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THE CUSO ISSUE Velocity Leadership APRIL 2015 VOLUME 10 ISSUE 4 Six Steps Credit Union CEOs Can Take to Maximize Executive Performance SCOTT MCCLYMONDS The Law A Realistic Approach to Vendor Due Diligence BRAD R. BERGMOOSER TABLE OF CONTENTS V O L U M E 10 I S S TAB 4 UE Credit Union BUSINESS 4 6 9 13 16 PUBLISHER S POV All the Tech That Fits Tim O Hara CFO CURRENCY 25 CU MARKETING The Foundation for a Sustainable Well-Funded Collaborative Marketing Campaign Sam Brownell CU DIRECT Including Credit in Your Nev Tests Testing for Capital Adequacy Emily Hollis CONSUMER PROTECTION 28 Engaging Your Audience in New Ways Case Study How CU Direct Generated 375K Votes in only 20 Days Bill Meyer Chargebacks and Consumer Rights Gary Cardone THE LAW 31 34 40 43 VENDOR RISK MANAGEMENT A Realistic Approach to Vendor Due Diligence Brad R. Bergmooser TECHNICALLY SPEAKING How to Build a Risk Management Culture That Works Sean Cronin CEO VELOCITY As Membership Declines CUs Must Look to Digital Banking to Remain Competitive and Maintain Member Loyalty Stephen Bohanon LENDING SOLUTIONS Six Steps Credit Union CEOs Can Take to Maximize Executive Performance Scott McClymonds VIEW FROM THE CROW S NEST 20 23 Heading Out Toward Blue Oceans Juli Anne Callis CU CONTENT Lifetime Relationship Are We Creating This with Our New Members Jack Kelly COMPLIANCE UPDATE Compliance It Takes A Village Cindy Williams 3 Ways to Move Your CU from Lender to Knowledge Leader with Local Businesses Laura Enock 1 C R E D I T U N I O N B U S I N E S S A P R I L 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 Iliana Nord Operations Manager iliana Patti Manzone Designer Ashok Kumar Associate Publisher ashok PUBLISHER S POV THE CUSO ISSUE Velocity Leadership APRIL 2015 VOLUME 10 ISSUE 4 Six Steps Credit Union CEOs Can Take to Maximize Executive Performance SCOTT MCCLYMONDS Tim O Hara CFO CURRENCY Emily Hollis CFA COLLABORATIVE MARKETING The Law Sam Brownell A Realistic Approach to Vendor Due Diligence BRAD R. BERGMOOSER COMPLIANCE UPDATE Cindy Williams Gary Cardone CU CONTENT CONSUMER PROTECTION SUBSCRIPTIONS Laura Enock CU DIRECT Bill Meyer LENDING SOLUTIONS Jack Kelly Jr. 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 register. SALES AND ADVERTISING TECHNICALLY SPEAKING Stephen Bohanon THE LAW Tim O Hara Publisher tim or 561-282-6015 1 CONTACT INFORMATION Brad R. Bergmooser VELOCITY CEO Scott McClymonds VIEW FROM THE CROW S NEST Juli Anne Callis Sean Cronin 2 C R E D I T Credit Union BUSINESS Magazine P.O. Box 2223 Palm Beach FL 33480 (561) 282-6015 (561) 588-7711 (fax) tim VENDOR RISK MANAGEMENT U N I O N B U S I N E S S A P R I L 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. 888.918.7357 PUBLISHERS TAB POV BY TIM O HARA T All The Tech That Fits Just as soon as the briefcase opened a fresh copy of CU Week was dropped inside and it fit perfectly. Read it in good health my business partner who was also the proud editor of the journal retorted. My reason for wandering down memory lane stems from the topic of most of our CU BUSINESS editorial content these days technology. Technology has caused the payments business to expand almost daily. Not to be overly obvious but the best example of technology making our lives easier is the not-sosimple smartphone. I recently saw an ad showing the storefront of a Radio Shack in 1980 with the caption that each of the products on display is now featured in the iPhone camera telephone computer television post office etc. Technology has made my own publishing industry much easier to navigate as well. Right now I am able to publish this magazine on my iMac where it once took a dozen people weeks of all-nighters to do the same amount of layout. he first credit union trade event I ever attended was a NAFCU annual conference in Seattle way back in 1990. A few of us attended the confab to show off our new baby a prototype weekly trade newspaper aptly titled Credit Union Week. We hauled a homemade exhibit booth clear across the country to make the best impression on our new credit union audience. The booth was a 10-foot Goliath created by our inhouse designer. This monster was constructed with many yards of duct tape holding together large panels of Styrofoam and strings of lights and electrical cords. This creation was truly a thing of beauty It had moving parts and flashing lights and made quite a positive impression as long as you were standing in front of it and as long as one of us was hidden behind the curtain holding the whole thing together. That s because it stuck together properly for only part of the opening session before nearly collapsing from its own weight Credit Union Week was a slick tabloid newspaper that bore great resemblance to today s CU Times and CU Journal which are in fact its descendants. As founders and shareholders of CUW three of us were proudly manning the booth answering questions and touting our new bible of the industry. And some of the questions and observations were interesting to say the least. Dan was the sales manager for Users Inc. back then. A very laidback type of person he spoke softly and slowly. We were talking during a cocktail party and as I excitedly told him all about our new source of credit union news he suggested that there wasn t nearly enough news in the CU movement to justify its own newspaper even a weekly one. To make matters worse a passerby at the booth offended one of my partners by implying that the newspaper on display wouldn t work for him because it wouldn t even fit in his briefcase. My associate barked That briefcase you re holding Yes the man answered nodding toward the case. Put it up on the desk my colleague challenged and open it. 4 C R E D I T U N I O N B U S I N E S S A P R I L 2 0 1 5 C U B U S I N E S S . C O M PUBLISHERS POV In contrast publishing the first issue of Credit Union Week all those years ago took a room full of people who actually set each line of type by hand several days including one or two allnighters to get the job done. Going way back to Dan s comment all those many moons ago by my count there seems to be enough credit union information to fill up to five daily news outlets (not counting the New York Times and Wall Street Journal ) two weekly print newspapers three monthly association publications and one very good all-digital source with a definite BUSINESS slant ( CU BUSINESS ) Ashok Kumar Associate Publisher Please meet our new Associate Publisher Ashok Kumar. I first began working with Ashok (pronounced AH SHOKE) nearly five years ago. Ashok hails from New Delhi India and although a half a world apart he and I hit it off right away. We spend most of the day talking on Skype and he is such a quick study that we could not work better together if he was in the next room Ashok began working with CUB as the circulation manager. He used his impressive social media skills to quickly increase our audience to over 12 000 credit union executives the envy of the industry In his new post Ashok will take over our newly redesigned website ( as well as our growing list of digital publications. Thank you for reading Credit Union BUSINESS magazine. We greatly appreciate your support. Please let us know how we can be most helpful to you and we will be Tim 5 C R E D I T U N I O N B U S I N E S S A P R I L 2 0 1 5 C U B U S I N E S S . C O M CFO TAB CURRENCY BY EMILY MOR HOLLIS CFA PARTNER ALM FIRST FINANCIAL ADVISORS Including Credit in Your Nev Tests Testing for Capital Adequacy Is your credit union approaching capital adequacy planning properly Normal interest rate risk analyses may not be enough. A more sophisticated strategy will help your CU ascertain whether capital is adequate for the amount of interest rate risk being taken. ALM analyses in the form of net economic value (NEV) have always been used to assess interest rate risk and to a limited degree credit. Truly understanding how credit losses impact capital and capital planning is imperative. More and more institutions are recognizing the benefits of incorporating credit impairment in NEV tests thanks in part to an increase in regulatory scrutiny. Once implemented stress tests can be performed by stressing the impairment through the application of multiples. Layer this with the normal interest rate risk analyses and an institution can then assess its level of capital adequacy. Generally credit risk is incorporated to the extent of using applicable discount rates for various types of loans (i.e. non-conforming mortgages versus conforming or subprime autos versus prime). In addition to applying discount rates the allowance for loan loss can somewhat adjust for the loss projections subsequently decreasing net economic value. It is however limited by the fact that credit impairment projected in the allowance is not projected for the life of the loans. Credit risk can more accurately be included in NEV tests by excluding the allowance for loan loss and by projecting credit impairment throughout the life of the loan. In order to accomplish these analytics it takes a sophisticated system that can analyze credit on a loan-level basis. Here is how it works. Credit tables are built based upon the vintage the loan to value and the FICO score s geographic region as well as the coupon term loan type and other specifics of the loan. By reviewing each loan characteristic the system projects cash flows based upon the following 6 C R E D I T U N I O N B U S I N E S S A P R I L 2 0 1 5 C U B U S I N E S S . C O M 1) 2) 3) 4) Contractual principal and interest payments Prepaid principal payments Defaults Recoveries Defaults and recoveries are projected by applying default rates and loss severity rates to remaining loan balances. Default rates and loss severity rates for performing loans are generally based upon some industry data while non-performing loans which are generally defined as loans that are at least 60 days past due are generally assumed to default immediately. For some loan types these rates generally vary by credit quality vintage state and loan-to-value (LTV) ratio. For other loan types default rates and loss severity rates vary by one or more of these variables. CFO TAB 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 Contractual principal similar to payments are a stress They (i.e. move rates up 300 basis determinedouble and and test have already become the standard and the impact and decay rates that areand interestamortizations. incorporated market. the output should be recalculated topoints for pricing this can take weeks. into the fair and discount rates allow for the amortization many corporate bonds. of a different assumption. Dividend value calculation by generating an present value projected credit impairments). The result would equal the total if you the institution schedule Knowing where swap rates and spreads are uncertain as to calculations for each loan each modeled interest rate scenario. impairment to the base economic value givingare will allow (premiums) in based on its unique payment the many requirements characteristics. The credit component of the loans is extracted the answer of whether capital is adequate for the amount of risk of effective duration calculations can then mathematically bebetter hedging and investment execution. When investors need Conclusion applying and using derivatives and the remaining cash flows are discounted based upon taken. compared to that of the 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 consider applicable prime discount rates. (The remaining cash flows are becoming the more important curve to analyze.engaging an external Incorporating credit impairment along with interest rate duration is calculated by merely backing into the price change or benefits generated from loyalty of the membership when service provider to help deemed to not be at risk of default.) risk NEV tests provides forward-looking risk assessments you formula. For example if the liability present has both 100 in the information are retained when dividend rates are low in a higher value is a credit deposits imperative for capital adequacy planning. The resulting market value of the loans through First Financial Emily Hollis CFA is a partner with ALM the steps. base 101interest up 100 basis point scenario and 99 in the down market environment. And vice versa A financial derivatives in the rate component. As an example if the system is and an Properly used institution Advisors LLC. 100 basis point scenario the effective duration is oneregion calculating subprime mortgage loans in a geographical percent that offers a non-maturity dividend rate higher than market Emily Hollis CFA interest rate risk can offset is a partner (i.e. (101-99) 200). to attract hot money will decrease the First Financialofthe that has historically experienced high defaults then the projected with that is economic within its ALM inherent value liabilities. it is imperativeAdvisors these accounts for ais to model LLC. Ms. Hollis more credit impairments may cause the aggregate value of second of competencies to meet the final requirements. The the pool part credit union industry today. This is vital because as competition accurate depiction of allow well-known to compete more sensitivity Analysis submitted when all requirementsthe grows derivatives can interestcreditrisk. figure in the loans to equal 85 percent of its current value. However if a rate unions and final application is are The regulator strongly is a substantially higher rate than market coupon of these loans suggests sensitivity analyses as a means effectively. investment community and completed including dealer contracts. to then the present effectsof of changing assumptions. sensitivity Emily Mor Hollis CFA is a renowned expert First Financial quantify the value the remaining balances could bring a a partner with ALM in asset setting up a line at a dealer is similar to becoming a 10 percent essential because the core resulting in a 95.00 Advisors LLC. analyses are premium to the pool of loans share evaluation may Emily Hollis CFA is a liability management as well as partner with ALM First Financial member of the FHLB--it can be laborious and takes a good deal price instead of 85.00. The result of these analytics is a basis for in executing and managing risk Advisors LLC. management programs. 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 I O N B U S I N E S S A P R November 2014 I L 2 0 1 5 C U B U S I N Credit Union BUSINESSE S S . C O M 15 March 2014 January 2014 Credit Union BUSINESS Credit Union BUSINESS 17 13 CONSUMER TAB PROTECTION BY GARY CARDONE TAB Chargebacks and Consumer Rights Credit card chargebacks are an unavoidable byproduct of being in the financial services industry or are they Automation is one way for credit unions to deal with consumer billing complaints a transaction dispute mediator is another. Discover what advantages such a mediator has to offer your CU. hen it comes to consumer rights there are rules we all must follow. Corporations must be honest. Banking institutions must be fair. Card networks must be effective. And consumers must not take advantage. Most importantly however merchants banks card networks and the consumers themselves must work together to find resolutions to the problems that flood the credit card industry and make it difficult to find fair ground. Without consumer protection the retail industry would suffer all across the board. Regulations enforced by the Consumer Financial Protection Bureau the 2010 government agency established to ensure the safety of consumers in the financial sector of the United States have been increasingly pressuring banks and credit unions to institute standardized procedures for handling credit card disputes and consumer complaints. Chargebacks are a consumer right that was implemented in 1974 in the United States through the Fair Credit Billing Act. The law allows for refunds to be issued to cardholders through the issuing bank or credit union that provided them with the credit card used in the disputed transaction. The law does however include specific parameters within which the transactions must fall in order for the chargeback to be valid and the refund to be issued. For a chargeback to be processed the transaction must be what is referred to as a billing error. Billing errors under the FCBA vary from credit card purchases conducted by secret shoppers to an inaccurate description of the product or service. Specified billing errors include unauthorized charges for a product or service charges made by someone other than the cardholder or charges for an amount different from what was originally agreed upon. They also encompass products or services that were never received by the consumer whether through neglect to send refusal to accept or theft loss or wrong delivery by happenstance. According to the FCBA a computation error or similar error of an accounting nature of the creditor on a statement a reflection on a statement of an extension of credit for which the obligor requests additional clarification including documentary evidence thereof and the creditor s failure to reflect properly on a statement a payment made by the obligor or a credit issued to the obligor are also billing errors under federal law. It is crucial that all parties involved in the electronic and mobile payment system retail industry are knowledgeable of not only the chargeback process but which billing complaints equate to billing errors and should result in billing disputes and which do not. According to a Consumer Response Annual Report for the year 2013 conducted by the Consumer Financial Protection Bureau over 16 600 consumer credit card complaints were collected throughout the year. Of that 16 000 19 percent of complaints dealt with billing disputes and an additional eight percent dealt with identity theft fraud or embezzlement. These two categories make up the two highest single issues that arose in the credit card industry from a consumer point of view. If processed through consumer card issuers these complaints may have resulted in approximately 3 682 chargebacks from this sample alone. This is where the gap in the market is being highlighted most prominently. Billing disputes and credit card fraud are the most prominent consumer complaints in the financial services industry and therefore they are brought to the forefront of the CFPB s concerns. However they are not easily 9 C R E D I T U N I O N B U S I N E S S A P R I L 2 0 1 5 C U B U S I N E S S . C O M W CONSUMER PROTECTION TAB dealt with by card issuers and banking institutions and they are not strictly regulated when it comes to how they are manually dealt with. While automating these disputes may not be entirely possible for every credit union or issuer who receives billing disputes transaction dispute mediators are able to automate this process and more efficiently handle disputes between merchants and their customers. eConsumerServices is a consumer advocate company that strives to minimize discourse between consumers and banks and to enhance the relationship between merchant and consumer. Transaction dispute mediators are able to utilize cutting-edge technology while holding a firm grasp on the personalized resolutions needed for each individual dispute and practically eliminating wait times. eConsumerServices is able to maximize customer satisfaction and minimize costs incurred by merchants consumers and issuers. Not all billing complaints should result in billing disputes with the card issuer. It is not uncommon for consumers to be committing accidental chargeback fraud when filing a dispute with their bank or credit union. Customers sometimes forget that authorized purchases were made using their card by themselves or others with whom they agreed. Descriptors that appear on bank statements do not always clearly state the name of the product or the company from which the purchase was made. This can confuse credit cardholders who would then file a dispute directly with their bank because they may not know who else to contact. In situations such as these banks are able to inform consumers of the company they are seeking to file a dispute against and allow them an opportunity to contact the merchant directly before requesting a refund for the product or service. Transaction dispute mediators work on behalf of banks and credit unions to handle claims between consumers and merchants. By mediating between the two parties involved less involvement from issuing banks is required and chargeback rates are drastically reduced. eConsumerServices uses efficiency and sensibility to ensure permanent solutions for customers without overstepping the merchant involved. By assisting C M Y CM MY CY 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 CMY K Advertiser Ad 250.5 x 175 Send an email to CreditUnionsCommittee to subscribe to our legal newsletter. CHICAGO 311 South Wacker Drive Suite 3000 Chicago IL 60606 (312) 360-6000 (312) 360-6520 fax 10 C R E D I T U N I O N B U S I N E S S A P R I L 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. traf c Copyright 2014 Cummins Allison Inc. All rights reserved. CONSUMER PROTECTION the merchant in handling consumer complaints in a timely appropriate manner transaction dispute mediators are able to save time and money for all parties involved without decreasing quality of service. Banks and card issuers must adhere to regulations that are ever-evolving according to consumer needs and concerns. Credit card dispute mediators are able to narrow in on consumer needs on the issuer s behalf and tackle any new issues that may arise. eConsumerServices is made up of a team of consumer advocates with a vision that not only aligns with that of CFPB s mission to protect but also serves the ethical interest of the entire e-commerce industry. Credit card dispute mediators are able to establish fair and unbiased mediation between buyer and seller while assisting banks credit unions and card issuers with fulfilling compliance with CFPB regulations resulting in an overall increase in customer satisfaction. Chargeback disputes were created to protect consumers from dishonest or insufficient merchant activity. By allowing consumers to file complaints disputing credit card transactions the government is regulating the ability for consumers to make purchases without the threat of fraudulent activity from businesses. However the tool has since been manipulated by fraudsters on the other end of the spectrum the shoppers. Customers place orders using their own credit or debit cards receive the products or services and then file chargebacks stating claims from never receiving the product to it not being as ordered to even that they never ordered the product in the first place. This phenomenon known as Friendly Fraud puts merchants at risk of losing not only profits and products but also potentially their business s ability to accept electronic payments entirely. Chargebacks are individualized every single time and are never black-and-white cases. Transaction dispute mediators help reduce the liabilities that come with chargebacks by enabling banks and consumers to leverage due diligence resources that help establish better and more accurate resolutions. In so doing they satisfy every member in the value chain because every case needs individual attention and time is becoming a fast-growing commodity in this industry. You cannot automate chargeback processes (and forget about the personal due diligence necessity) for consumers because there are varying circumstances through which a grey 12 C R E D I T U N I O N B U S I N E S S area is formed. The grey area of a transaction is why chargebacks exist to begin with. A customer who has a charge on his or her card could have made the purchase but may have run into a grey area where he or she deserves a refund. The merchant may have a rigid policy against refunds but there is always need for exceptions. eConsumerServices comes into place to help banks automate their end without creating a liability to themselves the customer or the merchant. Gary Cardone is the CEO of eConsumerServices an online mediation service that works to effectively and efficiently resolve transaction issues between merchants consumers and banks. eConsumerServices focuses on the cardholder or consumer in order to encourage transactional resolution before it progresses to a chargeback. Cardone has 25 years in commodities trading associated with natural gas and electricity providing him with a unique viewpoint on the future of global trade. A freak set of events put Cardone at an Internet conference in 2007. His amazement at the parallels between the Net and the commoditization of an industry triggered a number of different investments eConsumerServices and Chargebacks911. He recognized that despite the Internet explosion in the payments industry banks and merchants were using processes technologies policies and thought processes from the bygone age of analog that did not translate to this new digital world. His mission has been to help the industry become better prepared for the accelerating global expansion of online trade aiding merchants processors and consumers through up-to-date platforms systems tools and processes to reduce leakage losses and risks and to improve efficiencies. A P R I L 2 0 1 5 C U B U S I N E S S . C O M THE LAW BY BRAD R. BERGMOOSER FREEBORN & PETERS LLP A Realistic Approach to Vendor Due Diligence How rigid is your credit union s due diligence policy It might be time to consider a more flexible approach. These strategies will help you evaluate your CU s vendor relationships in an effective and efficient manner culminating in an appropriate due diligence process. endor due diligence remains a very important issue for credit unions highlighted by recent statements by NCUA Chairman Debbie Matz regarding NCUA s desire to obtain regulatory authority over credit union vendors. But instead of developing a rigid all-inclusive due diligence policy to account for the complex subject credit unions should consider a more flexible approach. The problem with analyzing vendor due diligence is that it is far too broad to be considered one topic. A credit union s approach to selecting a third party to provide a service with minimal financial impact on the credit union and no exchange of any private member information should be an entirely different process from the retention of vendors who will have full access to credit union operations. And there are a host of product and service providers falling at various points within that spectrum. Credit unions are most successful when management s actions achieve a balance between effectiveness and efficiency and vendor due diligence should follow this same idea. Fixed and detailed policies do not provide adequate management discretion and could ultimately lead to an inappropriate due diligence process for certain vendors. A better approach is to break down each potential relationship and evaluate it based on these three components 1) what the credit union needs to know 2) the details of the relationship (the contract) and 3) continued monitoring. V Pre-Agreement Due Diligence The most common aspect of vendor due diligence is the steps a credit union will take prior to reaching agreement with a third party. All too often a credit union will think its duty here can be satisfied by working through a generic checklist of documents it should review. It can t. To ensure a credit union has fully evaluated a potential vendor its analysis must be more subjective. Management should ask and answer the following question Given the cost and complexity of the potential relationship how much does the credit union need to know about the vendor Because no two relationships will be the same answers to that question will differ greatly. For example a credit union doesn t need five years of audited financial statements from its landscape company but it should definitely have a firm understanding of its core processor s financial stability. As a guide a credit union should look to the cost of the relationship and how intrusive 13 C R E D I T U N I O N B U S I N E S S A P R I L 2 0 1 5 C U B U S I N E S S . C O M THE TAB LAW it is in credit union operations. As those two factors increase the more knowledgeable a credit union should be about the company it s planning to do business with. Also remember that credit unions operate in a remarkably small world and reputation risk goes hand in hand with the more objective factors of pre-agreement due diligence. Following up with provided references consulting with other credit unions and industry partners and even reviewing past court files or pending litigation are all acceptable courses of action to further understand the prospective vendor. Scope also includes term. How long is the relationship going to last How can the credit union get out of it It s an important issue for credit unions and a very popular examination issue for regulators. There are exceptions but shorter terms or the more frequent renewal options put a credit union in a better situation with respect to accounting for changes in the relationship or its own needs. Duties This issue builds off scope taking the idea of What does the agreement do and expanding it to How does it get done who does it and how A credit union s duty may be as simple as to pay the listed price for services rendered. In more complex relationships payment may be divided into segments based on completion of a set of deliverables or other credit union duties may be required in addition to payment. Reviewing a vendor s duties which describe the how when and by whom of the issues set forth in the scope involves the use of hypotheticals. In a website hosting agreement for example are the listed possible downtimes and their associated responses appropriate should a credit union s website crash in the middle of a work week What about an indirect lending agreement is there a provision for a first payment default (Helpful hint these types of agreements are not a bad idea.) Also does the agreement allow for the vendor to utilize third parties to complete its duties If so the vendor must take responsibility for the actions of those entities and the credit union needs to understand how they will be compensated. Liability From time to time despite everyone s best intentions things go wrong. A well-drafted contract can adequately put the parties on notice of who is responsible if a problem arises. Managing potential liability is very similar to managing any other risks involved in credit union operations. What s more it proves to state and federal regulators that a credit union recognizes potential issues and takes the appropriate steps to mitigate their impact. The Agreement The written agreement between a credit union and a service provider is without question the most important document in vendor due diligence. It should embody all the conference calls e-mails and sales pitch lunches discussing the products and services the vendor will provide. Management needs to understand each term of the agreement and in most cases have the agreement reviewed by retained counsel. There are distinct issues within each agreement that a credit union needs to review namely scope of the relationship rights and duties of the parties and liability. Just like vendor due diligence as a whole agreements will vary in complexity based on the type of relationship but these issues will still need to be recognized. Scope This is a difficult provision to pin down because it s found throughout an agreement or alternatively it s not written down at all in small engagements. Basically the scope of the contract is its purpose what is each party getting out of the deal To analyze scope a credit union needs to compare all the products and services (and their cost) it believes it will be receiving with a description of those products and services included in the agreement to make sure they match. Was there a PowerPoint presentation during the sales phase listing items to be completed by the vendor or did conversations take place with promises of services to be included in the relationship The general rule is that the written contract controls so there should be no discrepancy among what a credit union thinks it s getting what the contract says it s getting and how much it has to pay for it. 14 C R E D I T U N I O N B U S I N E S S A P R I L 2 0 1 5 C U B U S I N E S S . C O M THE LAW The complete meaning and intent of limited liability caps on damages and indemnification provisions are not always clear and subtle differences could lead to different shares of the responsibility for problems. Working with retained counsel to fully analyze the negotiated language is likely the best approach to ensuring proper liability-related agreement terms. Ongoing Monitoring The level of due diligence required once the agreement is signed and the parties are working together is tied heavily to how involved the vendor s services are in credit union operations. Using the previous example it s economically inefficient to spend a lot of time on follow-up due diligence for the landscaping company. But what if your mobile banking software provider is bought out by another entity The agreement may not allow the credit union to object but it should know who its new partner is and have access to needed due diligence documentation. Regulators may look to see if a credit union s relationships with its largest vendors have gone stale. The credit union can avoid scrutiny by maintaining a current file on these companies financials or documentation of any change in corporate structure for example. Letter Evaluating Third Party Relationships (No.07-01) and the Office of the Comptroller of Currency s October 2013 Risk Management Guidance (OCC Bulletin 2013-29). Again this is a topic far too expansive to be put neatly under one label. The general guidance materials are helpful but it may be more effective to look to topic-specific materials such as CFPB s 2013 guidelines on indirect lending relationships (CFPB Bulletin 2013-02) to supplement a generic and flexible vendor due diligence policy for each type of relationship. Trust in Management Credit unions are run by intelligent practical managers with the ability to successfully vet potential business partners based on the unique circumstances of each situation. A flexible approach to vendor due diligence allows management to collect the needed information and fully evaluate third-party relationships in an effective and efficient manner. 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 Regulatory Guidelines From interpreting the Gramm-Leach-Bliley Act to the creation of the Consumer Financial Protection Bureau regulators have issued countless rules policy statements directives and guidelines on vendor due diligence. To gain a general idea of the overall regulatory approach to vendor due diligence a credit union should review NCUA s October 2007 Supervisory 15 C R E D I T U N I O N B U S I N E S S A P R I L 2 0 1 5 C U B U S I N E S S . C O M TECHNICALLY TAB SPEAKING BY STEPHEN BOHANON CEO ALKAMI TECHNOLOGY INC. TAB As Membership Declines CUs Must Look to Digital Banking to Remain Competitive and Maintain Member Loyalty Is your credit union s investment in digital banking failing to keep pace with consumer demand for such technology If so you could be undermining not only your competitiveness and relevancy but also your ability to maintain member loyalty. Learn how to keep your member base from walking out the door. ccording to the National Credit Union Administration (NCUA) membership at more than half (54 percent) of the nation s credit unions declined in 2014. Many economists are pointing to technology gaps such as inadequate digital banking solutions as a primary factor for shrinking numbers. Meanwhile digital banking as a whole continues to grow especially among Millennials. Currently 69 million consumers bank online according to a 2014 Pew Research report. In fact for the first time a majority of U.S. online banking customers are accessing their accounts through smartphones and tablets according to data from the top three U.S banks (Wells Fargo Bank of America and JPMorgan Chase). This suggests that mobile is becoming an even more important banking channel for financial institutions but surprisingly investments in digital banking do not mirror consumer preferences. A Digital Banking Technology Strengthens Competitiveness Member Loyalty To remain relevant and competitive credit unions must look to digital banking technology to better satisfy member expectations and ultimately keep them from walking out the door. BI Intelligence the research service of Business Insider highlights mobile banking as a key opportunity for 16 C R E D I T U N I O N B U S I N E S S credit unions. Because CUs tend to lack the resources needed to compete with the larger national banks when it comes to staff per customer and branches per customer mobile and digital banking can provide credit unions with an equalizer. In some cases such technology can even give CUs a competitive edge. CUs must also consider that adoption rates are expected to keep rising making it even more critical for credit unions to invest in a solid digital banking platform. According to the Federal Reserve s Consumers and Mobile Financial Services 2014 report more than one-third of all mobile phone users used their devices to access their banking account within the last 12 months compared to 28 percent in 2012 and 21 percent in 2011. The numbers are even higher for smartphone users with 51 percent of those users accessing their bank accounts in 2014 compared to 48 percent in 2012 and 42 percent in 2011. This number will naturally continue to climb as smartphone adoption which is expected to surpass two billion in 2015 continues to increase. In addition to mobile adoption tablet adoption is also continuing to surge. According to a January 2015 study from eMarketer tablet users worldwide will pass one billion this year (more than double their 2012 numbers). This number represents nearly 15 percent of the global population. Shifting demographics are also making mobile banking a must. The Federal Reserve revealed that use of mobile banking A P R I L 2 0 1 5 C U B U S I N E S S . C O M TAB TECHNICALLY SPEAKING is highly correlated with age. Individuals between 18 and 29 account for approximately 44 percent of mobile banking users relative to only 22 percent of mobile phone users. Conversely individuals age 60 and over account for only six percent of mobile banking users. Because Millennials make up a larger percentage of the total membership delivering mobile banking solutions becomes critical to meeting their expectations. Credit unions must also consider membership behaviors that lead to potential competitive risks. According to the Credit Union National Association s (CUNA s) 2014 National Member and Nonmember Survey an overwhelming majority of members (86 percent) are also bank customers. This tendency provides even more reason for CUs to invest in superior digital banking technology to increase loyalty levels among existing members as well as attract new members. Not All Digital Banking Platforms Are Alike While it s clear that digital banking investments are becoming increasingly necessary to stay ahead of the competition and remain relevant to members it is important to understand that not all platforms are the same. One of the key components to a truly superior digital and mobile banking experience is the consolidation of disparate channels. With a single digital banking platform credit unions deliver consistency across all channels desktop mobile tablet and even the branch. Often institutions implement separate solutions from different vendors such as a personal finance management (PFM) solution from one provider and a bill pay solution from another provider and those solutions result in a disjointed and confusing experience. The navigation layout nomenclature and functionality designed by as many as a dozen vendors is presented to the user with various popups iframes and additional browser windows. While the functionality is technically there the experience is often disappointing and frustrating. By eliminating such disparity members experience a more enjoyable and frequent interaction with their credit union which ultimately increases loyalty and satisfaction with the brand. In addition consolidating functions into a single digital banking platform provides CUs with the ability to gain a complete view of its members. According to a Mercator Advisory Group Scott McClymonds and CEO Velocity help financial institutions increase earnings member loyalty and employee productivity. To increase growth scale and performance Scott recommends Be true to your corporate identity. Don t try to be all things to all people. Understand your customers and create great experiences for them. Develop a focused strategy around a few important things. Communicate your strategy and measure execution. Learn innovate and repeat the cycle. Scott McClymonds is one of the most creative strategists in the financial services industry. - Elio Spinello Principal RPM Consulting 479.263.0774 U N I O N B U S I N E S S A P R I L 2 0 1 5 C U B U S I N E S S . C O M Email scottm to request a free paper on how to find and close earnings gaps in your credit union. 17 C R E D I T TECHNICALLY SPEAKING report this approach is critical because it provides credit unions with insight into the needs and behaviors of their member base. With that insight CUs can better engage their members and ultimately provide superior service. CUs will also be equipped with the data they need to make intelligent decisions such as where other technology investments should be made based on member usage trends. Another benefit of a single digital banking solution is the increased member support it facilitates. According to Experian s mobile banking report 98 percent of consumers move between devices within the same day. For credit unions operating separate technology solutions across their digital banking channels CU representatives will most likely not have easy access to the member s full history which can negatively impact service. CUs that invest in a single digital banking solution however benefit from having all activity from all channels available through a single back office system. This consolidation provides representatives with a complete holistic view of the member thus enabling them to provide informed personalized support. Experian also highlights the importance of truly knowing and understanding Millennials. This group has matured in what some refer to as The Digital Age and their digital expectations are setting a new normal for financial institutions. However simply offering a mobile and digital banking option is not the answer. Millennials came into adulthood during the financial crisis and have continued to struggle financially. They don t instinctively trust financial institutions and their loyalty is hard to earn. According to the Adroit Digital survey most Millennials believe that brands today will have to work harder to earn their loyalty than they did to earn their parents loyalty. To earn the trust and allegiance of the next generation CUs must recognize the distinct differences between this group and previous generations. They must look beyond simply offering Millennials their preferred banking channels and also offer them the tools and education they need to manage their finances effectively. According to TD Bank s 2014 Bank Financial Education Survey while the majority of young adults want simple budgeting tools 32 percent also want advice and best practices for saving and 30 percent want advice on how to create and manage a budget. By integrating these tools along with financial education credit unions will position themselves as the trusted advisor. The benefits of consolidating digital banking extend far beyond satisfying Millennials. Credit unions that leverage a single digital banking platform are better equipped to market relevant products to all members based on demographics statistics and behavior. Leveraging all the data that is gathered by every interaction across all channels and devices provides the credit union with the information needed to deliver product suggestions that are tailored relevant and timely. As an example a savings or loan product can be customized and targeted to someone starting his or her career while a different version is delivered to a member contemplating retirement. The message for each member segment would naturally be different making customization important. According to Accenture the majority of consumers are even willing to provide personal data to receive such personalized and targeted product and service offers. Every successful e-commerce company already uses various forms of this data collection and analysis to effectively tailor its message to the individual consumer it s about time credit unions catch up. With overall membership reportedly down this year compared to 2014 credit unions must continue to find new ways to remain relevant and competitive. As digital banking becomes more of an expectation and as smartphone and tablet adoption continues to climb the savviest CUs will be those that invest in superior digital banking technology that positions them for the future of the financial services market. Implementing a single digital banking platform will be a key differentiator allowing credit unions to provide consistency across all channels and services offer superior member support better understand and cater to members behaviors and extend relevant product and service offers. In turn CUs can deliver the ultimate digital banking experience to increase membership and further strengthen the loyalty of their current member base. Stephen Bohanon is Founder Chief Strategy and Sales Officer of Alkami Technology Inc. a provider of digital banking solutions. For more information on Alkami call 877-7255264 or e-mail info 18 C R E D I T U N I O N B U S I N E S S A P R I L 2 0 1 5 C U B U S I N E S S . C O M 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 letstalk 2014 Cummins Allison Inc. All rights reserved. LENDING TAB SOLUTIONS BY JACK KELLY TAB Lifetime Relationship Are We Creating This with Our New Members You may be attracting all the new customers in the world but that s only going to take your credit union so far. If you aren t keeping these members you re putting your CU at a serious disadvantage. This step-by-step procedural will help you create a lifetime relationship with your newest recruits. during the new member s initial visit to welcome him or her and do everything we can do get to know and find ways to help him or her. T his article may surprise some of you others may nod their head in agreement. But I am going to make a fairly bold statement As a movement we have to do a much better job in attracting new members and when they join making them feel as if they have been members with us for years. Individual credit union marketing departments are coming up with innovative and creative ideas to attract new members. Let us not forget the banks that are doing everything they can to send their customers to us in groves. So why do I say the statement above There are many credit unions I personally work with that have barriers in place that prevent them from helping new members who come to them in their toughest time of need. One of the most frequent comments I hear from new account representatives or from loan officers is I wish we could help them but they are new and we just don t have a relationship yet. I know most of you will not believe this but I actually have worked with credit unions that will not give a loan to a new member until he or she has been with the credit union for three to six months. Why Because we put the burden on the member to prove to us that he or she is worthy of our trust when we need to adopt just the opposite philosophy. It is our responsibility 20 C R E D I T U N I O N B U S I N E S S A P R I L 2 0 1 5 C U B U S I N E S S . C O M LENDING SOLUTIONS TAB If we do not find ways to help our new member we have to keep that money in investments earning us around one percent Are our employees trained to engage the new member to ask him or her questions and develop the relationship If we do not find ways to help our new member we have to keep that money in investments earning us around one percent Are our employees trained to engage the new member to ask him or her questions and develop the relationship Step 2 Are new member representatives pulling credit reports and reviewing them with the new member Review the credit score and its trend. Explain to the new member how to maintain his or her score or improve upon it. At the same time look for ways to save the new member money by Refinancing a current loan (Calculate the competitor s rate.) Consolidating his or her unsecured debt into one payment (How much can the member save in interest ) Step 3 What can we do today to help new members We then have to find immediate solutions to assist them and start building the lifetime relationship. It has to happen on the first visit If we do a good job by offering direct deposit and online banking if we show the member how to use bill pay or in some cases how to use our new smartphone applications then we have to ask ourselves what have we truly accomplished What we have done is given our new member every reason to never step foot in one of our branches again especially if we load him or her up with these services. But did we ever find out that what he or she actually came to us for was help with overwhelming credit card debt Step 4 Do we need to remove any barriers we may have in place Do we have policies in place like granting loans to new members or limiting the dollar amounts If so we need to get them changed to be new member friendly I work with several credit unions that are bringing in 200 to 400 new members a month but still have hundreds of millions of dollars to lend out because of policies or system restrictions. We have our hands tied behind our back. What does a lifetime relationship look like One member can have the following loans in his or her lifetime Mortgages (2) Auto loans (15) Personal loans Credit card charges Toys (luxury) Total 2 0 1 5 How Do We Create A Lifetime Relationship Step 1 It all starts with the interview. If all we do is begin to process the new membership application and collect two forms of ID and 25 then we are not doing anything different from what any other financial institution would do. We must start the interview by finding out the motivation for joining the credit union Why us Why now Why this amount Motivation Is The Key What brought you in to see us today How did you hear about us We have 50 million to lend out. How much can we get for you today Have you heard about our debt consolidation program One of the features of new membership is that we give all of our new members our credit card. As a new member we do a free credit score checkup for you. There are multiple ways to begin the relationship. Are we doing these things or are we just processing the new member 150 000 each ( 300 000 over lifetime) 25 000 each ( 375 000 over lifetime) 50 000 100 000 50 000 875 000 21 C U B U S I N E S S . C O M C R E D I T U N I O N B U S I N E S S A P R I L TAB LENDING SOLUTIONS Are we using outside resources to determine what services we can offer our new members These services are helpful but ultimately the decision should rest in our hands not an outside service s hands. Most important is our attitude. New members are our lifeblood and our future as a movement. Let s take that last statement one step further new YOUNG members are the future of our movement and we need to do everything we can to develop the foundation of a lifetime relationship with these members. Most young members will fit the profile I described above because they are very tech savvy to the point that most do not even know what a checking account is Most young members do not know what a credit score is either. What a great opportunity to educate them and get their lives started in the correct financial direction. Instead of a let s wait and see attitude let s be aggressive and view our new members with the same attitude we do members who have been with us for years Jack Kelly s role at LSCI is to develop and implement sales culture in credit unions as well as working with loan officers in developing their interviewing and decisionmaking skills. Jack s extensive background in sales training branch development incentive program development and implementation and marketing are the tools needed to train and motivate employees to adopt the sales culture and make good lending decisions. For more information on Jack Kelly or to schedule Jack to come into your credit union please contact Valerie Lentz at 877-915-7675. University of Lending May 11 - 15 Crystal Lake IL August 10 - 14 Crystal Lake IL 4th Quarter 2015 Las Vegas NV C M Y CM MY CY CMY K Management Institute for CEOs and Managers September 15 - 17 Phoenix AZ Collections Institute April 7 - 9 Chicago IL October 6 - 8 Phoenix AZ Indirect Institute May 4 - 6 San Antonio TX 22 C R E D I T U N I O N B U S I N E S S A P R I L 2 0 1 5 C U B U S I N E S S . C O M COMPLIANCE TAB UPDATE BY CINDY WILLIAMS TAB Compliance It Takes a Village It s never been more important to have a regulatory compliance network. But where does a credit union compliance officer find the support needed The answer is anywhere and everywhere. Learn some strategic ways your CU can build a strong and crucial compliance network it can count on. N ot too terribly long ago the position of compliance officer was a lonely one. One individual could actually do the job alone. Not so today. The ramped-up intensity of regulation particularly in the financial institution space has spurred the need for an all-hands-on-deck approach. The challenge is all those other hands are busy making hay in their own departments especially inside credit unions where it s not unusual for one person to wear three four or 10 different hats. Luckily for credit union compliance officers the support they need can come from other places. If there s one certainty in today s intense compliance game it s that nearly every player feels the same. Struggling with the unprecedented complexity and frequency of new regulations credit union compliance officers often find themselves in the same boat. This shared burden has generated an ideal climate for the creation of crucial professional networks. The value of a strong network for compliance officers truly can t be overstated and it s actually twofold. First a collection of like-minded colleagues facing the same stresses offers an unmatched emotional support that benefits nearly all professionals. Second this type of group can become a practical how-to resource when new compliance obstacles are presented. One great way I ve found to begin building this network is to introduce myself to presenters. If you attend a conference or live training session talk with the speaker during breaks or afterwards. He or she is almost always happy to speak with individuals in the trenches and such discussion can help anyone develop a network of knowledgeable individuals. Many credit unions are fortunate to have the support of credit union leagues trade associations and credit union service organizations (CUSOs) that can offer emotional support plus the practical advice and best practices needed to achieve strategic compliance. My emphasis on the word plus is quite intentional. It s one thing to be in compliance it s quite another to have to execute on a strategic compliance plan. Credit union leagues associations and CUSOs often provide services that will guide a compliance officer down the path to formulating such a roadmap. As well many of these organizations offer peer group meetings and other face-time opportunities to learn from other compliance officers. Take the Iowa Credit Union League (ICUL) for example. ICUL hosts more than 20 dues-supported roundtable events for Iowa credit union leaders including compliance staff to exchange ideas share best practices and collaborate. Attending these events is a great way to find out how other credit unions are handling the same or similar challenges. If leaving the office to attend events like this sounds impossible consider the value of a virtual network. From daily e-mail blasts to regulatory compliance blogs there are plenty of online resources to help compliance staff stay in the loop and be aware of the potential impact of future regulations. Check out the online tools available from consultants leagues associations and of course regulator websites like those from the NCUA and the CFPB. Regulators often host free webinars so take advantage. Even if the webinar host is a non-credit-union regulator consider attending. Many financial regulations apply across the board. 23 C R E D I T U N I O N B U S I N E S S A P R I L 2 0 1 5 C U B U S I N E S S . C O M TAB COMPLIANCE UPDATE When the tasks ahead still seem overwhelming even with the support of colleagues compliance officers can tap the network they ve built for a good consulting firm or other outside resource. By supplementing the internal compliance staff s expertise these providers help get the job done when time and other resources are slim. A partnership with a firm is also a valuable way to learn more about how to manage regulatory compliance over the long term and to look ahead to what s coming down the pike. Our need for these professional relationships is actually rooted in instinct. In his book The Ties that Bind professional networking expert Danny Beyer writes Maslow s Hierarchy of Needs makes clear that after we satisfy our physiological needs and our safety needs we strive to fill our love belonging needs. We need to belong among our social groups. Compliance officers are no different. With camaraderie comes comfort and professionals who are in touch with individuals facing the same challenges are less likely to become overwhelmed by stress or pressure. 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. Rest easy your compliance is covered. If compliance concerns are keeping you awake at night let PolicyWorks help you rest easy. Our compliance professionals will review your compliance systems and recommend customized programs that help you get and stay in compliance. Call today. We ll make compliance easy for you. The services provided by PolicyWorks should not be construed as legal services legal advice or in any way establishing an attorney-client relationship. Making compliance easy for you. 866.518.0209 24 C R E D I T U N I O N B U S I N E S S A P R I L 2 0 1 5 C U B U S I N E S S . C O M CU MARKETING BY SAM BROWNELL FOUNDER OF CUCOLLABORATE The Foundation for a Sustainable Well-Funded Collaborative Marketing Campaign When it comes to collaborative marketing campaigns is your credit union committing one of the three cardinal sins Learn how to spread the word about the credit union difference the right way. Avoiding these pitfalls could catapult your member growth. ost of the credit union industry believes that there should be a well-funded collaborative marketing campaign that informs consumers about the credit union difference and encourages them to become members. So why Credit unions that had never decided to participate in collaborative marketing campaigns mostly cited two primary objections that ultimately stem from the same issue the inability of a credit union to quantify its own results from collaborative campaigns. This objection manifested itself in two primary ways. First some credit unions did not want to contribute to programs that allowed other credit unions to freeload off the campaign. Second some credit unions wanted a guaranteed return on their investment. Based on the feedback we received the most critical component of a sustainable well-funded collaborative marketing campaign is the ability to quantify and share the acquisition cost for each new customer the campaign delivers. To be successful M isn t there one Recently we surveyed over 100 credit unions and conducted more than 50 phone calls to hear what credit unions thought about collaborative credit union marketing campaigns. Three problems were brought up in almost every survey response and every conversation all of which were attributable to the websites behind those campaigns the campaigns provided unquantifiable results issued a weak call to action for consumers and lacked coordination with entities organizing similar initiatives. Quantifiable Results The overwhelmingly dominant complaint we heard from credit unions was that most collaborative credit union marketing campaigns had little or no way to quantify the campaign s success or lack thereof. Several credit unions responded that in the past they eagerly participated in collaborative marketing campaigns but after a year or two that eagerness faded. Some credit unions would inevitably start questioning why they continued to fund the campaigns. While well intended they had no data to present to management or their board to justify the expenses necessary to continue to participate. 25 C R E D I T U N I O N B U S I N E S S A P R I L 2 0 1 5 C U B U S I N E S S . C O M CU MARKETING TAB in the long term a collaborative campaign must at the very least Coordinate Our Efforts be able to quantify its own results but it would be even better if Of the 108 survey responses we received 12 respondents it could provide that data on an individual credit union s level. indicated that they would not support a collaborative marketing campaign. Of those 12 respondents the majority indicated that Strong Call to Action (While Maintaining they would not support a new campaign because too many separate organizations were already trying to do their own Fairness) Many credit unions also pointed out that several of the websites campaigns. Those respondents feared that competition among that currently exist are not built with the consumer in mind. different organizations was simply splitting up the industry s Simply put the average consumer does not know enough resources ultimately resulting in less effective campaigns and about credit unions. A credit union s name often discourages creating too much of a burden for credit unions to have to consumers from inquiring about membership because many update their information on a number of different websites. A sustainable well-funded collaborative marketing consumers are not aware that a credit union s membership is campaign should unite rather than divide credit union resources. more than what is reflected in its name. While current websites do present powerful and persuasive Although a successful campaign does not require competing marketing content once a consumer is sold on the idea of organizations to work in concert with each other it should help becoming a member the process of finding the right credit coordinate resources and promote collaboration between them union for him or her is nearly impossible. The consensus so they can learn from each other s successes and failures. Such opinion from the credit unions surveyed is that websites that present consumers with a list of CUs based solely on the consumer s zip code are not effective. First such websites are asking too much of consumers with increasingly shorter attention spans to figure out which credit unions they are eligible to join. Second there is a perception that these websites favor community-chartered credit unions since the search exclusively relies on a consumer s location. Consumers may not know they can join a certain credit union through their employer and current websites let those potential members slip through. A successful and sustainable collaborative marketing campaign needs to make finding and joining a credit union as easy as possible for consumers. Informing consumers about the different FOM rules for each credit union is not sufficient. The industry has not done enough to educate consumers about the ways they are eligible to join a credit union. A collaborative marketing campaign must navigate those rules for consumers and deliver immediate calls to action. 26 C R E D I T U N I O N B U S I N E S S A P R I L 2 0 1 5 C U B U S I N E S S . C O M TAB CU MARKETING a campaign can prevent competing organizations from wasting their credit unions resources to duplicate the same solutions and industry tools. By working together everyone can improve the consumer experience the industry s messaging and the industry s marketing strategies. After all the goal for every organization pursuing a collaborative marketing campaign is to drive credit union growth rather than to benefit its bottom line. Act Quickly Spend Small & Collaborate While few people want to acknowledge it credit unions will gradually lose relevancy and die out if the industry does not make an effort to grow and attract a much greater market share specifically within younger generations. We must spend with purpose and collaborate to develop a refined successful strategy to quickly erase the writing on the wall that so many in our industry have ignored. It s time to grab your bucket and soap and rewrite our story. To do that we have to pursue a collaborative marketing strategy. We need to build toward a sustainable well-funded collaborative marketing campaign by refining our marketing content and strategy to reach a lower acquisition cost. As an industry we have not only limited resources but also limited time. Blindly investing a substantial amount of money in current collaborative marketing campaigns would constitute an irresponsible gamble with credit union members money. Money should be invested in specific ideas and campaigns so that each campaign strategy can be evaluated by its return on investment. For every dollar spent the industry if not each contributing credit union should receive more than a dollar back. Investing smaller amounts into specific strategies will fuel a working laboratory where the successes and failures of each strategy can be evaluated shared and refined into a single unified campaign. Collaboration not separation will lead the industry to the discovery of a successful strategy for a sustainable well-funded collaborative marketing campaign. Currently organizations are pursuing separate and isolated paths in their pursuits to find this strategy that has eluded the industry for so long. We need to convince these organizations to collaborate in order to maximize the value of the industry s resources. Specifically these organizations need to quantify and benchmark their successes share their best practices and allow each other to learn from their successes and failures. We can find the right marketing formula but it requires organizations within the industry to work together toward this shared goal. The industry can change its trajectory if it starts maximizing the potential of its resources. Finding the formula for a sustainable well-funded collaborative marketing campaign will help ensure that credit unions survive but finding that answer as fast and as cheaply as possible can help credit unions thrive. Sam Brownell has worked in the credit union industry for over six years. Before launching his own company CUCollaborate he was Associate Vice President of New Product and Market Development at Callahan & Associates a credit union consulting firm. Sam has conceived overseen development and had success selling multiple new solutions to both credit unions and their partners. 27 C R E D I T U N I O N B U S I N E S S A P R I L 2 0 1 5 C U B U S I N E S S . C O M CU TAB DIRECT BY BILL MEYER TAB Engaging Your Audience in New Ways Case Study How CU Direct Generated 375K Votes in only 20 Days At its milestone 20-year mark CU Direct launched a 20-day online campaign with the aim of giving 20K to a worthy charitable organization. The response proved so overwhelming that CU Direct was able to triple its contribution. These takeaways can help your credit union achieve similar engagement from its audience. once daily for a Children s Miracle Network (CMN) Hospital of their choice to receive a 20 000 donation from CU Direct. Additionally the credit union that generated the most votes for the winning hospital would be invited to co-present the donation to the winner. B eing in business for 20 years is a monumental milestone for any organization. It s a time to reflect on not only who you are and what you do but more so why your organization exists. It s about finding that deeper meaning and celebrating it with employees customers and your industry. At CU Direct we wanted to acknowledge our 20-year milestone while promoting the goodwill of credit unions and providing support to a charity that helps thousands Children s Miracle Network (CMN). We achieved this objective by stepping out of our comfort zone and trying something that we had never done before. It was a risk but one worth taking. In a 20-day timeframe we developed a campaign that would require a viral response for it to reach its full potential. While it was uncertain how well the campaign would perform we did our best to create a platform that we believed would have a high potential to succeed. Our goals were based less on actual numbers and more on just receiving general engagement and response. We d consider our campaign a success if we could make a positive impact on others by getting credit unions throughout the nation to participate. The Execution During the development and execution of the campaign we did encounter a few challenges. The most prominent being a tight deadline because we had only three weeks to design develop The Strategy We launched the 20 for 20 Giveback Campaign during the month of December 2014. The campaign was an online voting contest that invited credit unions their members and the public to vote 28 C R E D I T U N I O N B U S I N E S S A P R I L 2 0 1 5 C U B U S I N E S S . C O M CU DIRECT TAB The credit union community as well as the general public was actively posting to social media outlets about Key Takeaways Here are our key takeaways from our 20th anniversary campaign the contest encouraging their own that credit unions can use to develop purposeful outreach social networks to join in the voting. strategies and produce similar levels of success 1) Be bigger than you. In the end CU Direct s 20 for 20 During the final week of the campaign Giveback Campaign was developed to benefit CMN. It gave us a way to connect the campaign to a bigger picture and the two leading hospitals were within associate our company s anniversary with a social cause. just a few votes of each other Credit unions differentiate themselves from other financial vying for first place. institutions by being nonprofit organizations governed by and deploy the entire campaign. Despite these challenges we prevailed and were ready for launch on December 2. Once launched we saw early support and success. Within the first week of the campaign s kick-off there were nearly 100 000 votes submitted on the campaign site. Because of the overwhelming response we increased the donation to 40 000 with 20 000 going to the hospital with the most votes and 5 000 going to the four runner-up hospitals. As the campaign built momentum we continued to be surprised by the engagement we were seeing online. The credit union community as well as the general public was actively posting to social media outlets about the contest encouraging their own social networks to join in the voting. During the final week of the campaign the two leading hospitals were within just a few votes of each other vying for first place. Ultimately on the final day of voting the two hospitals were tied and CU Direct awarded both hospitals 20 000 for an overall donation of 60 000 to six CMN hospitals across the United States. By any measure the campaign exceeded expectations and presented a set of best practices that our marketing team and company will continue to apply in the future. members for members. Because of the community-based family-like qualities of credit unions campaigns that focus on local social causes and foster goodwill are particularly effective in building reputation and loyalty. They are also a powerful means of connecting with current and potential members in a meaningful way. 2) Think integrated and be consistent. Since CU Direct had never engaged audiences in a voting-style campaign there was uncertainty about how much interest and votes would be generated by the campaign prior to launch. To combat this uncertainty we developed a plan with a mix of integrated communication strategies and tactics including The Results Overall the results we received in this campaign set a new milestone for our organization. The 20 for 20 Giveback Campaign accumulated over 375 000 votes delivered more than 2.1 million page views to the campaign website reached approximately 775 000 users on Twitter and 282 000 users on Facebook and earned over 270 media mentions all in 20 days. 29 C R E D I T U N I O N B U S I N E S S A P R I L 2 0 1 5 C U B U S I N E S S . C O M CU DIRECT Launching a website as a central hub for the campaign Asking for CMN hospitals and credit unions to partner with us and spread the word about the contest through social media e-mail and more Involving all CU Direct staff Regular updates and communications were sent to all employees encouraging them to vote and help spread the word among the industry and their own families and friends. Implementing a PR strategy that generated media interest on a local industry and national level and that earned media coverage throughout the entire campaign Sharing campaign updates on CU Direct s corporate blog Using a consistent hashtag CUDirect20 on Twitter Facebook LinkedIn and Google with ongoing promotion through posts Executing a social media (Facebook) ad campaign that ran the duration of the event Employing an e-mail marketing campaign that promoted the event to the credit union community a campaign in order to stay in front of audiences overcome challenges and generate positive results. CU Direct made a decision to create a nontraditional campaign that aligned with our audience s value system. If there s only one lesson you learn after reading this let it be that you should always push yourself to break through conventional approaches when it comes to the way you reach out to your current and potential members. Bill Meyer is the PR & Corporate Communications Lead at CU Direct the nation s leading lending and automotive solutions provider for credit unions. Representing more than 1 100 credit unions nationwide CU Direct specializes in solutions that help credit unions generate loans manage risk and provide value to members while helping dealers enhance efficiency increase profitability and generate sales. For more information about CU Direct or its 20 for 20 Giveback Campaign visit http cudirect20 or contact bill.meyer It is important for credit unions to consistently use similar integrated outreach strategies throughout the duration of 30 C R E D I T U N I O N B U S I N E S S A P R I L 2 0 1 5 C U B U S I N E S S . C O M VENDOR RISK MANAGEMENT BY SEAN CRONIN TAB How to Build a Risk Management Culture That Works How robust is your credit union s vendor risk management program If you are unsure how your third-party associations are impacting your CU this ultimate checklist will help you assess your vulnerability mitigate risk and prevent a serious breach. the strategic role they play in a company s ability to generate revenue. Others may provide a minor service but have the potential to expose confidential information. Therefore an organization should categorize and prioritize vendors. It should also focus assessments on the risks that are germane to the services it provides. O ver the past year the OCC FRB and FDIC have all released updated guidance on managing thirdparty risk. Regulations including Basel II SOX PCIDSS HIPAA GLBA and FFIEC guidelines among others mandate that risk-management policies extend to third-party vendors. There are additional motivations to assess third-party risk including protecting a company s reputation from being damaged by another company s actions. In either case the more deeply an organization understands its partners business the easier it is to maintain quality of service. Vendor risk management (VRM) programs evaluate track and measure third-party risk to assess its impact on a business. They also develop controls or other forms of mitigation to lessen the impact if something happens. It is important that a VRM program reflects and enforces an organization s internal controls framework ensures compliance with government or industry regulations and achieves consistency with all vendors. Nevertheless many community banks and other financial institutions still act tactically when it comes to assessing and monitoring how third parties manage risk. As an example our organization was recently asked to provide an official response describing how it dealt with the Shellshock vulnerability. Frankly this isn t the right question. The Ultimate Checklist for a Robust VRM Program Develop Strategies for Higher-Risk Vendors When a vendor is identified as presenting substantial risk strategies need to be identified to keep the vendor s issues from causing your organization harm. In order to produce such identification consider the following Make risk mitigation part of the negotiation and contract service-level agreement (SLA). Identify Potential Vendor Risks Many companies assume they have to deeply assess every partner. Some vendors require increased scrutiny due to 31 C R E D I T U N I O N B U S I N E S S A P R I L 2 0 1 5 C U B U S I N E S S . C O M VENDOR RISK MANAGEMENT Work closely with the vendor to identify and resolve issues to lessen risk. Gather outside information about the vendor to assess financial health. Measure the vendor s performance over time. Have a plan if a vendor exceeds the risk threshold. Have plans for all vendors in case their business closes. Align Vendor Control Environments with Internal Frameworks Many organizations have a control environment to mitigate internal risks. Work with vendors to assess the effectiveness of their controls for the risks identified. Perform a gap analysis of the organization s controls versus the vendor s and then work together to close the gap. Needs should be aligned with industry standards and guidelines. Implement Ongoing Metrics Once vendor risks have been identified measure performance against those risks. When developing measurements identify the business value to be gained with the function or capability being measured and define objective criteria that can be used to assess the value. Measures to consider include Performance and SLA expectations Disruption in workflow based on vendor performance Breach of the vendor network systems or facilities Information results on tests of internal security (physical or systems) controls and Vendor (non-) compliance with laws rules regulations policies and procedures. At a minimum inspection begins by identifying all third- and fourth-party providers that are servicing your organization. You need to understand the type of information and services being outsourced and what controls are in place to protect the institution s interests. The idea is to gain an understanding of the total risk across both third and fourth parties and what contingency plans are in place should an event occur. It makes sense to be proactive in this effort because financial institutions will increasingly be under pressure from regulators and their own boards to prove a program is in place for managing both third- and fourth-party providers. Such a program involves assessments that take a sampling of the controls that should be in place. It also asks vendors questions to ensure such controls are indeed in place and functioning as intended. But as banks and other financial institutions continue to outsource more and more functions to cloud providers and others the inspection process can become unwieldy at best and at worst untrustworthy. To ease the burden these organizations need to automate the process of conducting assessments and analyzing results. The program should be set up to follow risk tolerance guidelines and measurements that are well-defined and defensible to senior management and regulators. Such automation should produce documentation that helps illustrate where you may need to take steps to further reduce risk such as diversifying to reduce exposure. In general it should provide plenty of data elements and analytics to improve decision-making. How Do We Get There From Here The key to effective risk management is performing ongoing follow-up to ensure the controls that were in place when the relationship began remain in place over time and then changing as necessary to manage new risks. This level of risk mitigation requires a repeatable program that includes periodic inspection. You don t get what you expect you get what you inspect as the saying goes. 32 C R E D I T U N I O N B U S I N E S S A P R I L 2 0 1 5 C U B U S I N E S S . C O M TAB VENDOR RISK MANAGEMENT Besides the main benefit such an automated program provides reducing your level of risk this kind of proactive self-policing program also gives institutions a leg up in their meetings with regulators. It s like taking a test where you know the questions ahead of time and can prepare your answers. The regulators will be asking you the same questions you ve been asking your third- and fourth-party providers because you ve in effect been regulating them all along. Automating your vendor risk management program also ensures risk assessments don t fall through the cracks because of overloaded internal auditors. What s more it eliminates the appearance of subjectivity in vendor classifications and ensures the process is repeatable. Automation also brings a new level of intelligence because an automated system can find trends and the proverbial needle in a haystack that may help you prevent a serious breach. Being proactive and finding those needles will help any bank prove it s doing an effective job at regulating all of its service providers both third and fourth party. It will also provide evidence that all the while the financial institution has been reducing its risk of exposure. Sean Cronin is responsible for leading all aspects of ProcessUnity s Vendor Cloud line of business including strategy marketing sales client services and strategic partnerships. He brings over 12 years of Governance Risk and Compliance (GRC) experience to the company. 33 C R E D I T U N I O N B U S I N E S S A P R I L 2 0 1 5 C U B U S I N E S S . C O M CEO TAB VELOCITY BY SCOTT MCCLYMONDS TAB Six Steps Credit Union CEOs Can Take to Maximize Executive Performance If driving up profits increasing member value and fueling growth top your credit union s objectives the secret to success lies in your executives. And keeping your executive team engaged is the cornerstone to tapping your hidden profitability. These six key focal points will kick that engagement into high gear. s it fair to say that you would like to experience greater profitability member value and growth at your CU If that is the case let me direct you to the greatest source of new profitability you have your executive team. If that declaration surprises you now at the beginning of this article I promise you ll understand by the end. To understand why your executive team is the key to increased profitability let me first introduce you to six major sources of profitability growth. Having weaknesses or misalignment in any of these six focal points can hold your CU back. These nuclei are not exhaustive of course but in my experience they encompass the lion s share of profitability gains. I Executive Team Relationship to Profitability Focal Points If you think about each part of the Six Profitability Focal Points you will soon realize that your executive team touches each one of them in some way either directly or through a management function. That s why these talented leaders are the strategic and economic engine of your credit union. As they go so goes your organization. If they are passionate growing and engaged around their strengths and your CU s vision then these team members will be an unstoppable force. If they are apathetic bored dispassionate and only partially buy in to what your CU is doing your organization will not ever reach its potential no matter how talented the individuals are. While apathy may not exist on your executive team statistics heavily favor the possibility that it does. In our discussion today I am going to use empirical and anecdotal evidence to prove irrefutably that apathy does indeed exist on executive teams and that eliminating it is the best way to grow profits. A good consultant never leaves his client without a solution so at the end of this article I will offer six ways to keep executives engaged and profitable. I will also provide you with some challenge questions to stimulate your thinking. Six Key Focal Points of Increased Profitability 34 C R E D I T U N I O N B U S I N E S S A P R I L 2 0 1 5 C U B U S I N E S S . C O M TAB CEO VELOCITY The Empirical Evidence of Hidden Profitability on Executive Teams You may be familiar with Gallup s 2013 Study on the American Workforce. If you have not read it I recommend going through it in its entirety several times and using it to reflect on your own credit union. The top-level results are that only about 30 percent of American workers are engaged in their jobs. That means they really enjoy their work and give it their all. They are the backbone of the economy. On the other hand 70 percent of American workers are disengaged meaning they are either just existing or actually working against their companies. Surely this is different for executives right Here s the horrifying truth Only 36 percent of executives and managers are engaged. Put another way only about one-third of all executives and managers are enjoying their work and giving it everything they have. What is more troubling about these disengaged executives and managers is that according to Gallup s study managers account for at least 70 percent of the variance in employee engagement scores. In other words if 64 percent of executives and managers are disengaged it has an extraordinarily negative impact on employees. Do you think your executive team fully understands and can explain and execute your mission and strategy Again not so fast. The Gallup study showed only 46 percent of managers and 37 percent of employees strongly agree with the statement I know what my company stands for and what makes our brands different from our competitors. waste safety mission and purpose of the teams or developing customers. They are thinking about lunch or their next break. They are essentially checked out. Surprisingly these people are not only a part of your support staff or sales team but they are also sitting on your executive committee. How are you feeling so far Do I have your attention Do you believe me when I say your executive team could be a huge source of hidden profitability Now that we have the empirical research from Gallup proving 64 percent of executives and managers are disengaged let s zoom in on an individual case study as an example of how this disengagement occurs. From the case study I ll make broader application to disengaged executives and then I ll finish up with some solutions. Case Study One Executive s Path to Disengagement This brief case study will show you my path toward disengagement as a senior leader and it will give you some ideas on how to prevent such lack of engagement on your team. Not every disengaged executive goes down the same path as I did but I have spoken with enough of them to know that my story is fairly common. My disengagement journey lasted about 11 years. I didn t want to be disengaged and struggled mightily against it. My performance was strong and rewarded within the company but my heart was never with it once I became disengaged. To frame the situation I reported to a member of the executive committee of a 16 billion bank. Among my peers were the CMO and Directors of Training Facilities and Credit Cards. We were all talented high-salary leaders responsible for major bank functions. We played offense meaning we made money for the company. After about 15 years into my career and five years at the bank I had achieved some excellent results. At that point five factors began triggering my disengagement. 1. I became incredibly bored. I could innovate faster than the bank could implement and I was running out of things to hold my interest. 2. I had no feeling of being on a team. When my manager had monthly staff meetings and annual retreats we 35 2 0 1 5 C U B U S I N E S S . C O M What Is a Disengaged Worker Gallup provides the following description Non-engaged workers can be difficult to spot They are not hostile or disruptive. They show up and kill time with little or no concern about customers productivity profitability C R E D I T U N I O N B U S I N E S S A P R I L CEO VELOCITY TAB never discussed what we could accomplish as a team. Instead all the focus was on our individual areas. We never united as a team in a common cause. 3. There was never any concern shown for my individual development or career path. I was asked to make a succession plan for my replacement but no discussion was ever held about what was going to happen to me. Because I was toward the top of the leadership pyramid I knew the opportunities for other jobs were few and far between. Since I had 30 years or so left in my career what was going to happen to my family and me when my successor was ready to take over 4. I was not connected to a bigger-picture cause. There was no compelling evidence that the company had any other purpose than making money. I asked one bank president what his goals were for the next year and he said Get more. Not very motivating. 5. I wanted to continue my development and advancement as a professional. With many years left in my career I wanted to continue developing my skills and making greater contributions but I knew that could not occur at that company. Since I derived no sense of purpose from the company I had to reach into myself and create my own in order to keep doing a good job. I decided I was in the people development business and I focused on helping my employees and other colleagues throughout the bank grow professionally. This strategy worked for a number of years and helped me grow as a leader. It put fuel into me and was a way of building my own mission in an organization where I felt like I was simply a highly compensated cog in the machine. Nevertheless the circumstances that led to my disengagement did not change and I began to plan my exit. It took about five years to put my plan together and I took way too long to execute it. Why Because I was making such a good salary that it was hard to leave even if my soul was being sucked out of me. Was I alone in my disengagement By no means. One of my peers told me he hated what he did but was too close to 36 C R E D I T U N I O N B U S I N E S S retirement to do anything drastic. There were many others as well even bank presidents. Did I ever tell anybody what was on my mind During my performance reviews I made mention of the fact that I wanted to keep progressing but my manager never took the bait. So I kept quiet until I was ready to leave. I never felt the environment was safe enough to reveal what I was thinking. Application to Disengaged Executives Neglecting the development of your talented executives puts them at risk of leaving. Worse yet they might stay stagnate and negatively impact the rest of your CU. 1. Don t assume everything is okay just because someone is at a very senior level. People think executives at a certain level have arrived that they re at the pinnacle of their careers and that they will forever be content doing what they re doing. This is a myth but they probably won t let you know anything is wrong. 2. Many executives get to the point where what brought satisfaction to them early in their careers is no longer fulfilling. They reach a different stage in their professional development but they are still passionate and want to keep growing and contributing. 3. Being part of a high-level team with mutual goals and accountabilities keeps executives motivated. Without this unifying sense of purpose executives can run out of gas. 4. The greatest gift you can give your executives is not their salary. Rather helping them reach and express their full potential as a professional is the greatest perk you can provide them. 5. Creating a unifying purpose around your company s identity and strategy and reinforcing it continually will help your executives embrace your CU s purpose and make it their own. A P R I L 2 0 1 5 C U B U S I N E S S . C O M TAB CEO VELOCITY 6. Executives will give allegiance to your CU to a certain level but ultimately they have to know the organization believes in them and is a place to express their gifts passion and purpose. There is no reason anymore for blind loyalty. Having made application to the case study let s move on to dramatically increasing executive profitability through the six step process illustrated in the following diagram and its explanation 2. Build your executive team into a real team not just a committee that meets periodically. Frequently getting together unifies team members and bonds them together toward shared goals. It gives them the feeling of being responsible and accountable to each other. 3. Commit to being in the people development business. Show your executives you care about them. Demonstrating your concern for them will help them stay engaged. Meeting one on one with them regularly to better know them and discuss their goals frustrations and development is very effective for maintaining engagement. Be open and vulnerable to build trusting relationships otherwise your executives will not open up to you. Understand their strengths and weaknesses and coach them to grow in their strengths. 4. Create a high-quality leadership development program. This is the Pen Fed approach where each VP and above participates through team-focused leadership instruction as well as a personal coach. Workshops on strategy development innovation people development and technical skills can keep people motivated and growing. Each participant should have a personalized development plan that is monitored and for which they are held accountable. Your HR team should help you with this program s creation and in keeping a talent and development database. The Process for Building High Executive Leadership Engagement Six Steps for High Executive Engagement 1. Clearly define and communicate your corporate identity and strategy. Your executive team needs to hear this often and be united around it. Without this directive as a focal point it is easy for executives to become unfocused and unmotivated. Evaluate how well you are reinforcing it. Pen Fed s James Schenck says he reinforces his six strategic intents all the time. 37 C R E D I T U N I O N B U S I N E S S A P R I L 2 0 1 5 C U B U S I N E S S . C O M CEO VELOCITY 5. Challenge them with new assignments. Put your executives in charge of new initiatives such as product launches new business units or new technology investments. These assignments help executives reignite their creative juices. Equip them to coach and mentor their direct reports. 6. Lead by example and have a growth plan for yourself For your own continuing development and for your entire CU you need to be engaged in your own development plan and be willing to share it with your team. To create this environment the CEO has to be fully engaged in the people development business and spend at least 40 percent of his or her time on it. Two essential tasks are 1) forming the executive committee members into a real team with goals and accountabilities and 2) coaching each direct report in his or her professional development. All of this obviously takes time money and energy. Making this level of commitment requires you to fully believe in the potential of your executives. If you don t believe in them enough to do this why are they on your team If you are wary of the commitment to executive development consider the opportunity cost of not doing it. Remember this process is so you can grow your CU s profitability assets and member benefits. Not engaging in it is a vote for suppressing your CU s growth profitability and impact on its members. Summary We began this discussion talking about increasing profitability and saying there is no greater way to do that than through your executive team. Keeping your executive team engaged and passionate will produce many times more profitability and member benefits than anything else you can do. These individuals are the heart of your company and the rate at which they grow and progress has incalculable impact on your CU and its results. In his classic book The 21 Irrefutable Laws of Leadership John Maxwell describes the first law as The Law of The Lid. This law states that an organization can succeed only to the level of leadership s ability to lead it. There is nowhere this is more important to a CU than its executive team. Executives who want to keep growing professionally are displaying healthy behaviors so creating an environment that recognizes the importance of keeping them challenged and growing should be a prioritized piece of any CU s strategy. CEO Challenge Questions Apply these questions to your direct reports as well as to yourself. Ask yourself where the hidden profitability may exist in the answers. 1. What are the career aspirations of my direct reports 2. What energizes each of them 3. What are the primary strengths and weaknesses of each direct report 4. What is the right development path for each person 5. Does each direct report have a development plan Scott McClymonds is a veteran thought leader in the financial services industry. His company CEO Velocity is a strategic consulting firm helping FI CEOs create greater profitability employee engagement and customer loyalty. 38 C R E D I T U N I O N B U S I N E S S A P R I L 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 VIEW FROM THE TAB CROW S NEST BY JULI ANNE CALLIS TAB Heading Out Toward Blue Oceans A potential treasure trove awaits small financial institutions that can navigate the change in traditional business models. Read on for some smooth-sailing tips from two distinguished and respected navigators on how to claim this bounty for your credit union. inancial institutions continue to find it extremely challenging to find their sea legs in the current environment. Small and mid-sized financial institutions continue to be tossed about violently in the swift running waters of change. Since 2008 many at the helm have found that they are caught in the cross-current of sound financial performance and sustainable service models. Swimming to the safety of the old familiar shore has exhausted the resources needed to preserve the capital strength required to stay afloat for financial institutions across the nation. The peril of these times is evident as the number of smaller financial institutions is dwindling due to capital drifting in the wrong direction. Those who did choose to swim out of the crosscurrent by keeping a watchful eye on the traditional shore while swimming in a new direction have arrived beyond the peril of the cross-currents. In this article we will gather insight from both sides of the waters as we consider the perspectives of a distinguished credit union volunteer and a respected banker who have both demonstrated dedication to meeting the needs of the communities they have served skillfully. Explore the possibilities that come into view from David Whitmer Chief Operating Officer of the Veterans Health Administration. The nation s largest and busiest veteran administration care system Veterans Health has a 4.4 billion budget and 25 000 employees. Whitmer was an extraordinary resource as he helped to lead a credit union turnaround in troubled seas during his term as Chairman of the Asset Liability Committee of the National Institutes of Health Federal Credit Union. The voice of a wise and dedicated banker Stephen Andrews served as a helmsman for the California Independent Banks at the time the tidal wave of the losses hit broadside. C R E D I T U N I O N B U S I N E S S F Stephen Andrews has provided vision and leadership to establish and grow successful banks for over 20 years. His time in the greater Silicon Valley markets was marked by distinguished service and led to his leadership roles in the California Independent Bankers Association. He currently serves as President & CEO at the Oregon-based Bank of Oswego. Andrews wise insight may apply to credit unions today leaders should reflect upon the possibilities when harnessing the winds of change. From the credit union side of the turbulent seas Whitmer looks out across the horizon stating I believe there will be a blending of services offered by credit unions and banks. Credit union membership has grown over the past few years as many have rejected the treatment they ve received from big banks. Credit unions must leverage member trust that doesn t always exist meet member needs and [provide] proactive and personal attention to detail. 40 A P R I L 2 0 1 5 C U B U S I N E S S . C O M TAB VIEW FROM THE CROW S NEST They should focus on core areas while outsourcing some services to banks when it makes sense and the servicing relationship with the member remains seamless and that must be continually earned with great service new offerings he concludes. This blue ocean of opportunity may be the one smart destination small bankers are steering toward. As noted by Stephen Andrews The focus of the collaborative models should address leveraging scale by lowering operating costs to assist in the long-term sustainability of smaller financial institutions whether they are a bank or credit union. In view of the current economic and regulatory environment the degree of difficulty in the strategy and execution of asset liability management is unprecedented. Although Whitmer was a savvy senior executive when he signed up to serve the credit union he has the following guidance for those considering taking on the mantle of the ALM Chair. A new ALM Chair needs to love learning be adaptable to changing conditions and consume data from multiple sources with a view toward making the best data-driven decisions. When I started in early 2008 the D.C.-area real estate market was rising and consumer home loans were the most dependable safest investments for the credit union. In six months we needed to change quickly and balance our assets in order to manage our concentration risk away from loans that were collateralized by personal homes either the home down the street the HELOC that helped finish a basement for a growing family or a mortgage-backed security. Although I was a volunteer my pay was [in the form of the] new knowledge I gained from our financial professionals in the management of assets including our investment portfolio and [from] reviewing cost control measures to be the most profitable to members. I learned more in five years serving the NIHFCU members as ALM Chair and a board member than I would have in a graduate finance degree. While the work is difficult the treasures that are being uncovered are revealed due to the winds that have swept across the nation impacting all financial institutions as one very wise banker portrays. Read on for his side of the story. Navigating the Backside of the Storm T Stephen G. Andrews The Bank of Oswego he financial service industry experienced a rough patch during the recent economic downturn. Many financial organizations are still recovering from the ordeal and trying to adjust to a new norm. The new environment includes increasing regulatory burdens squeezed operating margins that took root during a protracted low rate environment and a current landscape that favors size and scale. In addition it appears as if efforts to control the largest financial institutions via reactionary legislative actions have failed to prevent them from grabbing even more market share. Disappointing truths since many of the larger players were viewed as playing contributory roles in the economic downturn. Today small community banks and credit unions find themselves competing in a very tough financial environment despite the fact the economy is on the mend. Excessive regulation lack of scale and increased capital requirements have led in part to a quickening consolidation within the banking industry. Even well-run and suitably capitalized banks and credit unions are having trouble posting solid operating results based solely on organic growth. Hence it is no surprise that consolidation within the industry is marching on as smaller banks and credit unions are finding the choppy seas coming out of the backside of 41 C R E D I T U N I O N B U S I N E S S A P R I L 2 0 1 5 C U B U S I N E S S . C O M VIEW TAB FROM THE CROW S NEST the economic downturn just as demanding as the choppy seas experienced during it. Frankly it is tough to post solid operating returns based on older operating models that relied heavily on betting a local presence would carry the day. This model while still valuable and a major cornerstone of both community banks and credit unions may not be enough these days. The cost to operate a small shop across multiple industry lines is high. Generating returns sufficient enough to earn the independence to remain on the landscape is no small task or undertaking. Even regulators have taken notice of the predicament of smaller institutions looking to lower expenses in response to reduced profit margins and limited strategic opportunities. In January 2015 the OCC pointed out the need for community banks to explore sharing resources and expertise to the mutual benefit of all. The regulators further suggested the benefits of collaboration might outweigh competitive challenges and strengthen future viability. In my view this advice is sagacious but will require time to implement. It will also require that small community banks and credit unions open up a dialog about exploring collaborative models that recognize the cornerstone of both our operating models is based on how well we treat our customers or members. That model is effective but it fails to address the issue of scale necessary to compete in a global marketplace that is slowly eroding our collective market share. As a politically active banker I remember teaming up with credit union membership to fight Walmart from entering the California market. I also remember during the recent economic downturn there were certainly times community bankers were aligned with their credit union counterparts to fight against larger institutions not interested in promoting a level playing field as new financial legislation was drafted post-recession. The question before both community bankers and credit unions is can we find common ground to work collaboratively and synergistically to mutually benefit our respective industry in a time when both groups are losing market share to big institutions 42 C R E D I T U N I O N B U S I N E S S Today a strategic or tactical partnership that delivers earning assets at reasonable margins might be timely as everyone is searching for a well-margined loan. But with a rising rate environment around the corner we may soon be once again focused on deposits. Irrespective of what side of the balance sheet is the focus of the day the bigger picture needs to address exploring collaborative models that reach across philosophical barriers between bankers and credit unions that enjoy similar operating models. The focus of the collaborative models should address leveraging scale by lowering operating costs to assist in the long-term sustainability of smaller financial institutions whether they are a bank or credit union. Collaboration is an opportunity for both parties. The question is will the old norm prevail and the larger financial firms continue to grow at our expense 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 at 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. A P R I L 2 0 1 5 C U B U S I N E S S . C O M CU CONTENT BY LAURA ENOCK 3 Ways to Move Your CU from Lender to Knowledge Leader with Local Businesses Is your credit union paying enough attention to one of its biggest potential assets Ensuring the success of small businesses in your local community could be a major key to your CU s growth. Find out how to do content marketing right to attract and keep these credit union prosperity drivers. The Internet has changed that approach considerably though. Content marketing is the newest and an effective way in which today s businesses are reaching their consumers. Despite the newsounding name it s an old concept. If people trust you they re more likely to do business with you. How do you get people to trust you Give them advice that pays off. In much the same way as community education programs build membership among individuals content marketing to businesses makes your credit union a community leader in entrepreneurship and it builds service utilization through that relationship. There are as many ways to do content marketing as there are institutions that do it but the basic approach is always the same. Provide high-quality engaging pieces that people want to share. Whether you re using social media e-mail or print advertising you want your audience to read think about and pass along the content you re providing. Getting started in content marketing can seem daunting but it s all about relationship building. Here are three ways you can think about providing sharable content. Mix and match as appropriate for your audience S mall businesses are the engine of community growth. They hire people they donate to local charities and non-profits and they invest in important projects and events within their cities and neighborhoods. A successful small business is an asset to every group in town including credit unions. When they prosper and grow the community prospers and grows. If your credit union begins and ends its discussion about small business services with no-fee checking and a special logo you re missing out on an important means for developing these vital relationships. Small businesses need so much more than credit. They need advice inspiration and guidance. Believe it or not your credit union is in a great position to provide that. For years marketing to small businesses meant billboards business cards and other forms of direct marketing. You told potential business members about your services and they decided if they wanted those services or not. The main goal of advertising in such contexts was to get your credit union s name in the public eye and hope you were reaching the right people. 43 C R E D I T U N I O N B U S I N E S S A P R I L 2 0 1 5 C U B U S I N E S S . C O M CU CONTENT TAB 1.) Motivate them Starting a small business from the ground up is a constant grind. There is no office for you to leave the work because... well the work is everywhere. There is no boss to blame for missed dinners early mornings and overtime because you are that boss. The omnipresent risk of failure and the constant pressures of a thousand things to do every second take their toll on the psyche of any entrepreneur. The point isn t to pity small business owners far from it. Most are doing what they do because they love it. They have a passion for their labor which sustains them through these long and laborious hours. Sometimes though that passion fades. That s where inspirational content marketing strategies come into play. Stories about other business owners struggling and eventually finding success can help people find the light at the end of the tunnel. These stories needn t be saccharine sweet. Quotes by famous business people about times they have struggled will do quite well at lifting spirits and showing hope for the future. Personal anecdotes from role models who are common to entrepreneurs are another great way to rekindle that passion. Being known as a source of inspiration will make your credit union the business owner s partner in good times and bad. The entrepreneurs who align with you will remember your message of hope when things turn around. That makes them more likely to turn to you when they need financing to expand. the technology they ll need capital. Where might they go for that To your credit union of course 3.) Inform them Part of what makes a small business successful is the investment within the community where it operates. Small businesses are always looking for more ways to raise their profile. They re plugged in to some community happenings but certainly will miss some of them too. This is where credit unions can really differentiate themselves from corporate for-profit banks. Credit unions are uniquely positioned to become leaders and connectors within community happenings. Is there a school looking for a scoreboard sponsor Is the local Rotary Club looking for a guest speaker These are the involvement opportunities small businesses would love but too often never hear about. Creating and sharing content about community needs and events is a great way to build a relationship with small businesses. It also ensures your credit union looks just as connected. While a small business logo may be on that scoreboard the athletic director at the school won t forget it was the credit union that built the bridge for making the sponsorship happen. That kind of relationship building will generate returns in many forms for years to come. The traditional way of advertising has its place. You still get people walking in after having seen pens billboards and bumper stickers (though it is unlikely those items are what actually compelled them to take action). Content marketing can be a valuable supplement to that traditional strategy and it can lead to a more inspired informed and connected business membership. Best of all it can be done for a fraction of the cost commonly associated with traditional advertising and mass media. Sharing a story on Facebook or Twitter doesn t cost a dime and custom content about these events is affordable and unique. Stop just advertising and start building relationships Did You Know CUcontent is launching a Business Content service in April. Learn more at business. Laura Enock is Founder and Publisher of a credit union-specific content service. Join hundreds of credit unions getting FREE monthly content Email her at laura or visit 2 0 1 5 C U B U S I N E S S . C O M 2.) Dazzle them Small business owners are always in the market for new better ways of performing the repetitive parts of their jobs. Because of their size and flexibility they can be on the cutting edge of new ways of doing things. What s more their need to capture a market niche can incentivize the use of new technologies. The trouble comes when trying to keep up with a rapidly changing field. With the aforementioned nonstop work of a small business owner picking out 20 minutes to flip through Popular Science or Wired for ideas to improve workflow is a serious challenge. That s where your credit union can step in and become a hero to small businesses. Sharing stories about new technology new inventions and other potential revolutions can be an easy pathway to viral content. Best of all when these small business owners need to implement 44 C R E D I T U N I O N B U S I N E S S A P R I L erest 0% Int nths Mo for 60 0 Of f 0 or 6 0 il ta Re ite Lim ite d Ti me O f f er Lim d Ti me O f f er