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THE YEAR END ISSUE DECEMBER 2014 VOLUME 9 ISSUE 12 9.95 U.S. Adoption of on Its Way by EMV The Pursuit of the Michelle Thornton Ultimate Credit Union Credit Card Program by Ondine Irving Social Media and Your Brand by Kenneth C. Bator Does your CPI Program have a bad reputation Maybe you should take a closer look at ours. Collateral Protection Insurance (CPI) has a bad reputation--with your borrowers with regulators even within your own credit union. Our CPI Hybrid program is more than meets the eye. If you take a closer look you ll see that it is the consumer-friendly option you and your borrowers need. With SWBC s CPI Hybrid you can reduce the cost of CPI to 50 90 per month as opposed to the typical 2 000 annual policy. Call 866-316-1162 or visit hybrid today to learn more about CPI Hybrid. 2014 SWBC. All rights reserved. 5540-1209 CUB 1014 CONTENTS Credit Union BUSINESS DECEMBER 2014 V O L U M E 9 I S S U E 12 4 6 7 PUBLISHER S POV Full Circle Tim O Hara 19 COMPLIANCE CASE STUDY CU COMMENT James Collins A Fly on the Wall UNDER THE HOOD Building Compliance Competency from the Outside in Credit Union Gets Creative to Develop In-House Regulatory Compliance Expertise Justin Hupfer CARD SOLUTIONS 21 26 U.S. Adoption of EMV on its Way An Implementation Primer for Credit Unions Michelle Thornton CFO CURRENCY The Pursuit of the Ultimate Credit Union Credit Card Program Ondine Irving TECHNICALLY SPEAKING 11 Dollar Rolls A Source of Liquidity and Current Opportunities for Incremental Income Robert Perry LENDING SOLUTIONS Karin Brown-Purtell Getting to Know Members Better is the Key to Future Service and Marketing Efforts Roy W. Urrico CU COLLABORATION Brad Roteman 29 31 38 40 13 17 The 9 P s of Professional Service and Sales THE HISPANIC MARKET Miriam De Dios CEO CU SPOTLITE A Quilt Of Many Questions CU MARKETING How to Reach Me A Hispanic Millennial Faith Inspired Mount Vernon Baptist Church Credit Union Sharon Sweda CROSSWORD Social Media and Your Brand Kenneth C. Bator MBA December 2014 Credit Union BUSINESS 1 ABOUT US Publishing Team Tim O Hara Editor & Publisher tim Iliana Nord Operations Manager iliana Patti Manzone Designer Ashok Kumar Circulation Director THE YEAR END ISSUE DECEMBER 2014 VOLUME 9 ISSUE 12 9.95 Staff Writers James Collins CU Comment Emily Hollis CFO Currency Sharon Sweda CU Spotlite Roy W. Urricho Technically Speaking The Pursuit of the U.S. Adoption of on Its Way by EMV Michelle Thornton Ultimate Credit Union Credit Card Program by Ondine Irving Social Media and Your Brand by Kenneth C. Bator Contributors Kenneth C. Bator Karin Brown-Purtell Miriam De Dios Justin Hupfer Robert Perry Brad Roteman Michelle Thornton 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. Sales and Advertising Tim O Hara Publisher tim or 561-282-6015 1 Bernie Fitzgerald Advertising Executive Bernie or 561-282-6015 1 Contact Information Credit Union BUSINESS Magazine P.O. Box 2223 Palm Beach FL 33480 (561) 282-6015 (561) 588-7711 (fax) tim 2 Credit Union BUSINESS December 2014 OFFERING LOANS BUT NOT INSURANCE It s like offering burgers without fries. If you re not offering insurance with every auto mortgage and business loan you close you re basically giving your borrowers money away to someone else. Think about it--you wouldn t go to one place to buy a burger and then another to buy fries so why make your borrowers do just that when purchasing a car or home IF YOU D LIKE TO START OFFERING INSURANCE BUT DON T HAVE THE RESOURCES TO SUPPORT AN IN-HOUSE AGENCY CALL SWBC INSURANCE PARTNERS AT 866-316-1162 OR SCAN THE QR CODE FROM TIM Full Circle Publisher s POV for Chemical Marketing Reporter. A few years later I moved to Wards Auto Dealer a start-up business where I learned to start up magazines. Another few years later in March of 1990 I was back in Florida as a part of the three-man team that started up the Credit Union Times newspaper as the Advertising Sales Director. Still another few years (and a lot of hard work) later I was part of a two-man team that started up CU Journal. We ultimately sold to a big NYC publisher Thomson Financial Publishing. After working out a management contract I started Credit Union BUSINESS with my favorite partner my wife Tierney O Hara. I do the actual work and she keeps an eye on the books. It works out very well. Being the publisher means I m responsible for every facet of this information business including editorial excellence solid advertising performance and a steady stream of helpful e-newsletters delivered to an ever-growing audience of CU executive decision-makers. We have been very fortunate in attracting some excellent editors over the past 10 years of producing CU BUSINESS. A few months ago I told you that Walter Laskos a credit union veteran and all-around great guy had joined us as editor-inchief. Just last week I learned that Walter has been offered a terrific opportunity with a start-up association of northeastern credit unions. Starting next Monday Walt will be in charge of public relations and promotion of the brand new organization and he goes there with my best wishes and most sincere blessing. I know we ll continue to be good friends in the years ahead. In the meantime guess who is going full circle by taking on the extra responsibilities of the editorial content of Credit Union BUSINESS Thanks for reading Tim O Hara Editor & Publisher It all started at Palm Beach High School. I dreamed of becoming a globetrotting enormously successful news correspondent for Time magazine which used to be a really big deal. I imagined flying around the world first-class (of course) reporting on all kinds of cool and sexy happenings. And for big bucks too To make this happen after high school I enrolled in the College of Journalism at the University of Florida in Gainesville. This was a couple of decades before Tim Tebow became a national sensation there. The journalism school was renowned for being among the best J Schools in the country. I learned a lot about writing and editing and headlines and structure and continuity and all of the things that big-time journalists need to know. And then I sent a letter to Time Inc. But when I didn t ever hear back from the magazine after graduating from J School I came home and took a job as a local reporter for the Palm Beach Post newspaper. I landed in a satellite office and was responsible for covering unusually long meetings in several nearby municipalities the majority of which were held at night. The job was more headache-inducing than thrilling but I soldiered on keeping my eye on the prize of a major reporting job. That s when it happened. I learned that the star reporter for the Palm Beach Post made a salary that would not support the style of living I hoped to become accustomed to. In fact after 20 or so years at it he didn t make half of what some of the young ad sales guys were pulling down. It hit and I left the editorial arena in favor of becoming something I had never even contemplated I became a sales guy I moved to New York City and interviewed with the publisher of Sports Illustrated (one floor away from the Time magazine publisher) who told me that trade ad sales was not as glamorous but paid a heck of a lot more than consumer publications. I didn t let the door hit me on the backside So I got into the chemical process business as junior sales guy 4 Credit Union BUSINESS December 2014 WE RE A LITTLE EXCITED We get it. Life insurance is not a fun topic of discussion but when it comes to protecting our financial institution clients we are downright thrilled By partnering with SWBC Life Insurance Company you can provide your members and borrowers with the life insurance that they need while also managing risk. Call us today at 866-632-7340 to learn how SWBC Life insurance Company can help you implement a turn-key payment protection and individual insurance program for your financial institution. Our passion and enthusiasm is unmatched CREDIT LIFE & DISABILITY TERM LIFE INSURANCE UNIVERSAL LIFE WHOLE LIFE DEBT CANCELLATION 2014. SWBC. All rights reserved. Life and disability insurance programs are provided by SWBC Life Insurance Company or its distribution associates. All products may not be available in all states. 1361-5431 1 14 CU COMMENT A Fly on the Wall F By James Collins Person 2 Who invited him Person 3 Never mind him. We ll just open the rule to more comments. Person 1 Isn t that like asking the executioner what color blindfold to use (Laughter erupts.) Person 3 I was talking to Dave over at the CFPB today -- just wait until they get the new overdraft rules Person 1 Really What do they say Person 3 Let s just say overdraft income will become as scarce as an Obama supporter in Texas VOR Really So if we ban or restrict all of these products what can credit unions do Person 2 Isn t that for the free market to decide VOR What part of the financial market seems to be free Person 3 Well overdrafts will be when the CFPB gets its way (Laughter and snorting. Even the VOR is getting in the mood.) Person 1 Enough already. We need to talk about the real risks of this industry. Those things that could unhinge the entire system VOR You mean unfettered regulatory zeal Person 1 Zeal We call it prudent conservatism. (General laughter erupts.) Person 2 Actually he means the biggest risk we have EVER faced as an industry Person 3 That s right home-based credit unions James Collins is CEO of O Bee Credit Union based in Tumwater Washington and can be reached at jcollins irst of all my apologies to any NCUA personnel who feel that the following makes light of their hard and dedicated work to frustrate the masses. I mean to further the masses. How did frustrate get in there That was a typo. Honest. I have the utmost respect for our NCUA regulators in fact I love them from the bottom of their hooves to the tops of their pitchforks. The following was (rumored) to be a transcript from a recent executive meeting at the NCUA. It was attended by three people whose names are unknown. It also includes one person called the voice of reason (VOR) which obviously indicates that it was not an official meeting. Person 1 Shall we get started Our first discussion point today is on the new risk-based capital rule. So where are we on that Person 2 It appears that there was some slight disagreement. A few letters were received in protest. VOR Just a few letters That s like saying that there were a few complainers during the Spanish Inquisition. Person 3 Apparently there are some who claim that we are just trying to drive credit unions out of the mortgage and business loan markets. Person 1 How did they find out Person 2 No remember. We advocate FREE markets. (Laughter erupts.) Person 3 Oh gosh you crack me up. I almost snorted out my caviar and champagne VOR Are the regulators trying to divvy up the market Person 2 No we are all trying to be equitable. We have mortgage loans to large banks commercial loans to large banks business loans to large banks credit cards to large banks.... VOR I am sensing a trend.... Person 2 What else do the letters say VOR Some of them claim that the main reason the NCUSIF loses money is because of fraud not risks addressed by the new rule. 6 Credit Union BUSINESS December 2014 UNDER THE HOOD An Implementation Primer for Credit Unions U.S. Adoption of EMV on Its Way By Michelle Thornton N early 20 years old the global Europay MasterCard and Visa (EMV) standard has been adopted for debit and credit payments in many parts of the world. The United States will begin to officially jump on board the EMV bandwagon on October 1 2015. That is when the four payment card networks Visa MasterCard Discover and American Express institute a liability shift for domestic and cross-border counterfeit card-present point of sale (POS) transactions. With this driving factor EMV adoption in the USA is finally and seriously on its way yet there is still much work ahead. Due to the complex nature of EMV all stakeholders in the payment chain will need to make changes to support the standard. This includes terminal manufacturers merchant acquirers merchants electronic funds transfer (EFT) processors networks issuers card manufacturers card personalization bureaus and core data processors. Each of these entities must code to the specifications for every EMV payment application in order to continue to support the payment ecosystem as it is today. features in card-present transactions that are not possible with the traditional magnetic stripe cards used in the United States which are susceptible to skimming and other forms of fraud. After October 1 2015 liability will be assessed to the party that did not enable the chip-to-chip transaction. In the case of issuers this responsibility applies if cards are not EMV chipenabled. For merchants this liability applies if terminals are not EMV chip-enabled. The Liability Shift Currently POS counterfeit fraud is largely absorbed by card issuers at a rate of approximately three cents per swipe. Countries that have adopted EMV report strong transaction security The Durbin Debit Issue Perhaps no issue has proved more difficult for EMV adoption in the USA than the October 2011 Durbin Amendment to the December 2014 Credit Union BUSINESS 7 UNDER THE HOOD the MasterCard Mchip application. In general PIN transactions will invoke the common AID which gives the merchant or ATM owner the option to route that transaction to any MasterCardlicensed PIN network. Signature and international transactions will invoke the standard global AID and the merchant will route to that global brand. This solution fulfills a number of the requirements of the industry including routing neutrality and choice for merchants one application on the card lessening complexity for issuers and acquirers alike level playing field for networks without crippling fees and routing restrictions the ability for issuers to change networks without reissuing cards and chip capabilities such as online PIN no CVM and contactless. While EMV credit transactions function in the United States without significant changes to the payment card system debit adoption was stalled. Now stakeholders are moving swiftly to enable the acquirer to choose the Common AID or set it as the default in a PIN debit transaction. While EMV credit transactions function in the United States without significant changes to the payment card system debit adoption was stalled. Now stakeholders are moving swiftly to enable the acquirer to choose the Common AID or set it as the default in a PIN debit transaction. Dodd-Frank Act. The amendment was designed to reduce debit card swipe fees which in turn would allow retailers to pass savings on to consumers but skeptics think the reduced fees were more like profit centers for retailers. But Durbin also ... prohibits an issuer or payment card network from restricting the number of payment card networks on which an electronic debit transaction may be processed to fewer than two unaffiliated networks regardless of the method of authentication. As Nick Holland of Javelin Strategy & Research writes Nothing wrong with this in the context of introducing the means for competition at the checkout. Just one problem though. EMV was never designed to do this. It became clear that EMV as deployed internationally would not work in the United States. Industry negotiations and discussions continued for 18 months until the public outcry after the Target breach spurred action with Visa s offer of the free Common AID (application identifier) solution in early 2014. The Common AID solution in the USA requires two AIDs on a global-branded debit card such as Visa or MasterCard. That card will also have the global brand s standard or global AID and the global brand s proprietary EMV application. So a Visa debit card will have the Visa VSDC EMV application plus two AIDs the Visa standard AID and the Visa U.S. common AID. MasterCard debit cards will have their MasterCard standard AID and their common AID (named the Maestro AID) paired with 8 Credit Union BUSINESS What About Tokenization How does tokenization the industry s hottest topic since the September Apple Pay announcement fit into the EMVadoption picture The assessment of CO-OP Financial Services ( is that tokenization and EMV together will provide even better security for the U.S. payment system. December 2014 UNDER THE HOOD Think of EMV as the security for a plastic card in a cardpresent transaction and tokenization as the security for digital transactions whether mobile or online. So although the technologies are similar they are designed for different cases. Coupled together they will make it much more difficult for fraudsters and they will improve the security of all transactions. Moreover global interoperability of EMV chip cards is still a key driver of adoption in the United States. Build that data into your business case to help you determine when might be the right time to move forward. Until your institution has an EMV chip card advise your cardholders who are traveling abroad that Visa and MasterCard rules require merchants worldwide to accept U.S.-issued magnetic stripe cards but for those few unmanned terminals and kiosks that accept only EMV chip cards carrying cash is a viable option. Credit unions need to consider whether they will offer a soft rollout or attempt a complete member adoption. The former is generally the better choice for first-generation EMV deployment in the USA. Credit unions should identify their international card-usage demographic for early issuance and then pilot with U.S. users to learn the nuances inherent in EMV before issuing to their full cardbase. If fraud reduction is the primary reason to move forward with EMV now it is essential to analyze the source of the fraud today. EMV doesn t currently protect against card not present (CNP) fraud. Therefore CO-OP recommends that credit unions investigate how much of respective fraud is related to counterfeiting skimming or the cloning of cards. Understanding that there are still few active EMV terminals in the United States today credit unions should evaluate existing international counterfeit fraud to get a more accurate picture of what the fraud reduction might be in the near term. As the U.S. EMV terminalization reaches critical mass this equation will change. While overall fraud will decline the liability shift may not have as great an impact as some might think. Industry experts expect that the big box merchants will be ready by the liability shift date. If that is true issuers will not see fraud liability shift to those merchants nor will there be a liability shift to online merchants. The pool of transactions eligible for shifting fraud liability to merchants may well be a relatively small portion of overall transactions. Building a solid business case and accurately assessing costs is critical to determining timing. While the cost of EMV cards has decreased the certification and implementation investment remains high for early adopters. Industry experts expect that standardization and streamlining of implementations will normalize and lower costs in 2015. Recommendations for Adoption While Visa and MasterCard haven t placed a mandate on issuers or acquirers the question of whether credit unions should adopt now or wait is a decision subject to a number of variables. The best thing credit unions can do first is answer one basic question what is the primary reason to move forward with EMV today versus tomorrow The answer to this question should lead to a detailed analysis and approach. If the response is global interoperability start with your credit card portfolio which is used internationally at a higher rate than your debit card. To determine the need talk to your staff to find out what they are hearing from your international travelers. Do analysis on international transactions to determine what segment of your portfolio will likely travel internationally in the next 12 months. December 2014 Credit Union BUSINESS 9 UNDER THE HOOD The migration cost to EMV from magnetic stripe can be 25 000 to 60 000 or higher depending on the requirements of the credit union. And there are variables to consider when evaluating costs such as whether to use contact or dual interface (contact and contactless) the latter is more expensive. Terminalization is anticipated to be costly for merchants and the jury is still out on when the market will see a critical mass in contactless acceptance. The return on investment for EMV chip cards will be dependent on many elements not just fraud reduction and that ROI will most likely take many years to obtain. Consider all factors when making your decision including marketing strategy cardholder acquisition and cardholder retention. may decide to delay their shift until late 2015 or even early 2016 without serious fraud or liability risk. It is never wise to be last to market and EMV will be the standard in the United States. Even so institutions need to be talking to their vendors and looking at their budgets. Most of all they need to be gaining an education on the technology to determine the best time to move forward with EMV. Michelle Thornton is Manager Core Products for CO-OP Financial Services (www. a credit union service organization based in Rancho Cucamonga Calif. She can be reached at michelle. thornton and 800782-9042 ext. 6162. A Final Two Words Don t Panic For financial institutions that haven t started their EMV conversation CO-OP s counsel is don t panic. Some institutions Rest easy your compliance is covered. If compliance concerns are keeping you awake at night let PolicyWorks help you rest easy. Our compliance professionals will review your compliance systems and recommend customized programs that help you get and stay in compliance. Call today. We ll make compliance easy for you. The services provided by PolicyWorks should not be construed as legal services legal advice or in any way establishing an attorney-client relationship. Making compliance easy for you. 866.518.0209 10 Credit Union BUSINESS December 2014 CFO CURRENCY A Source of Liquidity and Current Opportunities for Incremental Income Dollar Rolls By Robert Perry D ollar rolls offer a fairly easy way to add short-term liquidity to a credit union s balance sheet without relying solely on federal funds lines or other open lines of credit which may or may not be available. By definition a dollar roll is similar to a reverse-repurchase agreement a simultaneous agreement to sell a security held in a portfolio and purchase a similar security at a future date at an agreed-upon price. Dollar roll transactions are executed with mortgage pass-through securities and many institutions are able to account for this as a financing transaction instead of the sale and purchase of a security. While a dollar roll transaction may provide quick liquidity many factors contribute to the potential economic value (profit or loss) of the transaction whether projected prepayments reflect actual prepayments the reinvestment rate the transacted (negotiated) sale price the subsequent purchase price The following is an example of a dollar roll. On July 17 a dealer and XYZ Credit Union enter into a one-month dollar roll agreement. The dealer agrees to purchase 1 million of FNMA 2.5s at 100 and 25 32 on July 17 and XYZ Credit Union agrees to repurchase 1 million of face value FNMA 2.5s at 100 and 15 32 on August 18. The difference between the immediate price and the forward price is called the drop which would be 10 32 or 0.3125 (100 25 32 minus 100 15 32). On the settlement date July 17 XYZ Credit Union delivers the FNMA 2.5s and receives 1 007 812.50 plus accrued interest in cash. Then 32 days later on August 18 XYZ Credit Union will purchase FNMA 2.5s from the dealer at the predetermined price of 100 15 32. Assuming a 7 percent conditional prepayment rate (CPR) the remaining principal is 989 320.71 for a purchase price of 993 958.15 ( 989 320.71 par amount times 1.00467) plus accrued interest. This amounts to a bonus for XYZ Credit Union of 3 125 resulting from the price drop. In addition XYZ Credit Union has had use of the funds for 32 days to invest in the fed funds market at 25 basis points (bps) for an additional 224. However since XYZ Credit Union sold the FNMA security for a month it won t receive the couponed interest payment of approximately 2 083. But the high drop compensates the credit union for the foregone interest resulting in a net profit of 1 266. Assuming this process continued for an entire year and the drop remained 10 32 or 0.3125 the incremental income is more than 15 000 for the 1 million FNMA investment. In the example above the implied repo rate is a negative 78 bps. In a fair market the implied repo rate would equal the reinvestment rate (in this case 25 bps) while the value of the mortgage roll equals the value of holding the asset and forgoing the cash return. In this case the implied repo rate is lower than the actual repo rate (or reinvestment rate) creating an opportunity for an investor to earn a profit. A drop of 10 32 is rather high but it does exist in the current market. The primary driver has been fed purchases taking the lion s share of mortgage-backed security (MBS) production and an ever-decreasing supply of new MBS pools. Although quite advantageous for institutions participating in dollar rolls there is uncertainty about how long this arbitrage will last. The drop is a function of supply and demand the dynamics of the TBA (to-beannounced) mortgage market and the monthly carry (which is the yield minus the repo rate). Currently the supply of MBS is very low and demand is very high. Therefore it is advantageous to roll positions from the credit union s perspective. In times of accommodative monetary policy or heavily collateralized mortgage obligation production implied repo rates can be December 2014 Credit Union BUSINESS 11 CFO CURRENCY Exhibit 4 The outputs cFO cUrrENcy cUrrENcy cFO have significant implication on the ALM conclusion. The of time. Credit will need to be special sometimes model cash periods. If an yield curve assumptions for should be changed in progressive intervals inputs allow the user to for extended flows with the end maturity financing toolboxusedcredit unions. It can also shed light on asset reviewed and authorized and remains steep and the monthly amortizations. and the output should the trading and to determine the and decay rates that are similar tocarry remains high giving up valuations as well as aid in be recalculatedsettlement process. impact this can take weeks. monthly mortgage discount versus the drop shouldpresent value of Dollar rolls assumption.short-term liquidity independent of a different can provide Dividend and coupons rates allow for the continue to if you are uncertain as to produce arbitrage opportunities. calculations (premiums) in each modeled interest rate scenario. any open lines of credit the institution may have. The ability to the many requirements Two potential advantages of dollar rolls are cheap funding enter into and complete these transactions with many different of effective duration calculations can then mathematically be Conclusion applying and using derivatives and protection against faster-than-expected prepayments on market participants provides a source of funding that may compared to that of the institution s assets. in this case effective non-maturing deposits can be viewed as a franchise value consider than traditional premium MBS. Dollar rolls also provide short-term liquidity for be easier for financial institutions to acquireengaging an external duration is calculated11 months. backing into the price change methods. Creditgenerated from loyalty of in the fixed-rate MBS by merely or benefits unions that routinely invest the membership when periods from one to service provider to help you formula. For example ifisthe liability present value is 100 in the space can enhance returnswhen dividend rates by stayingin atop deposits are retained and improve liquidity are low on higher One disadvantage delivery risk. A dollar roll transaction through the steps. base 101 ingives up 100 basisone option to deliver.99 in the down of the dollarenvironment. And vice when available usingderivatives market roll market. Bottom line versa A financial institution effectively the both parties point scenario and Don t expect Properly used dollar 100 basispools with better-than-average characteristicsone percent rolls can be advantageous to a credit union s portfolio. than market that offers a non-maturity dividend rate higher rate risk to have point scenario the effective duration is delivered. can offset interest (i.e. (101-99) don t deliver pools into a trade that has better-thanto attract hot money will decrease the economic withinofthe Furthermore 200). that is inherent value its average pool-specific characteristics as you will not be getting Robert B. Perry is Financial Advisor liabilities. it is imperative This is vitalabecause as competition credit union industry model these accounts for a more competenciesAlso delivery final requirements. The established to meet the them back. Analysis stipulations should be second part accurate depiction of interest rate risk. with ALM First Financial Advisors LLC sensitivity can allow credit unions to compete more and finalDuring the initialsubmitted when all requirements are grows derivatives responsible for advising multiple financial application is transaction delivery stipulations may upfront. The regulator strongly suggests sensitivity analyses as a means effectively. completed including dealer contracts. institution clients on asset liability to be established and are highly recommended for investors sensitivity Emily Mor Hollis CFA is a partner with ALM First Financial quantify the effects of changing assumptions. seeking setting up a for at a dealer financing treatmentline the similar to becoming a Advisors LLC. management and investment strategy. analyses are essential because the core share evaluation may Emily Hollis CFA is a partner with ALM First Financial member of the FHLB--it can befundamentals and the mechanics Finally understanding dollar roll laborious and takes a good deal In this role he also performs scenario Advisors LLC. analyses and portfolio reviews for clients. of the to-be-announced MBS market doesn t just add to the are calculated figures not assumptions. The 12 Credit Union BUSINESS December 2014 March 2014 January 2014 credit Union BUSINESS credit Union BUSINESS 17 13 LENDING SOLUTIONS A Quilt Of Many Questions By Karin Brown-Purtell s cooler weather approaches my thoughts often turn to cozy evenings spent working on a crafty project or two. I love to quilt. There I said it. Yes quilt. Who would think that a diehard debt collector could live a parallel life as a quilter Quilting utilizes imagination color and expression to tell a story. I don t know if I m any good at quilting but I enjoy using my free time to create my story. It s not really surprising that I like to quilt many of the same skills that make a person successful in debt collection are in close parallel with similar quilting skills. In both genres an ability to see the finished whole (either in a beautiful quilt or a current account) is critical. To get to that vision it s important to know the whole story. In debt collection that means understanding the story behind each block that will eventually make up the quilt. It s up to the collector to find the clues to that story attaching a meaning and significance to the reason(s) behind the delinquency. Once you have that information the block on the quilt drops into place and the information gathered helps you find the solution that keeps the troubled borrower from paying the loan. What information should debt collectors be gathering to tell the story to find the solution It all comes down to effective interviewing asking the right questions at the right time. It s more than just chasing the payment it s having a conversation with the borrower to find the true reason for delinquency. In the broad sense interviewing is the process whereby individuals A What information should debt collectors be gathering to tell the story to find the solution It all comes down to effective interviewing asking the right questions at the right time. exchange information. It can be tough to know exactly how to engage the troubled borrower in order to obtain important information. That is why effective interviewing techniques are so crucial for collectors. Various tactics like rapport building tone and empathy must be used in order to get the individual to open up because without the true story it s hard to find a meaningful and effective solution. Basic Interview Strategy Start the questioning with general closed-end questions honing in on key points in each answer. As the conversation progresses the collector should begin using more open-ended questions asking for more and more detail at each level and utilizing professional curiosity along the way. This strategic approach is good for December 2014 Credit Union BUSINESS 13 LENDING SOLUTIONS Finding out more detail about a specific point Tell me more about .... Gaining the interest of or increasing the confidence of the person you re speaking with Have you thought about trying ... Calming angry borrowers getting them to go into more detail about their complaint This will not only distract them from their emotions but it will also often help you identify a small practical thing you can do which is often enough to make them feel as though they have won something and therefore no longer need to be angry. other times the collector may need additional information for clarification. When will you make the next payment or How can we help To validate the debtor s statements the collector may ask What caused your situation to change An effective way of probing is to use the 5 Whys method which can help you quickly get to the root of a problem. Try using questions that include the word exactly to probe further for example What exactly do you mean by ... or What exactly was wrong with the vehicle The 5 Whys method is a repetitive question-asking technique that can be used to explore the cause-and-effect relationships underlying a particular problem. The primary goal of this technique is to determine the root cause of a problem. Be careful when using this approach as there is a tendency for collectors to stop at the problem s symptoms rather than digging deeper to identify the true cause. Probing questions are good for Gaining clarification to ensure you have the whole story and that you understand it thoroughly Drawing information out of individuals who are trying to avoid telling you something Seeking clarification particularly when the consequences are significant Ensuring you are not jumping to conclusions Identifying the debtor who is not being completely honest You can use probing questions when your instincts say you haven t gotten the whole story. Building Rapport The very first thing a debt collector must do is build rapport with the person with whom s he is speaking. In general people respond positively if you ask about what they do or inquire about their opinions. The more the troubled borrower trusts the collector the more the borrower will open up. The collector s tone will help build that relationship. A good tone can save a bad question but a question delivered in a disinterested or hostile manner will immediately build the sort of wall the collector is trying to avoid. Troubled borrowers are quick to identify someone who cares only about the payment as opposed to someone who wants to work out a plan for getting their debt back in control. Open Discussions Immediately following the initial building of rapport the collector should allow the troubled borrower to describe the event or events that caused the financial hardship. There should be no direction or interruption by the collector except to use words like uh-huh mmmmm and ahh not only to indicate that you re listening but also to prompt the conversation to continue. The collector should listen carefully while showing empathy to all of the information that is provided. General Questions After hearing the initial statements by the debtor the collector should ask additional questions to fill in the missing pieces of the debtor s story. This will help avoid any misunderstandings. It is the job of the collector to note any major discrepancies in the collection notes. General questions should be posed to fill in the information gaps. Collectors should avoid jumping directly on the discrepancy bandwagon as this might result in the debtor putting up roadblocks thereby closing the door to their line of questioning. Asking Probing Questions Probing questions are powerful tools that enable a collector to get to the heart of the problem. The phrase HELP ME UNDERSTAND is very powerful. Sometimes it s as simple as asking for example Help me understand ... to help gain clarity regarding a statement the borrower has made. At 14 Credit Union BUSINESS Open- And Closed-End Questions No one likes to be lectured but asking a series of open-end questions can help troubled borrowers embrace the reasons behind your point of view. A closed-end question usually receives a single word or very short factual answer. For example Are December 2014 LENDING SOLUTIONS you working or Can you borrow the money The answer is either Yes or No. Closed-end questions typically start with will do if or can. Open-end questions elicit longer answers and encourage a conversation. Open-end questions usually begin with the W words who what where when why and how. An open-end question typically asks the troubled borrower about his or her knowledge opinion or feelings. Tell me and describe can also be used in the same way as open-end questions. Here are some examples Where can I reach Mr. Jones Who can help you make this payment What are the reasons for the delayed payments Why didn t you call us Tell me what caused you to miss the last payment. Please describe your circumstances in more detail. Open-end questions are good for Developing a conversation Finding out more detail Finding out the other person s opinion or issues Closed-end questions are good for Testing for understanding Concluding a discussion or making a decision A misplaced closed-end question can kill the conversation and lead to awkward silences. These questions are best avoided while the conversation is in full flow. Rhetorical Questions Rhetorical questions aren t really questions at all in that an answer is not expected of them. They re really just statements phrased in question form. Rhetorical questions are good for engaging the listener and getting the troubled borrower to commit to a course of action. People use rhetorical questions because they are trying to engage to the listener the borrower is drawn into agreeing rather than feeling that s he is being told to do something. Extracting More Information Skillful questioning needs to be matched by careful listening so that you understand what people are really saying with their answers. The way you ask your questions can be a powerful way of Learning and gathering information Building relationships Avoiding misunderstandings Defusing heated situations Focused Questions Once the general statement has been completed it is time to move on to more focused and detail-oriented questions. Remember you re trying to find a solution that will keep the troubled borrower paying you. The first round of detailed questions should be used to tie up any loose ends. The troubled borrower s story may have some missing or unclear information. Collectors should take copious notes summarizing important details to ensure they have gotten everything they want out of the conversation. December 2014 Credit Union BUSINESS 15 LENDING SOLUTIONS Finding solutions Persuading people on a course of action By consciously applying the appropriate kind of questioning the collector can gain information or effectively drive outcomes. Collectors should make sure that they give the borrower enough time to respond being careful not to always interpret a pause as a no comment. The collector should allow the debtor thinking time before continuing with the conversation. activities. With an improving economy and lower unemployment rates we re beginning to see consumers household debts increase as lenders relax lending standards. The improved economy will help some borrowers but others will encounter new problems especially as lenders take on more risk. As we loosen our lending belts our collection strategy shouldn t be the same as it was five years ago. To be successful in today s economy we need to change the way we approach our troubled borrowers. Finding solutions that keep our members paying us will help us lower loan losses while building membership retention. Like an unfinished quilt collectors who fail to find a solution also leave an unfinished project a delinquent loan. However if collectors are able to use effective interviewing skills they have effectively listened to the story and found a solution that will help finish their quilt. Karin Brown-Purtell is Vice-President of Collections at Lending Solutions Consulting Inc. Closing The Sale Wrap up the call once you have all the information you need and a commitment on the next course of action. Stay focused on your objective but remember chasing the payment worked in the past but today it can be a ticket to the boneyard. Threats and consequences may not always work and are typically the least motivating of all motivational styles. Remember to give a strong closure to the call. Collectors play an important role in our nation s economy by reducing the losses that creditors incur through lending 16 Credit Union BUSINESS December 2014 CU MARKETING Social Media and Your Brand few years ago a colleague of mine read an e-mail my firm had sent promoting a loyalty program that also doubles as a social media management system. She sent me a message saying basically What s up with this I thought you hated social media. My reply was I hate going to the dentist but that doesn t keep me from seeing one every six months. Since that time I have found that you need to post on social media sites a lot more often than every six months if you want to use them as effective tools. I have also found that I have come to enjoy social media and that I like it much more than dentists No offense to anyone in the dental field. That same year I dedicated myself to embracing the nuances of social media and becoming an expert rather than be left behind. While I wouldn t consider myself a full expert just yet I have come to learn exactly how social media can be used within the overall marketing mix. This revelation began during a presentation in 2010 that was facilitated by a group of professionals whom I would deem full social media experts. During their presentation they spoke of how using this medium is truly about being social and sharing your unique story. All of a sudden my ears perked up. That s branding I thought ... almost out loud. I looked around the table and everyone was still staring at the speaker so fortunately my excitement was kept to my inside voice. I was worried that I might have unknowingly popped up and yelled as if I were attending a revival meeting. While I may not be have been a social media expert back then I certainly do know branding. Finally I had a foundation where I could truly understand how this medium fits in with other marketing and promotional tools. My new perspective gained further credence later when I spoke with one of the social A By Kenneth C. Bator MBA media professionals. He commented on how many prospective clients come to his firm looking at social media as a silver bullet to increase sales. While social media can do that over time it s truly about telling your unique story. Therefore you already have to have an engaging story (i.e. a cohesive brand message) to share. As with any marketing tool if the message is crap it doesn t matter how many different promotional tools an organization uses the desired results won t be realized. Much like the garbage in garbage out theory many of us learned in high school during a computer programming class social media isn t going to help a poor brand message. It will simply expose an inferior communication to even more people. However a business with a strong brand and a true understanding of such can truly benefit from using social media as a tool but not necessarily the tool. In my journey from social media neophyte to future expert this is what I came to realize 1. Social media isn t a quick fix. The basic principle of creating a sound marketing plan based upon the December 2014 Credit Union BUSINESS 17 CU MARKETING Facebook depending on your target market. Trying to learn four or five different sites at one time will drive you crazy. I know I tried ... and people tell me I m already a little nuts. 5. You may want to measure the success of your marketing plan and mix as a whole rather than trying to determine an ROI from social media alone. Even before social media it always frustrated me to hear a CPA CFO type ask for an ROI on each specific tactic. While I agree that marketing is an investment and that a return needs to be realized at some point many times it is better to track the ROI on a campaign or the overall mix. Marketing professionals know that marketing programs are successful due to a combination of tactics that work together. Social media is simply one of those tactics. If you do have someone ask you to determine the ROI of your social media activities feel free to share this quote I heard from an expert in the field during a recent presentation The ROI of your business participating in social media is that you will still be in business in five years. While I may not have completely mastered this medium yet I know there are thousands of professionals who are just as confused as I was on how to incorporate social media into their businesses. As I once told a former boss I was never one of those guys in school who naturally got it. I did about as well as anybody else but I had to study about four times longer and harder to get there. Maybe that s why I had some success in business development and building client relationships because I can certainly understand why someone else has trouble understanding. When it comes to social media there is certainly a lot to understand and it changes practically every day. Plus like dental work it s necessary it s a good practice and it s here to stay. Kenneth C. Bator MBA President Bator Training & Consulting Inc. 630-854-6380 kbator www. in kenbator The key word is social. Whether it be LinkedIn Facebook Twitter Pinterest or whatever new site appears no one wants to feel like they are being sold in this space. unique brand of the business as well as implementing a marketing mix comprised of tactics that will work in harmony still rings true today. Like advertising billboards direct mail and other tools social media needs to be one of the marketing-mix components that spreads the brand message in a consistent way. 2. Don t use social media to sell. The key word is social. Whether it be LinkedIn Facebook Twitter Pinterest or whatever new site appears no one wants to feel like they are being sold in this space. I made this mistake several times when I first began using social media. My ignorance inadvertently ticked people off. Not a wise branding move. 3. Do use social media to share your brand by providing valuable content. Give free tips on how your customers clients or members can help themselves. Whether it be a golf shop sharing the three ways to improve your swing in 30 minutes or a financial institution sharing best practices on building a family budget people will appreciate and more important remember such information a lot more than your advertising. Once I started sharing instead of selling I slowly had people begin to follow me. 4. Start slow but start somewhere. There are a number of social media sites. If your business is just about to dive into the social media pool start with just one medium. If your company is primarily B2B you may want to start with LinkedIn. If your business serves consumers you may want to consider Twitter or 18 Credit Union BUSINESS December 2014 COMPLIANCE CASE STUDY Credit Union Gets Creative to Develop In-House Regulatory Compliance Expertise hen the COO of St. Louis Community Credit Union knocked on Jennifer Barnes office door Barnes had no idea the professional adventure she was in for. An eight-year employee of the 235 million communityfocused credit union Barnes nameplate read Audit Specialist a position she had worked her way to from branch teller. Now she was being asked to consider a new potentially intimidating role that of compliance manager for the entire organization. Having worked in both risk and audit functions Barnes was no stranger to the upheaval regulatory compliance could impart on a credit union particularly one with 51 000 largely lowincome members. Complicating matters was the credit union s intense growth plans. When this opportunity came my way I had no compliance background nor was I certified said Barnes who today proudly sports a CUNA Credit Union Compliance Expert (CUCE) designation behind her name. What ultimately gave me the confidence to say yes was my supervisor s strategy for ladderstepping me into the expertise I needed to serve the credit union well. That strategy was to pair Barnes with the experienced team at regulatory compliance firm PolicyWorks and not just for the short-term but well into the future. St. Louis Community Credit Union s leadership had determined that working in tandem with an external partner was the best way to build its own compliance Building Compliance Competency from the Outside in By Justin Hupfer W competency. St. Louis Community ultimately opted for an ongoing retainer relationship with PolicyWorks. Not only would this retainer give Barnes 24 7 access to the attorneys and compliance specialists at PolicyWorks but it also allowed Barnes backup assistance in providing reviews of everything from new and updated policies to advertising and marketing materials. According to Barnes the guidance this external compliance Credit Union BUSINESS 19 December 2014 COMPLIANCE CASE STUDY partner provides is essential in her ability to stay on top of what she describes as ever-changing laws and regulations. We currently have 11 branches and expect to expand said Barnes. The laws and regulations don t stop just because we are busy. Being pulled in multiple directions is no excuse for not knowing the law. The newly minted compliance manager was never happier to have the expertise of PolicyWorks than when it came time to digest and implement the vast number of new mortgage rules in 2013. Because St. Louis Community Credit Union is a community development financial institution (CDFI) there were several layers of complexity for Barnes to sift through and apply to her cooperative. CDFIs were exempt from some of the regulations yet those exemptions were not always clear she said. In working with PolicyWorks I determined for example that St. Louis Community was exempt from the appraisal rules but not from the qualified mortgage and ability to repay rules. Had this not been cemented before we finalized our implementation plan we may have completed a lot of unnecessary work. Assistance in the development of those implementation plans has been a very valuable component to what the compliance partnership provides. Often new regulations are not simply confined to one department they can be organization-wide said Barnes. There s great peace of mind knowing that our implementation plans have been reviewed and are always set up to allow for the greatest efficiency in hitting our deadlines. Another area in which Barnes has utilized the added expertise of the regulatory compliance firm has been policy reviews. In the first 18 months of her role as compliance manager the growing cooperative added several new policies to the books including a Safe Act policy and an appraisal policy. Barnes has been happy with the responsiveness of PolicyWorks which she says returns her calls or e-mails quickly. This rapid response rate allows her to confidently assure the credit union s senior management that she will deliver an answer or provide guidance to their compliance challenges well within 24 hours. The quick response has been especially helpful when St. Louis Community s marketing team is working on a tight timeline. Barnes applies her own expertise to the reviews first and then sends to them PolicyWorks for a second look. Having correct disclosures and logos in the proper places and of the right quality is just one area in which Barnes consistently relies on PolicyWorks for that extra set of eyes. Barnes is also impressed with the quality of advice she receives. I don t just get a yes or a no answer. I get a Yes and here s why or a No but I d caution you to look at it this way. The extra guidance is especially helpful as Barnes and her colleagues navigate uncharted regulatory waters. The biggest challenge really is just keeping up to date with the changes said Barnes. Every day we re getting emails that the CFPB is making changes proposing new rules or modifying dates. I don t really anticipate this changing and that s because of two things. First the regulatory environment is complex and all indications are that s the way it will stay. Second as we grow we are adding new staff new products and services and new membership profiles. Keeping our members first is our focus and compliance can if you don t have a solid plan resources and strategy in place detract from that mission. Although complicated and at times stressful to implement Barnes believes that new laws and regulations particularly the new mortgage rules have been mostly good for the membership her credit union serves. In the long run the mortgage changes will help. Because of our CDFI designation we ll be able to do more loans for more low-income individuals ultimately helping more of our members achieve their dreams. That positive attitude and member-first mentality resonates throughout St. Louis Community and it is precisely why the relationship with the credit-union-focused compliance firm works. As St. Louis Community Credit Union grows it will continue to develop the natural skills of its employees by collaborating with supportive partners like PolicyWorks that understand and promote the credit union philosophy. Justin Hupfer is CEO of Policyworks a leading regulatory compliance firm serving credit unions. He is responsible for the overall operations business development and achievement of client objectives for PolicyWorks. Justin can be reached at justinh 20 Credit Union BUSINESS December 2014 CARD SOLUTIONS PART TWO OF A FIVE PART SERIES The Pursuit of the Ultimate Credit Union Credit Card Program H By Ondine Irving as your card program growth stalled Have you been advised you need to implement costly acquisition and activation campaigns in order to increase balances As I have stated in the past the profitability from card programs is driven more by balances (finance charge income) than by usage (interchange) and total accounts (expense). The formula is quite simple increase credit lines (responsibly) and card loan growth can and will occur. As a whole credit unions are very conservative with their card programs and unsecured lending. I don t like to compare the credit union industry averages to bankcard programs because a credit union s card profitability and operating models are very different from the major bankcard issuers. Yet the single similarity is the consumer s perception a strong credit line can make the difference between the go-to card and the backup card. Average Credit Lines In order to meet lending goals and maximize the credit card marketing budget the very first things your marketers and lending staff need to be aware of are the average credit line and the current credit utilization ratios of each program within the card portfolio. If I told you that the average credit union credit card line (all lines outstanding divided by the number of accounts on file) is just 4 800 with an average balance hovering at 2 200 creating an average credit-line utilization ratio pushing 45 percent would you believe me that any promised methods of growing your card loans with costly campaigns by processors and other advisers is a lost cause I might add that a contributor to this low average overall credit line is driven by the influx of low credit lines on secured and starter cards. Many credit unions may start a consumer off with 500 and this will drive down your portfolio average and that s to say nothing of your overall profitability. Therefore I suggest you break down the credit-line utilization ratio by each card program and create line increase strategies for each individual program. This strategy would also involve reviewing any secured card portfolio for increases or upgrades to an unsecured program. Credit-line assignment will drive your portfolio growth more than any other marketing campaign. Generous responsible credit lines will bring in the balances needed to December 2014 Credit Union BUSINESS 21 CARD SOLUTIONS boost finance charge income the main driver of your bottom line. This is where you should be spending your marketing dollars scoring and evaluating cardholders for line increases not by increasing the credit union s expense by adding new accounts in the hope of getting new balances. See what you can do with your existing cardholders first before adding more to a sub-performing portfolio. The single most effective strategy most credit unions can implement to promote credit card loan growth is to review their average credit line average balance and current creditline utilization ratio on a regular basis. It doesn t matter if this is semi-annually bi-annually or annually just have a plan in place. You can spend all kinds of money and be promised all kinds of results but if your credit line is less than optimal and your portfolio s credit-line utilization ratio exceeds 35 percent no amount of marketing effort will grow your program. Any attempts at growth will get mediocre if any substantial results. If your credit lines are too low and existing balances are bumping up credit lines don t waste your efforts on analyzing cardholder behavior. Review your credit lines and get them to the five-digit range for qualified cardholders. If the existing credit-line utilization ratio is greater than 35 percent guess what No amount of marketing campaigns will have an effect on your portfolio balances. Do a credit line increase In most cases the cost will be a few thousand dollars depending on the size of your program. As a consumer would you use a credit card with an average line of 4 800 How would you view that issuer especially if you have a strong annual income Perhaps one would use a low credit-line card as a backup like a department store card. If the banks are offering five-digit credit lines with better perks it is easy to understand how credit lines play a big part. It is perception and value by the member. growth in card loan balances will hit a brick wall and usage will come to a screeching halt. The ability to repay and income verification are the two terms that have held back many credit unions from creditline increases. According to a recent Equifax white paper Recapturing Credit Line Increases credit-line increases are indeed possible post CARD Act. The ability to pay requirement from the CARD Act has been satisfied via income verification from income estimators (available via most credit bureaus) and has been deemed acceptable as ability to pay. Under Reg Z credit card issuers cannot open a credit card account or increase the credit limit of an existing account without considering a consumer s ability to make the required payments. To assess ability to pay for a credit-line increase credit card issuers may rely on financial information provided by the consumer so-called stated income or they may use third-party verified income data (Source Federal Reserve Bank of Philadelphia and Equifax research). Another suggestion for keeping credit-line increases alive at your credit union is to get the word out to members via statement messages phone system messages website banners and e-mails. Let the members know you have money to lend Calculating Credit Utilization Ratios In order to determine if existing credit lines are halting your balance growth you need to first understand and calculate the current credit utilization ratio of each program within your portfolio. Below is a table indicating a credit union s total credit line outstanding by program along with total balances. The formula is simple balances (total or average) divided by credit lines (total or average). This will create a ratio the credit utilization ratio that ideally should be less than 35 percent. I prefer to calculate this ratio two ways to include all accounts and accounts with balances. This gives me a better idea of those who are more in need of a line increase typically those who carry balances. Looking at the example below this credit union is in desperate need of a line-increase review for all programs because the line utilization ratio for accounts with balances exceeds 50 percent. Credit-Line Increases Post CARD Act The credit union industry has been inundated with so many different interpretations of the CARD Act that many credit unions have shied away from automatic credit-line increase reviews mainly due to the ability to repay requirement. Because of this many credit unions have no regularly scheduled creditline increase review policy in place. So as balances and usage increase while credit lines remain unchanged at some point the 22 Credit Union BUSINESS December 2014 CARD SOLUTIONS I would also like to mention the fact that many credit unions do not zero out credit lines on lost stolen and statused accounts. This actually overinflates the credit-line liability as a whole often by millions of dollars but this is another article. For now we will work with the data as provided by your processor. Credit- Line Increase Criteria I suggest credit unions consult with either their card processor or their credit bureau provider to establish criteria for implementing line increases. There are many factors to take into account including age of account existing limit date of last increase current balance delinquency and the ability to repay. Equally important is how you are going to reward those responsible cardholders by a flat dollar amount or a percentage of their existing line. The biggest mistake I see credit unions committing is making a credit-line increase a flat dollar amount rather than a percentage of the current line. Let s face it if a cardholder has been with you for more than five years has outstanding repayment history and currently has a 4 000 line how do you think they would feel with a 500 increase (13 percent) As shown in the table below a fixed increase of 500 is actually a reduced percentage for those with higher established limits to start with. Moreover the percentage of credit-line increase is often minimal and can be viewed as an insult to your members. In the table below if the average line is 4 500 it is clear that a 10 percent to 25 percent increase makes a more significant impact and sends a stronger message to your valued member. That is of course after all the pre-established criteria have been met deeming the member a valuable and responsible cardholder. Part of assigning line increases involves higher increases in the 35 percent to 50 percent range for higher-ranking members while the C and D members may receive only a 10 percent to 15 percent increase. Do not treat A members the same as C D and E members for line increases. December 2014 Credit Union BUSINESS 23 CARD SOLUTIONS Suggested Credit-Line Guidelines Credit-line assignments should be primarily dictated by 1) credit quality of the cardholder and 2) cardholder monthly gross income. Below are suggested guidelines regarding total unsecured lending limits for members (inclusive of credit cards and other unsecured loans). These suggestions come via Rex Johnson founder of Lending Solutions Consulting. Note these recommendations represent TOTAL unsecured limits so keep this in mind if you offer other unsecured products in addition to a credit card. Scheduling of Credit-Line Increases The key to the success of credit-line increase reviews is in the timing. Clearly there are three distinct times of year in which you want to ensure your qualified members have ample room on their credit card 1) back to school shopping (aim to have increase available mid-July) 2) holiday shopping (aim to have increase available mid-October) and 3) post-holiday balance transfer season (aim to have increase available early January). In Summary Calculate the following for your credit union card portfolio (by program) in the following steps 1. Determine average credit line by program. 2. Determine average balance by program. 3. Calculate credit utilization ratio by program. If higher than 35 percent consider the following 1. Confer with processor or preferred credit bureau provider. 2. Establish criteria for qualifying cardholders for increase. 3. Set increases as a percentage of current line. 4. Schedule increase to occur during prime times outlined in article. This may be the single easiest and most effective way you have ever seen your credit card loans grow not to mention the most cost effective. Sit back and watch Ondine Irving has been part of the credit union community since 1985 and founded Card Analysis Solutions (www. in November 2003 after a 12-year career at Baxter Credit Union five years at Certegy Card Services (now FIS) a short time with Raddon Financial Group and in 2010 a stint working with Suze Orman. Ondine is the creator of the original School of Credit Card Program Management which debuted in 2008. These popular classes sell out 60 days in advance. In 2015 locations include Orlando New Orleans Charleston San Diego and Las Vegas. Her focus is to teach credit unions in an objective manner the expense savings and income opportunities of the credit card portfolio and she strongly believes credit unions should issue and manage their own card programs. Ondine also works one on one with credit unions around the nation and to date has worked with over 500 credit unions. Visit or www. for more information. Past Editions Part 1 The Great Rate Debate Future Editions Part 3 Most Misunderstood Theories of Card Program Management Part 4 Statement of Credit Card Program Facts Part 5 Credit Union Loyalty Programs 24 Credit Union BUSINESS December 2014 800.268.1884 TECHNICALLY SPEAKING Getting to Know Members Better is the Key to Future Service and Marketing Efforts D By Roy W. Urrico Yet even in the J.D. Power U.S. Retail Banking Satisfaction study which polled 80 000-plus consumers poor member service drove many to change financial institutions in 2014. The 2014 Ernst & Young Global Consumer Banking Survey which polled more than 32 000 retail banking customers across 43 countries also revealed that service issues drove many accountholders away. The J.D. Power study also showed that many financial institutions mainly mid-sized ones are misfiring with selected segments of accountholders. Among these segments are Millennials who desire online and mobile issue resolution as well as more personalized service and information based on specific requirements. o Amazon and Walmart know more about your members than you do Does the member service experience that online retailers provide influence how your members expect to bank The answers are simple yes and yes. So how do you get to know your members better and improve their experience The solution revolves around translating big data into big service. Business intelligence and digital analytics are generating new opportunities for financial institutions to bolster marketing and service areas. Major online and big-box retailers know how to do it. And many larger financial institutions today are beginning to follow these retailers when it comes to leveraging cross-channel data. Many credit unions might think that big data an evolving term that describes any huge quantity of unstructured information that has the potential to be data-mined is probably more of a wish-list item than a realistic business instrument today. However it s now possible to leverage readily available information to recognize consumers at a personal level and bring them a targeted individual experience. Business intelligence could empower your strategies of engaging members and delivering their expectations and needs. The Potential of Big Data By now you should at least recognize the opportunity of utilizing data analytics or business intelligence in creating a better member experience. Some financial institutions for instance use dynamic marketing triggers to provide accountholders with the best offers in real time. What does that mean It means that when a member starts viewing loan information on your Web site you can react instantaneously with pertinent data and offers. Many financial institutions are already gathering knowledge into what accountholders are doing at the precise instant of engagement to deliver tailored cross-sell or up-sell offers while those consumers are still on their sites. Given the amounts of information already at a credit union s disposal there is no secret code or magic wand necessary. You just need to know how to extract the right data. In a CUNA white paper on data analytics Anne Legg SVP Business Strategy & Innovation at Third Degree Advertising says the challenge for Member Service Best Practices Of course before you can utilize big data you must be ready with good service. Service at financial institutions received some mixed reviews recently. On the one hand Money magazine called financial service one of three industries that desperately need service makeovers. On the other hand J.D. Power and Ernst & Young surveys showed high satisfaction scores. 26 Credit Union BUSINESS December 2014 TECHNICALLY SPEAKING most financial institutions is that the data already exists. It is simply waiting for someone to find extract and analyze it. If you have a marketing customer information file (MCIF) that is a good place to begin. Seek out ways to comprehend utilize and supplement the data. Add in profit numbers demographics credit scores and other more specific data. If you don t have an MCIF start with core data. Then make plans to add an MCIF and more importantly someone to run it. Legg recommends keeping these key points in mind while marching down the path to big data Technology will be an important tool for mining the data. Consumer behaviors across all channels will provide many clues. Team members need a broad diversity of skills and talents to interpret the data. Data can expose new business opportunities. Strategic planning is more potent with the correct insights. Small steps toward bigger goals will bring impressive results. By the way there is another factor to consider human nature. While consumers want companies to know their preferences and use that information to personalize marketing and customer service they are also reluctant to share information with just anybody. In a recent survey by SAS the percentage of U.S. consumers who expressed concerns about businesses tapping their personal information rose from 72 percent to 77 percent. However most respondents still expect businesses to understand them. What it boils down to is that consumers are willing to share information with organizations they trust. Also necessity and good relationships between customer and business seem to influence the motivation to share data. For example almost 75 percent of respondents in the SAS survey are likely to share information with trusted intermediaries such as credit unions. Consumers depend greatly on an institution s integrity to protect their assets and their information. Establishing a Big Data Strategy Members engage with their credit unions in offline and online interactions. It s more and more frequent for consumers to begin a relationship at a credit union branch and then employ December 2014 Credit Union BUSINESS 27 TECHNICALLY SPEAKING a blend of channels including smartphones tablets PCs and social media. Credit unions can also use data to learn more about members and to adapt a marketing focus to lifestyle or major life events such as buying a house or setting up accounts for college-age children. It s increasingly challenging for credit unions to turn all that data into genuine member intelligence and it s even more difficult to determine how credit unions should respond and what they need to do differently. Because of this the demand for analytics combining brick-and-mortar experiences with digital has exploded. In the past just measuring activity on a financial institution s Web site was enough page views unique visitors time on site and exit pages. These days there is enough data available to draw a holistic portrait of consumers acquisition engagement and retention across all digital channels. Do you know for example if members start a search for a home equity line of credit (HELOC) on a mobile phone and then complete it on a different channel or start the process digitally and finish at one of your branches This type of data can play a vital role in defining your integrated marketing strategy and in determining how you service a member. But mining for these kinds of insights requires the incorporation of available data across multiple channels including all digital avenues. PricewaterhouseCoopers urges financial institutions to set specific upfront and ongoing goals Recognize that big data is a business opportunity. Gaze beyond technology challenges and objectives to include business needs and goals in your organization s strategy to implement and leverage big data. The analyst community needs to shift its thinking to ask new or different questions reflecting today s members and needs. IT s role should seek to transform from primarily data movers to idea enablers. Educate your organization s business leaders around both the value and the particulars of making big data-driven factbased business decisions. Relying on gut instinct can result in erroneous actions that can be very costly. members needs and expectations and how their performance compares with not only financial competitors but other digital mobile and online entities as well. Credit unions are lagging behind the business-intelligence curve with competitive pressure guaranteed to amplify. The good news is that everything credit unions need to perfect their own algorithmic models is sitting right in front of them. There is no one-size-fits-all algorithm. All the tools and elements are now in place for a major revolution in data-based marketing. Member service representatives should be empowered with a view of key member data as well as recent feedback and support histories. This is not just so members don t have to repeat their information or their support issue. Rather it is to better and more personally connect with individual members regarding products and services. Particularly with Millennials credit unions must bend and adjust to members who are progressively more empowered by more personalized technology and an evolving array of new channels and devices. Data-driven marketing is the future for the financial industry. And the interdependency among marketing service and IT is greater than ever before. As banks and credit unions compete for accountholders and those additional products and services include credit cards HELOCs and home and car loans they ll increasingly be courting consumers who have access to more channels and information than the average service agent. To build interest and brand loyalty credit unions should look to invest in an experience that reduces effort while engaging the member through personalization and attention to detail. One thing is clear members desire consistency across channels convenience to engage whenever it is convenient and omni-channel communication when it comes to information and services. And if they don t get that with your credit union they may take their funds somewhere else. Roy Urrico is a freelance ghostwriter and byline writer of books Web content blogs articles newsletters guides case studies and white papers about financial institutions financial technology compliance information security credit and collections biometrics and many other topics. To find out more about how Roy can help your organization check out his profile on LinkedIn visit his Web site at or email him at roy Make the Jump It is important to note that making an investment in consistently satisfying service and information delivery will be a key differentiator for financial institutions going into 2015. It is essential that credit unions appreciate whether they are meeting 28 Credit Union BUSINESS December 2014 SALES & MARKETING The 9 P s of Professional Service and Sales I By Brad Roteman recently read an article bemoaning the lack of sales culture among credit unions. The article talked about the emphasis in credit unions on service and the huge cost of providing exceptional service as a defining differentiator between banks and credit unions. I have always believed however that service and sales cannot really be separated. Great service means selling the products and services that best suit the wants and needs of the consumer. In past articles I have written about the moral foundations I have used to develop service and sales cultures. I have also discussed how giving people moral imperatives for what they do makes them most likely to want to succeed. It also renders them more willing to learn and to be coached. It is our task as leaders to provide a framework for turning the desire to help people into increased use of our products and services. In other words turn service into sales. That is where the 9 P s come into play. Today we will discuss the first three. Following articles will cover the remaining six P s of the 9 P s of Professional Service and Sales. 1. Passion 2. Professionalism 3. Preparation 4. Proactive Listening 5. Product Knowledge 6. Presentation Skills 7. Patience 8. Perseverance 9. Proper Follow-up These nine components comprise the necessary elements upon which to build a successful service and sales culture. At one time I had listed only eight P s. I was including Passion as a factor in Professionalism. The more I spoke before groups the more people asked me about my passion for creating the service and sales culture. After a while I recognized that they were really telling me to include Passion as a separate and equal member of the 9 P s. After all when we demonstrate passion for something it becomes infectious to others. Passion can motivate people and help us paint for them a portrait of what the future can be made to look like. It can help us envision progress success teamwork championships heroic efforts and more. Passion provides the most favorable of all frameworks for successful journeys into the future. Passion can be the fuel to spring a time machine to work in our minds and hearts. Passion is the cornerstone upon which to build and achieve our individual and collective dreams. Professionalism is the second of the 9 P s of Professional Service and Sales. Defining Professionalism in this context is aided by thinking of the negative experiences we have all had with people in sales or service in our own lives. Each of has no doubt been subjected to someone who acted as though we were interrupting something far more important than helping Credit Union BUSINESS 29 December 2014 SALES & MARKETING us buy a product or get an item serviced. We have all found people showing disrespect by chewing gum conducting side conversations dressing too casually needing a shave brushing their hair not maintaining eye contact writing on a sticky note being pushy not greeting us in a friendly manner and engaging in so many other nonprofessional acts of conduct. When we see nonprofessional behavior we normally know it and remember it. Often surveys show that we base our decision to leave a company we have used in the past or to not do business with a new company on the lack of professionalism we observe. Professionalism by this standard alone earns its lofty place on the list of 9 P s don t you agree There are so many attributes that can fall under the title of Professionalism. I suggest that the reader take a few minutes to jot down his or her own thoughts on the subject. The lists often get rather long. Professionalism when applied in depth helps others want to do business with us. Professionalism also helps us feel positive about ourselves. When we are dressed smartly and are wearing highly polished shoes we normally feel better. When we open a leather or leatherette portfolio in which to take notes using a fine writing instrument we feel far better about ourselves than when using a Post-It note and pencil. Professionals have a sense of achievement and confidence around them. Professionals practice the art and science of professionalism consistently. Preparation the third P is critical to success in any endeavor. In service and sales preparation goes to the very core of every step in the process of providing excellent service. One must be ready to answer questions regarding every aspect of the products and services offered. One must be psychologically prepared to greet a client or prospect with a warm and welcoming demeanor. One s preparation must include a knowledge and 30 Credit Union BUSINESS understanding of who the most likely buyers of each product or service are likely to be and why. One also must be prepared to quickly change course as needed to stay with the demands of the client. Knowing what possible distractions may arise and how to defuse them are additional factors for which a skilled professional must at all times be prepared. Preparation also includes rehearsal. Rehearsal occurs both in one s imagination and physically. Sometimes that rehearsal will be before a mirror or into a recording device. At other times the rehearsal will take place before another person or a group. No matter which method is used rehearsing is critical to the process of becoming steadily better at being prepared in any service or sales situation. As part of the rehearsal process one must be willing to accept critical coaching. Without honest discussion of performance one can never achieve a high level of success. Finding a good coach is therefore a strong prerequisite for becoming well prepared to perform at one s highest level on a consistent basis. That covers the first three of the 9 P s of Professional Service and Sales. In upcoming articles we will discuss items four through nine. In the meantime readers thoughts ideas and comments are not only welcomed but will help me be better prepared to meet their expectations in those future articles. Please feel free to provide me with the feedback that will help me do a better job of helping others. Brad Roteman is a retired vice president of Member Advocacy at Healthcare Systems Federal Credit Union in Virginia. He contributes articles to and is a popular speaker to audiences internationally on service sales and leadership. He can be reach at broteman December 2014 THE HISPANIC MARKET How to Reach Me A Hispanic Millennial ith all the buzz on reaching today s Millennial generation it s only fitting we take a look at the make-up of this prime market of which I happen to be a member. With 43 percent of Millennials being non-white we are America s most racially diverse generation. Hispanic and Asian immigrants and their children have largely contributed to the spike in diversity among Millennials. Hispanic Millennials in fact are the second-largest Millennial group comprising 21 percent of all Millennials. So what makes us different Studies on Hispanic Millennial cultural identity and habits indicate that our group tends to be more home-oriented has a larger influence on family purchase decisions and is more entrepreneurial than our nonHispanic Millennial counterparts. In addition we tend to be more optimistic about our own futures we are early adopters of technology and we are trendsetters. As President CEO of Pinta Mike Valdes-Fauli points out Hispanic Millennials are not acculturating we re shaping the broader culture. One of the most important characteristics of my generational group is that we want to stand out and be recognized as Hispanic. We are focused on our Latino culture and we reward brands and organizations that acknowledge this pride in our heritage. How do you reach me Language is not as important to me as it is to my parents and so a direct mail piece or a commercial that has been translated (not trans-created) to Spanish is not going to do the trick. However a primarily English commercial showing people who look like me and featuring conversations and imagery that demonstrate a brand understands my Latino and American cultures will definitely get my attention. (Throw in a couple of Spanish references even better.) While Hispanic Millennials language preference and taste for the traditional may be different than our first-generation parents we still share W By Miriam De Dios CEO a connection to the Latino culture. If you are looking to grow your credit union and expand into new markets take this advice include Hispanic Millennials in your growth strategy. Hispanics as a whole are a key driver of today s U.S. economy with a purchasing power that exceeds 1 trillion. You don t have to tell the 50 largest spenders in Hispanic media (among them Procter & Gamble Co. AT&T State Farm Insurance and Walmart) about investing in the Hispanic market. They spent nearly 3.4 billion in Hispanic media in 2013 which was 14.2 percent more than the previous year. With this level of competition for my attention your credit union can t risk not reaching me. Miriam De Dios is CEO of Coopera which partners with credit unions to help them grow by reaching and serving the Hispanic community. A native of Jalisco Mexico De Dios has significant experience in the financial services arena having worked with State Farm Insurance Companies and John Deere Credit. Witnessing her own parents struggles to navigate the U.S. financial system she is passionate about furthering Coopera s mission of connecting more Hispanics both immigrant and United States born with the financial mainstream. Credit unions she believes are the answer. Credit Union BUSINESS 31 December 2014 I ve never felt so up-to-date and compliant. Thank you Dolphin Debit Drive-Up ATM Community Resource CU Outsourcing ATM network management to Dolphin Debit eliminates the capital costs associated with ATM ownership while reducing operating expenses by as much as 30%. Save time and money with Dolphin Debit. 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All rights reserved. 9540-1129 04 14 CU SPOTLITE Faith Inspired Mount Vernon Baptist Church Credit Union By Sharon Sweda If you take a step back in time to 1886 you will see that times were different. The United States had celebrated its first century but many of its rights and freedoms were still evolving into the liberties that continue to beg for clarification today. People rallied at the Haymarket Affair in Chicago Illinois to fight for eight-hour workdays and Westchester Rifle was busy producing their 1886 Winchester which is one of the finest and strongest lever-action rifles the brand ever produced. The first Tournament of Roses was held in Pasadena California and Apache Chief Geronimo s surrender put an end to the last major U.S.-Indian war. In Durham North Carolina 1886 marked the formation of the Mount Vernon Baptist Church which has survived the passage of time and continues to hold a strong presence in its city of origin. Mount Vernon Baptist Church s growth spanned the years that followed its formation. The church fulfilled the spiritual needs of its Black congregation but in 1948 Pastor E.T. Brown sensed a calling to take the church in a new direction. He approached the church community with his vision. Reverend Brown told parishioners that he had a vision explains Roziland Cole Treasurer and Manager of Mount Vernon Baptist Church Credit Union. His vision was to form some kind of a place where church members could borrow and deposit money. He wanted to open a credit union that would help members who came upon hard times or were in need as well as a place for them to save money. To understand the inspiration behind Reverend Brown s concern for his church family s financial resources one has to understand the limited resources available for Blacks in the 1940s. This was a time in history when they did not have the same access to banks and banking products as were afforded to Whites. To this day home ownership and poverty in the state is affected by the banking issues of the past and the inability for Blacks to finance. Reverend Brown s vision was timely pertinent and much needed. The credit union began with 20 members who met in the church basement and contributed 20 each Cole explains. That was the start. Today Mount Vernon Baptist Church Credit Union is the only Black-owned church credit union in the entire state of North Carolina and after 66 years of service it continues to serve its approximately 300 members with its own unique platform. Unlike large employee or community credit unions with multiple bricks-and-mortar branches and high-tech mobile apps Mount Vernon BCCU is run by volunteers. Cole and two other volunteers serve at the pleasure of the board members who are elected to staggering two- to four-year terms. We have an annual shareholder meeting to elect the officers Cole tells. We three employees are not really employees she chuckles. We don t get paid so while we are employees of the credit union we are really volunteers. Yet in a time when credit unions from coast to coast struggle to provide state-of-the-art bells and whistles creative bricks-and-mortar branches and electronic access that competes and exceeds that of the largest financial institutions there is something assuring about a small church credit union that opens its doors in the basement of the church each Tuesday to conduct business for members. A simple sacred opportunity preserved and sustained for its members to save and borrow money that s what Mount Vernon Baptist Church Credit Union is all about. Sharon Sweda is a freelance writer who has worked in the real estate and finance industries for the past 28 years. 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