Keith Kelly must first confess My background expertise lies in mortgage banking. However during my 29 year career as a successful mortgage loan officer in mortgage banking I was very good at showing borrowers how they could save money when financing a home. Whether it was showing them the value of choosing a five year ARM with lower payments and applying the monthly savings towards paying down the principal compared to a 30-year fixed rate or working the numbers on a cash-out refinance to show borrowers how they could save monthly by eliminating their credit card bills. The mortgage industry is still struggling with a sluggish economy. Rates remain historically low and projections show them staying flat well into 2015 before starting to rise. New loan originations have been down due to slow economic growth a very long winter that has grown into an even slower summer and a housing market that is low on inventory in many parts of the US. The regulatory environment has skyrocketed and it now costs more than 4 000 per mortgage loan just to originate. And do we need to mention how your compliance costs are rising as compliance departments expand Today auto lending is the hottest and most sought after market for everyone in the lending business. There is enormous pent up demand for new car purchases since members held on to their automobiles longer than usual during the slowdown but are now beginning to consider replacement. In many areas of the country workers must still commute to work by car because mass transit is a long way from becoming available. Your credit union has more competitors in the auto-lending than home mortgage arena. So how can you effectively compete with other credit unions banks automobile dealerships finance companies and sub-prime lenders What is the best way to persuade members that your credit union provides the best mortgage and auto lending options available in the financial services marketplace Technology can provide you with a significant advantage over your competitors. Instead of constantly trying to come up with new ways to attract new business in order to maximize your mortgage and auto lending business you can complement your existing efforts by utilizing a Loan Retention Software TM solution on your current portfolio. Here are some guidelines for you and your team to consider as you determine your short and long term lending strategies Step 1 Business Case Assessment Dig deeply into your mortgage and auto lending portfolios whether separately or combined and project the loans that will be maturing within the next one two or three years along with Credit Union BUSINESS 35 www.cubusiness.com August 2014 CU MORTGAGE you have versus what you will need that determines how you move forward. And that could mean investigating third party lending software and marketing. Step 2 Technology Assessment Do you utilize all the features and functions available in your current software Maybe it s time to evaluate your expertise on your current core loan origination and loan servicing solutions. Do you offer members the option to control their rate or loan extension For Mortgages consider adding a reset feature to your existing ARM products (3 1 5 1 7 1). This puts your members in control of resetting their interest rate and when exercised they lock in their new rate for another 5-year fixed period (using a 5 1 ARM as our example). The reset feature can be used to click up interest rates to protect against rising rates click down interest rates if rates fall low enough that members would consider refinancing with some other financial institution or click to stay at the same rate if the ARM is close to adjustment. For Auto loans offer members the ability to extend the term of their loan while significantly reducing their monthly payments. You might give them the option to cash out whereby you increase yield on an existing loan. their payment history. Scrutinize each of these soon-to-mature loans by asking the following questions What are the current rates and when does the loan mature What are the costs associated with new member acquisition versus existing Can we increase our retention rate on current members Has the member made payments in a timely manner Do I want to keep this loan on my books Can we help the member increase their FICO score by giving them flexibility in payments and or extending the loan Have we up-sold the member additional products or services What are the default rates on mortgage versus auto Many core providers offer business intelligence data warehouse software. If you have a well-staffed IT department they may already supply reports on demand for various departments. Alternatively someone proficient in Microsoft Excel should be able to create a spreadsheet report using your existing data. The information is available it s simply a matter of assessing what 36 Credit Union BUSINESS Step 3 Implementation and Execution Determine which borrowers to whom you would like to make this offer available using the information gleaned from your business case assessment. While the potentially large number of qualified borrowers might seem daunting try promoting to a pre-determined select group via call center website or mobile--to name just a few communication channels. Create a website for borrowers to view their current rate and payment status along with an offer that your credit union has customized to retain the member. Take the opportunity to upsell additional products and services such as electronic bill pay savings account insurance gap insurance financial planning and or realtor advertisements. Provide an opportunity for the borrower to reset their rate within the website which will allow them to do so anytime anywhere any place. A legal document can be produced that the borrower can complete in sixty seconds and electronically sign. Target your implementation to meet member needs. Christmas is just around the corner and spending ticks up for www.cubusiness.com August 2014 CU MORTGAGE Did we provide a positive member experience Did we increase loan retention Did we maintain a consistent staff environment Did we eliminate back office costs by retaining current loans Did we offer a market differentiation with unique innovative products Did we increase yield spreads of 25 to 75 bps Did we lower delinquency rates There is no doubt about it lending is competitive. I hope I have provided you with some ideas that you will use as you look at increasing and retaining membership. I welcome your comments and insights and what you are doing to provide the best member experience in lending. Till next time. Keith Kelly President and Co-Founder is an entrepreneur who created and patented the Mortgage Annuity Revenue Stream (U.S. Patent 7292995). Mr. Kelly has been in retail mortgage banking over twenty-nine years. Keith has been featured in Money Magazine The Washington Post Time Magazine New York Times Woman s World CNBC and a host of other national publications. Many core providers offer business intelligence data warehouse software. If you have a well-staffed IT department they may already supply reports on demand for various departments many reasons throughout this season. You can do this in sixty days with the right focus and knowing that your credit union benefits from potential rate income. Educate Educate Educate Make sure all departments are aware of the new lending options and know which are not available at other financial institutions. And don t forget Word of mouth is still heard loud and clear via social media. Step 4 Benefits This is a good time to evaluate the success of your lending strategies by asking yourself the following questions www.cubusiness.com August 2014 Credit Union BUSINESS 37 CU TRAINING Making New Employees Feel Welcome By Paul Nunn S Do you remember your first day of work at your credit union How did it go for you Were you made to feel welcome Did you go through new employee orientation Was it helpful I sure hope so. It s easy for most employees to forget that they were once new employees themselves yet how you welcome new employees often affects their future success--or failure--within your organization. o who s responsible for making sure a new employee has what they need when they first start out Is it the hiring manager Is it the Human Resource staff Is it an off-site trainer The answer is yes yes and yes. It s all of us. We are all responsible for welcoming our newest members of the family. Conducting new hire training sessions was one of the most rewarding classes I taught. I made sure new hires got a tour of the credit union heard from the CEO and other guest speakers throughout a two-day session met other CU staff during working lunches were set up with email able to log on to the CU network and were familiar with appropriate CU systems. The training sessions often culminated in scavenger hunts where they had to use the knowledge they had learned in order to successfully complete the hunt. I ve been fortunate in having worked with some truly great organizations that really made new folks feel welcome. They started by sending new employees welcoming emails that were followed by a barrage of welcome to the family emails from coworkers they probably wouldn t meet or remember for weeks. Making someone feel welcome is a pretty good problem to have in the scheme of things. I ve heard of companies putting Welcome Home banners up across new employee s desks sprinkling their work areas with confetti and helium filled balloons even bears on unicycles Ok maybe not the bears and unicycles but you see where I m going. I ve also worked with organizations where new employees too shy or intimidated to ask questions were allowed to wander around aimlessly looking for bathrooms copy machines or conference rooms and I ve watched new employees fumble around trying to make coffee. I try to go out of my way to meet 38 Credit Union BUSINESS August 2014 www.cubusiness.com CU TRAINING Name plate If the employee will have an office have their name on the door. It will help them feel welcomed. Lunch Take your new hire to lunch. Period. It matters. Supplies Nothing is more unwelcoming than an empty office. Have some basic office supplies--pens note pads folders staplers etc.--ready for your new hire. Some hiring managers provide new hires with gift baskets that include various supplies org charts and maps of the building. Close the sale Meet with your new employee at the end of the day and ask how their first day went. Listen answer any questions or concerns they might have and thank them for being there etc. If you treat them well on their first day they might just come back. So roll out the red carpet it ll match the red tape. Sorry bad joke. Until then keep learning. Paul Nunn is an award-winning trainer from Houston Texas. Since 1992 Paul has worn many hats teller trainer instructional designer and training manager. In 2005 he was the recipient of the Training Professional of the Year award by CUNA and Affiliates. Paul lives in Spring Texas with his beautiful wife Iris and their two children Emily and PJ and can be reached at paulnunn comcast.net. these new employees welcome them to our company and help them find their way around. And I always felt a tad embarrassed. Why hadn t anyone shown them around Why hadn t anyone help get them oriented introduced them to some of the staff or at the very least tell them what our company did Sound familiar My point is that every organization has an obligation to prepare for every new employee s first day or week or month as thoroughly as possible. Hiring new staff is a risk for both the new hire and the organization and costs credit unions time and money. Yet too often CUs jeopardize that human resource investment by underpreparing for their new hire arrival. A new employee s first day should not come as an annoying surprise but should arrive with a sense of excitement and welcome. I ve done a fair amount of research and many of the great tips I ve found to be most effective are simple and easy to follow and produce lasting results. Here are a few good tips for making a new employee feel welcome. Tour Give new employees a simple floor plan and an office tour during orientation. Technology Make sure they are set up with email network access security badges etc. and have their laptop or desktop ready to go. It is frustrating for new employees to have their network log on authorization but have to sit in their empty office waiting for a computer. The same is true with telephones have them programmed and operable. www.cubusiness.com CEO SUBSCRIPTION WITH BENEFITS Benefit your CFO COO CMO CCO CLO CIO HRD With FREE Monthly E-Newsletters SubscribeNOW www.cubusiness.com register Credit Union BUSINESS 39 August 2014 CU INSIGHT Coping with ATM Compliance By Gary Walston T ATM compliance has been a perennial challenge but compliance issues seem to be cropping up more frequently at greater cost then ever before. What can your credit union do to help alleviate some of this pain he combination of more complex networked ATMs operating on PC-based systems and the evergrowing number of networks and regulators all trying to protect sensitive customer data has led to the never-ending need to upgrade or replace ATMs. Some say it all started with modern computer technology s greatest scare to date Y2K. Ever since the century turned various networks--MasterCard or Visa aka Cirrus or Plus--as well as federal and state banking laws have mandated a plethora of ATM compliance requirements. In fact almost every two to three years since 2000 a new mandate or requirement has come along that force credit unions to decide whether to upgrade or replace ATM equipment in order to remain compliant. As you know these are not minor decisions. Here is a brief timeline of the most significant 2000 Y2K 2005 Triple Data Encryption (3DES) 2006 IBM OS 2 End of Life 2009 PCI Encrypted PIN Pads 2012 Americans with Disabilities Act (ADA) 2014 Windows XP End of Life 2016 Europay MasterCard Visa (EMV chip card) 2020 Windows 7 End of Life more time and money reevaluating your ATM network. Of course all compliance requirements (with the exception of ADA) are intended to protect consumers and make everyone s money safer their end goal is to better manage and mitigate risk. Most ATM associated risk involves denying thieves and criminals access to sensitive customer information. Calculations for determining ATM upgrade or replacement costs are based on the age of the equipment upgrade feasibility and timing for replacement. All three involve considerable expense hassle and potential member inconvenience. It can seem like the third-party partners you turn to for advice www.cubusiness.com Unfortunately with this rate of change almost as soon as you spend the money and become compliant you have to start preparing for the next compliance requirement inevitably coming down the pike. That means you must once again spend 40 Credit Union BUSINESS August 2014 CU INSIGHT and expertise often benefit the most from the never-ending compliance requirements. With that in mind here are a few strategies credit unions can employ to more effectively manage ATM compliance and better protect their members. Do nothing. Avoiding the issue involves little effort but comes with a fair amount of risk. The risk of how regulators will deal with or punish your institution. The risk that other third party providers (processors and networks) will shut your ATMs down. The risk of serious damage to your reputation and member inconvenience in the event of a breach. And of course there is the risk of litigation. Not all compliance requirements are absolutes EMV for example is simply a liability shift. And while migration to Windows 7 is highly recommended by the Federal Financial Institutions Examination Council (FFIEC) it is not an absolute mandate if you can implement the necessary compensating controls to remain PCI compliant. How you manage compliance is all about mitigating risks and doing nothing has a high degree of risk attached. The vast majority of financial institutions prefer taking a more conservative approach that rarely results in doing nothing. Upgrade. Upgrading an ATM to remain compliant is always an option. In evaluating whether to upgrade an ATM (and each unit should be looked at individually) you must first consider its age. If your ATM is seven years old for example does it really make sense to invest another 4 000 to 10 000 in a piece of equipment that is already nearing the end of its useful life You also need to investigate what upgrading involves. Do you just need to install new software Does your software maintenance agreement include an update provision or do you need to buy a whole new software suite Does the ATM require a new microprocessor or more memory Will these upgrades handle the next compliance requirement For example upgrading for EMV means running Windows 7 and to run Windows 7 you will need new software which requires a faster www.cubusiness.com processor and more memory. A good rule of thumb is to upgrade when you have three or more years of useful life left and the cost of upgrade doesn t exceed 5 000. Replace. Evaluating the age of your ATM its current book value and useful life will help determine if it s time to replace and get fully compliant. Buying a new ATM is expensive but you may end up saving money in the long run. You ll have lower maintenance costs greater uptime and less costly future compliance bills with a new ATM. Before making that purchase look into software maintenance programs that may lower the cost of updates upgrades or new software versions. Also consider downgrading. New technology may do wonderful things but if you believe the primary purpose of an ATM is to let members get cash fast simple may be better. The overwhelming majority of ATM transactions are cash withdrawals. ATM image deposits have been the big craze over the last few years but that trend could be short-lived considering the speed with which mobile deposits has taken off. Get Out of the ATM Business. Outsourcing ATM operations is a growing trend among credit unions particularly among those who view the ATM as a necessary evil and not part of their core competency. Turning their fleet over to an expert focused exclusively on ATM management and operation can save time money and headaches. It also takes the burden of compliance off their back and frees the credit union s staff to better focus on the organization s primary objectives. There are many aspects to consider when choosing the right partner. One is if you want to get out of ATM ownership entirely. If you do make sure your partner can do it all (terminal driving maintenance cash management replenishment telecommunications monitoring dispatch etc.). That includes purchasing your existing ATMs from you or buying new ATMs. Gary Walston is Executive Vice President of Dolphin Debit (www.dolphindebit.com) a full-service ATM management company that owns and operates ATMs for financial institutions. Contact him at gwalston dolphindebit.com. August 2014 Credit Union BUSINESS 41 CU SPOTLITE Aloha from Valley Isle Federal Credit Union By Sharon Sweda I 42 t is a warm and sunny day on the beautiful island of Maui where bright skies outnumber clouds and rain by three to one. The trade-wind breeze keeps humidity at a comfortable level that makes the near 90-degree temperature comfortable for islanders and tourists alike. It is a perfect pre-Fourth of July day to launch the first customer appreciation day at Valley Isle Community Federal Credit Union. Credit Union Development Manager Isaac Pe a-Parrilla is a new addition to the Valley Isle Ohana branch and spearheaded the appreciation event being held at the Wailuku branch. We didn t announce the event in advance he explains. We posted an invitation on Facebook this morning inviting members to stop by for free hot dogs and chips. It has been really well received he adds as he takes a break from serving hot dogs to chat with Credit Union Business Magazine about the event and his plans for Valley Isle Community FCU. Pe a-Parrilla is a new team member at Valley Isle but brings thirteen years of banking experience with him to the position. Credit Union BUSINESS He is enthusiastic about his new role and frequently emphasizes the benefits associated with member ownership along with the credit union s focus on giving back to the entire community. Unlike most credit unions within the continental mainland Valley Isle s service is unique in that they largely serve the Hawaiian tourist trade and travelers who rely on shared banking. Valley Isle s Lahaina branch is tightly positioned within the downtown tourist restaurant and shopping district and is more easily accessed by foot than auto. Valley Isle is surrounded by souvenir trinket vendors and the Pacific surf which combined with the absence of heavy automobile traffic demand a far less structured banking operation than typical brick and mortar institutions. We serve many travelers at that branch the Development Manager reports yet we service more than just tourists. We have a large local membership as well. Of course it doesn t matter whether we serve members or travelers--we strive to provide relationship driven service to anyone who walks into any one of our branches. We offer such programs as our Volunteer www.cubusiness.com August 2014 75 x 3 225 99 x 3 297 CU SPOTLITE Income Tax Assistance (VITA) free checking accounts and employee seminars and educational programs. The original Hawaiian Commercial and Sugar Federal Credit Union was founded in 1940. In the early to mid 1900 s agriculture was Hawaii s biggest industry. More specifically the sugar plantations attracted immigrants from China Japan Portugal and the Philippines to fill positions with much-needed labor. These jobs did not offer much pay and immigrants soon discovered they weren t able to borrow money from traditional banks. Forced to turn to each other for help the workers banded together to form the HC&S Federal Credit Union to provide financial services to the employees of Hawaiian Commercial & Sugar Company. HC&S existed as an employee credit union until its conversion to a community charter in August of 2000. Now called Valley Isle Community Federal Credit Union it continues to serve both employee groups and individual members of the Maui community. A 2009 merger with Lahaina Credit Union brought Valley Isle to the throngs of tourists that pass by their Front Street branch. Pena-Parrilla is excited about Valley Isle s service platform. The Customer Appreciation event is the first surprise event launched through the credit union s Facebook page and drew many visitors to the free lunch offering. But the even reveals a greater lesson about the effectiveness of social marketing and it would be no surprise to run across Pena-Parrilla and the Valley Isle Community Federal Credit Union cooking up more than hot dogs in the days to come 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 swedasweda.com to SpotLite your CU. 44 Credit Union BUSINESS August 2014 www.cubusiness.com 250 000 Credit Union Employees 92 Million Members 100 Million Miracles Since 1996 Credit Unions for Kids has raised more than 100 million for Children s Miracle Network Hospitals giving hope and healing to kids in your local community. 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Self-Service Coin Centers Currency Dispensers Currency Recyclers Proven Performance and Quality CROSSWORD Qualify to win an iPad Mini on September 1st To qualify 1. 2. 3. 4. Read Credit Union Business. Answer the questions. To enter register on www.cubusiness.com Qualify to WIN an i-Pad Mini. 48 Credit Union BUSINESS August 2014 www.cubusiness.com themembersgroup.com 800.268.1884