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THE MOBILE BANKING ISSUE JULY 2015 VOLUME 10 ISSUE 7 MARKETING Bump Up Your Market Share 4 Things Credit Unions Should Do Now GABE KRAJICEK COMPLIANCE UPDATE 8 Best Practices for Marketing Compliance CINDY WILLIAMS EASY PAYMENT PROCESSING It s not just a good idea it s a viable solution. Our innovative payment solution accepts borrower payments through several channels and by various methods administers many of the compliance requirements such as preparing and recording NACHA disclosures and features multiple settlement options including same-day loan level processing. SWBC s payment processing technology makes accepting payments convenient and secure. It s as simple as that. To learn more call 866-647-8749 or visit swbc.com easy today. SWBC provides risk management income generation and business solutions for financial institutions of all sizes. 2015. SWBC. All rights reserved. 52440-1280 0615 TABLE OF CONTENTS VOLUME 10 ISSUE 7 Credit Union BUSINESS PAYMENT PROCESSING AND ACCEPTANCE Easy secure compliant. Visit autopilot.swbc.com or call 866-647-8749 today to learn more 4 6 10 12 14 17 20 PUBLISHER S POV Welcome to Mobile Banking Tim O Hara VIEW FROM THE CROW S NEST 24 27 30 33 37 39 43 CEO VELOCITY Are You Ignoring the Most Important Metric of All Scott McClymonds STRATEGIC PLANNING Don t Throw the Small Fish Back in the Ocean Juli Anne Callis THE LAW Relevance from the Outside-In Jeff Rendel DATA ANALYTICS Uncertain Time Limits on Collecting Credit Card Debt Brad R. Bergmooser CU CONTENT Two Forces Behind Credit Union Success Data Analytics & Personal Relationships Steven D. Simpson MEMBER BUSINESS LENDING Apple s 2015 State Of The User Laura Enock CFO CURRENCY Building a Winning MBL Team Ryal Tayloe COMPLIANCE UPDATE Scenario Testing A Key To Sound Liquidity Risk Management Emily Hollis MARKET SHARE 8 Best Practices for Marketing Compliance Cindy Williams LENDING SOLUTIONS Bump Up Your Market Share Four Things Credit Unions Should Do Now Gabe Krajicek CEO VELOCITY Are Your Marketing Strategies Costing You Money Lorrie Wohlfeil PAYMENTS Embracing Change How CEO Bob Allen Leverages Change for Growth at Teachers FCU Scott McClymonds CUSOs Keeping Up With the Fast Changing Payments Industry Chuck Fagan 1 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 5 C U B U S I N E S S . C O M ABOUT US PUBLISHING TEAM Tim O Hara Editor & Publisher tim cubusiness.com Iliana Nord Operations Manager iliana cubizmag.com Patti Manzone Designer Ashok Kumar Associate Publisher ashok cubusiness.com PUBLISHER S POV THE MOBILE BANKING ISSUE JULY 2015 VOLUME 10 ISSUE 7 MARKETING Bump Up Your Market Share 4 Things Credit Unions Should Do Now GABE KRAJICEK Tim O Hara COMPLIANCE UPDATE VIEW FROM THE CROW S NEST 8 Best Practices for Marketing Compliance CINDY WILLIAMS C Juli Anne Callis CU CONTENT M Y Laura Enock THE LAW CM MY Brad R. Bergmooser CFO CURRENCY CY Emily Hollis CMY K CEO VELOCITY Scott McClymonds LENDING SOLUTIONS SUBSCRIPTIONS Lorrie Wohlfeil MARKETING Gabe Krajicek MEMBER BUSINESS LENDING Credit Union BUSINESS is published monthly (12 issues per year) by CU Business Magazine Inc. A one-year Digital membership is 75 yr x 3 ( 225). An online membership form is available at www.cubusiness.com register. SALES AND ADVERTISING Ryal Tayloe DATA ANALYTICS Steven D. Simpson COMPLIANCE UPDATE Tim O Hara Publisher tim cubusiness.com or 561-282-6015 1 CONTACT INFORMATION Cindy Williams PAYMENTS Charles E. Chuck Fagan STRATEGIC PLANNING Jeff Rendel Credit Union BUSINESS Magazine P.O. Box 2223 Palm Beach FL 33480 (561) 282-6015 (561) 588-7711 (fax) tim cubusiness.com 2 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 5 C U B U S I N E S S . C O M With 80% of U.S. households saving coins coin processing is in demand especially at nancial institutions where most prefer to redeem their change. Give customers the means to do it themselves and you can increase their satisfaction by as much as 20%. That s the power of self-service coin counters. Now Cummins Allison gives you more ways to add coin machines to your branch. Choose from fast quiet and reliable coin counters that you can buy rent lease or place free of charge. We ll even pick up and process your coins. Coin counters are a proven way to increase traf c and member satisfaction -- let us show you how. Get a custom report comparing your self-service coin options. cumminsallison.com traf c Copyright 2014 Cummins Allison Inc. All rights reserved. PUBLISHERS POV BY TIM O HARA Mobile Banking 11th Anniversary of CU Business W elcome to the Mobile Banking issue of CU BUSINESS which also neatly marks our 11th anniversary of delivering you the finest information. Our aim remains the same to help you successfully operate your credit union to maximum efficiency and member satisfaction. As always we ve lined up an excellent collection of articles covering various disciplines Finance Leadership Compliance Lending Marketing and Technology. Here s a small sample of what you ll find in this issue MARKETING BancVue s CEO Gabe Krajicek returns following a two-year absence from the pages of CU BUSINESS magazine to tell you how you can attract and retain new members. Find out his strategy for luring them away from the megabanks with four easy tips. MARKETING CU Content s Laura Enock tell us what Apple s most recent product announcements mean for credit unions. DATA ANALYTICS Steven D. Simpson SVP with Chicago-based Saggezza says that credit unions need to leverage their personal relationships with members and use their data via advanced analytics. THE LAW CUB Legal expert Brad Bergmooser has some solid advice about collecting credit card debt. FINANCE Emily Hollis instructs you on how to turn around these weaknesses poor liquidity and risk management strategies the inability to project cash flow and inadequate contingency plans. MBI Ryal Tayloe suggests six team-building strategies that can help you hit homeruns with member business lending. LENDING SOLUTIONS Lorrie Wohlfeil shows you how to work smarter not harder. Thanks for reading Tim O Hara 4 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 5 C U B U S I N E S S . C O M Experience the Power of Plus. Let Advisors Plus give your credit union superpowers... minus the cape. Can t lift a bus with superhuman strength can optimize your debit portfolio. Can t leap a building in a single bound can integrate product delivery. Can t see through walls with X-ray vision can enhance your profitability. Our delighted clients turn to our team of superhero consultants to solve their business problems and power their growth. Business Strategy Marketing Strategy Marketing Growth Campaigns Predictive Analytics Credit Card Portfolio Analysis Debit Card Portfolio Analysis Personal & Small Business Checking Strategy Credit Card Start-up Programs Contact Center Optimization Operations Optimization Credit Card Risk & Collections Analysis Branch Sales Training Make Advisors Plus YOUR secret weapon. Call 727.299.2535 or visit us today at AdvisorsPlus.com. VIEW FROM THE CROW S NEST JULI ANNE CALLIS Don t Throw the Small Fish Back in the Ocean Is your credit union casting back the little minnows thinking they are too much of a lending opportunity challenge It might be time to rethink your big fish mentality. Find out why the best may be yet to come when it comes to the CU ocean s smallest sea life. must first have a full range of lending products that meet the needs of our members. This involves risk-based pricing on our personal credit card and home equity products so that we can accommodate members of all credit scores. It also involves strong mortgage lending. In our case we only portfolio ARMS and Mini Mortgages low-balance mortgages that pay off in 10 years or less that we do with nominal closing costs. Because members most generally look for long-term fixed-rate financing we sell and service a large portfolio of loans on the secondary market. And finally as part of our robust three-legged stool lending approach and as a full-service community credit union we have offered business loans for the past 30 years. Due to our longevity and proven track record in the business we received an exemption from the MBL cap and this has allowed us to hire the expertise necessary to put over 300 million in business loans to work in the communities we serve. This three-legged approach allows us to meet all our members borrowing needs and remain diversified. T he remarkable growth in the average-size loan being pulled into the credit union portfolio these past several years is not just a fish tale. Both the total number and volume of larger loans (typically mortgage and MBLs) are swelling the nets of lenders. This has been an exciting season of the big fish all but jumping out of the water into the boat keeping institutions so very busy with managing that challenge. With margin compression and so many other challenges to profitability does the modern-day helmsman dare to also cast a net into the flickering schools of little minnows Is it time for your institution to reconsider the potential of those borrowers who come to a branch needing assistance with loan processes and general banking support Or is it time for some members to simply walk the plank The smaller fish in the sea often are cast back into the ocean by lenders who find it tedious to build up and work these smaller and often more challenging loan applications. Meanwhile they are allowed to continue diving into the bountiful ocean of opportunity. Joe Hearn President and CEO of the very successful Dupaco Credit Union truly believes the very best is yet to come for those financial institutions that do not forget the value of the little fish. Joe shares his fresh view from the Crow s Nest after taking on the top post at Dupaco following many years of service there and as a national leader in the industry. From the Dupaco perspective the most effective way to build strong and profitable loan portfolios is through deep member relationships. Our vision is to be our members lifetime financial home and as such we seek to be the primary source for their saving and borrowing needs. In order to do this we 6 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 5 C U B U S I N E S S . C O M VIEW FROM THE CROW S NEST In keeping with our strong approach on deepening member relationships we also spend an extensive amount of time training our staff on how to pursue every opportunity to do what we have branded as a Money Makeover on every application and new member Joe Hearn President & CEO of Dupaco Credit who joins the credit Union union. This tactic initially began as a Free Credit History Lesson initiative to help members understand their credit report and score. As we dove into this initiative we began to see tremendous opportunities to consolidate debt free up money for systematic savings and have a truly profound impact on the lives of our members. In addition we began to consciously slow down our approval process in the minds of our lending staff. Our prior mindset was to turn an application instantly and move on to the next one. By going beyond the order for a simple auto loan and turning our lenders minds onto being not just order takers but difference makers we began to truly live our credit union philosophy. This process did not happen overnight and involved extensive staff training as well as incentives designed to reward staff for finding creative new ways to truly impact member lives. In addition and as previously mentioned we turned credit report training onto our new account staff as well so that they could seek opportunities at the time of initial account opening. The more staff began to see the power of makeovers and feel the appreciation of members whose lives they had truly impacted the more this process began to take hold to the point where it has become an engrained part of our culture. We also consciously share member success stories among staff to provide staff recognition for a job well done while simultaneously reinforcing in the minds of our staff that this is truly the Dupaco way. This approach obviously requires extensive staff training and also a highly effective collection team. For oftentimes the most profound Money Makeovers involve members who may be credit challenges or are in somewhat over their heads. However with risk-based pricing we are able to price the loans to compensate the credit union for the risk. We have thus found that we can do very well by doing good for our members. Rome was not built overnight and indeed this process has taken literally years to evolve. However with the commitment of a board to provide the training incentives and support to execute the strategy it has proven to be a real winner for Dupaco our employees and the members we serve. It has also served to help differentiate us from our competition and truly live the credit union philosophy of people helping people. The pros of our risk-based lending strategy are as follows We are able to serve more members and positively impact more member lives. We are able to build yield. We have been able to forge deep and meaningful relationships with members where price is not the sole determining factor in where they choose to do their business. We are living the credit union philosophy. Through consolidation we are able to free up member money to systematically save and build wealth. Staff feel energized to work for an organization that stands for something. While others have tried and failed to find success in this blue ocean of deep sea lending Dupaco navigated these waters with skill. Joe believes that to support this strategy the organization must Have buy-in and commitment from the board on down. 7 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 5 C U B U S I N E S S . C O M VIEW FROM THE CROW S NEST Be willing to make many unprofitable low-dollar loans. In fact in 2014 nearly one in four loans we made were under 2 500. The long-term payoff is member loyalty and future profitable relationships. Allocate appropriate resources to support member demand and the collections efforts necessary for success. Allocate appropriate dollars for training. A llocate money to become efficient with technology internally to free up for your staff the time to dedicate to the member. Allocate resources to marketing and data analytics to help create awareness in the minds of consumers and to make targeted relevant offers to members. Ultimately success depends on commitment training and the front-line staff s ability to connect with members and go beyond order taking to difference making. Joe has some sage advice for consideration when guiding your organization successfully through these times of unprecedented regulatory upheaval and thin margins. If your credit union loan growth strategy is simply to compete on price there will likely not be enough margin remaining to get out of that rut. In addition I have heard of recent studies that have indicated that approximately one in four Americans does not feel in control of their finances. This provides tremendous opportunities for credit unions to be the entities that can help individuals break through and get a handle on their finances. This will go a long way in helping live our mission and forge lasting and meaningful loyalty among members by putting them on a path to long-term sustainable financial success. These types of relationships also serve to make price less of an issue in the minds of consumers which will in turn provide the successful credit union with the margin necessary to continue to make the required investments to perpetuate and grow the strategy for the long term. Impacting member lives beyond price also earns the respect and admiration of our legislators who relish the stories of how we live our mission. As a young CEO with a rich background in strategic marketing and retail strategies Joe does not support retiring the branch retail network. Rather he states Dupaco envisions an environment of fewer but more well-positioned branches in known areas with appropriate visibility. Once members know you are available to them they seem to feel more comfortable in joining even if they do not have a high propensity to visit 8 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 5 C U B U S I N E S S . C O M VIEW FROM THE CROW S NEST a branch. This is where robust technology comes into play so members can always feel connected. Dupaco is also experimenting with video teller technology in our newest Learning Lab branch which we will be launching in late May. Here members in the lobby and drive-up will be served by a live teller [who will be] available to them via a video screen. Because it is staffed from a remote location this technology allows service to multiple units. Staff in the branch are therefore available to sit down with members show the latest technologies and have meaningful conversations about the members finances versus being tied to traditional teller transactions. Because we serve a 42-county area if successful we would envision these units [being] strategically placed throughout our charter area. [We would] then provide employers support for their employees at their workplace through our Select Employee Group (SEG) employees versus employing costly traditional branches. Having worked closely with Joe on a national level I experienced firsthand his dedication to the credit union vision of people helping each other. Joe is known to be a very natural leader readily accomplishing significant results with a mix of candor common sense and humor as he coaches industry peers and Dupaco teams alike to do the right thing for the right reason. While it may not seem like headline news the heart of success is embodied in these thoughts Success at Dupaco is about commitment and alignment. From our board of directors who provide us the resources to be successful all the way down to the newest front-line team member we constantly talk about making a positive difference in the lives of our members. We also talk with staff about Know Show Grow Dupaco in terms of knowing our products showing members how they can help them and then feeling the personal and professional pride (and incentive pay) that comes from helping the membership and credit union grow when we are rewarded with additional member business as a result of their efforts. By putting members first and recognizing that staff are ultimately the key to delivering on the promise of brand Dupaco we have built something powerful and sustainable. The key for management will be to remain aligned and to build appropriate bench strength as we deal with tremendous growth environmental and regulatory challenges and changing member and worker demographics. As I often tell the board and staff we re not perfect but if we continue to work closely together the best is yet to come Simple fishing techniques skillfully executed with genuine commitment continue to fill the net at Dupaco ... and that s no fish tale. 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. PAYMENT PROCESSING AND ACCEPTANCE Easy secure compliant. Visit autopilot.swbc.com or call 866-647-8749 today to learn more 9 C R E D I T U N I O N B U S I N E S S J U L Y 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 Uncertain Time Limits on Collecting Credit Card Debt Collecting delinquent credit card loans may not be as simple as filing a court claim. That s because much ambiguity surrounds what type of agreement is entered into between the cardholder and the issuing credit union. Is your statute of limitation up Read on for some sound guidance on the issue. oes your credit union have delinquent credit card loans If the answer is yes you should know how long you can go to court to collect the debt. While this seems easy enough the twist comes in how the timeframe is determined and the fact that not every state follows the same rule. Collecting a delinquent loan balance in court is actually pursuing a breach of contract claim an action with different statutes of limitation depending on how the agreement is interpreted. Endless discussion exists on this interpretation but the best way to approach it is to think of an agreement as being either a written agreement (which has a longer statute of limitation) or an oral agreement (which has a shorter statute of limitation). The question then becomes Are credit card loans made from an oral or written agreement Unfortunately there is no one answer. Feltman the court dismissed a case involving a credit card loan because the complaint was filed after the statute of limitation for oral contracts had expired. The loan went delinquent in 1999 and the complaint was filed in 2005 which was well within Illinois 10-year statute of limitation for written contracts but just past the state s five-year term for oral agreements. The court in Feltman found that the credit card agreement did not contain all the essential terms and conditions of the relationship between the financial institution and the borrower so it was not a written agreement under Illinois law. What this means is that a single instrument did not exist at which the court could look that included all the necessary terms of the agreement the parties the amount due and the rate for example. If the court has to use parol evidence (look to other documents) to determine the important details of the relationship then the agreement is considered an oral agreement and the applicable statute of limitation is used. The states that apply an oral agreement statute of limitation to credit card loans follow similar theories to those discussed in Feltman. While many may recognize that the nature of credit card transactions and the relationships between the parties is complex and only made more difficult to analyze under modern realities they have found that a credit card loan arrangement does not meet the requirements of a written contract. D Oral Contract Credit Card Loans Classifying credit card loans as oral agreements seems contrary to how the process works since applying receiving and making payments on credit cards comes with so much written material (including an agreement the member receives with the plastic card). In analyzing contracts however courts limit what is considered a written agreement. As a result an oral agreement isn t necessarily one that is spoken between the credit union and a member. Rather it is one that doesn t meet all the requirements of a written agreement. In 2009 an Illinois court decided a case providing a great example of the reasoning some states follow in treating credit card debt as an oral contract. In Portfolio Acquisitions LLC. v. 10 C R E D I T U N I O N B U S I N E S S Written Contract Credit Card Loans Despite the reasoning for credit card loans being oral agreements there are states that have made the opposite ruling J U L Y 2 0 1 5 C U B U S I N E S S . C O M THE LAW insights An instance of capturing the true nature of a thing. allowing claims on credit card debt to be brought up to the limits for written agreements. A 2008 Georgia case allowed American Express to bring a claim to recover a defaulted credit card loan under the state s six-year written contract statute of limitation instead of barring it for being past its three-year oral agreement limit. In Hill v. American Express the court rejected the arguments that the customer did not sign the agreement and that the agreement was incomplete. The ruling found the customer s signature irrelevant and said his agreement (and the completion of the contract) was shown through use of the card. The first step is to review the governing law provision in the agreement the credit union uses. It should list the appropriate state and local jurisdiction and it should remove the ability to use that state s choice of law provisions. Next the credit union can determine the applicable statute of limitation standard. Retained counsel can review case law to analyze how each particular state treats a credit card loan and can provide the actual time limit (which is found in statute) during which the credit union can use the judicial process for help in recovering debts. Finally the credit union can amend or develop a policy on when it will consider going to court over a delinquent credit card loan. To avoid any ambiguity changes or laws that remain unclear (some states still haven t reached a definitive conclusion on which statute of limitation rule applies) the best approach would be for the policy to direct the credit union to go to court within the oral agreement statute of limitation period. Managing credit card portfolios and accounting for loan losses are difficult tasks without uncertain and sometimes contradictory rules on collecting debts. Hopefully some preplanning and organization can eliminate these possible statute of limitation problems. Brad R. Bergmooser is Senior Counsel at Freeborn & Peters LLP and a former Assistant General Counsel for Illinois Credit System. He is a member of the firm s Corporate Practice Group and Credit Union Industry Team and concentrates his practice on matters involving credit unions and other financial institutions. He can be reached at bbergmooser freeborn.com. 11 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 5 C U B U S I N E S S . C O M Additional Considerations Looking to how a state treats the statute of limitation for credit card agreements is only one step in determining if a credit union still has the ability seek recovery for a delinquent loan in court. Ironically the credit union should also look to the credit card agreement to see if it includes a governing law provision. If so this provision will need to be drafted carefully so it doesn t unintentionally revert to the statute of limitation rule where the case is filed as opposed to the jurisdiction listed in the agreement. Credit unions should also review their policies to ensure a 1099-C is not issued prior to fully exhausting judicial collection efforts. While there s no legal prohibition on collecting a debt after the 1099-C is issued the process gets more difficult since the form is named Cancellation of Debt. Best Practices Applicable timeframes for going to court to recover on a delinquent credit card loan differ by state can be changed by agreement and are generally pretty messy. The good news is that this uncertainty is manageable. CU CONTENT BY LAURA ENOCK Apple s 2015 State of the User What are your members going to be doing next year If anyone has a crystal ball into consumers habits it is Apple. These takeaways from the company s 2015 State of the User address could be the difference between drawing your members closer and alienating them in 2016. side from the Super Bowl and presidential elections no event dominates American conversations like Apple product announcements. Monday s address by CEO Tim Cook at Apple s Worldwide Developer Conference was no exception with millions watching online following along on social media and discussing it endlessly over office watercoolers real and virtual. No one has better insights about American consumers than Apple and they ve consistently told us what we want before we ve known we wanted it. Apple keynotes are a way to find out what Americans will be doing next year. This year Apple announced only a few small changes but they could be the way Apple gets between you and your members. What they announced Apple Music a new music-streaming service Expanded Siri Apple Pay and Notes OS X 10.11 El Capitan Search tickets weather and events using native language Replacement of Passbook with Wallet and Newsstand with News More home automation What it means for your business First things first breathe a sigh of relief. If you don t have Apple Pay yet you re probably not going to miss out on many customers for the rest of the year because your competition probably doesn t have it either. Next year might be a different story though. Apple seems focused on becoming an intermediary for shoppers expanding Apple Pay to more countries updating the default Wallet app to include Apple Pay and working behind the scenes to get more national businesses on board. Many of Tim Cook s announcements were about Apple products sharing information with one another across apps and across devices. Coordinating the tighter connections is Siri 12 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 5 C U B U S I N E S S . C O M A Apple s digital butler who will now be able to search from more devices and use more natural language. Siri will be getting more assertive as well offering suggestions reading your emails and making plans for you. If your business wants access to your members digital lives then you re probably going to be doing it through Apple pretty soon. By incorporating event tickets and shopping searches directly into Safari and Apple devices Apple is positioning itself between businesses and consumers and the company is likely to charge a pretty penny to get out of the way. When customers start to search for plumbers Apple has an incentive to list the local plumbers who pay to get listed. If Siri is suggesting plumbers from the second your customers start idly talking about a plugged sink it ll be really hard for any other plumbers to get customers. Why run your own search when Siri already pulled out a name and started dialing Laura Enock is Founder and Publisher of CUcontent.com a credit union-specific content service. Join hundreds of credit unions getting FREE monthly content Email her at laura cucontent.com or visit CUcontent. com. Sources http www.theverge.com 2015 6 8 8745353 apple-wwdc2015-highlights-announcements-recap http gizmodo.com everything-apple-tried-to-kill-today-atwwdc-2015-1709786772 http www.apple.com live 2015-june-event insights An instance of capturing the true nature of a thing. Do you know your members Insights are everywhere and coming at you fast. To make the best of this information you have to know what to ask. Member Insight from PSCU is a set of tools that consolidates the details of your members spending habits to make for richer portfolio performance. After more than 35 years as the leading CUSO we know a thing or two about the true nature of credit union growth. pscu.com memberinsight 888.918.7357 CFO CURRENCY BY EMILY HOLLIS Scenario Testing A Key To Sound Liquidity Risk Management Poor liquidity and risk management strategies an inability to project cash flow inadequate contingency plans--when it comes to your credit union s asset do these scenarios sound a lot like you Our resident CFO currency expert provides sound advice to turn yourself around. iquidity continues to be a hot topic both in the financial news and among regulators and the financial institutions they examine. Although liquidity is vital for meeting cash and collateral obligations at a reasonable cost many credit unions have poorly developed plans to manage their liquidity or the risk associated with it. These institutions typically don t have adequate liquid assets are unable to project cash flow and or are using longterm assets to fund volatile liabilities. Further while final regulations issued in the past year require all federally insured credit unions with complex balance sheets or more than 50 million in assets to have formal contingency plans many still do not. Or if they do they are often inadequate. At the heart of the federal rules requiring contingency funding plans is the need to promote sound liquidity management. As the lifeblood of a financial institution the importance of having sufficient liquid assets to meet both anticipated and unanticipated needs can t be overstated. L Scenario Testing All financial institutions must be ready with adequate funding for any phase of the economic cycle to avoid disrupting daily operations or worse endangering their financial condition. A salient lesson from the financial crisis is the importance of anticipating potential threats and developing scenarios for dealing with them. At ALM First Financial Advisors we recommend the following steps Identify Stress Events Recognize potential events that could put a strain on liquidity both within the industry and at your own institution such as Inability to fund asset growth Inability to renew or replace mature funding Unexpected withdrawals Changes in market value and price volatility Changes in economic conditions or market perceptions Dislocations in the financial markets Payment settlement system disruptions (errors or disasters) insights An instance of capturing the true nature of a thing. 14 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 5 C U B U S I N E S S . C O M CFO CURRENCY Rank Relative Significance After identifying what could happen based on the internal and external financial environment rank possible events by likelihood of occurrence and degree of severity. Generally events that are more likely to occur are not as severe as those that are less likely to occur. Identify and Assess Funding Sources and Needs Be aware of the primary funding sources available (e.g. share deposit growth loan income) and secondary sources (e.g. lines of credit available-for-sale investments) as well as the limitations of each source. Larger institutions also can access the Federal Reserve Discount Window during certain contingencies. Test Various Scenarios. The actual practice of testing scenarios will determine how critical a potential illiquid situation might be and how it would unfold in specific environments. Be as detailed and technical as possible to obtain results that would mirror a real-life situation. This will allow for determining the most appropriate responses and will point to modifications that could help manage a range of market conditions. Evaluation and Monitoring Identifying plausible scenarios and regularly testing them is one of the most important functions for assuring adequate liquidity. Armed with the results you can evaluate how well prepared your institution is to manage liquidity during and after an unexpected liquidity crunch. To ensure that adequate liquidity sources are available to fund operational requirements during an emergency it s important to have the tools in place to evaluate the plan s effectiveness and to make adjustments as needed. This includes identifying key personnel and the roles they play during an event. For example a supervisor or department head might be responsible for monitoring the liquidity position and assessing 15 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 5 C U B U S I N E S S . C O M CFO CURRENCY its risk. He or she then must be prepared to take prompt action if there is a deficiency. Senior-level staff would monitor and review liquidity developments and regularly report them to the ALCO and or board of directors. In turn the board should regularly review liquidity management policies and practices. Develop a monitoring framework that is dynamic. This will allow your institution to build on its experience through periodic testing and actual events to enhance and update it. In the wake of the financial crisis the importance of scenario testing monitoring and improving how liquidity risk is managed took center stage and rightfully so. Whether your credit union is awash with liquidity or starting to see the tap dry up you must be prepared for the unexpected ... not simply because it s required but because to do otherwise would jeopardize your institution s safety and soundness. Emily Hollis is a partner with ALM First Financial Advisors LLC. millennials A generation marked by increased use of social media and digital technologies. Would this ad matter to the generation that can make or break a brand within a few keystrokes These digital natives are the current prime target for credit unions everywhere and PSCU has the social media tools and insights you need to reach them in a way that s relevant. The leading CUSO for 30 years we know a thing or two about embracing change and having conversations that matter. Let us show you how. join.makeyourmoneymatter.org 888.918.7357 16 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 5 C U B U S I N E S S . C O M MARKETING BY GABE KRAJICEK CHIEF EXECUTIVE OFFICER AT BANCVUE Bump Up Your Market Share Four Things Credit Unions Should Do Now Did you know that 39 percent of current megabank customers would actually prefer the community-mindedness that credit unions provide These four tips will help your CU increase its appeal and better attract and retain members who desire what your institution has to offer. f all things were equal two out of three U.S. adults (66 percent) including 59 percent of megabank customers say they would rather bank at a community bank or credit union than at one of the big national banks. Yet only 20 percent of Americans use a credit union as their primary financial institution. Why the discrepancy Feedback from credit union executives as well as results from the 2015 Consumer Banking Insights Study commissioned by BancVue and conducted online in January by Harris Poll among more than 1 000 U.S. adults offer a few insights. The following steps could help credit unions increase their appeal and better attract and retain members. for-profit counterparts our marketing budget is much smaller which makes it harder to develop brand awareness. There are many ways to boost an institution s profile without spending billions though. Getting involved in the local community can help McCrary said. To boost brand awareness in our community we do several things sponsor youth sports teams purchase ads in school and church program booklets volunteer as ambassadors for chambers of commerce in our market area and participate in local events such as charity walks and programs that support financial literacy. Offering nationally branded products available through third-party providers can also draw consumers. I 1. Boost Your Brand. Unfortunately many consumers still don t know much about credit unions and community banks. Among consumers who don t have an account with a community financial institution more than one-third (34 percent) said it was because they haven t thought about it and or are unaware of their options. In today s competitive environment name recognition and awareness are more important than ever. Fully 71 percent of consumers say a recognizable brand name is at least somewhat important when it comes to choosing a financial institution. Yet credit unions often don t have megabank marketing resources to draw on. Our primary challenge when it comes to brand awareness is marketing budget said Lanet McCrary vice president of marketing and business development with Mississippi s Magnolia Federal Credit Union. Compared to our 2. Offer Better Products. Consumers today look at products first institution second. When choosing a bank 71 percent of adults say that features like free checking ATM fee refunds and access to the latest banking products are more important than the banking institution that provides them. 17 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 5 C U B U S I N E S S . C O M TAB MARKETING Yet the products and services offered through community banks and credit unions are sometimes seen as lacking especially among Millennial consumers (18- to 34-yearolds). The study found that 38 percent of non-CFI Millennial consumers would like to use a community financial institution but feel that such institutions lack the products they need. So what products do these younger consumers want Millennials care more about rewards when choosing a bank than other age groups. In fact 67 percent of Millennial consumers cited rewards as a very important or important factor when it comes to choosing their bank (compared to 54 percent of consumers between the ages of 35 and 54 and 37 percent of consumers who are age 55 ). Additionally 62 percent of Millennial consumers say cashback options are very important or important when asked the same question (compared to 51 percent of consumers between the ages of 35 and 54 and 33 percent of consumers who are age 55 ). Consumers these days have a what s in it for me mindset said Thad Angelle president and CEO of MCT Credit Union in Texas. The products we offer must be compelling enough to get their attention and give them a reason to take action. But not all credit unions have the resources to offer these products. These institutions should look for partners who can not only help credit unions provide their members with mobile banking and money management products but also offer marketing and advertising expertise training support and analytics and compliance support. 3. Increase Your Presence. Despite the rise in online and mobile banking over the last several years many consumers including the vast majority of Millennials still want to bank in person. Among Millennials 88 percent say they would prefer to do at least some banking in person rather than over the phone online or via mobile app. And more than four in 10 U.S. adults (44 percent) say it s not at all likely that they will no longer need to go to a physical bank location five years from now. That means branch convenience is still a factor when it comes to choosing a bank despite forecasts that routinely predict the branch s demise. In fact 86 percent of Millennials say it is valuable to bank at an institution with a local branch nearby. Credit unions have long held an advantage when it comes to customer service. Fully 64 percent of consumers believe credit unions and community banks have better personal service (any interaction with another person face to face over the phone or online) when compared to big national banks. However while many credit unions are part of a co-op network many others don t have a bank-like web of nationwide branch locations. Fortunately working with a thirdparty provider can enable credit unions to offer things like ATM fee refunds and mobile banking tools to their customers thereby boosting convenience and increasing the number of opportunities they have to engage with the institution. 18 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 5 C U B U S I N E S S . C O M MARKETING TAB 4. Make Switching Easier. Many consumers overestimate the difficulty of switching where they bank. According to the study six in 10 U.S. adults who have never switched financial institutions (61 percent) believe it would be at least somewhat difficult to do so. In reality only 19 percent of consumers who have switched say it was at least somewhat difficult. Switching checking accounts seems to still have that stigma of being cumbersome and difficult said Sarah Ermatinger vice president of marketing with CP Federal Credit Union in Michigan. It takes a very upset customer to move since they also believe checking accounts are pretty much all the same. Credit unions can entice more consumers to switch by educating them on how easy it really is. Institutions can also create internal processes that make opening a new account and transferring old ones faster and easier for customers. Consumers don t want the hassle of switching direct deposits and automated electronic payments Magnolia Federal Credit Union s McCrary said. We have lessened the burden by offering an online Switch Kit that provides them [with] all the tools they need to switch everything over. It s clear that credit unions and community banks are popular among consumers. Fully 64 percent of U.S. adults think community banks and credit unions have better personal service than the big national banks. But mere likeability isn t enough to get people to switch. According to adults who don t have a checking account with a community financial institution 38 percent have thought about getting one but only five percent of consumers say they re likely or very likely to switch in 2015. By improving marketing efforts offering in-demand products becoming more accessible to consumers and easing the switching process credit unions will have a better shot at changing the mindset of the consumer and increasing market share. Throughout this article consumers are defined as U.S. adults ages 18 and up who have a checking account at a financial institution. Megabank customers are checking accountholders who consider one of the big national banks to be their primary banking institution. The Consumer Banking Insights Study was executed online by Harris Poll from January 5 9 2015. The study polled 1 002 U.S. adults ages 18 and up to gauge their banking and checking preferences feelings and behaviors. Figures for age sex race ethnicity education region and household income were weighted where necessary to bring them into line with their actual proportions in the population. Propensity score weighting was also used to adjust for respondents propensity to be online. Gabe Krajicek is CEO of BancVue in Austin Texas. PAYMENT PROCESSING AND ACCEPTANCE Easy secure compliant. Visit autopilot.swbc.com or call 866-647-8749 today to learn more 19 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 5 C U B U S I N E S S . C O M CEO VELOCITY BY SCOTT MCCLYMONDS Embracing Change How CEO Bob Allen Leverages Change for Growth at Teachers FCU This month s CEO spotlight is Bob Allen of Teachers Federal Credit Union. Listen in as this credit union jack-of-all-trades offers up advice on how embracing change can help your CU thrive. These strategies have served him well throughout his 45-year financial services career that has witnessed dramatic changes. hat would bring together a credit union CEO from Long Island N.Y. with a financial services consultant from Fayetteville Ark. The answer is simple a passion for developing leaders who can fuel growth in the credit union industry. This month my quest to reveal the leadership practices of some of the leading CEOs in the credit union industry took me to Bob Allen CEO of Teachers Federal Credit Union (TFCU) on Long Island. TFCU has approximately 5 billion in assets and Bob has been there 26 years. During our conversation Bob was warm engaging and full of energy. He attributes much of his success to good health and the opportunity to work in a job and industry he loves. That s why a 10-hour workday does not feel burdensome to him and is over before he knows it. Throughout his 45-year career in the industry Bob has seen and embraced an abundance of change and as CEO of TFCU he continues to challenge himself and his colleagues as the pace of change accelerates. In fact I would describe his leadership style as embracing change. Of course the ability to embrace and capitalize upon change is one attribute that separates great leaders from marginal ones and there has never been a more critical time period to do that than now. Unfortunately this mindset does not exist in every institution. W Bob Allen CEO of Teachers Federal Credit Union (TFCU) For example recently I was speaking with a CEO and his director of branch operations about their desire to grow their institution by gaining more of their members wallet share and acquiring new small and mid-market business members. Upon reviewing the proposal I submitted to them they said many of their managers and lenders are within five years of retirement and would never go for the changes suggested in the proposal. Refusing to change because key players are within five years of retirement would not happen at TFCU under Bob Allen s 20 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 5 C U B U S I N E S S . C O M CEO VELOCITY TAB leadership. And if you consider yourself a top CEO it shouldn t occur under your leadership either. Here are a few ways Bob has embraced change during his career 1. View change as an opportunity for growth 2. Engage in continuous self-development 3. Understand evolving member needs within a diverse population and make member value creation the key strategic focus 4. Maintain financial strength through balanced growth 5. Be prepared for acquisition opportunities 6. Actively facilitate the creation of a skilled educated workforce and leadership pool. Strategy Development Strategy creation is another area where Bob embraces and creates change. As a teen learning to drive his father told him The faster you go the farther ahead you have to look. Bob applies that wisdom to TFCU as he and his team look not only to this year but to 2016 and beyond. That philosophy means finding new ways to serve the three million people in the CU s two-county market area and translating the needs of an increasingly diverse field of membership into services that add value to their lives. When discussing technology as a means of creating value for members Bob pointed out that the capital the credit union works with belongs to its members. So wisely investing in the right technologies and partnerships is a critical piece of stewardship for him and his team. That s why they take a disciplined approach to technology instead of jumping on the next great thing. The look farther ahead philosophy also means maintaining the financial strength of the organization. When Bob came to TFCU its capitalization ratio was about three percent which is very weak. Now it is a healthy 12 percent but it dipped to between eight percent and nine percent during the 2008 2009 recession due to rapid growth. That experience emphasized the need to grow capital and assets in a balanced way and Bob has made it a cornerstone of the TFCU strategy. Professional Growth Throughout Bob s career the credit union industry has changed dramatically and as it evolved he recognized how disruptors such as new products or technology could help him build his expertise and expand his ability to help people. Early in his career Bob left his first credit union because of limited career opportunities and went to a startup. Anyone who has ever started a business knows the courage passion and entrepreneurial chutzpah needed to make it work but Bob jumped in and made it successful. Bob attributes a large part of his career success to actions like those that enabled him to get his hands dirty and acquire knowledge across many areas of a credit union. This diversity of experience is why Bob calls himself a generalist and a credit union jack-of-all-trades. Even after being a CEO for many years Bob continues to develop himself and refine his leadership. For example he told me he still sees himself as a bit too hands on and said he has an annual exercise where he determines what not to be involved in and how to provide greater empowerment to his team. He does not want his position to be an obstacle to progress and he allows trusted subordinates to play ever-greater roles. Bob s example of continuing to work on himself as a CEO reminds me of the Law of the Lid in leadership guru John Maxwell s 21 Irrefutable Laws of Leadership. That law states that an organization can only grow in proportion to the leader s ability to lead. Leaders who continually challenge themselves to higher levels of growth help not only themselves but also the organizations they lead. C R E D I T U N I O N B U S I N E S S Branching The TFCU approach to branching is a good example of using member money wisely while meeting changing member needs and working toward financial strength. TFCU has had success in building its branch network by acquiring bank branches that were sold as part of mergers. Those acquisitions have proven very economical since they came fully furnished. Essentially all Teachers FCU had to do was change the signs. New branches have been located in strip centers and the lighter footprint has helped save land construction and operating costs. Bob still views branches as essential for the CU s members with more complex needs such as lending and small business services which are strong sources of growth for TFCU. 21 J U L Y 2 0 1 5 C U B U S I N E S S . C O M CEO VELOCITY The Next Three to Five Years While Bob expects TFCU to grow organically over the next three to five years he also believes acquisition opportunities will appear as the industry consolidates. In particular credit unions that have not emphasized balanced growth as part of their strategy may be acquired. In other words as rates increase some institutions will price their deposits ahead of their existing loans and will find themselves in a position of financial weakness that only a strong acquirer can rectify. Another avenue of change Bob sees is the evolution and increasing acceptance of electronic services like remote capture and the electric wallet. He mentioned that the key in this area is trying to discern which of the electronic banking providers have staying power and which will remain and make good strategic partners. Leadership Development and Communication Bob knows that a large credit union like Teachers needs fresh ideas and a skilled workforce to continue growing. In addition to his empowerment of executives Teachers works to develop new leaders by encouraging employees to further their formal education. Along with the credit union s tuition assistance program a local college also conducts degree classes and programs at Teachers headquarters so employees can go straight from work to class with no time lost to commuting. This forward-thinking idea provides the credit union with an educated employee base while giving employees a great incentive to remain with TFCU. Gathering employee feedback and using it to create change is another hallmark of Bob s leadership style. He gains vital information from his quarterly breakfasts with employees as well as from his pop-in visits to front-line employees who can speak directly to what members are telling them. How Teachers FCU Fuels Growth by Embracing Change 22 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 5 C U B U S I N E S S . C O M CEO VELOCITY Challenge Questions for You Now that you have seen how Bob Allen has embraced change take some time to review the following questions to see how you are embracing change 1. What three to five changes do you need to make as a leader that will allow your credit union to grow faster and serve members better 2. Who are you speaking with to help you understand and make those changes 3. How are the needs of your member base changing and what are you doing about it 4. What are the strongest growth opportunities for your credit union and how are you addressing them 5. How will you make your credit union a survivor if a wave of consolidation occurs 6. What are you doing to ensure the development of new skills and leaders in your credit union 7. How can the insights of your front-line employees inform the way you create value for members Scott McClymonds is a veteran leader in the financial services industry and an expert at helping chief executives create and execute profitable growth strategies. His company CEO Velocity equips CEOs of financial services firms and mid-sized enterprises to create greater member loyalty profits and value. You can reach Scott at 479.263.0774 or scottm ceovelocity.com. Scott M cClymonds and CEO Velocity help financial institutions like yours increase earnings member loyalty and employee productivity. Scott has helped hundreds of CEOs and senior managers find answers and solutions to tough questions like Who are your most profitable members and how vulnerable are they to attrition Where can you find m ore of them Are they already doing business with you How does your strategy need to be adjusted to improve your results by 20% or more What technology updates will give you the highest payback How should you develop your most promising leaders Email scottm ceovelocity.com to request a free paper on how to find and close earnings gaps in your credit union. scottm ceovelocity.com ceovelocity.com 479.263.0774 C R E D I T U N I O N B U S I N E S S Scott McClymonds is one of the most creative strategists in the financial services industry. - Elio Spinello Principal RPM Consulting 23 J U L Y 2 0 1 5 C U B U S I N E S S . C O M CEO VELOCITY BY SCOTT MCCLYMONDS Are You Ignoring the Most Important Metric of All If failure to differentiate and ineffective marketing are bogging your credit union down you re not alone. A shift in metrics holds the key to financial services growth. Discover what you should be looking at instead of return on investment to take your CU to the next level. The Purpose of a Business Peter Drucker is famous for saying The purpose of a business is to get a customer and The two main functions of a business are marketing and innovation everything else is a cost. Think about it. Without innovation there are no products or services members will value and without marketing no one knows how you can help him or her. If Drucker is right about the purpose of a business and its two main functions why is it so hard for financial services firms to differentiate themselves from each other And why is marketing at most financial services firms so ineffective I have the answers but you may not like them. making sure the institution creates enough compelling value for that member to make him or her profitable I once worked for a bank that rolled out product and customer profitability and front-line salespeople would constantly ask me What is the most profitable product I should be selling customers next Of course the answer is The one they need. Clearly it was very difficult for customer-facing people whose compensation was based on sales to consider the customer s best interests beyond the scope of their incentives. Obviously the credit union industry is very different from banks philosophically but I submit to you that even credit union CEOs and their executive teams can take their eyes off Drucker s key tenets if they are not careful. In a world of dizzying complexity that includes regulatory exams asset and liability management cyber security and people management I believe the member can sometimes take a back seat in the boardroom. Financial Institutions Have Lost Their Way First and foremost many financial institutions try to be all things to all people with the result that they are nothing to everyone. Their brand is so diluted that it is impossible to market a meaningful brand promise across a multitude of member segments and business units. For example People Helping People Find Financial Solutions for Life might be a good mass-market brand but how does it apply to middle market companies That takes real work. Second in their quest to develop sales cultures that sell more products to members financial institutions have forgotten that the real metric they should be using is Return on Member or ROM. However mortgage lenders are incentivized to sell mortgages commercial lenders are incentivized to sell commercial loans and treasury management officers are incentivized to sell treasury products. In all these product siloes who is accountable for looking at the member holistically and 24 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 5 C U B U S I N E S S . C O M CEO VELOCITY That last remark should get under your skin. I can hear some of you recoiling defensively and saying That s not us. We really know our members and are responsive to them. That might describe banks or other institutions but we pride ourselves on knowing our members. Look I get it. I m striking at the very core of your credit union. No one likes to be told they ve forgotten their members or that their members have taken a back seat especially a credit union CEO. However unless you are truly exceptional and a few are I am describing you and your institution at least from time to time. If you still don t believe me and my guess is you don t look at the following chart and then see how accurately you answer these questions relationships with your institution and how many hold you as their secondary institution What would it take to convert more to a primary position 4. What are the evolving needs of these high-profit members and how do they want you to meet those needs 5. How can you acquire more members like these high-value ones Are they already in your member base How many are in your market that aren t your members 6. How much profit do each of these members provide annually and during the course of their lifetime with you MEMBERS FALL INTO DIFFERENT PROFITABILITY GROUPS 100 80 60 % of Profits 40 20 0 -20 -40 High Value High Potential Mass Market Unprofitable 10 20 30 50 60 % of Members Copyright Scott McClymonds and CEO Velocity 2015 1. What percentage of your members make up 70 percent to 90 percent of your profits 2. How do those members break down into categories such as retirees wanting second homes business owners wanting to sell in the next five years and families in their early thirties buying their first homes 3. How many of those high-profit members have deep C R E D I T U N I O N B U S I N E S S J U L Y 7. What are you doing to actively stay in touch with your most profitable members and how are you aggregating the information they give you to innovate and better serve them 8. How many referrals are these high-profit members giving you each year and what have you put in place to generate more 25 2 0 1 5 C U B U S I N E S S . C O M CEO VELOCITY 9. For your business members what types of referrals and non-financial services can you provide them with that would be so valuable they would minimize rates as a strong differentiator 10. Who in your institution is responsible for gathering all this information and making it actionable (I hope it isn t your IT department.) Raising the Bar Not the Guilt I m sure you would agree those are difficult but important questions. Remember we re talking about the members who enable you to take relaxing vacations make mortgage payments on the home you love enjoy dinners out with family and friends and give generously to your favorite charities. These members are why your institution is able to exist. They keep your doors open. If you don t have all the answers to these questions I want you to feel disturbed but not bad. You are in the same boat as most of your industry peers. However I don t want you to feel comfortable about being in that boat either. My job is to help you raise the bar on your performance and provoke you to meaningful action. And you will raise the performance bar for yourself and your organization if you make an all-out focus on understanding your most valuable members and on finding answers and solutions to questions like those listed above. How Will You Lead The way I want you to do that is by taking data and analytics seriously as a way to help you do what Drucker described acquire members innovate and market. This does not require any technical or analytical skills on your part. You can hire such expertise. However what it does require is a relentless focus on the member the humility to acknowledge that there might be a lot more for your credit union to learn about your members and the passion and discipline to focus your company on acquiring more profitable members by innovating and marketing around their needs and preferences. People try to make data and analytics way too complicated. Yes there are many technical and quantitative techniques that come with them. You want to hire professionals that s for sure. However at its core analytics is about focusing your institution on your members and showing you how to create value for them. Your role as the CEO is to understand that there is value to be discovered and unlocked for both your members and your institution. It is also to make sure your analytics professionals have the support they need to be successful. That support can come in various forms such as Providing a sufficient budget and access to needed resources and personnel Making sure their solutions are compatible with cultural values and the credit union s strategy Eliminating territorial political and even cultural obstacles when necessary Providing industry and line-of-business expertise and input Ensuring training is provided for new endeavors Becoming a passionate and enthusiastic proponent who motivates other key players Without your involved leadership even the most talented analytics team will flounder. That s not good for your analytics team but even worse it s not good for your members or your credit union. You will still be in the same boat with your peers as I mentioned above and you won t have moved the Return on Customer needle. Unfortunately about 80 percent of your peers in the financial services industry don t believe their firms need to be data driven. They believe things will be great if they just keep plugging away doing business as usual. Is that the road you want to take or will you lead your credit union down the road less traveled It s your choice and what you choose can lead to either an exceptional future or an average one. Scott McClymonds is a veteran leader in the financial services industry and an expert at helping chief executives create and execute profitable growth strategies. His company CEO Velocity equips CEOs of financial services firms and midsized enterprises to create greater member loyalty profits and value. You can reach Scott at 479.263.0774 or scottm ceovelocity.com. 26 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 5 C U B U S I N E S S . C O M STRATEGIC PLANNING BY JEFF RENDEL CERTIFIED SPEAKING PROFESSIONAL Relevance from the Outside-In Chances are that remaining relevant to your members is a major part of your credit union s vision. But from a practical standpoint how do you actually make this vision happen Listen in as credit union leaders offer their five adjustment strategies for maintaining relevance with their members. remain loyal What members don t consider your credit union their PFI Why are they so loyal to another institution 2. Make everything easy. Several years ago the Harvard Business Review ran an article discussing the Customer Effort Score. In short it described that the easier a business is to transact with the more likely consumers will buy again. Look over every process and touch point at your credit union. Where could you make it easier for your members What steps could be shortened or eliminated How might you simplify and streamline member access Where could your members experience frustration and discontinue a process Making member interactions easier and more user-friendly could be a driver of increased PFI status. 3. Hold focus groups. Your formats may vary a crosssection of all members a target demographic an ongoing group and more. What s important is to hear their thoughts on products services and experiences now and for the future. Even more important is to listen and act where themes reveal areas for improvement innovation and beneficial solutions. Chances are your focus group members will describe positive experiences and new levels of expectations that they receive outside of your credit union even outside of financial services. Are there consumer experiences they appreciate elsewhere that may have a unique application at your credit union O ne of the more valuable questions for executives and directors to ask as your credit union continues along its path of strategic thinking and planning is What s my our vision for our credit union s members Of the numerous answers that have come across this desk few have focused on a quantitative measure such as reaching a certain asset size to provide more services. Most replies involve continued relevance in members lives. After all if relevance is absent it s challenging to grow to that certain asset size to provide more services. Developing this kind of far-sighted view is a dependable and useful display of leadership for your members. It seldom involves a middle-of-the-night a-ha moment most often it s built from daily insights you can use to generate and reinforce strategies that uphold your vision. Below are five outside-in ways that five credit union leaders practically recognize and discover how their credit unions might adjust to remain relevant for members. 1. Learn and increase your PFI status. Understanding where your members keep most of their business is important given the full range of existing providers. (Some are not even depository institutions.) Published in 2015 The Wallet Allocation Rule discusses how wallet share is a primary driver of satisfaction and loyalty. (The authors show it to be even more effective than the Net Promoter Score.) We also learn that members who don t indicate your credit union as their PFI offer valuable insights as to why they bank elsewhere (spoiler alert technology ATMs and branches). Who are your PFI members Why do they 27 27 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 5 C U B U S I N E S S . C O M STRATEGIC PLANNING 4. Look outside of financial services. When you ve finished this article and issue get outside of your credit union and learn how other retail-focused businesses are serving and selling to consumers. Your members expectations don t change when they leave one retail store and enter your credit union the expectations are just as high. What are your members experiencing in their other consumer lives (design marketing service technology etc.) How can your credit union remain relevant to their experiences and expectations in the general marketplace 5. Network outside of credit unions. It s easy to pick up the phone and call a credit union friend to bounce an idea around. You should do this regularly it s valuable and a casual way to refine your strategies. However perspectives from other executives can give you new insights into successful marketing operations sales and more. Your friends from the Chamber of Commerce CEO groups like Vistage and local business leader luncheons can provide valuable principles learned from their successes. They can also help you find applications for your credit union. You could even ask their outside perspective on financial service as it relates to their worldview on sales service and experience. Unbiased viewpoints can be very valuable. When your members win your credit union wins. The more you know about the next level of success for your members the more relevant your credit union will be in their lives. Consider these practical ways from your peers to better understand changing dynamics that affect how your members go about their financial services matters. Jeff Rendel Certified Speaking Professional and President of Rising Above Enterprises works with credit unions that want entrepreneurial results in leadership sales and strategy. Each year he addresses and facilitates for more than 100 credit unions and their business partners. Contact jeff jeffrendel.com www.jeffrendel.com 951.340.3770. 28 C R E D I T U N I O N B U S I N E S S J U L Y 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 cumminsallison.com letstalk 2014 Cummins Allison Inc. All rights reserved. DATA ANALYTICS BY STEVEN D. SIMPSON SENIOR VP FINANCIAL INSTITUTION SOLUTIONS SAGGEZZA Two Forces Behind Credit Union Success Data Analytics & Personal Relationships In today s data-driven world there is more possibility than ever for credit unions to leverage the personal relationships with members that have always given them an edge over mega banks. And harnessing their data via advanced analytics can provide CUs with the deep membership understanding they need to enrich such relationships. t is a good time to be a credit union. In the last year credit union membership grew by 2.9 percent adding 2.85 million new members. It was the largest increase in more than 25 years.(1) Making the depositor happy with exceptional member service and competitive rates gives credit unions a major competitive advantage over mega banks. But now there is an even greater opportunity to shine in a crowded marketplace. Today in the midst of a data-driven environment credit unions have a huge advantage over other financial institutions personal relationships. Using advanced data analytics coupled with a strong community focus and deep member relationships credit unions have the power to better understand and respond to member needs by offering more tailored products and services across different channels. Credit unions that harness the value of their data are gaining a deeper understanding of their membership s vital trends and purchasing influences and behavior. This newfound knowledge is leading to improved financial performance reduced risk enriched relationships and greater member loyalty. I Shifting Gears A recent study from Celent found that up to 40 percent of bank executives interviewed desired to be data driven.(2) For those institutions eager to explore the benefits 69 percent believe data analytics can improve sales results and customer 30 C R E D I T U N I O N B U S I N E S S relationships. In a recent American Banker survey 36 percent of bank executives said they were looking to sign new contracts with providers of analytics services.(3) It is clear that financial institutions see the tremendous value and the competitive advantage the right advanced analytics program offers. Is your credit union ready to leverage data analytics Those data-centric credit unions that are adopting predictive analytics are turning detailed information on each member into more comprehensive insights. The result They have gained a foothold in the market by offering fewer but more relevant products to their members. Plus these credit unions are strengthening relationships improving retention offering J U L Y 2 0 1 5 C U B U S I N E S S . C O M DATA ANALYTICS TAB even better service driving new business and boosting revenue. It s a win-win that needs to be part of the overall strategic direction. Transforming Your Big Data into Small Actionable Data It s estimated that more than 2.5 quintillion bytes of data are created every day. The data your credit union produces can be a goldmine of knowledge and foresight to the marketing team once it is converted into actionable data. Data analytics enable you to interpret signals to better understand what is trending by identifying large-scale patterns of behavior. Then you can develop what if scenarios and statistical models to forecast likely outcomes. In other words when your institution is looking to launch a new product or service or to open a new branch you will have the insight and information to make more informed decisions rather than guessing or relying on historical trends. The data can further reveal member demographics geographic factors response rates to marketing campaigns and how likely different customer segments will be to visit a branch buy a product or be perfect candidates for one of your credit union s services. Collecting and utilizing the data and then transforming it into small actionable decision- making data creates the opportunity to harvest rich sources of information. Your credit union can build profiles supporting compelling marketing and member acquisition campaigns and offers. Data analytics can assist marketing to respond to specific clues about what products a member may use or need across his or her lifetime at the credit union. How would your customers rate their experience at your drive up Maximize Teller Productivity with a Currency Dispenser (or Recycler) Contact us at Proven Performance and Quality Phone 800-243-2624 Email dispensers magner.com Online www.magner.com 31 2 0 1 5 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 J U L Y DATA ANALYTICS Data Analytics Playing a Pivotal Role in Strengthening Relationships Credit unions can accelerate past the competition in developing and deepening member relationships with advanced data analytics. It starts with building a better member experience. By tracking and measuring important indicators in a member s life career family status income and geography you can segment members into easily targeted groups. From there you can develop refined marketing campaigns that create relevant personalized messages and experiences. This shows the members you care and are listening to their needs. Data analytics can improve the member experience and strengthen relationships by Improving branch and ATM service locations and convenience Refining and improving marketing campaign messages offers and timeliness Identify the Truly Profitable Members Target what communication channels are the most appropriate and desired to reach these valuable members Pinpoint the products and services that your loyal members need want and can use in the future and help create best practices Segment the members who are most likely to churn and take the appropriate action Better Insights with Better Data Most credit unions have vast amounts of data about their members but they have trouble sorting through it all to make meaningful decisions. By investing in the right advanced analytic tools and data science consultants in combination with deep member relationships your credit union can compete and rise above the large more analytically advanced financial institutions. A solid analytics program gives you the power to uncover valuable insights while recommending prescriptive actions. By having a 360-degree view of your member portrait personalized communications and enriched service and experience you can maximize relationships and your community impact and you can increase member loyalty for years to come. It s not rocket science it s data science. Steven D. Simpson (Steven. Simpson saggezza.com) is senior vice-president of financial institution solutions at Saggezza a company with global headquarters in Chicago Ill. that offers analytic software. Accelerating the Lending and Loan Approval Process Matching the right products and services to the right members that are competitive with those of other financial institutions Arming credit union employees with tools and knowledge to treat members as unique individuals rather than just accountholders Improving Retention Matters Member retention is just as important as member acquisition. So the same enthusiasm and data-mining strategies that go into gaining new members should go into improving relationships with existing members. Credit unions that use data analytics to build relationships with members can positively influence retention rates. High member satisfaction levels lead to greater loyalty and referral business. However all members are not created equal and some relationships are worth more than others. That s why it s vital to identify the most loyal and profitable members who can help drive revenue at your credit union. Enter a solid advanced analytics program that can arm you with information to 32 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 5 C U B U S I N E S S . C O M MEMBER BUSINESS LENDING BY RYAL TAYLOE VICE PRESIDENT CREDIT UNIONS NCINO Building a Winning MBL Team If your credit union is just entering the member business lending game there are a few rules to play by if you want to up your program s success. Chief among them is securing the right talent. These six team-building strategies can help your CU take home the MBL championship trophy. egendary basketball player Michael Jordan once said Talent wins games but teamwork and intelligence wins championships. This mentality applies off the court as well. In today s competitive lending environment building a strong team is essential to ensuring growth and success. For credit unions that are new to member business lending (MBL) or considering starting an MBL program hiring the right people is perhaps the most critical component of your program. So how can your credit union build a championship MBL team Below are a few suggestions. Define the culture. First and foremost it s imperative that your credit union has a clearly defined mission vision and set of core values that are ingrained in the culture and accepted by everyone at your institution. Be able to clearly articulate the direction you want your MBL program to take to ease the transition in structure. Promote individuals who will be ambassadors for your values and management style so that your culture is sustainable as the organization grows. Remember that you can always train someone in the necessary skills to complete the tasks associated with his or her job but it s much more difficult to change someone s attitude. Make sure you hire individuals who fit your culture and share your long-term vision. Recruit the right talent. Recruiting top-notch talent can be a challenge in any industry and financial services is no exception. Compensation and benefits are especially competitive in today s market and many credit unions find they need to offer additional perks to attract and retain the right talent. For instance Northwest Federal Credit Union offers a generous benefits package designed to support employees physical financial and emotional well-being. It includes a retirement plan with employer match tuition reimbursement and discounts to local merchants. Credit unions new to commercial lending may experience initial sticker shock when trying to hire an experienced and talented lender. These individuals often demand much higher salaries than a typical credit union employee particularly if they were former bankers. However it s important to look at this cost as an investment in resources. Understand the market and make sure you are aware of compensation packages and hiring practices in your geographic area so you can be competitive. And as Jason Bierman vice president & chief administrative officer of Corning Credit Union advises Above all understand that this is not cheap. Think twice before you hire. Once you ve got processes in place to recruit top talent do your homework on each candidate before hiring him or her. The U.S. Bureau of Labor Statistics estimates that the cost of a bad hire is 30 percent of the annual salary. That means a single bad hire with an annual income of 150 000 can equal a potential 45 000 loss for your credit union. The hiring process may go beyond the initial application L 33 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 5 C U B U S I N E S S . C O M MEMBER BUSINESS LENDING Corning Federal Credit Union s Member Business Lending Team and interview to other assessments including personality tests and the ability to use certain types of software. This is particularly true if you will be relying on any specific technology to run your MBL program. Experience wins the day. The National Credit Union Association (NCUA) requires that credit unions use the services of an individual with at least two years direct experience with the type of lending the credit union will be engaging in. However for credit unions looking to enter the MBL market hiring someone with only two years of experience is not adequate to properly manage the risk and grow your business loan portfolio. Instead many credit unions are finding talented and experienced bank employees resulting in key knowledge gains for credit unions around an area of expertise they may have previously lacked. For example when DFCU Financial the largest credit union in Michigan was building its new Business Banking department it brought on Lesli Matukaitis as its senior vice president of corporate banking. Lesli brought more than a dozen years of experience to DFCU as a former commercial lender client relationship manager and credit officer with Comerica Bank a 69 billion asset bank headquartered in Detroit. While experience requires a greater investment of resources it also brings confidence trust and peace of mind to your 34 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 5 C U B U S I N E S S . C O M board and management team that your employees have the right knowledge and skillset to build your MBL program. Another benefit of experience is the mentorship and direction it offers to more junior members of the team. To quote another basketball great former UNC-Chapel Hill head coach Dean Smith had this to say about the importance of experience in his book The Carolina Way. (Any guesses on where I went to college ) Senior leadership was crucial in having a confident team. Those players had been in our program for four years and knew what we wanted and what it took to get it. They were able to mentor the younger players and give them a heads up on what to expect in different situations.... Having someone with sufficient experience at the helm of your MBL program not only ensures there is a strong leader in charge of enforcing the rules but also provides a mentor for younger members of the team who can learn develop and benefit from a seasoned professional. In addition it can have a positive ripple effect on the credit union more broadly. Don t put all your eggs in one basket. Just like you never want to put all of your money into a single stock or investment vehicle taking a diversified approach to hiring and building your team is also a wise decision. LIMITED TIME OFFER Introductory Rebate MEMBER BUSINESS LENDING TAB I think it is important that credit unions acquire knowledge from multiple sources and don t just hire and trust one commercial loan officer to build a program says Corning s Bierman. It is important to gain the experience necessary by hiring experienced lenders and credit analysts and or by utilizing the services of an outside consultant or CUSO. Corning used both of these options when starting its MBL program. The NCUA also supports this method for MBL stating A credit union can meet the experience requirement through various approaches. For example a credit union can use the services of a credit union service organization (CUSO) an employee of another credit union an independent contractor or other third parties. Engaging in a CUSO partnership is a great way to build your winning MBL team while also helping to offset fixed costs and manage the risk. CUSOs can help credit unions build their business loans in a variety of ways which we ll explore in greater depth next month. Keep your eye on the member. Credit unions as a fundamental principal exist to help people not to make a profit and member relationships and service represent the cornerstone of the credit union industry. Over the past few years credit unions have become increasingly aware of the number of member business owners incorrectly placed in products and services that are traditionally geared toward consumers and they have responded by expanding business service offerings and commercial loan products. Providing member business lending extends to other points of value beyond just the loan opportunity with one of the most significant being expanded member relationship potential. Our decision-making is driven by what is in the best interest of our membership and our members have been asking to move their business accounts to us for years Matukaitis said. With the recent launch of its new Business Banking department on May 1 DFCU Financial has given its answer. Building the right team is one of the most important considerations for your member business lending program. Increasing demand by members for additional business offerings brings the added pressure to maintain your credit union s level of quality and service. By attracting recruiting and hiring a strong team you can maintain a strong reputation which will differentiate your institution from others and make your growing MBL practice a great one. Ryal Tayloe is vice president of credit unions for Wilmington N.C.-based nCino the leader in cloud-based operating solutions for the financial services industry. Through its flagship operating system nCino leverages the power of Salesforce.com to provide credit unions and other financial institutions with superior transparency and clarity into their existing loan production pipelines portfolios and operating efficiencies across all business lines. The end result is increased profitability productivity gains and regulatory compliance. For more information visit www.ncino.com or connect with the company on LinkedIn and Twitter nCino. The 1 Solution for Member Business Lending ncino.com 36 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 5 C U B U S I N E S S . C O M COMPLIANCE UPDATE BY CINDY WILLIAMS POLICYWORKS 8 Best Practices for Marketing Compliance Marketing and advertising can be a complicated maze for credit unions. Compliance requirements are so varied and nuanced that it s hard to meander one s way to the clearly marked exit. These eight best practices will help your CU navigate its way out of the complexity. W hen it comes to advertising and promotions credit union marketers are challenged to think outside the box while not actually leaving it. That s because regulations regarding financial services advertising are very complex and nuanced. Being creative in an environment with so many If this then that rules is tough. Complicating matters further is that one rule may even have different requirements based on the delivery method. For instance certain types of ads located inside a branch require additional disclosures. Yet it may be permissible simply to direct readers of those ads to a credit union employee for additional information. The same ad in print however may be required to contain the disclosures within the ad itself. There are several ways to ease the burden for both marketing and compliance folks as they create and review advertising materials. The following are a few best practices you may wish to execute within your cooperative. Share Crystal Clear Product Info. Marketing staff should be properly briefed on the product before they even begin the creative process. When the specific terms and conditions of a product are adequately shared with staff they naturally have an easier time communicating the ins and outs to a target audience. Keep It High Level. In my experience marketing personnel who have a general understanding of regulatory compliance requirements are well positioned for creating successful promotions. These individuals may not know all the details. They do however know when to ask questions. Over time they begin to develop a feel for when a certain term or statement may trigger the need for additional disclosures. They also intuitively come to understand how an ad can be created so that it requires the least number of regulatory disclosures. Promote Collaboration. Including the compliance officer early in the marketing campaign development process helps generate materials that are appropriate from the start. This avoids costly and time-consuming changes down the road. Over the years I ve seen nightmare scenarios such as complete commercial reshoots develop when proper guidance was not provided at the outset. Pad Your Deadlines. Allowing adequate lead time is not always possible given that most projects crossing a marketer s desk are labeled rush. Yet pressuring compliance officers to conduct a very fast review can result in overlooked issues and an inadequate appraisal. 37 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 5 C U B U S I N E S S . C O M COMPLIANCE UPDATE TAB Ask for Help. The rules and requirements related to compliance for advertising of financial institution products are so complex that most credit unions find that it makes more sense to outsource their reviews. Turn the process over to industry experts who know the ins and outs and have the bench strength to do those rush jobs without sacrificing quality. Provide Multiple Sets of Eyes. Consider developing a checklist that all stakeholders must use to provide their signoff. This will ensure that everyone is on the same page and that all compliance issues have been identified and addressed. Digital Counts. Always include digital and electronic ads in the review process for any campaign because the rules are often different for various delivery channels. This includes social media text messages e-mail and other forms of mobile marketing. Know What Qualifies as Marketing. Even messages included in periodic statements or newsletters can be considered marketing if the purpose is to promote a product. They should be reviewed by compliance just as any other form of advertising or promotional communication. 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. Loan Originator training You ve got this. Do you still need to satisfy your training requirements Look no further than the comfort of your own office. A new NMLSapproved self-study course is specifically designed for credit unions and meets the continuing education requirements of Reg Z. Enroll today at www.cuna.org MLO Check it off your to-do list Enroll today at www.cuna.org MLO OFFERED BY INSTRUCTED BY The services provided by PolicyWorks should not be construed as legal services legal advice or in any way establishing an attorney-client relationship. Making compliance easy for you. 866.518.0209 POLICYWORKSLLC.COM 38 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 5 C U B U S I N E S S . C O M LENDING SOLUTIONS BY LORRIE WOHLFEIL TAB CLE Are Your Marketing Strategies CostingYou Money Is your credit union stuck in the rut of showcasing only its best-performing products If so you could be undermining your earnings potential. Marketing all products and helping your entire membership is the key to CU profit. Learn how to work smarter not harder. M ost credit unions today are quite effective at marketing to their membership. Whether it s updating the home page on their website or sending out mailers one thing is for certain Their members know they have incredibly low rates on their auto loans. You may be asking yourself What s wrong with advertising the product that performs the best for us Nothing is wrong if you are happy serving a very small percentage of your membership and if your board of directors and management team are happy with where your earnings are. At Lending Solutions Consulting Inc. (LSCI) we audit a sampling of credit unions loans rates and financials. The message we hear is universal How can we earn more money Credit unions are working hard and are understanding they are in the loan business. LSCI has taught this to credit unions for years. Our philosophy is simple Everything follows loans. The problem with this mentality however is that not all loans are created equal. Marketing efforts need to be placed on all products and on helping all our membership. Take a look at the sample marketing piece. Does this look familiar The majority of credit unions are promoting auto rates with a spread over investments of less than 50 basis points. It is near impossible to maintain profitability and a strong capital if the majority of your growth is coming from the following 1. A and A auto loans 2. Indirect auto loans where you chased the rate down to no profitability to win the deal 3. Heavy real estate loans Let s look at the following credit union that falls into the scenario above More Work for Less Money Credit Union Year Dec. 2011 Dec. 2012 Dec. 2013 Dec. 2014 Loans Outstanding 558 307 000 595 339 000 640 333 000 675 873 000 Loan Yield 5.16% 4.84% 4.54% 4.11% Loan Income 28 120 000 27 926 000 28 074 000 27 061 000 What is the trend telling us This credit union has a declining loan yield that is severely hampering its ability to generate loan income. With 35 million more in loans during December 2014 over December 2013 the credit union secured 1 million less in earnings When we reviewed this credit union s marketing strategies there was one predominant theme. 39 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 5 C U B U S I N E S S . C O M TAB LENDING SOLUTIONS It was marketing new auto loans starting at 1.9 percent. Its growth as reflected above was coming from new auto loans to new members who had no plans on using the credit union other than for the low auto rate. The CU was growing non-profitable loans to one and done members. We have to change our mindset to work smarter not harder. This credit union s ROA is declining despite its strong efforts at getting the money loaned out. The culmination is the non-desirable scenario of doing more work for less return. This is because when loan volume increases so do many other expenses that cannot be avoided due to the desired and expected service levels your membership demands. Such expenditures include Increases in necessary staffing and subsequently employee compensation Associated and loan fees Processing fees Dealer fees Credit bureau fees One of our clients Dupaco Community Credit Union has done a great job in marketing and serving all of its membership. Matt Dodds COO states Dupaco Community Credit Union simply focuses on its mission of improving members financial positions. With that driving philosophy we naturally glean more loans with better yields. This helps more members and the credit union. If you take a look at the CU s results you will see the success it is achieving Earnings are 1.7 percent. Loan yield is 5 percent and in the 84th percentile. Loan growth year end was at 23 percent. Average age of membership is 40 compared to the industry average of 47. Dupaco is not alone in its philosophies. The business model of 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 40 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 5 C U B U S I N E S S . C O M LENDING SOLUTIONS many of the most profitable financial institutions is simple. They are willing to take a little more risk and live with slightly higher delinquency because the net yield (i.e. yield after losses) is still typically 600 basis points or greater than their A A secured loan products which have very low losses. The reference chart below shows a credit union s net yield by paper grade for its auto loans. You will see how it is easier to live with a higher loss ratio provided you are charging and utilizing the right rate structure. This works in large part because this credit union has a strong defensive team. Its losses on D and E paper are higher than its top-tier paper but are very attractive based on the inherent risk. This particular credit union invests a tremendous amount of resources into collections and training its decision makers. your members with the flexibility to pick a payment that fits their budget you will be able to stay competitive even without the lowest rates. You will see a sample of this approach below from one of our clients Natco Credit Union. With a loan yield of 8.65 percent this is in the 98th percentile the CU is able to lure Loan Losses 33 829 50 871 137 408 88 359 109 878 87 202 507 547 Charge Offs 0.13% 0.07% 0.55% 0.80% 0.95% 0.21% 0.45% Net Yield 2.82% 3.88% 5.40% 11.15% 14.00% 17.74% 9.17% Paper Grade Average Balance Estimated Income Average Yield Delinquency Ratio 755 141 2.95% 0.01% A 25 598 000 2 860 005 3.95% 0.05% A 72 405 000 B 24 730 000 1 471 489 5.95% 0.16% C 11 008 000 1 315 456 11.95% 0.24% 1 733 901 14.95% 0.53% D 11 598 000 760 362 17.95% 1.36% E 4 236 000 Total 149 575 000 8 896 354 9.62% 0.15% Paper Grade Yield Comparsion 2.82% Net Yield A paper 14.92% (difference between A and E paper) E paper will make you 500 times more than A paper. Showing this to your Board your employees and your examiners. Compare 17.74% Net Yield E paper On a recent loan audit for a credit union that we were performing at LSCI we identified a trend of many of this particular credit union s members going to Drive Time Finance. When we did a little research we identified that the company s tagline is We re the nation s largest used car company that helps people with credit issues. What was also interesting was what we didn t find there no loan rates were advertised. To date Drive Time has approved over 2.5 million consumers Extra Credit Union is another example of a strategically targetmarketing CU we have worked closely with over the years. The campaign it has adopted is to strategically market to members who have been denied for a loan elsewhere. Another effective strategy when you are working toward turning the emphasis off rates is target payments. All consumers can tell you their car payment but very few can tell you the rate they are paying on their auto loan. The rate is not the driver of what fits into the budget on a monthly basis. If you provide C R E D I T U N I O N B U S I N E S S customers without chasing the rate. One thing you will not see on its home page is any marketing tied to having the lowest rates in town. Here is an internal checklist to help identify who your marketing strategies are targeting. 1. What is your home page advertising today Ask yourself If your members had credit problems in the past would they think you could help them If your members were looking to consolidate credit cards would they know you have a product available to them that would help their score and get them out of debt faster 2. What have your last three mailers targeted to your membership Are you target marketing based on credit tier or are you using a shotgun approach (everyone gets the same piece) Are your mailers rate based promoting a rate with a razor-thin margin over your investment yield 41 J U L Y 2 0 1 5 C U B U S I N E S S . C O M LENDING SOLUTIONS When is the last time you marketed debt consolidation loans or loans to your members who have had a hiccup in the past 3. Go back and inspect the following at your credit union What is your net yield for D and E auto loans Is it tell you if your marketing is global enough and if you are identifying with the age demographic with the most lending needs. Start getting rewarded for your efforts. An attractive yield is critical If you are not marketing and approving the right types of loans you too will become if you are not already the more work for less money credit union. Have your marketing philosophies targeted toward there is always a solution. You should always allow the opportunity for the right of first refusal on your members lending and financial needs. After all isn t this what the core credit union philosophy is all about Lending Solutions Consulting Inc. (LSCI) is the industry leader in providing consumer lending advice to credit unions across North America. Rex Johnson founded the University of Lending a comprehensive five-day lending school in 1996 and has since trained over 30 000 credit union employees. Rex Johnson and his team of experts have helped credit unions achieve dramatic improvements in their loan ratios bottom lines and member service practices. To have LSCI take a look at what may be driving your yield down and your appetite for risk please contact us for information on completing a loan audit portfolio. This can be completely customized based on your credit union size and the amount of loans we audit for you. Please visit www. rexcuadvice.com or contact Scot Vackar at 877.915.7675. Lorrie Wohlfeil began her career at LSCI in August of 1995. As a business analyst Lorrie is primarily in charge of the Portfolio Analysis program an external audit dedicated to helping credit unions make stronger loan decisions and seek sales opportunities. Lorrie also works hand in hand with our onsite consultants and has attended numerous Rex Johnson University of Lending and specialty schools. Before starting the Portfolio Analysis program Lorrie designed the highly successful training program in place at Lending Solutions Inc. (LSI) and personally trained many of the loan underwriters at LSI. Lorrie also spent four years as an onsite consultant for LSI. During that time she not only educated credit unions on lending but also trained their staff to make superior lending decisions. Lorrie graduated from the University of Kansas with a degree in Business Communications. higher than your A and A auto loans even after a higher loss ratio What is your net yield on your unsecured loans How many basis points higher is your net yield even on A and B unsecured than your A and B auto loans What percentage of your loan portfolio is in unsecured loans and credit cards 4. What is the average FICO score of your last 25 auto loans What is the average yield on this sampling 5. Take a look at your rate structure to ensure that when you are marketing and getting the members in you are appropriately pricing your products. a. You have a spread of 13 percent to 15 percent on auto loans. Rate tiers are broken down into six tiers. b. Your E auto loans are capping out at a minimum of 17.95 percent for 60 months. c. You are entertaining the idea of offering terms of up to 108 months on auto loans. This is a way you can still earn money on your best members. Many of your top-score members are looking to finance cars where extended terms are necessary based on the vehicles MSRPs. d. You are up-charging for loan to value. Many A and B borrowers can end up financing over 100 percent because they trade in a car quickly or see the value in insurance and warranties. This is another strategy for earning income on high-paper secured loans. e. You are up-charging for the age of the collateral. f. Track the average age of your members. This will 42 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 5 C U B U S I N E S S . C O M PAYMENTS BY CHUCK FAGAN PSCU PRESIDENT & CEO CUSOs The Horsepower & Fuel behind Credit Unions Need for Speed CUSOs must have a keen awareness of the state of the payments landscape. This insight enables CUSOs to make the most informed decisions the wisest investments and the best recommendations for how credit unions can position themselves for continued success. any states in the U.S. have raised speed limits on their interstates in the past several years. Thirty-six states now have speed limits of 70 mph or above. The Drive 55 era vanished long ago. I mention the trend toward higher highway speeds because a similar phenomenon has been happening in the payments industry. The speed of business is climbing as innovations particularly those related to account security digital and mobile are delivering greater horsepower and options to the consumer s payments experience. There appears to be no limit to how fast new technology can be placed in the hands of consumers. Prior to returning to PSCU I was removed from direct involvement and awareness of the dynamic and rapid emergence of game changing payments products and players. After 30 days getting reacquainted with the latest developments in payments it is not surprising to me that many credit unions may feel challenged to make sense of the new technology much less know if or how to integrate these new developments into their growth strategies and product sets. How do we hold our lanes but still keep the pedal down and avoid making any wrong turns or hitting a wall With consumer preferences driving the strategic decisionmaking for credit unions and their technology providers it s clear that CUSOs must have a keen awareness of the state of the payments landscape. This insight enables CUSOs to make the most informed decisions the wisest investments and the best recommendations for how credit unions can position themselves for continued success. The cooperative CUSO model with the benefits of its size scale buying power and strategic partnerships with industry leaders can help credit unions more nimbly negotiate the twists and turns of complex new payments technologies. EMV and digital wallets like Apple Pay and the recently announced Android Pay are great examples of sophisticated technologies that involve the coordination of many moving parts (and multiple partners) to be successfully delivered to members. The depth of resources within a full-service CUSO can relieve credit unions of the burden of managing dozens of endpoints processes and tasks associated with launching these new technologies into your market. The cooperative credit union model affords CUSOs like PSCU the flexibility to make decisions that focus on the best interests of Member-Owners rather than shareholders. As partners and advocates we work to understand the goals and needs of each credit union. We invest in projects that are longer term in nature with the primary objective of helping Member-Owners M 43 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 5 C U B U S I N E S S . C O M PAYMENTS TAB outperform the market. PSCU focuses on bringing scale to credit unions of all sizes so their market presence across all business lines is as sophisticated and impressive as those of competitors many times their size. The cooperative model allows PSCU to focus on resolving the most strategic credit union business challenges and in the most operationally efficient manner. CUSOs are typically seen by processors as a single big client with many sub-clients. PSCU is First Data s third largest and Visa s ninth largest partner in terms of processing volume. Our ranking with these industry leaders brings significant economies of scale and the ability to influence pricing. This status also gives us access to and a voice in our partner s direction and decisions around product development. The combination of preferred pricing and the value inherent in the full-service cooperative model allows credit unions to more effectively grow their businesses manage costs and attract and retain members. PSCU has been leading the charge with respect to EMV migrations since 2011 when the CUSO became one of the first in the credit union industry to offer plastics that incorporate both EMV chip and PIN technology and is intimately familiar with the certification testing and production processes for these chip cards. EMV credit card program deployments for PSCU s member credit unions have officially surpassed the one millioncard mark. One-hundred member credit unions are currently certified for credit EMV with 350 credit unions slotted for credit EMV certification this year. Another 125 credit unions are slotted for certification of their new debit EMV programs. Credit unions that seek to mitigate their liability for fraud following the October 2015 liability shift can most certainly bring their EMV programs to production much faster by enlisting the help of a CUSO that has deep experience with these types of implementations. And the need for speed was never more evident than when Apple introduced Apple Pay on September 9 2014. The announcement was a bolt from the blue that caught nearly every issuer by surprise. All reacted and mobilized some better and with more agility than others. PSCU s relationships with its payment partners enabled our technical and service teams to rapidly and efficiently bring the convenience and security of this new digital wallet to Member-Owners. PSCU s scale play works for innovations like Apple Pay it would be a huge headache for Apple to try to deal with 6 000 end points but by consolidating them into a much smaller number PSCU makes it feasible for Apple and credit unions to work together. Less than ten months removed from the announcement nearly 80 PSCU MemberOwners are now live with Apple Pay while another 130 credit unions are in the implementations queue. PSCU MemberOwners account for roughly 40 percent of all credit unions offering Apple Pay. EMV and tokenization will address current security threats but somewhere down the road we ll no doubt need to manage to a new set of risk challenges and threats. Credit unions will have to meet those challenges in order to continue to deliver on the promise to members and to protect and preserve their value in the payments industry. Execution is the most effective catalyst for success. PSCU s role as a CUSO and cooperative partner is to help credit unions overcome the challenges they face today and to anticipate and meet the trials that tomorrow will bring. Success now is what matters most because it powers growth for the years ahead. The combination of the cooperative model and rich payments industry expertise enables CUSOs to focus on resolving the most strategic credit union business challenges and in the most operationally efficient manner possible. During times when the payments universe is changing at such breakneck speed a trusted CUSO s deep resources experience and access to key industry experts and partners can be a credit union s best tools for higher growth greater relevance and stronger member relationships. Charles E. Chuck Fagan is President and CEO of PSCU a leading CUSO serving 800 credit unions. 44 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 5 C U B U S I N E S S . C O M service The occupation or function of helping. What limits should a function like this have A good CUSO not only knows the answer to this question but also builds their availability upon it. At PSCU our 24 7 365 Total Member CareTM team embodies your credit union to assist your members all hours of the day and night. We have the tools and technology to address concerns quickly and we spring to action when you wish to unwind. As for limits that s not our business. pscu.com tmc 888.918.7357