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THE ONLINE BANKING ISSUE View from the Crow s Nest MARCH 2015 VOLUME 10 ISSUE 3 When You Can t Control The Winds Adjust Your Sails JULI ANNE CALLIS The Law Are Credit Unions Less Attractive to Consumers Because of Poor Digital Banking Strategies BRAD R. BERGMOOSER Velocity Leadership Formula for Success Part Two of a Conversation with PenFed Credit Union CEO James Schenck SCOTT MCCLYMONDS Their Loyalty. Your Revenue. INCREASE BOTH WITH SWBC At SWBC we know what s important to our credit union clients--serving their members and increasing fee income. Our comprehensive products and solutions can help you generate more revenue while increasing the loyalty and value of your borrower relationships. Give us a call at 866-316-1162 or visit swbc.com to learn how we can develop an income generating program that is the right fit for your credit union. AUTOPILOT LENDING GAP WITH POWERBUYTM MMP PAYMENT PROTECTION PROGRAMS INSURANCE PARTNERS OUTSOURCED LENDING CARD SOLUTIONS 2015 SWBC. All rights reserved. 5540-1305 CUB 0215 TABLE OF CONTENTS V O L U M E 10 I S S TAB 3 UE Credit Union BUSINESS 4 6 9 12 15 19 22 PUBLISHER S POV On the Way to GAC (via Memory Lane) Tim O Hara CFO CURRENCY 26 29 COMPLIANCE UPDATE Can You Hear Me Now Cindy Williams CU ADVANTAGE Adopting an Interest Rate Risk Measurement Table Emily Hollis THE LAW Embracing the Pain of Compliance How it Gives Your Credit Union an Advantage over Apple Amazon and Google Kevin Kammer A Reminder of Possible Regulatory Relief Brad R. Bergmooser TECHNICALLY SPEAKING 33 CU CONTENT Play Ball Hoops Game Major Coup for Credit Union s Visibility Laura Enock The Impact of Data Breaches and Apple Pay William Nicolosa LENDING SOLUTIONS 36 41 VIEW FROM THE CROW S NEST Credit Scores A. Rex Johnson When You Can t Control The Winds Adjust Your Sails Juli Anne Callis CEO VELOCITY Lots of Changes Are Going On HOW TO LAUNCH A CUSO Formula for Success What Financial Services CEOs Can Learn from PenFed Credit Union CEO James Schenck Scott McClymonds CU Realty Services A CUSO Case Study Mike Corn DIGITAL SECURITY 45 CU-FRIENDLY STUDENT LOANS Are Credit Unions Less Attractive to Consumers Because of Poor Digital Banking Strategies Michael Carter Tuition Costs How Can Your Credit Union Help Your Members Geoff Bacino 1 C R E D I T U N I O N B U S I N E S S M A R C H 2 0 1 5 C U B U S I N E S S . C O M ABOUT US TAB PUBLISHING TEAM Tim O Hara Editor & Publisher tim cubusiness.com Iliana Nord Operations Manager iliana cubizmag.com Patti Manzone Designer Ashok Kumar Circulation Director PUBLISHER S POV THE ONLINE BANKING ISSUE View from the Crow s Nest MARCH 2015 VOLUME 10 ISSUE 3 When You Can t Control The Winds Adjust Your Sails JULI ANNE CALLIS The Law Tim O Hara THE LAW Are Credit Unions Less Attractive to Consumers Because of Poor Digital Banking Strategies BRAD R. BERGMOOSER Velocity Leadership Brad R. Bergmooser TECHNICALLY SPEAKING Formula for Success Part Two of a Conversation with PenFed Credit Union CEO James Schenck SCOTT MCCLYMONDS C M William Nicolosa LENDING SOLUTIONS Y CM MY A. Rex Johnson DIGITAL SECURITY CY CMY Michael Carter COMPLIANCE UPDATE K Cindy Williams CFO CURRENCY SUBSCRIPTIONS Emily Hollis CFA CU CONTENT Laura Enock VIEW FROM THE CROW S NEST Credit Union BUSINESS is published monthly (12 issues per year) by CU Business Magazine Inc. A one-year Digital membership is 75 yr x 3 ( 225). An online membership form is available at www.cubusiness.com register. SALES AND ADVERTISING Juli Anne Callis VELOCITY CEO Tim O Hara Publisher tim cubusiness.com or 561-282-6015 1 CONTACT INFORMATION Scott McClymonds CU ADVANTAGE Kevin Kammer HOW TO LAUNCH A CUSO Mike Corn CU FRIENDLY STUDENT LOANS Credit Union BUSINESS Magazine P.O. Box 2223 Palm Beach FL 33480 (561) 282-6015 (561) 588-7711 (fax) tim cubusiness.com Geoff Bacino 2 C R E D I T U N I O N B U S I N E S S M A R C H 2 0 1 5 C U B U S I N E S S . C O M With 80% of U.S. households saving coins coin processing is in demand especially at nancial institutions where most prefer to redeem their change. Give customers the means to do it themselves and you can increase their satisfaction by as much as 20%. That s the power of self-service coin counters. Now Cummins Allison gives you more ways to add coin machines to your branch. Choose from fast quiet and reliable coin counters that you can buy rent lease or place free of charge. We ll even pick up and process your coins. Coin counters are a proven way to increase traf c and member satisfaction -- let us show you how. Get a custom report comparing your self-service coin options. cumminsallison.com traf c Copyright 2014 Cummins Allison Inc. All rights reserved. PUBLISHERS TAB POV BY TIM O HARA T On the Way to GAC (via Memory Lane) his weekend marks the first time in 20 years that I haven t attended CUNA s Governmental Affairs Conference (GAC) in Washington D.C. I really regret not being there and plan on returning next year. Although GAC has been held in the glitzy Walter E. Washington Convention Center for the past decade I began attending it when it was held at the Washington Hilton on Connecticut Ave. NW. I ll never forget my very first visit to the expansive vendors exhibit hall in the Hilton way down a series of escalators into the gargantuan subterranean meeting space. I think it took me a couple of years to find out it was actually a parking garage throughout most of the rest of the year. I have so many great memories of attending the greatest show of the credit union year that I d love to share a few of them with you. On one of my first GAC visits while waiting in a very crowded line to get into the basement exhibit hall at the start of an early morning session I noticed three men each sporting a gigantic ring on his hand. Upon inquiring I learned that one of them was John Schmitt one of the Super Bowl III heroes and the center who hiked the ball to Joe Namath in the upset of all time back in 1969. The other two ring bearers were Gary Dudley and Charlie Amato owners of SWBC and the San Antonio Spurs. I consider both to be good friends and wonderful CUB customers. And in the time since that first meeting the Spurs have rewarded their owners with two more NBA Championship rings the most recent in the past NBA season and a prediction of the fourth next year Most of the years I attended GAC I was accompanied to D.C. by some of the finest ad salesmen that it has been my pleasure to know. One year it occurred to me that instead of putting four or five of us up in separate and expensive hotel rooms it might be more prudent to find larger accommodations for us all to share. 4 C R E D I T U N I O N B U S I N E S S A Washington friend suggested that I investigate a small hotel called The Jefferson just blocks from the White House. I booked a junior suite and when I arrived on a dreary Saturday morning during the last weekend of February I asked to be shown something larger ... and larger ... and larger until finally I found myself in the Presidential Suite with three bedrooms five bathrooms a kitchen a dining room and seven television sets. Best of all the nightly price was about half the total that single hotel rooms would cost. So that night we all moved into room 804 which we were told was the same Presidential Suite President H.W. Bush and Barbara lived in for 10 days prior to moving into the White House just down the street. And when we figured that the space was large enough for us to invite some customers up a tradition was born Meet us at The Jefferson became our rallying cry as we handed out invitations from booth to booth back at the expo hall One night back at the suite three CU directors from Ohio crashed the party Bill Bob and Corky. We all hit it off and the three of them became regulars year after year. As I write this and stroll down memory lane I kinda wish I were going to GAC for the 21st year. But then I look out my window at the Lake Worth (Fla.) Municipal Golf Course and remember that it s 85 where I am ... nah I ll stay here I hope you ll have an opportunity to peruse this great credit union information with a purely Business slant and that you ll put it all to good use. Thanks for reading Tim 2 0 1 5 C U B U S I N E S S . C O M M A R C H 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. CFO TAB CURRENCY BY EMILY MOR HOLLIS CFA PARTNER ALM FIRST FINANCIAL ADVISORS Adopting an Interest Rate Risk Measurement Table Are NCUA s interest rate risk requirements confusing even contradictory to your credit union The adoption of a risk measurement table can help clarify the matter. Learn how the adoption of such a table can allow your CU to depict your risk categorically. ll credit unions valued at greater than 50 million The sample policy guidance for a high amount of risk is detailed are required to adopt an Interest Rate Risk (IRR) as follows (all limits assume a 300 basis point instantaneous policy that identifies measures monitors and and permanent interest rate shock) controls IRR and is central to safe and sound GAP Greater than 20 percent change in any given period credit union operations. The crucial part of an or cumulatively over 12 months IRR policy is adopting a risk measurement table. Income Simulation Net interest income after-shock change greater than 30 percent over any 12-month NCUA Sample Policy Limits period net income after-shock change greater than 75 The NCUA has historically provided sample policy limits for percent over any 12-month period interest rate risk measurement. Within these examples limits Net Economic Value After-shock change in net economic for GAP net interest income and net economic value analyses value greater than 25 percent or aftershock net economic are suggested. Some examiners claim that the measurements value ratio of four percent or less must assume par values for non-maturing deposits. The table is outlined in the NCUA Examiner s Guide but such assumptions These tests can be confusing and at times seemingly are absent from the document. Although they are referenced as contradictory which can lead to the quandary of which analysis sample credit union policy limits for interest rate risk most to use and sometimes needless confrontation between examiners credit unions adopted them as risk measurement guidelines and credit unions. One test might show a minimal interest rate solely because the NCUA suggested them. The NCUA itself risk profile when another shows a high-risk profile. Intuitively emphasizes that the examples are for illustrative purposes only this tendency seems flawed but it does happen. As a matter of and that management should establish its own limits that are fact most credit unions with a high amount of adjustable rate reasonably supported. mortgages will experience this dichotomy as rates approach periodic caps and the income simulation does not account for fair market losses of the cap options. A Credit unions that have assets between 10 million and 50 million and have long-term mortgages greater than or equal to 100 percent of net worth are also required to have an IRR policy. 2 Guidelines can be found at http www.ncua.gov Legal GuidesEtc ExaminerGuide chapter13.pdf. The risk measurement table guidelines are found on pages 13 2-8 and 13 2-21. 1 6 C R E D I T U N I O N B U S I N E S S M A R C H 2 0 1 5 C U B U S I N E S S . C O M CFO CURRENCY While both NII and NEV tests should be performed ALM First believes that more credence should be put on the NEV analysis when assessing outlier risk. Without it long-term cash flows and embedded options (i.e. caps) are not adequately tested and measured. Example Risk Measurement Table The risk measurement table adopted by the Office of Thrift Supervision (OTS) defined different degrees of interest rate risk. The OTS selected the NEV ratio as the sole measure of risk exposure for institutions within its jurisdiction. While the OTS no longer exists the concept of modeling and risk measurement used in this guideline is ideal because it captures both the size of economic capital and its sensitivity to changes in interest rates. As an example an institution that has a base NEV ratio of 10 percent and a post 200 bps shock NEV ratio of seven percent would be deemed to have a moderate amount of interest rate risk. When using this table the institution would locate the corresponding range for its post 200 bps NEV shock in the first column and follow the line to the right locating the column that corresponds to its respective interest rate risk sensitivity measure. In this example the 300 bps (10 percent 7 percent 3 percent or 300 bps) result falls in the 201 400 bps column and dictates a moderate amount of risk. Exhibit 1 Up 200 bps Post-Shock NEV Ratio Over 10% 6% to 10% INT E R E S T R AT E S E NS IT IVIT Y ME AS UR E Under 100 bp Minimal Minimal Minimal Moderate 101 - 200 bp Minimal Minimal Moderate Significant 201-400 bp Minimal Moderate Significant High Above 400 bp Moderate Significant High High 4% to 6% Below 4% Summary of OTS Guideline for the Level of Interest Rate Risk ALM First modified the table somewhat by moving the test to an up 300 bps movement with more categories as shown in Exhibit 2 below. Exhibit 2 Up 300 bps Post-Shock NEV Ratio Over 10% 6% to 10% 5% to 6% 4% to 5% 3% to 4% Below 3% INT E R E S T R AT E S E NS IT IVIT Y ME AS UR E Under 100 bp Minimal Minimal Minimal Minimal Moderate High 101 - 200 bp Minimal Minimal Minimal Moderate Significant High 201-300 bp Minimal Minimal Moderate Significant High High 301-400 bp Minimal Moderate Significant High High High Above 400 bp Moderate Significant High High High High Exhibit 2 tackles both the size of economic capital as well as its changes to interest rates in one test. It also eliminates the question of two NEV tests and the potential of two separate outcomes. 3 4 The OTS uses an NPV ratio as its measurement which stands for net present value. The concept is identical to the NEV ratio. The OTS risk measurement table assumes a 200 bps after-shock value. 7 C R E D I T U N I O N B U S I N E S S M A R C H 2 0 1 5 C U B U S I N E S S . C O M CFO CURRENCY CFO CURRENCY CURRENCY CFO CFO CURRENCY are calculated figures not assumptions. The have significant implication on the ALM conclusion. The of time. Credit will need to be assumptions used should be changed government bond inputs allow the user to model cash flows with an end maturitybenchmark if budget surpluses dry up thein progressive intervals reviewed and authorized and Asset liability and They have already become the standardisfor pricing recalculated CFA a partner and decay ratesmanagement is the process of evaluating interest market. the output should be Emily Hollis to determine the impact that are similar to amortizations. this can take weeks. rate risk within the balance sheet. It is the foundation on which many corporate bonds. Dividend and discount rates allow for the present value of a different assumption.with ALM First Financial if you to build strategies and the key in making informed and prudent Advisors LLC. are uncertain as to calculations (premiums) in each modeled interest rate scenario. Knowing where swap rates and spreads are will allow the many requirements of decisions. Adopting a risk measurement table allows the credit effective duration calculations can then mathematically bebetter hedging and investment execution. When investors need Conclusion union to depict its risk into various categories. Should risk shift applying and using derivatives compared to that ofisthe institution s assets. in this case effectiveto gauge credit risk and market be viewed as aswap curve is Non-maturing deposits can sentiment the franchise value to a category that unacceptable to the ALCO discussions are becoming the more important curve to analyze.engaging an external consider duration isactions are taken which is the basis of prudent interest calculated by merely backing into the price change or benefits generated from loyalty of the membership when held and service provider to help you formula. For example if the liability present value is 100 in the deposits are retained when dividend rates are low in a higher rate risk management. through First Financial Emily Hollis CFA is a partner with ALM the steps. base 101 in the up 100 basis point scenario and 99 in the down market environment. And vice versa A financial derivatives Properly used institution Advisors LLC. 100 basis point scenario the effective duration is one percent that offers a non-maturity dividend rate higher than market can offset interest rate risk (i.e. (101-99) 200). to attract hot money will decrease the economic withinofthe that is inherent value its liabilities. it is imperative to model these accounts for a more competencies to meet the final requirements. The second part credit union industry today. This is vital because as competition accurate depiction of allow rate unions sensitivity Analysis submitted when all requirements are grows derivatives can interestcreditrisk. to compete more and final application is The regulator strongly suggests sensitivity analyses as a means effectively. completed including dealer contracts. to quantify the effects of changing assumptions. sensitivity Emily Mor Hollis CFA is a partner with ALM First Financial setting up a line at a dealer is similar to becoming a Advisors LLC. 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 be laborious and takes a good deal Advisors LLC. Exhibit 4 The outputs Some analysts view swaps as the most likely replacement for Treasury bonds as a financial benchmark if budget surpluses dry up the government bond market. 8 C R E D I T U N www.cubusiness.com I O N B U S I N E S S M A R November 2014C H 2 0 1 5 C U B U S I N Credit Union BUSINESSE S S . C O M 15 www.cubusiness.com www.cubusiness.com March 2014 January 2014 Credit Union BUSINESS Credit Union BUSINESS 17 13 THE TAB LAW BY BRAD R. BERGMOOSER FREEBORN & PETERS TAB LLP A Reminder of Possible Regulatory Relief Do those annual privacy notices drive your credit union crazy A new Consumer Financial Protection Bureau rule may offer you an alternative workaround to sending them every year. Learn when you must and may not have to mail out such notices to your members. hen most news coming from the Consumer Financial Protection Bureau (CFPB) negatively impacts credit union operations it is only fair to highlight the positive actions the bureau takes. Thanks to a final rule issued by the CFPB as of October 28th of last year it is possible that your credit union may not need to mail out annual privacy notices. W What Are the Five Conditions that Must Be Met Credit unions can satisfy the annual privacy disclosure requirement by using an alternative disclosure method if 1. Members nonpublic personal information is not shared with nonaffiliated third parties that are not subject to an exemption. The best way to describe this condition is that if a member has the ability to opt out of any information shared with a third party then the credit union must continue to use the standard delivery for the annual privacy notice. 2. Based on the information shared a Fair Credit Reporting Act opt-out is not required. There is a statutory relationship between the Fair Credit Reporting Act (FCRA) and GLBA giving the CFPB the argument for this condition. Under GLBA the FCRA required that disclosures must be included on annual privacy notices. Section 603 of the FCRA prohibits a credit union from sharing information about a member with an affiliate unless a notice and opportunity to opt out is provided. Similar to the first condition if the credit union s most recent annual privacy notice does not (accurately) include an opt-out under FCRA and the credit union s information-sharing practices haven t changed then this condition has been met. 3. The FCRA s Affiliate Marketing Rule has been satisfied. The Affiliate Marketing Rule requires a credit union to provide an opportunity to opt out if it desires to make solicitations based on eligibility information about a member received from an affiliate. Different from the second condition above the opt-out under this rule is not required to be part 9 2 0 1 5 C U B U S I N E S S . C O M So the Requirement to Send Annual Privacy Notices Is Gone No. The Gramm-Leach-Bliley Act (GLBA) requires financial institutions to send out annual privacy notices describing their treatment of customers personal information. Until 2011 a number of federal regulators including the National Credit Union Administration (NCUA) had regulations implementing this requirement. Following enactment of the Dodd-Frank Act the authority to implement GLBA was moved to the CFPB which combined the rules into Regulation P. Recognizing that the annual notice could be an overload for consumers and [an] unnecessary expense the CFPB finalized amendments to Reg. P to limit the notice mandate. Regulation still requires credit unions to send members an annual privacy notice BUT the recent final rule allows a credit union to meet that requirement by posting the notice online if certain conditions are met. C R E D I T U N I O N B U S I N E S S M A R C H TAB LAW THE of the annual privacy notice which is the reason the rule allows for the alternative privacy notice to be used if the Affiliate Marketing Rule is satisfied through another notice. Normally the opt-out under the Affiliate Marketing Rule must be honored for five years but if it is transmitted through only the Reg. P privacy notice it is indefinite. What this means for using the alternative privacy notice is that if the Affiliate Marketing Rule is triggered with the optout delivered through only the traditional Reg. P notice then that opt-out is honored indefinitely and there are no further notification obligations. Accordingly the Affiliate Marketing Rule is satisfied and this condition is met. 4. Information required to be disclosed on the annual privacy notice has not changed. The general theme of using the alternative notice is that a member does not need to be mailed an annual privacy notice unless there is an ability to take action (an opt-out) or circumstances involving the CU s non-public information has changed. Following that premise if a credit union amends its policies regarding member information such that it creates a change in the annual privacy notice (other than administrative information such as the credit union s address) then the credit union must send the traditional notice. So long as no information required to be disclosed on the annual privacy notice is changed the credit union may use the alternative method. 5. The credit union uses the model privacy notice. The CFPB has stated that it believes requiring use of the model form as a condition of using the alternative delivery method will foster the use of a notice that is in general more consumer-friendly and effective in conveying privacy policy information to customers than non-standardized notices. As a benefit to the transition for credit unions not using the model notice if there is no substantive change FREEBORN S CREDIT UNION INDUSTRY TEAM offers a full range of legal services to credit unions and credit union service organizations to address and manage the complex challenges facing the financial institutions industry. To account for the full range of business needs of credit unions Freeborn s Credit Union Industry Team delivers a broad range of legal services including Regulatory and Legal Compliance General Corporate Representation Commercial Finance Board Governance Real Estate Services Labor and Employment Vendor Contract Representation Intellectual Property Counsel Investments within ICUA and FCU Parameters Mergers Commercial Lending and Bankruptcy Insurance and Charter Conversions Risk Management Advertiser Ad 250.5 x 175 Send an email to CreditUnionsCommittee freeborn.com to subscribe to our legal newsletter. CHICAGO 311 South Wacker Drive Suite 3000 Chicago IL 60606 (312) 360-6000 (312) 360-6520 fax www.freeborn.com 10 C R E D I T U N I O N B U S I N E S S M A R C H 2 0 1 5 C U B U S I N E S S . C O M THE LAW TAB to the information disclosed and transfer to the model notice results in only layout changes then this condition is considered satisfied so long as the model notice is used as part of the alternative method going forward. Recap The goal of Reg. P is to reduce credit union costs by eliminating the need to mail the annual privacy notice. In a very brief summary here is how a credit union can use Reg. P s alternative privacy notice 1. Look at your current privacy notice. So long as the information is correctly stated check to see if the member has the ability to opt out. If not move to 2. 2. Has the credit union satisfied the FCRA s Affiliate Marketing Rule If so move to 3. 3. Has any information on the most recent privacy notice changed If not move to 4. 4. Does the credit union use the model privacy notice or would using the model privacy notice not change the substance of any of the information included If so move to 5. 5. Has the credit union included the statement provided for in the regulation that notifies members that they can get the privacy notice online If so move to 6. 6. Instead of mailing the credit union can post its current privacy notice (using the model format) on its website. It has to be on its own web page and the credit union must mail a copy to a member who requests one. While it has several conditions and compliance hurdles the changes to Reg. P may help many credit unions avoid the time and expense involved in mailing annual privacy notices. Brad R. Bergmooser is Senior Counsel at Freeborn & Peters LLP and a former Assistant General Counsel for Illinois Credit System. He is a member of the firm s Corporate Practice Group and Credit Union Industry Team and concentrates his practice on matters involving credit unions and other financial institutions. He can be reached at bbergmooser freeborn.com. 11 What Are the Alternative Disclosure Requirements A credit union can use the alternative privacy notice method if the five conditions described above are met. The alternative method includes 1. Annually providing members a statement about the availability of the privacy notice The statement must be included in a notice the credit union is either required or permitted by law to send members (a statement). There are items that must be included in this statement all of which are in the model statement provided in the regulation Privacy Notice Federal law requires us to tell you how we collect share and protect your personal information. Our privacy policy has not changed and you may review our policy and practices with respect to your personal information at [credit union privacy notice web page] or we will mail you a free copy upon request if you call us at [telephone number]. 2. Posting of the current notice on the credit union s website The model notice must continuously appear on a separate web page without any username password login restrictions. While a link to the notice page is not required on the credit union s home page the model notice must appear alone with no additional information other than navigational options. 3. Mailing a member the privacy notice upon request Although the CFPB considers this a rare occurrence should a member request a written copy of the privacy notice the credit union would need to mail one within 10 days. C R E D I T U N I O N B U S I N E S S M A R C H 2 0 1 5 C U B U S I N E S S . C O M TECHNICALLY TAB SPEAKING BY WILLIAM NICOLOSA TAB The Impact of Data Breaches and Apple Pay Data breaches and Apple Pay continue to be among the hot topics in the credit union industry. Read on to learn more about the ramifications these timely cyber security and mobile payment issues are bringing to bear on CUs and what your credit union may want to do about them. Data Breaches Hitting Credit Unions Hard Data breaches at retailers such as Target Home Depot Staples and other retailers have had a devastating effect on credit unions member services said Credit Union National Association President and CEO Jim Nussle. Nussle said that credit unions must pick up the initial cost of securing customers privacy after breaches occur. He added We have to pay first and then wait to see how we re going to get reimbursed. This needs to change for small organizations like credit unions and for community banks too. Nussle explained that one credit union had to reissue cards three times last year. They must have had customers that shopped at Target Home Depot and Jimmy John on the same day....We re not seeing a way to recoup the costs in time and expense for dealing with the breaches to protect our members. Those costs come out of funds we can use to provide member services he said. In 2013 Desert Schools Credit Union reissued 40 000 ATM and credit cards after the supermarket chain Bashas data breach. The cost included the replacement credit cards as well as the huge hit in fraudulent activity and reimbursement to members. Desert Schools became proactive and deployed new technologies to monitor accounts. With these systems in place on an account-by-account basis 2014 resulted in the reissuance of fewer cards due to data breaches. So serious is the threat that credit unions want Congress to create a bipartisan and bicameral working group to address the ongoing rash of data breaches. Such a working group could receive the job of developing legislative proposals to help prevent the massive data breaches that have exposed tens 12 C R E D I T U N I O N B U S I N E S S M A R C H 2 0 1 5 C U B U S I N E S S . C O M of millions of consumer debit and credit cards to fraudulent activity in recent months said the National Association of Federal Credit Unions (NAFCU) in a letter sent to party leaders in both chambers of Congress. Data breaches in both the private and public sectors have the ability to cause irreparable harm to consumers everywhere the NAFCU said. Fallout from a data breach can involve fraudulent account activity working to repair credit score damage and even identity theft. The letter comes right after the White House unveiled its own legislative proposal for a data breach notification and data security standards bill. The administration wants to require breached companies to notify customers within 30 days. Shortly after the announcement Sen. Bill Nelson (D-Fla.) the Senate Commerce Committee s ranking member said he was drafting a bill that fits together with the White House proposal. Nelson s measure would also require companies to file a report to the government on data breaches of a certain magnitude and would task the Federal Trade Commission with creating national data security standards. TECHNICALLY SPEAKING TAB With the enormous costs following a data breach financial firms and retailers have been fighting over who should foot the bill. Banks and credit unions don t want to solely lay out the cost of reissuing credit cards and covering fraudulent charges. Retailers counter that they too bear significant costs following data breaches and are often just victims of cyber crime. Credit unions are on the front lines assisting their members in the wake of ongoing data breaches and have a unique understanding of how detrimental such data breaches can be to consumers and small financial service providers the NAFCU said in its letter. Apple Pay Steadily Progressing Fifteen new financial institutions including 10 credit unions have formally connected with Apple s embryonic mobile payments scheme bringing the number of participating banks and credit unions to 60 only five months after the initiative s unveiling. Among those that now support the new digital payment platform are BECU and Alliant Credit Union Altra Federal Credit Union Andrews Federal Credit Union Ent Federal Credit Union F&A Federal Credit Union First Tech Federal Credit Union Golden 1 Credit Union INOVA Federal Credit Union and Star One Credit Union. Apple Pay is a mobile payment and digital wallet service by Apple Inc. that lets users make payments using their iPhone 6 iPhone 6 Plus Apple Watch-compatible devices (iPhone 5 and later models) iPad Air 2 and iPad Mini 3. Apple Pay does not require Apple-specific contactless payment terminals and it works with Visa s PayWave MasterCard s PayPass and American Express s ExpressPay terminals. At the top of the list of new allies is Security Service Federal Credit Union (SSFCU) one of the largest credit unions in the United States. Originally formed to serve members of the U.S. Air Force Security Service SSFCU has some 925 000 members across Texas Colorado and Utah with more than 8 billion in assets. Also joining the alliance are Partners Federal Credit Union which serves nearly 100 000 Walt Disney Company employees cast members and their families Consumers Credit Union Virginia Credit Union Cyprus Federal Credit Union Fairwinds Credit Union Mountain America Credit Union and regional bank Customers Bank. Major credit unions have been slow to sign on with Apple Pay although credit unions comprise almost half of participating financial institutions. SSFCU and Navy Federal are the only two Apple Pay participants that are among the top 10 credit unions nationwide by either members or assets. It is almost just the opposite when it comes to banks. Just two of the top 10 banks in the U.S. Bank of New York Mellon and HSBC have not yet signed on although both institutions have minimal retail banking presences in the country. Apple Pay showed a lot of strength right out of the gate accounting for one percent of all digital payments in November. Part of that strength comes from its ability to get issuing financial institutions engaged and poised to enable the provisioning of accounts in a straightforward way. At the time of launch in October 2014 nearly 500 banks supported Apple Pay. That base continued to gain ground throughout the end of 2014. While adoption of the platform is growing fast it is not growing as fast as some would like you to believe. One news story in the Boston Globe supported that Apple Pay is the future and financial institutions are jumping in because they want to catch that consumer adoption wave. The newspaper even quoted an executive at a major bank who said Consumers are taking to Apple Pay technology faster than they initially did to ATMs. PYMNTS.com presents a different viewpoint. As a comparison when banks back in the 1960s wanted to offer 13 C R E D I T U N I O N B U S I N E S S M A R C H 2 0 1 5 C U B U S I N E S S . C O M TECHNICALLY SPEAKING TAB consumers an alternative method to attain cash the Automated Teller System they didn t have to worry about whether making an outlay to install an ATM was reliant upon how many other banks did too. ATMs didn t have a network issue to worry about as a condition of getting adoption of their own ATMs (although as it turns out a network of ATMs certainly did help). Individual banks installed ATMs gave out ATM cards to their bank customers and efficiently created a new way for consumers to get cash. Getting consumers to use the ATMs wasn t that hard since the machines solved a real problem getting cash when the banks were not open. Mobile payments have a different problem. Consumers won t download a mobile payments app unless they have places to use it online or in store and unless it either solves a problem for them or adds new value. Moreover merchants won t bother with accepting a mobile app unless they believe that enough consumers have the app and want to use it instead of how they typically pay or that they ll lose sales if they don t enable payment in such a way. Apple Pay like all mobile payments schemes has an ignition problem. It has to get both consumers and merchants on board. Interest on the part of merchants is totally dependent on the level of interest on the consumers part. And in the case of Apple Pay one more thing is required access to iPhone 6s. Those iPhone 6 customers must then have enough hardware-enabled merchants at which to use their smartphones to get them excited about ditching their plastic cards for Apple Pay. Additionally very few consumers have iPhone 6s and most merchants do not have near-field communication- (NFC)enabled terminals resulting in very few transactions. Making the number bigger can only happen when more merchants install more terminals that are capable of accepting Apple Pay and when more consumers buy iPhone 6s. That is why the bank executive later clarified his statement and said Consumer adoption of Apple Pay has been strong given the number of people that are capable of using it (iPhone 6 users). According to PYMNTS.com there is one similarity with ATMs and Apple Pay. Issuers worked with Apple Pay to enable the easy allowance of the app and cards sort of like banks giving out ATM cards. So consumers curious about Apple Pay and hearing the hype may have decided to register cards to their iPhone 6s. But getting those consumers to use the Apple Pay accounts consistently and drive many transactions is pretty much out of the issuers hands. Getting merchants to sign on is also totally out of their control. That financial institutions want to be on board with Apple Pay if the technology ignites is definite but banks and credit unions alone will not light the spark. Will consumers push retailers toward acceptance For that to happen more customers members are going to need to have phones that are capable of using Apple Pay first. They are also going to have to have reasons to want to use it. William Nicolosa is a freelance ghostwriter. 14 C R E D I T U N I O N B U S I N E S S M A R C H 2 0 1 5 C U B U S I N E S S . C O M LENDING TAB SOLUTIONS BY A. REX JOHNSON PRESIDENT CEO LENDING SOLUTIONS CONSULTING TAB INC Credit Scores Lots of Changes Are Going On I Fair Isaac is no longer the only credit scoring game in town. Find out how VantageScore and other new scoring models are shaking things up and how your credit union can leverage these new players. currently claims about 10 percent of today s market for credit scores. Had the timing been better it would possibly own a lot more of the marketplace. Who is using the VantageScores VantageScores are starting to have some good success. Last year approximately 1 000 000 000 VantageScores were used by 2 000 lenders. Six of the 10 largest banks use VantageScore many of which use it for decision making. If your score is good enough you get approved on the spot. The VantageScore like the Fair Isaac score uses calculations that rely on your credit bureau report. At Lending Solutions we believe that calculations are important because that is what s reported on your member s credit bureau report. However there are many other factors such as income to consider. Decisions are being made by some of the largest banks and other lenders without knowing your income or your debt-to-income ratio. Our HYLS (High Yield Lending Strategy) model looks at many factors we feel are very important yet that Fair Isaac and VantageScore do not look at. f you think that understanding credit scores was somewhat difficult I have bad news for you. It may get a lot more difficult. The Fair Isaac score has been around a long time and is by far the most accepted scoring model out there. Over the years Fair Isaac has and still is making changes. Fair Isaac has had a relationship with all three credit bureaus. In my opinion there have been ups and downs in that relationship. One thing that has always been consistent is how both Fair Isaac and the credit bureaus decide who is entitled to what share of the profits since both parties want what they believe is their fair share. This is not uncommon when large companies have a relationship and times arise when one party does not agree with the other. This was a big problem several years ago and so the credit bureaus introduced another model to compete against the Fair Isaac model. This new scoring model was called VantageScore. The VantageScore model was introduced in 2006. Most of us remember what 2006 was like as this was the year when the housing market peaked out and started to go down. Everyone was in a very good mood because everyone was making a lot of money in the real estate market. Houses were going up in value like no one else had ever dreamed. People were buying homes and flipping them like one would not believe. We all were getting rich. By 2007 the housing market started to go down in value. The market really crashed in 2008 and is still trying to recover today. It is important to understand that everything revolves around timing. Case in point many Presidents have had great results or very poor results based on when they took office. There are three credit bureaus Experian Equifax and Trans Union. When VantageScore was introduced in 2006 it became the second scoring model. Fair Isaac owned the market. VantageScore VantageScore 3.0 VantageScore 3.0 was introduced in March of 2013. The originators believe this 3.0 version will improve the results of predicting the outcome by up to 25 percent a big improvement. How does 3.0 change things from the original Fair Isaac or other models Vantage no longer requires months of history to get a score. It requires only one month that s right ONE month of credit. VantageScore 3.0 markets itself such that people who have never had credit can now get a score. 15 C R E D I T U N I O N B U S I N E S S M A R C H 2 0 1 5 C U B U S I N E S S . C O M LENDING SOLUTIONS The 3.0 model now ignores all paid collections. It also ignores all collections under 250. With VantageScore such outstanding amounts do not impact your score. This will prove a big difference from Fair Isaac. Scoring Range This has been changed with the 3.0 version. The lowest score you will receive is 300 and the highest is 850. This 3.0 model is now more in line with what Fair Isaac is doing. Credit relief for disaster victims VantageScore 3.0 will ignore accounts negatively impacted by natural disasters. Inquiries All inquiries made within 14 days of each other are now counted as a single inquiry. The exception to this rule is credit cards or collections. Authorized users VantageScore 3.0 will consider authorized users. Student loans These loans will be scored differentiating between government and private loans as well as deferred loans. Medical debt VantageScore 3.0 does not count medical debt unless it s outsourced to a collection agency. overreacting. When the housing market went way down a lot of people lost their jobs and were out of work. The government had a lot of unemployment and people could not make their payments. As a result credit unions started experiencing big losses due to charge-offs. Once again the government played a big role. It was concerned about financial institutions not making it so it beefed up its staffing by hiring lots of new examiners. These examiners then went out to credit unions and basically told them You must tighten up on your loans and the credit unions listened. They really tightened up and so did the banks and other lenders. By doing so loans went way down. Credit unions were told to change their policies and be careful with those C D & E paper loans. The sad part was that credit unions and banks could have continued making loans and helping those members who really needed help. That never happened. Everyone was focused on A A & B paper members. Credit unions were having to sign documents that they agreed with this strategy of tightening up. This was a really big mistake. Everyone was overreacting. The sky was falling. Now that the economy is picking up and people have jobs everyone wants to make loans again. We unfortunately are now taking lots of risk the good old days are coming back. Is VantageScore 3.0 Catching On The VantageScore model is gaining in popularity with lenders. Members are working housing is starting to creep back up cars are selling faster than ever. What s making this work The As an example Seven out of 10 financial institutions are using government started recognizing that getting people back to work had to be the highest priority. The President wanted to stimulate VantageScore 3.0. Eight out of the top 10 credit card companies are using VantageScore 3.0. Five out of the top five mortgage companies are using VantageScore 3.0. What might be driving this trend Believe it or not it is being driven by our government. The government really wants to stimulate the economy so people are working and spending. This tendency really helps the government and unemployment. The government realizes that as long as the scores stay down loans are also going down. No loan means people can t buy houses or cars. If people aren t able to buy things because of their credit companies can t build things. Therefore there are no jobs. As a result the government is trying to change the scoring models so higher scores mean more loans. How about that I m sure you have heard that expression you re 16 C R E D I T U N I O N B U S I N E S S M A R C H 2 0 1 5 C U B U S I N E S S . C O M LENDING SOLUTIONS TAB Now that the economy is picking up even if they have had credit for only one month. If we believe that the economy will continue to grow as and people have jobs everyone wants long as Americans are working buying houses and cars etc. then we are all going to benefit. Let s now encourage to make loans again. We unfortunately loans and get the scores to go up by changing the scoring are now taking lots of risk the good models in such a way that they increase scores higher than ever before. old days are coming back. Members are working housing is starting to Will It Work 2006 creep back up cars are selling faster If it s done the right way it will. Backofinpeoplewhen the market crashed we all overreacted. A lot and companies didn t have to go under. We never should have cut loans off than ever. the economy. The strategy was to bring more money and make it available to investors and large companies. These investors took the loans from the government at a very low cost and invested them into buying car loans from sub-prime lenders. These investors were buying millions of dollars in sub-prime car loans at high yields. Loans became easily available again. The government even got so involved that it made sure everyone got the message. This started in 2010 and continued through 2011 2012 etc. An example Regulatory Examiners For the first time in a very long time senior staff in the regulatory agencies went so far as to say Credit unions that do not take risk are now at bigger risk to the insurance funds than credit unions that do take risk. Wow what a change. The bottom line became a bigger focus as opposed to just focusing on delinquencies and charge-offs. Credit unions may be having slightly higher delinquencies and charge-offs however their yield will be so much higher. The bottom line is they are making more money and serving more people. Help people who have no credit by giving them a score the way we did. What we needed to do was inspect and validate what was wrong. Fix it learn from it and move on. The key is training training training on how to do it RIGHT. Invest in your employees show them how to do it right and serve all your members. I believe there are going to be a lot of changes to these scoring models. There is no question that VantageScore is going to shake things up. Fair Isaac had already started making changes. Our HYLS model looks at a lot of factors others don t look at because they don t have the information available to them but HYLS and the credit unions do. Remember this Lending is and always has been an attitude and an approach. You will be very successful if you come up with solutions. Credit unions have to be in the solution business. Takeaways for Credit Unions Relax on your scoring models. Don t punish good hardworking Americans who had medical collections and small collections under 250. 17 C R E D I T U N I O N B U S I N E S S M A R C H 2 0 1 5 C U B U S I N E S S . C O M LENDING SOLUTIONS TAB Rex Johnson is the current CEO and Founder of Lending Solutions Consulting Inc. (LSCI) an organization dedicated to providing consulting expertise to credit unions. He also created the University of Lending a comprehensive lending school and has since trained over 30 000 credit union employees. Prior to LSCI in 1994 Rex established Lending Solutions Inc. (LSI) an organization dedicated to providing loans and member services to members 24 7. LSCI currently employs a variety of consultants that can assist with lending sales and collection services along with holding specialty schools across the country. Rex s career started with Household Financial Corporation where he learned how to approve challenging loans that performed. Rex was a district manager working at the nation s largest consumer finance company s headquarters. His expertise continued as an examiner for the State of Illinois. Rex was then sought out by Baxter Healthcare Corporation to found its first credit union Baxter Credit Union. Following his unprecedented success at Baxter Credit Union starting with 20 members and 500 on deposit and growing it to 300 million he sought out to share with credit unions throughout the U.S. and Canada his vision of helping members with all their needs. He is the one of the most wellknown experts in the credit union movement having worked with thousands of credit unions of various asset sizes and is also recognized as one of the top motivational speakers in the industry. Rex has been in the loan and collection business over 47 years. For more information regarding Rex s availability or any of LSCI s products services contact us at 877-915-7675 or please visit us at www.rexcuadvice.com. 18 C R E D I T U N I O N B U S I N E S S M A R C H 2 0 1 5 C U B U S I N E S S . C O M HOW TO LAUNCH A CUSO BY MIKE CORN PRESIDENT CEO CU REALTY SERVICES TAB CU Realty Services A CUSO Case Study If the thought of launching a credit union service organization has crossed your mind there are several lessons you should be mindful of first. Read on for advice from a CUSO that has been there and done that ... and has lived to tell the successful story. or credit union leaders looking to launch a credit union service organization I m happy to share our very positive experience at CU Realty Services. We are a real estate services CUSO that launched in 2001 focused on helping credit unions grow their purchase mortgage business. Our theory was based on the concept of First Point of Contact if the credit union can get to its homebuying members first by offering them an easy button for real estate then the credit union has a huge opportunity to identify new prospects nurture them and close more mortgages. I m pleased to report that it s working our partners have reported growth in closings of 40 percent and more. And each year gets better. In 2012 we saw 20 percent growth over 2011 in the total number of loans we helped our credit union partners close. In 2013 that figure was 25 percent and 30 percent for 2014. But what really excites me about our success is the opportunity to help members. Our program HomeAdvantageTM helps members search for homes online find a Realtor and earn a rebate. Since we opened our doors we ve helped thousands upon thousands of members save time and money when they rely on their credit union first. Consider this In 2013 our CUSO was able to pay out a total of 2.85 million in rebates to credit union members and in 2014 it was 3.57 million. It s been a win-win for everyone. So how did the need for CU Realty Services arise in the first place F A Conversation and a Few What Ifs Actually the impetus for launching an online real estate program came from my own home-buying experience. While I m a licensed real estate broker with some 25 years in the business I discovered it s a little different being on the consumer side of the home-buying or -selling experience. Back in 1998 I was looking to find a new home and sell my existing one. And like a typical real estate experience it seemed time-consuming inefficient and a bit frustrating. Why couldn t I just go online to preview some homes that might meet my requirements without traipsing all over town Where could I go to quickly get qualified for a loan And then there were the real estate books agents used to carry. What could you really find thumbing through a big book with tiny pictures of houses One day I was describing my experience to my colleague Craig Davis also a real estate broker. Together we wondered if it might be much easier to do a home search using the Web. Of course that was a brand new concept at the time well before MLS search engines were available to the general public. An entrepreneur at heart I d previously been involved in a number of technology startups so my background along with our combined real estate knowledge made it an appealing venture to come up with a new way to buy or sell homes. Craig and I began playing with the idea thrashing out how consumers might be able to study properties on their own time and in the convenience of their own homes. Was there an easier way they could research various neighborhoods schools and community offerings Wouldn t it make the entire process 19 C R E D I T U N I O N B U S I N E S S M A R C H 2 0 1 5 C U B U S I N E S S . C O M HOW TO LAUNCH A CUSO TAB simpler if all the tools they needed to conduct a search and make the purchase were right at their fingertips And what if they could do all this with the confidence of knowing they were working with a knowledgeable competent Realtor who had been vetted by their trusted credit union Thus CU Realty Services was born co-founded by Craig and me. Talking turkey Our first hurdle was figuring out how to put our idea into action and ensure that everyone involved was a winner. We turned to credit unions to launch the business because of personal experience and the welcome knowledge that the industry really does put people first. Next we asked ourselves four questions Could this program drive more business to partnering credit unions Could we make it worthwhile to the network of Realtors we assemble Was it doable to offer credit union members a financial incentive along with the convenience of the program and confidence in working with screened qualified agents Could we find the right beta credit union partners that would help build the CUSO and ensure mutual profitability The answer to all four questions was yes We rightly believed good Realtors would be interested in having a ready-made lead channel with buyers and sellers. Since opening its doors the CUSO has partnered with hundreds of credit unions in 22 states and has served thousands of members returning 12.18 million in rebates to members pockets. Beavercreek Ohio-based Wright-Patt Credit Union was one of the earliest clients. The 2.8 billion credit union saved its members more than 199 000 on closing costs in 2013. Two other clients that have been with us for nearly 10 years are 3.9 billion Bank-Fund Staff Federal Credit Union in Washington D.C. and 2.6 billion Northwest Federal Credit Union in Herndon Va. Last year their members saved 465 000 and 462 000 respectively on closing costs. By taking a big chunk of the hassle out of home buying or selling while helping members save on closing costs the 20 C R E D I T U N I O N B U S I N E S S service became a huge boon to credit unions and their members. The numbers show that credit unions have clearly profited from a steady stream of new purchase mortgages. But even more the real estate service began drawing members to its credit unions Web sites becoming one of the first sticky products before anyone coined that phrase. When CU Realty Services opened its doors in 2001 it was one of the first in the nation to offer Internet home searches through a program we now call HomeAdvantage. Today the National Association of REALTORS says more than half of all home buyers start their search online and nearly 100 percent turn to the Internet for help at some point. This makes a service like HomeAdvantage not only nice to have for consumers but a key competitive edge to credit union mortgage lenders. The Last Word At CU Realty Services our success and that of our client credit unions provides important lessons to others wanting to launch a credit union service organization Make your product or service beneficial to both credit unions and their members. Credit unions increase their purchase-mortgage business by as much as 40 percent according to our clients experience. In turn credit union members are happier because the program makes it easier to buy or sell a home and they realize the bonus of cost savings. Make your program unique by providing something of value that others aren t. Credit unions move to the front of the home-buying or -selling process instead of following the usual route where a member first finds an agent then picks out a home and then finally looks to a lender for financing. By helping members get started with their search for Realtors communities homes and the home loan credit unions connect with members as their first point of contact. And they stay connected through every stage of the process. Make it easy for credit unions to introduce your product or service to their members. For us providing a turnkey program and supplementing it with strong training and marketing support has meant 2 0 1 5 C U B U S I N E S S . C O M M A R C H HOW TO LAUNCH ATAB CUSO not only a smoother onboarding process for credit unions but also quicker member adoption. I m excited for the chance to share the story of CU Realty because like most organizations owned by credit unions it has made a real difference in ordinary people s lives. On average savings on closing costs have put an average of 1 545 back in members pockets. That s a huge benefit one that members acknowledge their credit union for providing. And for our part CU Realty saw 20 new credit unions implement the HomeAdvantage program in 2013 representing a 360 percent increase over 2012 with another 18 joining us in 2014. Creating a product or service that can help credit unions bottom lines and improve their financial wellbeing is a key success factor as is partnering with credit unions that are enthusiastic about the services you offer. Mr. Corn is an entrepreneur with over 20 years experience in credit union and real estate related ventures as well as technology start-ups. His real estate ventures include golf course and residential real estate development. Prior to co-founding CU Realty in 2001 he was the founder and president of MC2 a Phoenixbased firm delivering high-level IT design development project management and outsourcing solutions to Fortune 1000 companies such as American Express Motorola Allied Signal Intel and Wells Fargo. MC2 was sold to Compuware in 1997. He received his B.A. degree from Cornell University in 1973. Mr. Corn is also a licensed Real Estate Broker in the state of Arizona. GAP with PowerBuyTM can protect your borrowers from the inevitable vehicle depreciation. CLICK HERE TO LEARN MORE AND GET A FREE CLAIMS ANALYSIS. 21 C R E D I T U N I O N B U S I N E S S M A R C H 2 0 1 5 C U B U S I N E S S . C O M DIGITAL TAB SECURITY BY MICHAEL CARTER CMO OF D3 BANKING TAB Are Credit Unions Less Attractive to Consumers Because of Poor Digital Banking Strategies Has your credit union s approach to online banking locked you up in digital jail If so there are ways to work around getting at the customer behavior habits you need to offer your members the personalized experience they ve come to expect from all their Internet activities. Introduction According to Wikipedia Stanford Federal Credit Union was the first financial institution to offer online Internet banking services. That was October 1994. It is not surprising that a credit union owns this historic marker since credit unions answer to member owners as opposed to institutional investors and operate under a non-profit structure. They are often more willing to deploy innovative services as well if it means their members can enjoy more convenience and choices. Ever since Stanford FCU made its foray into online banking credit unions have developed an impressive range of e-channel offerings. But all too often for a variety of reasons these services have been rolled out as disparate channels. This disparity results in a poorly optimized member experience and places credit unions at a competitive disadvantage because they cannot easily access the data required to offer personalized services. While this digital revolution was transpiring at financial institutions other things were happening on the Internet. Retailers such as Amazon were using data based on customers previous habits and purchases to introduce them to a personalized predictive experience. This targeted approach has now become the baseline for what is expected whenever consumers access services via the Internet. In an effort to keep pace with this rapid rate of change most financial institutions deployed separate mobile banking channels. When personal financial management P2P payment and other innovative services came along these organizations simply added another tab or button to their online and mobile offerings. Unfortunately this multi-channel digital delivery strategy created an environment where an Amazon-like digital banking experience was nearly impossible to achieve. Amazon is able to do what it does today because it has access to the data it needs about customer behaviors. Most financial institutions have this same information based on Web site behavior but it is locked in the data jails created by each disparate system or service they use. Even with Marketing Resource Management (MRM) systems credit unions struggle to analyze their data because their digital channels were built in a reactive rather than strategic mode. The Digital Tsunami Before 2007 online banking existed as a singular digital channel. Adoption was occurring but no one would have called it a revolution. Most financial institutions were using first-generation online banking solutions and were able more or less to meet the needs of the users of those systems. Then Apple introduced the iPhone which served as the beginning of a tsunami of digital devices that was to wash over the landscape of financial services. 22 C R E D I T U N I O N B U S I N E S S M A R C H 2 0 1 5 C U B U S I N E S S . C O M DIGITAL SECURITY TAB Addressing the Challenge What s a credit union to do There is no shortage of opinions of course but most fall into one of three categories. 1. Core Processing Renewal Some believe that converting aged core processing systems that are account-based to a more member-centric modern option is the way to go. While there is no doubt that there are a lot of core processing systems in need of renewal such a high-risk and long-term project does little to simplify the data analytics needed to offer a personalized level of service across disparate digital channels. 2. User Experience Portal This approach has a similar flaw constructing a user experience layer to sit between disparate digital systems. Moreover the member does nothing to create Amazon-like e-banking if a credit union still has to manage multiple products and if separate data jails remain intact. 3. Data-Driven Digital Strategy This strategy requires credit unions to think about e-banking in a new way. Specifically they must consider a data-driven strategy one that focuses on how to best gather and analyze data about members activities in the digital channel without a predisposition toward the existing digital banking infrastructure. Taking Steps in the Right Direction To see data analysis and application as key to competitive differentiation credit unions must change from a stakeholder view of their business to a member-based view. Too many still think of and organize their businesses by the very silos that have become the problem. Instead they need to break that mold and be willing to abandon their existing infrastructure in favor of a user-centric 23 C R E D I T U N I O N B U S I N E S S M A R C H 2 0 1 5 C U B U S I N E S S . C O M DIGITAL SECURITY TAB view. If a credit union wants to take this path it will need to look for solutions with a modern architecture that is both API-based and built on a data first foundation. Some credit unions that are taking steps to break that mold include Digital Federal Credit Union (DCU) Mass.-based DCU is a good example of a credit union that understands that digital is the branch. Whereas the physical branch used to be the main channel for members now digital is the first place members think of when wanting to connect with their credit union. By evaluating how to push the services available in the physical branch into the virtual branch DCU is taking an important step toward improving online member engagement. San Antonio Federal Credit Union (SACU) By building an in-branch kiosk that presents a user experience one which mimics a mobile app Texas-based SACU used the same trend DCU is leveraging to deliver a more intuitive experience to members. Because of the ubiquity of apps on the digital devices used by members using apps in the branch simplifies how the member accesses the services needed. SACU understands that in a digital world when a member enters the branch we shouldn t be handing them paper and a pen. Navy Federal Credit Union When Vienna Va.-based Navy Federal launched its mobile channel about five years ago it had trouble with adoption and user experience. Today it is the most frequently accessed channel by the CU s members. What happened According to Meghan Gound assistant vice president of eChannels at Navy Federal the primary difference was a commitment to make whatever transformations were necessary to meet members needs both internally and externally. Power and money the nemeses of innovation are often at the core of the stakeholder approach. Navy Federal addressed these concerns by being willing to change its way of doing things to offer a member-centric approach. The End Still to Be Determined Whether your credit union has chosen its digital future strategy or is still trying to decide the fluidity of the landscape means flexibility is critical to any organization that plans to be a leader. The unique structure of credit unions allows them to more quickly and comprehensively take the steps necessary to personalize the member s interaction. Delivering an Amazon-like digital banking experience should be the goal of every one of these special organizations. Achieving that goal will predispose consumers to consider a credit union over the other options they have for a financial partner. However failure to achieve that goal will erode the very things that credit unions advertise as their core values. 24 C R E D I T U N I O N B U S I N E S S M A R C H 2 0 1 5 C U B U S I N E S S . C O M forward Moving toward the future or a more advanced condition. Which way are you headed the way of focusing on yesterday s investments or the way of planning for tomorrow s gains At PSCU we know that the same circumstances that earn business today won t earn it tomorrow. That s why we ve been helping credit unions make bold plans for the future for over 30 years. Think that s a lot of forward momentum Just wait until you see our plan for you. pscu.com 888.918.7357 COMPLIANCE TAB UPDATE BY CINDY WILLIAMS Can You Hear Me Now Is your credit union s compliance officer often left feeling like a third wheel With the onslaught of compliance burdens CUs are facing it s time compliance officers were given their due spot at the leadership table. These considerations will help you see your compliance strategist as the leader she is. I s your credit union s compliance officer often left feeling like a third wheel With the onslaught of compliance burdens CUs are facing it s time compliance officers were given their due spot at the leadership table. These considerations will help you see your compliance strategist as the leader s he is. Ambitious motivated professionals are always pursuing a seat at the table. They dream of the day their insights will have direct impact on their organizations strategies and successes. Unfortunately some of these individuals will face a tough road on the way to that coveted seat. If management does not consider their functions to be strategic in nature these aspiring leaders are rarely welcomed to the table. Such can be the fate of the credit union compliance officer. The people in charge of filling those seats at the table often stick to a formula and that formula more often than not follows the way we ve always done things. For credit unions which are facing unprecedented compliance burden in nearly every facet of operations it may be time to retool that formula to include strategic compliance insight. Not convinced Here are five things I challenge you to consider when you think about the role of compliance at your credit union Compliance Is A Strategy Not A Function. It s never been as important as it is today to ensure compliance staff are placed in a leadership position. Credit unions that are most successful with compliance understand compliance officers should not be charged with the implementation of new regulations. Rather they recognize that their compliance officers supply necessary departments with guidance strategic direction and the required tools to implement compliance. At these savvy cooperatives it s up to each impacted department to implement the resulting policies and procedures under the strategic oversight of the compliance officer and his or her team members. It s Best at the Beginning. The financial industry is evolving rapidly as new competitors from unexpected places force credit unions to innovate. As cooperatives collaborate with new partners to offer and even build some of these new financial products they have the unenviable job of satisfying regulators as to the soundness of their new ideas. When compliance officers are a part of new or changing product strategy sessions leaders not only save 26 C R E D I T U N I O N B U S I N E S S M A R C H 2 0 1 5 C U B U S I N E S S . C O M COMPLIANCE UPDATE a tremendous amount of time but also remove some of the guesswork. So much innovation is stifled because of presumed regulatory hurdles. Bringing in someone who knows the challenges that will (and won t) be faced will grease the wheels of creativity. With the confidence that new ideas have a real shot of working even amid intense regulatory scrutiny the credit union can more rapidly and more assuredly build the next generation of financial products. to a credit union s strategic goals. With a view of the forest and the trees the compliance officer can use that global perspective to improve processes and create efficiencies while maintaining regulatory compliance standards (when empowered to do so). In this time of limited resources credit unions can t afford to miss out on the value of this human asset. Compliance is Not the Enemy. Much like their legal counterparts compliance officers have a tendency to be viewed as the party crashers. Because they are the credit union s watchdog individuals in this position can be perceived as overly cautious and unwilling to take calculated risks. A lot of this mental attitude can be changed when a strong leader coaches his or her compliance officer to approach new ideas with a yes mindset. Especially in today s budding culture of innovation there are going to be ideas for which rules have not yet been written. In these cases examiners want to see the cooperative complete its due diligence and put in place sound Empowerment Yields Results. A credit union s compliance officer should be seen as a change agent. This individual was hired to serve as the cooperative s internal regulatory compliance expert. Leadership must build and support a culture that trusts in the officer s ability to make the cooperative a better place that improves the financial lives of its members. Beyond his or her regulatory compliance competencies a compliance officer has a unique perspective that can bring value 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. Advertiser Ad 250.5 x 175 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 policyworksllc.com 27 C R E D I T U N I O N B U S I N E S S M A R C H 2 0 1 5 C U B U S I N E S S . C O M COMPLIANCE UPDATE protections for members and the cooperative itself. Where there s a will there s a way training compliance officers to approach new ideas with a positive frame of reference and to communicate that positivity to staff will go a long way toward disproving the fun-hater stereotype. It Does Contribute to the Bottom Line. Although compliance may not be a revenue generator it s definitely a revenue saver. Compliance officers and their teams are penalty control centers. Sure it s difficult to put a hardnumbers value on fines your credit union may have paid. But with just one flip through the trade magazines it s easy to see the value is great. Poor regulatory compliance is costing financial institutions huge fines and credit unions are not immune. To be sure this increased pressure from regulators is not predicted to change any time soon. 27617_Dolphin_Debit_Ad_C_CUBMagazine_PROD.pdf 1 2 12 15 4 06 PM Like all great leaders in the movement compliance officers understand their cooperative s values share the common vision of the leadership and of course eat sleep and breathe the members-first philosophy. When these characteristics are demonstrated pull out a chair for your compliance strategist. It may just become the most important seat at your table. Cindy Williams is vice president of regulatory compliance for PolicyWorks a national leader of credit union compliance solutions. She can be reached at cindyw policyworksllc. com. 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. Continue the conversation at dolphindebit.com save 2015 Dolphin Debit 28 C R E D I T U N I O N B U S I N E S S M A R C H 2 0 1 5 C U B U S I N E S S . C O M CU ADVANTAGE KEVIN KAMMER CEO OF OMAHA NEBRASKA-BASED PRAIRIE CLOUDWARE TAB Embracing the Pain of Compliance How it Gives Your Credit Union an Advantage over Apple Amazon and Google Is the mere thought of complying with financial rules requirements and regulations enough to induce a headache It might be time to shift your mindset from compliance obligations being burdens to opportunities. Learn how leveraging these obligations could be the ticket to attracting and retaining members. Doing so just might give you a competitive edge over the big-league digital payment-processing competition. Embracing the Pain the Trust Factor The cost and complexity of running a financial institution is no small matter. There are capital requirements significant compliance requirements and investments that must be made to ensure the operation does not inadvertently run afoul of regulators. And those are just the basics the table stakes the cost of doing business. In order to succeed you must offer products and services that will attract and then convince people that they should do business with you. Credit unions are able to position themselves uniquely when it comes to their value proposition to consumers. They offer individuals the option of becoming a member in a nonprofit financial services organization that is beholden to its members and not shareholders. In a society where a majority of individuals question whom financial institutions actually serve this is an attractive concept. However credit unions and other financial institutions seldom see their regulatory and compliance obligations as a unique selling proposition that can attract and retain members and customers. Instead all the capital requirements compliance activity and regulatory overhead is too often seen as a burden even overkill for credit unions. CUs are already under pressure from companies outside of banking that are able to differentiate their services without having to answer to watchdog associations C R E D I T U N I O N B U S I N E S S and governmental agencies. The fact is the requirements that regulators demand of financial institutions give them an asset they can leverage one that no company trying to disintermediate them in the value chain can claim trust. This trust is especially valuable in an age where personal and payment information is constantly stolen by organized cybercriminals operating outside of the reach of our justice system. Symantec Corporation s April 2014 Internet Security Threat Report declared 2013 the year of the mega-breach. 29 M A R C H 2 0 1 5 C U B U S I N E S S . C O M CU ADVANTAGE Breaches were up 62 percent from 2012 and 300 percent since 2006. Last year the United States accounted for 51 percent of global fraud even though it comprised only 24 percent of global card sales volume. Experts agree that the problem will get worse before it gets better. It is significant and telling that even as thieves have ransacked our payments system consumers have said in survey after survey that it is financial institutions not technology communications or media companies they want to provide them with convenient and secure ways to make payments. Nowhere has this demand been vocalized more than when it comes to purchases consumers make with digital devices such as laptops smartphones tablets and wearables. Disintermediation it is Not About Apple Bank Though adoption has been limited to date researchers agree that payments made by always connected consumers will one day be the norm not the exception. According to a recent Reuters release worldwide business-to-consumer (B2C) e-commerce sales will increase by 20.1 percent this year to reach 1.5 trillion and are expected to rise to 2.4 trillion by 2017. Additionally Forrester anticipates that U.S. payments made on digital devices will rise to 90 billion by 2017 compared to the 12.8 billion spent in 2012. At a global level Gartner forecasts worldwide digital payments will reach 617 billion by 2016. Credit unions have an opportunity to assist the growing number of consumers who will want to participate in this trend in the coming year by embracing their role as a trusted provider of payment services. Credit unions can establish a competitive advantage over other players in the space by highlighting two things 1) the role their members play as stakeholders in their business and 2) the trust that consumers already associate with them as entities operating in a regulated environment. If credit unions choose not to incorporate digital payments into their set of services they leave themselves open to disintermediation by technology companies such as Apple PayPal Google and Amazon. This threat has nothing to do with the Bank of Apple or Mark Andreessen s call for someone to start a new type of financial institution. In fact the cost and complexity associated with being a financial institution is not compatible with the fundamental business model of technology companies or the market valuations they enjoy. Rather these companies are using the existing financial services infrastructure to capture value that feeds their business models at the expense of financial institutions. That should be alarming. Because these moves by technology companies do not attack the core business of financial institutions many incumbents have reacted with a mindset similar to Alfred E. Neuman the fictitious mascot and cover boy of Mad magazine. Neuman was famous for the quote What me worry However worry financial institutions should because disruption is not about technology. It is about using technology to improve the access and experience of the consumer or business being served or underserved as more often is the case. When it comes to competing with tech companies in this regard too many financial institutions including credit unions face long odds. Those chances diminish even more if the tech companies successfully capture so much of the value in the payments infrastructure that the core business of financial institutions is essentially commoditized. Maybe for the giant institutions this scenario is less of a worry given their scale and profitable corporate side of the house. For the other 99 percent of organizations that don t count assets in the trillions however it should give pause. It has implications that may change things 30 C R E D I T U N I O N B U S I N E S S M A R C H 2 0 1 5 C U B U S I N E S S . C O M TAB CU ADVANTAGE sooner rather than later. That is why it is time that credit unions take the steps necessary to leverage their business models and trust equity to attract soon-to-be members who are not happy with other options. Using the Core Business to Grow ValueAdded Payment Services There is no such thing as an average consumer especially in the digital age where choice has never been greater and personalization is the key to cultivating brand loyalty. That fact alone may stay the appetite of some credit unions for digital payments. After all the options members have in the area of gadgets and operating systems seem to grow every day. Some members will want to use an iPhone 6 and others are still hanging on to their iPhone 4s. There will be members who want nothing to do with Apple s operating system preferring anything Android. Some will only want to shop online and others will only want to make digital purchases in stores. Most will want to do both and expect the players involved in making it happen especially their credit union to be familiar with their habits preferences and expectations. The landscape is littered with companies some long gone and some barely breathing that underestimated the consumer s attachment to choice and convenience. In the gold rush around unlocking the digital payments market too many mobile wallets and payment schemes have been launched that seem more about helping the companies that birthed them than about delivering what consumers want when buying products and services using their digital devices. Even Apple Pay has characteristics that will limit its overall adoption. Yet credit unions should not let these failures or the digital customers desires make them hesitant about taking the steps necessary to provide their members with new ways. In fact there is a strong argument that suggests credit unions in particular are best positioned to offer services that protect the choice and convenience consumers want while providing them with the control and security that is missing from most options available today. Credit unions have a relationship based on their core business that makes this best of both worlds possible because they provide the location for the member to hold access and manage their assets accounts and lines of credit. Delivering Convenience Choice Control and Better Security Even though many consumers have relationships with more than one financial institution most would prefer one-stop shopping. When it comes to using their accounts and cards to purchase goods and services consumers have a compelling need for this type of centralization that goes beyond convenience. On average consumers have stored personal and payment information at 28 different Web sites protected by fewer than five unique passwords. By centralizing these instruments and making them accessible to members through already established digital channels members can easily manage their accounts and cards. More importantly centralizing this data within a secure regulated environment can improve security by allowing the credit union to authenticate the member before releasing the necessary payment data in a tokenized format that makes it useless to criminals who might intercept or access it. If the 31 C R E D I T U N I O N B U S I N E S S M A R C H 2 0 1 5 C U B U S I N E S S . C O M CU ADVANTAGE TAB centralized approach provides real-time switching and routing all of this can be achieved without disrupting the consumer s shopping experience. In addition this centralized approach accommodates the member s desire for choice. The credit union can provide authentication of the user and tokenized payment data to whatever device wallet or other gadget that member prefers. Members can choose the wallet they want be it a white-labeled option such as CU Wallet or the next new thing that comes down the pipe. They can make their purchases with a level of security far greater than what exists today and a level of convenience that surpasses that experienced when managing cards. Lastly facilitating new ways to pay for members within a centralized environment also gives credit unions a chance to extend the value they deliver to members into areas where they can t today such as conveying information about limits safe to spend amounts and frequency thresholds associated with certain cards and accounts. In this way the credit union participates in not only facilitating the transaction but also informing the purchasing decision for the member as a trusted financial advisor. Though there is much debate today about privacy and the use of data by organizations that hold large amounts of personal information applications of such particulars that add value and provide security are widely seen by consumers as acceptable even desirable. that manage ledgers and settlements maintain checking and savings accounts meet capital requirements manage risk and comply with governmental directives and regulations. Given that financial institutions are the someone it is easy to see how they could become like the telecom providers of today. That is stuck with managing and building information super-highways in order to provide sufficient bandwidth so others e.g. YouTube Netflix Hulu and Spotify can profit from high-speed Internet connections. With breaches involving personal and payment information increasing and with consumers use of digital devices in all aspects of their daily lives on the rise there is an opportunity for credit unions to leverage the value of their regulated operating environment and their member focus to provide better safer ways to pay. The credit unions that take advantage of this opportunity will have a competitive advantage in the marketplace built on the convenience control and security they provide for those members using digital payments. Those that do not take advantage of this opportunity will face significant challenges from other financial institutions and technology companies that could result in the commoditization of their products and services. Kevin Kammer is CEO of Omaha Neb.-based Prairie Cloudware a company dedicated to providing credit union members with choice convenience and security when purchasing goods and services online or at the point of sale. Its Digital Payments GuardianTM enables credit unions to leverage their role as the trusted provider of payment services for consumers while decreasing the cost of fraud and improving their return on investment. Visit www. prairiecloudware.com to learn more. Payments Is Your Game to Lose IDC analysts forecast that the overall global IT spend in financial services will exceed 430 billion in 2014 and surpass 500 billion by 2020. Analysts from Opus Research predict that financial institutions spent 6.8 percent more on digital banking in 2014 than they did in 2013. According to Opus these investments focused on two key initiatives digital payments and mobile banking. There seems to be little debate in the industry that digital is the battleground where the winners and losers in financial services will be determined. It is unclear whether financial institutions will lead the charge to provide the features consumers are demanding. The members of the future will choose from a wide range of financial services delivered from third-party solutions. These services will have to be supported by organizations 32 C R E D I T U N I O N B U S I N E S S M A R C H 2 0 1 5 C U B U S I N E S S . C O M CU TAB CONTENT BY LAURA ENOCK TAB Play Ball Hoops Game Major Coup for Credit Union s Visibility She shoots she scores Discover how a CU marketing specialist transformed her high school nostalgia for hoops into a boon for Brewer Federal Credit Union with an alumni game tradition that continues to score the CU attention long after the final buzzer. veryone knows that sports advertising works. For community CUs there should be community sporting events. That was the thinking of Amy Collinsworth Marketing Specialist at Brewer Federal Credit Union in Brewer Maine. Amy is a dynamo. She earned a Bachelor of Arts in New Media from University of Maine Orono and then went on to obtain an Associate of Computer Aided Drafting from Eastern Maine Community College. Despite having been at Brewer for just six months she s already got the credit union on the cutting edge of digital technology. That approach was borne out of the shadows of Mt. Katahdin. Amy was born and raised in Millinocket a town about an hour away from Brewer that she describes as in transition. The schools are hoping to consolidate in the future the Great Northern Paper Mill has closed its doors for good and people are trying to get used to a new life. Where most people see trouble Amy sees opportunity. Millinocket has always been a hotbed for high school hoops. Amy herself played for Stearns High School. One of the highlights of the basketball season is the alumni game a great chance for people to reconnect and for Stearns alumni to play their cross-town rivals Schenck High School. It s a tradition Amy remembered fondly from her childhood. This tradition of having an alumni game in general was in danger of dying. It had been restricted to people 30 and older in previous years and crowds had been unimpressive. Younger players were resentful of their exclusion and the program was in danger of dying off. When a new Athletic Director took over at Stearns Amy saw her opportunity. I reached out to the new Athletic Director and built a relationship. Then I got approval from (President) Rick (Kaul) to offer sponsorship for an under-35 alumni game. From then on the program took on a life of its own. I had to take the lead on every task that needed to be done and there were a ton of them she said. Just hearing Amy describe the demands of the project is exhausting. The teams needed to be built from the community and then rosters along with statistics had to be compiled and designed. The event had to be advertised. Newspapers and TV stations had to be contacted. Referees scorekeepers and event staff had to be enlisted amongst alumni from both schools. E Advertiser Ad 250.5 x 175 33 C R E D I T U N II O N U N O N BB UU SS I I NN EE SS SS F EMB AR RU CA HR Y 2 0 1 5 5 2 0 1 C U B U S I N E S S . C O M CU TABCONTENT Waivers had to be signed and filed T-shirts had to be made and even music needed to be selected. That was all up to Amy. Each one of these steps had to be done just right to produce a successful event. As if this weren t enough Amy still had to find a way to make her CU s sponsorship pay returns. She connected with a professional photographer to take pictures of the game with plans to put them on the credit union s Facebook page. She put herself on the line to make the event happen even putting up for T-shirts out of her own pocket. I won t be doing that next year she said. She also went to work designing a memorial banner for the occasion featuring the silhouetted mascots of both teams as her way of contributing to the history of the event. With all the prep work done there was nothing left to do but play ball. Unsurprisingly the event was a huge success. Around 1 000 people were in attendance. I don t remember the auditorium ever being that full Amy said with welldeserved pride. Ticket sales and other fundraising efforts were split between the schools another new addition to the program. At last count the alumni game raised 1 400 for both schools. As icing on the cake Amy s alma mater won in a last-second thriller. The success didn t stop there. The pictures went up on Brewer s Facebook page as planned. What wasn t planned was the way they would take off. In the first month since being posted the pictures generated more than 10 000 views. More than 6 000 people engaged with the photos on the credit union s page. In the three days after the photos release the credit union gained 25 new Facebook likes. The response has been so 34 C R E D I T U N I O N B U S I N E S S great that Brewer used the event to launch a brand new digital magazine. The buzz hasn t just been online either. Amy s heard people around town talking about the event. Brewer s name and logo have made headlines in the town s newspapers and television shows. The clear success of this event not only means the tradition will continue into the future but another game for people age 35 and older is being planned for next week. Her advice to other credit unions engaging in a project like this one Hire me she joked. People ask why Brewer did this and not other credit unions and the answer is simple. I don t work for other credit unions Her joking aside the point is clear Credit unions need to look at the people who are already working for them. These individuals are the greatest resource credit unions have in branding and marketing. More practically Amy regrets not setting up online fundraising streams. It would have been great for people who couldn t make it to still be able to support the cause she said. Integrating more digital services with the event including possible live streams is certainly a possibility for future years. Credit unions need to be visible in their community. Amy has helped Brewer identify what matters in the CU s community and has had the energy drive and motivation to tap into it. The result is the start of a wonderful tradition that can unite a turbulent community. 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. M A R C H 2 0 1 5 C U B U S I N E S S . C O M VIEW FROM THE TAB CROW S NEST BY JULI ANNE CALLIS TAB When You Can t Control The Winds Adjust Your Sails No one questions the reality of the continued reduction in the overall number of small and mid-sized financial institutions since the sea changes of 2009. Many shipwrecked organizations hit the rocks as the winds of change pushed them into unchartered waters. Possibly the lookout did not identify an escape route or the folks at the helm simply could not navigate quickly enough to stay off the rocks so down they go to Davey Jones Locker Yet a number of seasoned sailors are leading their organizations through the high seas to calm waters by skillfully crafting new navigational charts. The Sky is the Limit for Those Open to Launching Out. Deb Almirall President and CEO of Minnesota Power Employees Credit Union (MPECU) has taken the helm of this modestsized organization after starting her career in banking where she developed a strong commitment to the needs of the local business community. She is no idle stargazer. While looking out at the opportunities of her credit union she remains undaunted by the current challenges. This new credit union Admiral sees the joining of forces between local banks and credit unions as a new means to chart a strong future course. Credit unions have great advantages when it comes to lending. We do not need as much margin as other lenders due to our tax-exempt status. We can have a better turnaround time for loan approvals. We know our members well which can reduce our risk. We work for our members and won t sell them a bad loan or give them too much credit. This helps members to have confidence that the loan they receive is in their best interest. Credit unions have earned the trust of their members owners which is not true of other financial institutions. Our credit union has had good experiences working with community banks on transactions where our members are involved. In our market the larger banks are not meeting the lending needs of our community businesses. These businesses want to work with someone local. When community banks reach the top of their legal lending limits they look to others in the community to partner with. Community banks may prefer to partner with credit unions. Credit unions have community interests at heart. Credit unions are also subject to MBL which 36 C R E D I T U N I O N B U S I N E S S M A R C H 2 0 1 5 C U B U S I N E S S . C O M TAB VIEW FROM THE CROW S NEST limits the amount of competition they pose to a community bank. If credit unions have trained sophisticated lending staff partnerships can be mutually beneficial. We have partnered with several community banks and it has worked out well. One example of the credit union teaming up with a local bank to land the best result for their local community is shared by Almirall. We recently partnered with a community bank on a loan for a hotel property. The bank had done the construction portion and the borrower was trying to get an SBA loan for the permanent financing. For various reasons the SBA takeout did not work. The bank then began to look for local partners. Credit unions were able to provide competitive rates and terms that were agreeable to the borrower and the bank. One reason our credit union is successful in these partnerships is that our lenders are very well trained and respected in our local community. We have also developed relationships across the financial industry in our community. We are known for making loan decisions in a timely manner. lmirall also emphasized credit quality as essential for the future safety of her ship remaining vigilant to protect the financial performance of MPECU. We have improved underwriting guidelines and lender training. We are willing to make exceptions to our policy when that makes sense but they [those exceptions] have to be documented and approved. Lenders have been encouraged to think about the lending decision and not to just go off a grid. We are looking for ways to say yes when it makes sense for all of our members. Opportunities to lend more to a broader base while responding to emerging regulatory requirements have those at the helm considering the pros and cons of new tactical maneuvers. Scott Arkills EVP COO of Penn Air FCU is a seasoned and skilled helmsman with an exceptional depth of credit risk management expertise in guiding financial institutions to unprecedented loan portfolio performance and market share. He provides this guidance from his years of successfully navigating the high seas for you to consider as you plot out the future course of your organization. Financial institutions must manage risks through periods of market volatility to ensure that returns remain stable and are C R E D I T U N I O N B U S I N E S S A always commensurate with the risks being taken. Maintaining the balance between risk and return is a core principle that must guide a financial institution in today s market. However risk-based pricing must be accompanied by risk-based lending practices to be meaningful and effective at controlling both loss frequency and severity. Risk-based lending provides the tools necessary to assist in identifying and quantifying default risk and in establishing specific guidelines that will manage and monitor the portfolio risk. Arkills further pointed out It has been my personal experience both in the banking and credit union industries that employing both risk-based pricing and lending principles can actually create sustainable and performing loan growth opportunities. Increased loan income results from expanding the loan portfolio to include a larger segment of the customer or member base. It is critical post-2008 that financial institutions take a stealth multi-dimensional approach to managing credit quality and controlling losses. Analysis of leading indicators such as credit-tier overrides must be combined with real-time indicators such as credit-loss review processes and finally trailing indicators such as static pool analysis in order to nimbly adjust the course the financial institution is taking to control losses. The risk-based lending model has by far been the most productive and results-driven additive to my efforts in the credit union industry. This is a model formed in my years in 37 M A R C H 2 0 1 5 C U B U S I N E S S . C O M VIEW FROM THE CROW S NEST TAB the banking industry that I have been able to deliver to three different credit unions. Each credit union has simultaneously seen dramatic shifts in loan growth as well as loss frequency and severity reduction. The focus of risk-based lending is to provide financing options and benefits to both the low-risk high-creditprofile borrowers as well as the higher-risk-profile borrowers. The added value is that the model promotes responsible lending practices and loan performance across the board. Risk-based lending models must be revalidated every 18 to 24 months to ensure that the risk model matches the actual performance of certain tranches of the portfolio. Consistent portfolio management becomes critical in this revalidation process. When asked to comment on the economic and regulatory horizon implications for organizations finding it difficult to grow their loan portfolios Arkills reasoned optimism is evident. The economic climate is slowly recovering in some markets and is prospering dramatically in others. Both credit unions and banks are attempting to navigate their way through increased regulatory scrutiny and requirements while looking for opportunities in the markets that they serve. It is important that loan growth be diversified and that lending practices follow regulatory guidance. The financial institutions that have most often failed in the past seven years are those organizations that did not match prudent lending portfolio management with their thirst for loan business opportunities they were unfamiliar with. Growth must be balanced by proper controls and portfolio monitoring. Maintaining the equilibrium between growth and controls is critical during periods of economic expansion and intense competition. An Enterprise Risk Management (ERM) program is an excellent way to achieve the organization s goals in a safe and sound manner that is consistent with the values of that organization. It is essential that management prudently assess various institutional risks through an ERM program and make prudent and timely business decisions that mitigate risk and that create a positive risk return profile. ERM programs and practices can help credit unions identify loan portfolio opportunities while steering clear of high-risk low-return business risks. As Arkills predicts the use of risk-based lending and sound analytics is essential to avoid shipwrecks. The work involved is typically beyond the scope of credit union crew and this is where 38 C R E D I T U N I O N B U S I N E S S wisdom in seeking new navigational tools becomes clear. Is it time to stop staring at the stars and go with GPS as you plot the future Just as a sailor cannot predict when the wind will change no one can predict when the economy will change and when rates will rise or fall. But you can look to the past analyze what has happened and use your ALM model to make an educated guess about how the winds might blow in the future. Frank Santucci works with some of the most successful financial institutions helping them to set an optimal course on the current and longterm voyage in these unprecedented times. He got down to some very detailed advice for boards and management Sailing is a great analogy for the financial markets. Just like the open sea the economy can be turbulent and unpredictable but given the right equipment almost any environment is navigable. Santucci went on to point out that financial institutions have long implemented asset liability management programs to meet regulatory reporting obligations and highly successful institutions are now using these programs to map out their future and to assess their ability to weather future storms. But how do you turn what has traditionally been a regulatory requirement into a dynamic part of your institution s strategic plan At its most basic level an ALM analysis simply illustrates the potential impact of a rate-shocked scenario on a balance sheet s income and or economic value. But is that really enough To get a fuller picture of how their balance sheet may evolve institutions would be well served to run additional what-if M A R C H 2 0 1 5 C U B U S I N E S S . C O M VIEW FROM THE CROW STAB NEST Just as a sailor cannot predict when the wind will change no one can predict when the economy will change and when rates will rise or fall. But you can look to the past analyze what has happened and use your ALM model to make an educated guess about how the winds might blow in the future. scenarios. Of course there are an infinite number of scenarios to choose from. Institutions could include asset and liability growth in their scenario essentially running the budget through the model. They could vector rates up in the near term and then back down again in the long term. They could model a new investment strategy assuming the reinvestment of maturities into shorter- or longer-term investments or a new investment product all together. Cautious seamen cannot stop there as the winds are not controllable. What if over the next several years rates ramp up 400 or 425 basis points Institutions should go back and look at what management did between June 2003 and June 2007. How much and how often did they raise deposit rates and loan rates How much did their loan prepayments slow down as rates went up How was deposit growth How did their funding allocation change as rates were rising Institutions can also go back and look at the decisions that were made in the investment portfolio. If your institution had availability liquidity what was the strategy Would you do the same thing again If not what would you do differently Then model that strategy. Model this historical reality into a what-if rate-ramp scenario and see what the potential ALM impact may be. Based on the results you will easily be able to identify any potential risks or opportunities to earnings and capital. From my vantage point ... the best time to plot your emergency response is before the storm hits including the potential impacts of unplanned shifts in opportunities to gain and retain new members. A TIP Charter may be the right course for some credit unions navigating through a sea of change. When I served as the President and CEO of the National Institutes of Health Federal Credit Union (NIHFCU) it took a major course adjustment to turn that 70-year-old ship around to a place of safety that is sustainable. The first step in that process was identifying a vibrant new field of membership that could sustain our vessel come high seas or gale. This field was rapidly charted and deployed by working with Dollar Associates to land a new charter which led the organization to unprecedented performance levels rapidly. Kirk Cuevas Dollar Associates co-founder offered a strategic view for credit union boards and management. Credit unions have and continue to navigate through a sea of change. In many cases credit unions have had to demonstrate a willingness to explore and seek new ports in the financial marketplace in an effort to meet changing member demands and expectations. Those credit unions [that] have weathered the storms well have been those [that] have properly prepared for the inevitability of change. And as any good sailor will tell you the time to prepare the boat for rough seas is not in the middle of the storm. We work with several forward-thinking credit unions that readily embrace change and actively pursue the opportunities it provides. 39 C R E D I T U N I O N B U S I N E S S M A R C H 2 0 1 5 C U B U S I N E S S . C O M VIEW TAB FROM THE CROW S NEST Cuevas continued While there are a number of factors a credit union must consider as it prepares for the inevitability of change in a dynamic financial marketplace we are convinced that a key consideration must be an assessment of available charter options. We recommend that our clients include a periodic assessment of available field of membership options as part of their ongoing strategic planning process. The anchor for credit union financial success begins with a viable field of membership. There are many credit unions that currently enjoy very attractive fields of membership that serve them very well. It would not be wise for credit unions to simply assume that the field of membership they presently serve will always exist as it does today. History suggests otherwise. Factories relocate. Military installations close. Companies merge. Things change... and that is why charter reviews are so important in the strategic planning of every credit union. NCUA s Trade Industry or Profession Charter more commonly referred to as a TIP Charter was introduced in 2003. This allows a credit union to serve individuals who regularly work in a particular trade industry or profession rather than just one or more employer groups. NIHFCU in Bethesda Md. is a good example of a credit union that chose to pursue the TIP Charter in 2009 and as a result gained regulatory approval to serve individuals working in the BIO and healthcare industry in a five-state region. By pursuing the TIP NIHFCU was able to modify its field of membership in a way that preserved its longstanding tradition of serving individuals working in the healthcare industry. This relatively new charter strategy has been a lifesaver for several credit unions that watched their primary sponsor group close relocate or significantly reduce its workforce. For other credit unions the TIP Charter afforded more diversification and growth options while allowing the credit union to serve an expanded field of membership that closely resembles its core membership. Kirk Cuevas is a Partner and CoFounder at Dollar Associates LLC and a former NCUA Chief of Staff and Counsel. He can be reached at 205991-1525 or kcuevas dollarassociates.com. Scott Arkills currently serves as EVP Chief Operating Officer for the nearly 1.3 billion 95 000-member Pen Air Federal Credit Union located in Pensacola Florida. Mr. Arkills has a wide-array of financial services experience surrounding loan portfolio risk management and operations. Based on his 31 years of senior- level credit risk experience formed at such financial services giants as GMAC Key Bank and Societe Generale Scott has been able to bridge the traditional gap between the banking and the credit union industries employing practices such as risk-based lending and loan portfolio management programs. Juli Anne Callis is a nationally recognized industry leader with a substantial track record as a pragmatic innovator. She has served in numerous executive roles in both the credit union and banking industries. From her early days Citibank working in market segmentation to Langley FCU in Virginia and over a decade in Silicon Valley at AEACu KeyPoint Callis has led in the development of new technologies and business models which landed numerous awards in the financial services industry. She was also an original founder of the CUNA Councils. 40 C R E D I T U N I O N B U S I N E S S M A R C H 2 0 1 5 C U B U S I N E S S . C O M CEO VELOCITY TAB PART TWO BY SCOTT MCCLYMONDS TAB Formula for Success What Financial Services CEOs Can Learn From PenFed Credit Union CEO James Schenck How is your credit union weathering the changing face of the financial services industry The new business model that pits CUs again both major institutions and non-banks demands skillful balance. See how one CEO is taking on the challenge brilliantly. Part Two of my Conversation with James Schenck Scott Many financial services firms feel the same way. Having just come from the Small Business Banking Conference where more than a few CUs attended I m sure many industry peers are feeling the same as you. Your disciplined approach toward prioritizing is intriguing. Can you describe this approach a little more Once again it seems to me that many of your peers are overwhelmed with technology so your insights here will assist them. James A CEO s ability to say no is important. You can t be all things to all people and invest in all things at the same time. I like to amass resources at a few things that bend the needle. For example our forward-facing interfaces between our mainframe and our members have had a big impact. Some person-to-person technology hasn t reached scale yet so we haven t invested much in it. We invest in making sure our membership experience is fantastic. It s so important to focus our workforce. We take on five or 10 big hairy audacious IT projects in a 12- to 14-month period that will bend the needle and [will] avoid the things that aren t mature yet and which members don t need. This keeps us focused on an excellent membership experience. We don t try to be bleeding edge. We go where the trends are and get great at them. There s never a lack of good ideas looking for a pilot. PenFed Credit Union CEO James Schenck Scott What are the key changes you expect to see in your industry over the next one to three years James The entire industry is facing the explosive growth of mobile payment systems this goes back to the challenge of the flash-to-bang time when it comes to innovation. I expect that mobile payment systems will have far-reaching implications for the credit union industry and the financial services industry overall. Firms who are wed to large networks of old brick-andmortar retail locations will continue to perish. Scott Besides the reduction of the branch networks what do you think some of the far-reaching implications will be Will 41 C R E D I T U N II O N U N O N BB UU SS I I NN EE SS SS F EMB AR RU CA HR Y 2 0 1 5 5 2 0 1 C U B U S I N E S S . C O M CEO VELOCITY TAB there be fundamental changes in how CUs make money how their organizations are structured the types of people they hire Do you feel the way in which CUs are perceived by members and the value they receive from CUs will change James Cybersecurity. The consumers expect privacy and no compromises. They take it as a given that their information will be protected. It s even more important now. The cost of protection is high in order to stay ahead of the bad guys. Scale has advantages because you can leverage your cost per member. It increases the importance of protecting data even more from the bad guys. There are huge financial repercussions on the operations side. The Sony hack is a huge wake-up call. I meet with our head of cybersecurity weekly. You have to be constantly enhancing your security posture. The CUs that will make money will raise deposits remotely like the Capital One 360 account through mobile devices by anyone in the country. That s why a small branch footprint is key as is having the best loan prices and saying no to things that won t drive us in the right direction. You need to find the right balance. You can t be all things to all people. Scott What impact do you think non-bank competitors like Walmart and others will have on the industry James Walmart and others will continue to innovate in order to provide convenience to a vast customer base at the expense of smaller credit unions and thrifts. Scale will become even more important as a result of the introduction of non-financial services firms into the market. Scott How will CUs such as PenFed scale without expanding their branch network Does this mean the need for state-of-theart digital marketing will increase Please elaborate more on what scale means to you in this scenario. James Scale means assets and members. Average loans and deposits per member. Scaling technology investments to as many members as possible. Reducing our cost per employee. We are the inverse of a branch-driven organization because we drive value remotely. Scott What do you think is the critical path to meeting those changes and being an industry leader in the next one to three years James Positioning ourselves as the leader of the credit union industry means taking the steps to heavily invest in intellectual talent and allowing that talent to lead and drive the business forward not simply training it to manage. Our direction forward 42 C R E D I T U N I O N B U S I N E S S will be heavily influenced by our ability to find the right balance between internal development and thinking outside the box as we grow. Scott A former Marine once told me the average American business manager doesn t have leadership training until they ve been a manager for 10 years but in the Marines leadership training for officers and NCOs is immediate upon promotion and ongoing thereafter. What is your approach to leadership development at PenFed James We work hard on leadership development. There are several outside firms we work with to develop all our directors ... VPs and above. They work with 13 at a time and have personal coaching and leadership development. Below that level we have motivational leadership speakers come in and work in the call centers and branches. They take 30 to 50 managers at a time and drive our strategic intent down to their levels. In the military there is different leadership training as you go up through the ranks. We re building the same thing at PenFed. We strongly emphasize the importance of leadership education and training and [we] make time for it. We think this helps us set the culture at the top and helps them (our leaders) look ahead. Scott What is the best advice you have received from anyone during your CEO journey James The best advice actually came from a couple of sports analogies. 1) With any business or activity stay in the middle of the fairway. M A R C H 2 0 1 5 C U B U S I N E S S . C O M CEO VELOCITY TAB 2) Leading a high-performance firm is a marathon not a sprint. Build and lead your employees to have endurance and don t chase fads. Scott It sounds like staying in the middle of the fairway means maintaining a clear path and direction. Hit the ball straight don t get into the sand or weeds i.e. don t chase fads. How can you tell if something is a fad or a sea change For example the innovations you mentioned above as well as mobile Is there a way to spot early on whether something is real or a fad and still stay in the middle of the fairway James Apple Pay is an example. It may or may not have a significant impact so it doesn t make sense to bet the farm there. We can t afford to ignore it but we won t bet the farm yet until we see adoption across the globe. We ll dip our toe. It s a tradeoff between rushing in and not being fast enough or ignoring it completely. It s a balancing act. Scott What key practices or tactics do you keep coming back to James Focus and execution in support of an overarching strategy having a strategy in place takes the guesswork out of operations by allowing employees to focus on their areas of responsibility related to the proper execution of day-to-day operations. We have to ensure that everyone from board members to line tellers know where the organization is going. This underscores the importance of constant communication. Scott This is particularly intriguing to me since so many organizations do not have a clearly articulated strategy that is operationalized consistently. What s the key to creating a leading strategy and making sure it is understood compelling to employees and executed day to day Do you have any thoughts on why this [process] is so elusive for many American businesses James Some CEOs and boards believe they can be everything at once but no one can be all things to all people. Knowing who you are is the most important thing. That s why I treat internal communications just like marketing campaigns. I m always reinforcing our six strategic intents all over the organization so employees can see how they re moving the needle at all times. We build our reward structure around this. Digital convenience across the world is our strategy. We understand what it takes to drive our specific lines of business and say no to everything else. Having the discipline to say no allows more management and employee bandwidth to say yes to what we re good at. Constantly reinforcing who you are and why you re not doing certain things is critical. If you do expand it should be built upon your existing skills. Excellence in member service is particularly important. We have to get that piece right every time. Scott Have you found that member expectations have changed materially in the last year or so How do you see those expectations changing over time James Members are becoming much more driven by great retail experiences so we don t try to compare ourselves to other financial institutions. We prefer to compare ourselves with leaders in retail like Zappos Amazon and Petco. Members want simplicity and personalization. They re expecting more demanding more and want great functionality. Retailers have set a high bar. We have to ensure that we have clear metrics for measuring success in creating a great member experience and we must communicate with our employees about how the organization is doing against those metrics. Scott What is your process for communicating these metrics throughout the various levels of PenFed and for ensuring their meaning is clearly understood so that people know how to make appropriate adjustments while maintaining strategic integrity James Here s a balanced scorecard example. Loan growth expectation of x billion dollars with auto loans credit cards and mortgages each contributing. We push the expectations for each product down to the individual branch call center and employee. The numbers roll up daily at each level as well as to the firm. We have a daily new money report that goes to the individual or corporate number. Laying out vision and having 43 C R E D I T U N I O N B U S I N E S S M A R C H 2 0 1 5 C U B U S I N E S S . C O M CEO TAB VELOCITY quantifiable measures around key drivers and drilling down throughout the organization is what makes it work. PenFed is very good at planning. I believe confidence begins with planning. People want to know what is expected so they can align the right resources with realistic metrics and stretch themselves. The whole organization feels good when you exceed your numbers. I love delivering the best products and services and inspiring the workforce on strategy focus metrics and driving execution. Focus and execution separate winners and losers in every organization. Our line managers are worth their weight in gold. They make it happen. James Government regulation has not changed my strategy or role. The cost of compliance however runs several million dollars a year which does have an impact on mid- to small-sized credit unions. It also consumes much of their management time and focus at the expense of time that could be used to better serve members. To sum it up it s a matter of bandwidth or lack thereof. Scott How are you adapting to new technology platforms and data mining while keeping data secure James Thanks to our relatively low operating expenses we ve moved forward with a multi-million-dollar investment in talent acquisition and technology upgrades that will not only improve Scott What advice would you give to your credit union peers our members experience but will also allow us to gain a better around the country and globe understanding of our members needs. The new systems that James I believe that it is important for leaders in the credit we re evaluating also include state-of-the-art privacy features union industry to continue to foster a spirit of cooperation and alerts to potential threats and other means to keep data secure. collaboration. We should continue to work together for shared Scott James thanks so much for our discussion. I really success. admire the way you run PenFed. You are operating on a lot of I have been fortunate to have developed great relationships sound forward-thinking principles and I applaud you for that. with top credit union CEOs and we all work together in a James Thank you Scott. Your questions and follow-ups were friendly manner on issues of shared interest even though we re insightful and I enjoyed meeting you. competitors. We realize that there is enough market share to allow the Scott McClymonds largest credit unions to grow multiple times their current size is a veteran leader not at the expense of other credit unions but at the expense of in the financial the bankers. services industry Most importantly as credit unions we must always place and an expert our members first. Membership sets us apart from the banking at creating and industry and that is a badge of honor. executing profitable Scott What are the toughest challenges CEOs of financial strategies that institutions have in creating and executing strategy make businesses grow. His company James The biggest challenge is maintaining safety and CEO Velocity is a soundness through the earning of capital versus raising it strategic consulting through secondary markets. The banks can just raise capital firm that helps CEOs but credit unions must earn it in order to grow. Knowing where of financial services and when to invest and knowing where and when to take wellfirms and small to mid-sized enterprises create greater evaluated and calculated risks are also critical components to customer loyalty profits and company value. You can the execution of any strategy. Scott How has government regulation changed your strategy reach Scott at 479.263.0774 scottm ceovelocity.com or scottmcclymonds. and your job 44 C R E D I T U N I O N B U S I N E S S M A R C H 2 0 1 5 C U B U S I N E S S . C O M CU-FRIENDLY TAB STUDENT LOANS BY GEOFF BACINO TAB Tuition Costs How Can Your Credit Union Help Your Members The skyrocketing cost of a college education is hitting already cash-strapped students and their parents hard. This debt challenge however poses a unique opportunity for credit unions. Discover ways your CU can bridge an opening left by the banking industry and help members achieve their educational goals more affordably. concern after graduation is how can they repay the monumental debt they accrued in college What are the job placement prospects to alleviate the concern of paying off these loans T otal student debt in this country now surpasses 1 trillion and is growing every day. For many families the American dream of a college education now translates into long-term debt and financial hardship. Even state schools are asking students to shoulder more of the financial burden than ever before. According to the Institute for College Access and Success s report Quick Facts about Student Debt published in March of 2014 Average debt levels for all graduating seniors with student loans rose to 29 400 in 2012 a 25 percent increase from 23 450 in 2008. At public colleges average debt was 25 550 25 percent higher than in 2008 when the average was 20 450. At private non-profit colleges average debt was 32 300 15 percent higher than in 2008 when the average was 28 200. At for-profit colleges average debt was 39 950 26 percent higher than in 2008 when the average was 31 800. What Are the Standard Options For most students financial aid usually is accomplished through these traditional means FAFSA (Free Application for Federal Student Aid) is supposed to be easy but can be daunting for the first time applier. There are many requirements that need to be in place to include the latest tax return but using last year s return for projecting parent s student s income will do to get the ball going. The website www.Fafsa.gov is where to go. How much you ll get can be estimated by what s called the FAFSA4caster which is a calculator that will ballpark your estimate of Federal Student Aid. You must use the FAFSA application to apply once you ve decided on at least one school for admission. Stafford Loans government loans offer subsidized loans and unsubsidized loans which range from 8 500 to 12 000 per year depending on which type you choose. The interest rates are currently projected at 4.66% which accrues while the student is in school. The Pell Grant is available for undergraduates and doesn t have to be repaid but it is capped at 5 730 for the 2014 2015 school year and at 5 775 for the 2015 2016 school year depending on need. This seems clear and straightforward right On the Department of Education s website it states that your school 45 Is it any surprise that the numbers are increasing With the recession of 2008 hitting so many these are worrisome figures. Many of those affected include professionals who might otherwise have been able to help defray these costs. Students are strapped with debt before they even get out into the world and a hefty debt at that. Is it fair to turn out students whose initial C R E D I T U N I O N B U S I N E S S M A R C H 2 0 1 5 C U B U S I N E S S . C O M CU FRIENDLY STUDENT LOANS determines the amount you can borrow and the amount may not exceed your financial need. Understood. However the approved amount isn t going to cover the additional expenses. The need is there. So where does the rest of the money come from then A Credit Union Friendly Concept We have come across a program called Lower Your Tuition that provides tuition savings for credit union members. If credit unions are truly concerned about their members and are looking to provide actual member benefits then this program offers the ability to do just that. The system works like this A network of 340 colleges and universities across the United States are eager to attract more students to their institutions. These are good schools 80 percent of them are on the U.S. News & World Report list of America s best colleges. What s more they have additional openings to fill and are looking for additional qualified students. The colleges have authorized this program to work with partners and offer them a free branded 750 tuition discount scholarship valid at all 340 schools. The only requirement is that the student be accepted on standard admission criteria (just like any other student) to be able to utilize their tuition savings. Marketing content is provided for partners to distribute to their members featuring a free 750 scholarship at no cost to the credit union or its members. When members receive the free scholarship they are also provided with information on how to save up to a full year s tuition for their children by enrolling in the Lower Your Tuition membership program. The initial 750 tuition discount is free and theirs to keep with no obligation membership is just 12.95 per month. The membership includes multiple benefits to help families save for college. New members receive 1 000 in tuition discounts just for joining plus 250 more in tuition discounts every single month. After one year a member will have accrued 4 000 in tuition discounts plus the initial 750 in tuition 46 C R E D I T U N I O N B U S I N E S S M A R C H discounts they received as a free gift. A family joining the program when a child enters ninth grade will have 10 750 in tuition savings. A family that joins when their child is in kindergarten will have 37 750 in tuition savings they can save up to one full year s tuition and any remaining balance can be reassigned to siblings cousins nieces nephews stepchildren godchildren and even grandchildren. A portion of the dues is credited back to the credit union as fee income. For more information about the program feel free to visit www. freecreditunionscholorship.org. What Does The Future Hold In his State of the Union address President Obama proposed eliminating some of the tax benefits of the 529 college tuition plans. This idea was met with strenuous objection by not only Republicans but also Democrats and the plan was quickly tabled. But it highlighted an issue that will continue to grow how do we pay for that college degree that is so highly respected by employers Once again credit unions can be the leaders in an area often left behind by the banking industry we can help our members help themselves. Geoff Bacino is a partner at Bacino & Associates a national government relations strategic planning and business solutions firm. Previously Geoff served on the Board of the National Credit Union Administration (NCUA) as an appointee of President Bill Clinton. He was also nominated to serve on the Federal Housing Finance Board by President George W. Bush at the recommendation of Senator Harry Reid. Geoff is also a member of VirtualCorps.com. For additional information please contact arapp virtualcorps.com or go to www.virtualcorps.com. 2 0 1 5 C U B U S I N E S S . C O M Experience the Power of Plus. Let Advisors Plus give your credit union superpowers... minus the cape. Can t lift a bus with superhuman strength can optimize your debit portfolio. Can t leap a building in a single bound can integrate product delivery. Can t see through walls with X-ray vision can enhance your profitability. Our delighted clients turn to our team of superhero consultants to solve their business problems and power their growth. Business Strategy Marketing Strategy Marketing Growth Campaigns Predictive Analytics Credit Card Portfolio Analysis Debit Card Portfolio Analysis Personal & Small Business Checking Strategy Credit Card Start-up Programs Contact Center Optimization Operations Optimization Credit Card Risk & Collections Analysis Branch Sales Training Make Advisors Plus YOUR secret weapon. Call 727.299.2535 or visit us today at AdvisorsPlus.com. erest 0% Int nths Mo for 60 0 Of f 0 or 6 0 il eta R ite d Ti Lim ite d Ti me O f f er Lim me O f f er