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T H E ON LY A LL-DIGITA L A LL-B USINESS R ESOUR CE FOR CR ED IT UNIONS THE LENDING ISSUE JUNE 2016 VOLUME 11 ISSUE 6 For CUs the Real Estate Advocacy Trend Comes of Age TIM MISLANSKY The Amazing Power of Exceptional Leadership Systems SCOTT MCCLYMONDS Perceived Dangers Make Mobile Payment Technology Slow to Take Off CLEVELAND BROWN Turn on your team with an introductory discount and money back guarantee. Each month Credit Union Business Magazine brings you the most informative news from the top publication in the CU world. Your CU s department heads receive timely articles about their jobs CU Business monthly e-Magazine Weekly top article Over 5 years of back issues on our website 4 E-CUB MONTHLY 4 CEO VELOCITY 4 CFO CURRENCY Help the Kids with an automatic 10% donation directly to CMN s Credit Union for Kids campaign 4 CU TRAINING 4 TECHNICALLY SPEAKING 4 LENDING SOLUTIONS 4 MARKETING MATTERS 4 COMPLIANCE UPDATE 4 BRANCH BUSINESS With the new CU Team Builder program I ll be able to retain hard copies of your magazine and ensure that my colleagues receive helpful articles on a position-specific basis Walter Merkle EVP Northwest Georgia CU Signing up is simple 450 for the first year (10% introductory discount of 50 per year). (10% donated to the Children s Miracle Network) Pay with major credit cards through https creditunionbusiness.com subscription or send a check to C.U. Business Magazine PO Box 223 Palm Beach FL 33462 Subscription costs refunded if not completely satisfied. TABLE OF CONTENTS CREDIT UNION BUSINESS THE ONLY ALL-DIGITAL ALL-BUSINESS RESOURCE FOR CREDIT UNIONS 4 6 10 15 18 22 24 UP FRONT Ashok Kumar Direct from New Delhi Tim O Hara TECHNICALLY SPEAKING Kenneth J. Sole CEO VELOCITY 27 32 38 41 45 47 MEMBER BUSINESS LENDING Moving Toward a New Dawn in Member Business Lending Pam Easley REAL ESTATE LENDING AML ... A Growing Concern for Credit Unions The Amazing Power of Exceptional Leadership Systems Scott McClymonds CFO CURRENCY For CUs the Real Estate Advocacy Trend Comes of Age Tim Mislansky CU DATA Crediting Credit Unions for Data Center Services Mark Gaydos MEMBER BUSINESS LENDING Want Stronger Capital Strengthen Your Stress Testing Process Emily Hollis CU TRAINING Cultivating Healthy Tension to Become a Lead Dog in Business Lending Josh Glover CU PAYMENTS Merger Strategy Think Water and Ice Kenneth C. Bator MBA BRANCH BUSINESS Perfecting Digital Banking for a Nation of Multi-Screeners Bill Prichard LENDING SOLUTIONS The Perfect Universal Associate Branch Recipe Meredith Deen PAYMENTS First Time Buyer Program Start by Asking the Right Questions Ed Swanson Perceived Dangers Make Mobile Payment Technology Slow to Take Off Cleveland Brown 1 C R E D I T U N I O N B U S I N E S S J U N E 2 0 1 6 C U B U S I N E S S . C O M ABOUT US THE ONLY ALL-DIGITAL ALL-BUSINESS RESOURCE FOR CREDIT UNIONS PUBLISHING TEAM Tim O Hara Editor & Publisher tim cubusiness.com Ashok Kumar Associate Publisher ashok cubusiness.com Patti Manzone Designer UP FRONT Tim O Hara TECHNICALLY SPEAKING Kenneth J. Sole CEO VELOCITY Scott McClymonds CFO CURRENCY Emily Hollis CU TRAINING Kenneth C. Bator BRANCH BUSINESS Meredith Deen PAYMENTS Cleveland Brown MEMBER BUSINESS LENDING Pam Easley REAL ESTATE LENDING Tim Mislansky CU DATA Mark Gaydos MEMBER BUSINESS LENDING Josh Glover CU PAYMENTS Bill Prichard LENDING SOLUTIONS Ed Swanson 2 C R E D I T U N I O N B U S I N E S S J U N E 2 0 1 6 C U B U S I N E S S . C O M T H E O N LY A L L - D I G I TA L A L L - B U S I N E S S R E S O U R C E FO R C R E D I T U N I O N S THE LENDING ISSUE JUNE 2016 VOLUME 11 ISSUE 6 For CUs the Real Estate Advocacy Trend Comes of Age TIM MISLANSKY The Amazing Power of Exceptional Leadership Systems SCOTT MCCLYMONDS Perceived Dangers Make Mobile Payment Technology Slow to Take Off CLEVELAND BROWN SUBSCRIPTIONS 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 Tim O Hara Publisher tim cubusiness.com or 561-282-6015 1 CONTACT INFORMATION Credit Union BUSINESS Magazine P.O. Box 2223 Palm Beach FL 33480 (561) 282-6015 (561) 588-7711 (fax) tim cubusiness.com cuso A community joined together for a common purpose. PSCU In what ways does collaboration benefit a credit union Can it expand reach and outpace the competition Provide greater services and prevent newer risks At PSCU we know that credit unions are stronger when they stick together. And we re proud to be a 30-year leader in credit union connectedness. When you join PSCU you re joining the ranks of more than 800 credit unions nationwide that leverage the power of our cooperative. A W AR DED BY NAC US O pscu.com 844.367.7728 TAB UP FRO NT BY TIM O HARA F Ashok Kumar Direct from New Delhi or most of my working life I ve been a traveling salesman going out to meet with our advertisers to tell them why (fill in the blank CU Business and before that the CU Journal and back in 1989 when we launched it Credit Union Times) was the best bet for their marketing programs. Audience information timeliness together made each publication a power in the industry at least while I was involved (humor). But since I took over the editorship duties on top of publisher owner of CUB I made a conscious decision to stay put and concentrate on the editorial product and delivery of the best business information source for credit unions. And am I glad I made that decision Working together with our small team of editors and designers we ve continued a steady stream of great monthly magazines. The editorial product is written by some of the best expert consultants who know every facet of running a successful credit union operation. I am especially fortunate to have an associate publisher who works remotely from the other side of the world in New Delhi India to improve on our product delivery. Ashok Kumar is a very bright young man who can solve just about any technical glitch to turn our monthly pdf issues into easy reading digital editions. Ashok introduced me to Skype a free service that allows us to text message at any moment. We often talk over challenges and find solutions through Skype and it s as if Ashok was in the room with me It is Ashok who creates our weekly eNewsletters and also designs and populates our popular website (which now contains 64 monthly back issues ) Our esteemed writers are all lined up to provide you with best practices whether you are working in the finance department lending marketing compliance technology risk management branching or if you sit in the CEO office. We have a monthly column just for you. Lately we ve been working hard to grow our subscriptions through the Team Builder group subscription program. Each column on the subject list in the last paragraph is emailed separately to the appropriate CU pros. There isn t a limit on the number of folks we sign up in each credit union. And the cost is now discounted by 50 to just 450 for the year. Most credit union people also love the fact that 10% of each subscription is sent to the Children s Miracle Network and the donation is made in the name of the credit union to be used at the nearest CMN hospital to the credit union s community. Now this is something to talk about and later this month I m going to pack by bag and visit as many credit unions and CU suppliers as I can to tell them exactly why Credit Union BUSINESS is the best bet to build their staff s knowledge and the best way to market to top credit union decision-makers. I hope to see you soon 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 N E 2 0 1 6 C U B U S I N E S S . C O M TEC HNIC A LLY SPEA K I NG BY KENNETH J. SOLES Unions AML ... A Growing Concern for Credit The widening sphere of credit union membership should represent opportunity for CUs but it s not without its inherent risks. Keep reading to find out how to protect your credit union from the antimoney laundering schemes that are stemming from open enrollment and association memberships. long with the opportunity of everexpanding fields of membership the credit union industry is able to access within the current regulatory climate comes a corresponding increase in risk with regard to money laundering concerns. Traditionally credit unions had been somewhat insulated from this risk due to their knowledge of where their members originated and their tight control over members transactional activities. Now with open enrollment and association memberships almost anyone can avail themselves of the products and services offered by a credit union. Today s expanded business banking capabilities and open markets however also provide an opportunity for the credit union to become a prime target for nefarious monetary practices. As such it is imperative that credit unions exercise increased diligence in this arena and implement sophisticated automation to assist in the management of monitoring and tracking of both cash and electronic transfers. Regardless of the platform employed there are five key data elements to be monitored when it comes to anti-money laundering (AML) governance. These are Member Information Geography Products and Services CU Data History Regulatory Filings Each of these data components must be tightly managed and electronically stored to enable the credit union to 6 C R E D I T U N I O N B U S I N E S S A monitor for unusual patterns or suspicious activities. With regard to new members credit unions need to monitor who these new relationships are and how they arrived at the credit union. An evaluation process (and corresponding Office of Foreign Assets Control check) must be formulated and implemented to assess if the new prospective member is a high risk member or a politically exposed person (PEP). Account origination systems must be positioned to perform these evaluations and formal documentation should be retained as evidence of such processes. Geographical areas must be reviewed in a number of ways. Certain geographical areas (such as highdensity drug trafficking areas or high-intensity financial crimes areas) may be identified and categorized as undesirable to establish memberships or even conduct TURN ON YOUR TECH STAFF withTEAMBUILDER. 4 TECHNICALLY SPEAKING www.cubusiness.com teambuilder buy 2 0 1 6 C U B U S I N E S S . C O M J U N E 250 000 Credit Union Employees 92 Million Members 100 Million Miracles Since 1996 Credit Unions for Kids has raised more than 100 million for Children s Miracle Network Hospitals giving hope and healing to kids in your local community. YOUR FUNDRAISING DOLLARS IN ACTION MILLION 10 2 1 iMRI machine and surgical suite 1 Cardiac X-ray machine 1 Ultrasound machine 1 Bone marrow transplant 1 Fully-equipped Giraffe OmiBed incubator MILLION THOUSAND 270 THOUSAND 250 THOUSAND 100 TECHNICALLY SPEAKING business within. Credit unions should review these areas to determine if business is being conducted within them and whether or not there are specific pockets of high activity occurring within such boundaries. Special consideration should be given to prospective members located outside of familiar geographic arenas. The same holds true for specific products and services. All current and proposed products and services must be evaluated to assess the risk of abuse and appropriate monitoring of such risk must be implemented. These imperatives especially hold true for various electronic transfer capabilities such as wires p2p payments and ACH remittances. Credit union data history is a key to monitoring and minimizing AML risk. In order to accomplish the management of AML risk objectives data needs to be extracted from existing processing applications and entered into the AML data repository. If a service provider for core processing is utilized the credit union may have to enlist the assistance and support of that entity. Both internal and external processing capabilities may need to be modified to facilitate the export of required data elements. All existing systems should be evaluated to determine if they contain data that may be required to establish transactional limits or behavioral patterns of activity. A risk factor should be applied to these data sets ranging from least to moderate and finally to critical. All platforms should be reviewed. These include over-thecounter transactional systems demographic repositories and various electronic platforms such as ATMs online banking and other electronic transfer systems. Tracking of cash transactions is extremely critical to this governance. In addition to the standard filing of a cash transaction report (CTR) for single or aggregate transactions over 10 000 in a single day cash transaction structuring must be monitored as well. Structuring is the practice of executing multiple deposits or withdrawals over a period of time to circumvent the CTR regulation. Members who execute numerous cash transactions over the period of a week a month or some other pre-determined threshold should be identified and reviewed for suspicious activity. Attention must be given to payees of official checks 8 C R E D I T U N I O N B U S I N E S S and potentially high-risk electronic transfers of funds. Person to person payments and wire transfers are also especially critical functions that require tight monitoring. All wire recipients should be reviewed using the OFAC database. This process of checking the OFAC database must be applied not only to the establishment of new accounts and individuals attempting to establish membership in the credit union but also to the scrubbing and matching against the entire database on a regular basis. The preparation and submission of suspicious activity reports (as well as the follow-up thereof) should be automated and these reports should be filed for retention. Credit unions cannot afford to ignore AML diligence and compliance due to the reputational risk and large levied fines that are associated with AML compliance deficiencies. With the advent of many credit unions entering the commercial lending arena an additional AML practice known as de-risking may need to be adopted. Regulators are now calling for formal de-risking of documented processes. De-risking is the practice of establishing and identifying those types of business entities with which the credit union will not establish a relationship. Money service businesses (MSBs) check cashing entities are such types of businesses that are considered high risk. Policies should be established to preclude risk and avoid regulatory criticism. While the above discussion may sound daunting there are a number of commercially available platforms to assist the organization in meeting these objectives. The credit union needs to select the platform that best suits its risk profile and that will readily accept the feeds from existing systems and or service providers. Once the platform has been selected interfaces will need to be built to aggregate all of the appropriate data elements. This data must be managed via a defined rule set of parameters that the system will provide. Fine-tuning these parameters will ensure that the system is not generating too many warnings thus creating a review burden for the credit union staff or that it is under-reporting what may actually turn out to be suspicious practices. So too member and transactional 2 0 1 6 C U B U S I N E S S . C O M J U N E TECHNICALLY SPEAKING patterns of activity standards must be defined to establish the bounds of the norm. For instance if a member is generating 40 electronic transfers in a month is that a reportable item based upon the nature of his or her business or upon previous patterns of activity These are just a few of the types of questions and analysis that will need to be performed to establish an effective AML program for your credit union. Additional guidance regarding all of these processes and best practices may be found in the Federal Financial Institutions Examination Council (FFIEC) Bank Secrecy Act Anti-Money Laundering Examination Manual. Kenneth J. Sole is the founder and president of Kenneth J. Sole & Associates Inc. a leading technology and operations firm dedicated exclusively to the financial industry (banks thrifts and credit unions). The company established in 1988 has conducted engagements throughout the United States as well as in Canada and the Caribbean. The firm has also been engaged by such industry leaders as Fiserv Unisys EDS and Aurum Technology (now FIS). Mr. Sole was the founder of the first client server-based data center in the U.S. and has conducted scores of Core System bank conversions as well as large systems integration projects related to bank mergers and or acquisitions. His career spans over 38 years in the industry and has also been engaged as an instructor and guest lecturer. 9 C R E D I T U N I O N B U S I N E S S J U N E 2 0 1 6 C U B U S I N E S S . C O M CEO V ELO C ITY BY SCOTT MCCLYMONDS The Amazing Power of Exceptional Leadership Systems Creating value for members and generating growth these are the two cornerstones to every credit union s success. Generating an environment that brings about both goals should therefore be a CU priority. A strategic alignment framework is just the tool your credit union needs. These eight pillars will help you achieve success. The Case for Great Leadership Systems In my work with credit union CEOs I am always energized when I find a thriving organization that is focused on profitability creating a great place to work with a strong culture and adding exceptional value to its members and communities. Invariably when I dig into what makes these credit unions become so successful I find their success is not accidental. Quite the opposite the intentional development of strategic leadership and management systems practiced and modified over time has brought about their success. The importance of great leadership systems in creating championship performances cannot be overstated. For example the University of Arkansas has a track and field dynasty winning over 40 national championships since the 1980s. Recently I asked one of their track athletes why the team is such a perennial success. He told me they train to the times they need to win and they optimize their workouts practices diets and rest to consistently achieve those winning times. In his classic book The E-Myth Revisited Michael Gerber punctuated the importance of effective systems for small businesses through the story of Sarah owner of a pie shop. Sarah baked awesome pies but her business was suffering due to her lack of effective systems. Gerber as her metaphorical coach 10 C R E D I T U N I O N B U S I N E S S J U N E 2 0 1 6 C U B U S I N E S S . C O M was able to help Sarah develop a thriving business by creating systems that let her produce and sell her pies profitably. While the storyline was directed to small businesses it is no less pertinent to your credit union. In fact my last three articles have been about leadership systems. We discussed the effect of member portfolio management on strategy and operations twice and in last month s bombastic critique of the term relevance I touched upon the type of system needed to create strong value for members. Not surprisingly both systems required significant backing and engagement from the CEO. Your credit union has systems all over the organization. Not just technology systems but also TURN ON YOUR C-LEVEL 4 CEO withTEAMBUILDER. DEPARTMENT HEADS VELOCITY www.cubusiness.com teambuilder buy CEO VELOCITY TAB systems or processes to generate indirect loans mortgage loans and credit cards. You have systems to hire and train employees and systems to evaluate risk. Systems can be strategic and operational but for our purposes over the next few articles I want to focus on leadership and management systems because they are what will create value for members as well as growth for the credit union. The systems I ll bring to you will outline a system for creating credit union growth much of which will be derived from CEOs I have worked with who are leading thriving institutions. The systems themselves are not visible but they do exist. They re how these credit unions operate and they were created intentionally by CEOs and their teams. The leadership and management systems we ll cover are not the only ones you ll need and you may have some additional ones to include. However they will provide a solid foundation for growth and member value creation. Much activity occurs but there is no championship. Work seems like a grind because of the chaotic disconnected nature of everyone s disparate goals. How does this disconnection happen It comes from a lack of alignment and without a framework to purposefully build alignment chaos will always exist. Of course chaos yields average performance and value creation and for the credit union of today and tomorrow that means out of business. The 8 Pillars of Strategic Alignment I like to call this systems alignment framework The 8 Pillars of Strategic Alignment. Most of the best CEOs I know use some variation of it because it creates a tight strategic alignment around a very focused strategy. The 8 Pillars of Strategic Alignment Framework for Aligning Systems The first system is actually a framework around which other systems are developed and it is designed to produce strategic alignment throughout your credit union. Why am I starting with a framework for strategic alignment As PenFed s James Schenck once told me I ve found that constant communication with coworkers has been absolutely critical in my ability to create a vision align resources and focus on the execution of a strategy. Have you ever worked for a company that appears to lack focus because it has innumerable goals and is trying to be everything to everyone Mortgage has goals. Retail has goals. Finance has goals. Everyone has goals. Yet with all those goals there is no unity or commonality among them. Hence nothing remarkable happens. 11 C R E D I T U N I O N B U S I N E S S J U N E 2 0 1 6 C U B U S I N E S S . C O M CEO VELOCITY s we journey through these 8 Pillars you may notice that the systems I described in previous articles like Member Portfolio Management touch upon many of them. If you consider The 8 Pillars of Strategic Alignment as a process that cycles continually it is not difficult to imagine significant velocity and momentum building and increasing as your team grows in its knowledge of members and how to serve them while holding fast to your identity and focused strategy. Here is a brief description of each of the 8 Pillars. As I said you may add or subtract from them but in the short examples I ve provided you will clearly see how they align your team around a tight focus. A 4. Member Experience How members rate their interaction with you as well as how they perceive your knowledge of their situation your concern for it and your ability and willingness to help are critical. For vulnerable entrepreneurs we are going to create focus groups to better understand their situation and what they want from us. We will create social media peer groups for them and also train certain employees who can relate to them and provide modest coaching in an omni-channel format. 5. Communicate These are the systems you use to communicate internally among your employees as well as externally to members and the marketplace. We will establish an intranet showing stories of how we are helping these vulnerable entrepreneurs. We want to share success stories so we ll get smarter and more effective in our work with these members. We will also broadcast our increased capabilities to the marketplace via word of mouth workshops and social media. 6. Focused Execution Strategy without execution is useless so here we create our goals as well as the specific processes actions tactics and timing needed to get our desired results. By the end of the year we want to have personally touched every vulnerable entrepreneur. These touches will help us create two new bridge loan products experiment with at least 100 entrepreneurs and help at least 20 of them make it to the next level of their business. 7. Measure Our question shouldn t be just did we or didn t we achieve our results but why or why not We want not merely the end results but also the vital information that will provide us with helpful diagnostics. A careful upfront definition 12 The 8 Pillars Defined 1. Know Who You Are Knowing who you are is akin to your brand promise. We help members of all income and age groups improve their financial health. 2. Strategy Your strategy is how you achieve your brand promise or what you do about who you are. We have products addressing members who are thriving coping and vulnerable. We seek out people in all categories and we train our employees to understand how we can improve their financial health. 3. Member Needs Understanding the distinct preferences and needs of your key member groups can help you innovate and differentiate. Many of our vulnerable members are aspiring cash-strapped entrepreneurs with poor credit histories. Their cash situation precludes them from creating the volume of product they need for a breakthrough. If there were some way to help them bridge the gap little by little perhaps we could get them over the hump. C R E D I T U N I O N B U S I N E S S J U N E 2 0 1 6 C U B U S I N E S S . C O M CEO VELOCITY of key metrics is essential. We touched half of our vulnerable entrepreneurs because our contact information on the rest of them was obsolete and some of them just didn t respond to us. Instead of two new loan products we created one because our other goals and responsibilities made creating two impossible. We also found creating one was much trickier than we anticipated. We experimented with 10 entrepreneurs and discovered we were able to help four of them make significant gains. 8. Innovate Use your experiences member and market knowledge technology and creativity to build greater value for your members that creates loyalty and growth. We still want to create two new loan products for vulnerable entrepreneurs so we are forming an innovation group consisting of the product development team the specialists who work with vulnerable entrepreneurs and the vulnerable entrepreneurs themselves. The input gained from everyone should help us create and get the products to market quicker. Moreover the distinct nature of these products will not only help our existing vulnerable entrepreneur members but also attract more to us. They re not on anybody s computer screen. They need to be intentionally created and the CEO must actively participate and buy in to their creation management and enforcement. Like the University of Arkansas track team has discovered (as well as many of your credit union peers) exceptional leadership and management systems when well executed deliver championship results. Any CEO in any credit union of any size (that means YOU) can create these systems if he or she has the willingness discipline and support. Putting in the hard work to ensure the strategic alignment of your credit union is the most worthwhile endeavor you can pursue as CEO because of its comprehensive nature. It impacts every aspect of your CU especially your ability to meet member needs. While it is difficult I m reminded of my 16-yearold son who despite complaining about how hard basketball practice is has transformed himself into a solid ballplayer because he decided the price was worth it. I assure you the price for you is worth it for you too. Strategic Alignment Exercises Answer each of the five questions below yourself then ask your board management team and a sampling of front-line people to do the same exercise. Now compare the front-line answers with your board and management team. If the answers are similar your alignment is probably strong. If the answers vary widely you have some work to do. Commentary There are great perils to not having a high level of strategic alignment. For one it is impossible to build a cycle of increased velocity and momentum if an organization is out of alignment. That is because out of alignment means out of control. As you can imagine misalignment can occur in any of the 8 Pillars. Not having clarity on your corporate identity can leave everything else in disarray. A clear identity with an unfocused strategy is no better and so on. Earlier I said leadership systems are invisible. 13 C R E D I T U N I O N B U S I N E S S J U N E 2 0 1 6 C U B U S I N E S S . C O M CEO VELOCITY 1. Who are we What are our strengths What is our brand 2. What is our strategy 3. Who are our members what are their needs and how do they rate their experience with us 4. What positions need to be in place to execute our strategy and how is the performance of each role measured against strategy 5. What new ideas investments or acquisitions are we considering How strongly do they correspond to our identity and strategy Scott McClymonds of CEO Velocity coaching and scottm ceovelocity.com. consulting specializes in helping credit union CEOs create differentiated value for members build stronger brands and increase profitability. As a thought leader he is a frequent speaker to credit unions across the nation. He can be reached at 479.263.0774 or Scott McClymon ds an d CEO Velocity help credit union s acquire and retain profitable mem bers. Using mem ber portfolio management and other advanced strateg ies CEO Velocity helps you imp ro ve profits wh ile better serving th e needs of your members and communities. Do you need to stand out more from your local financial services providers Wo uld you like to have deeper m ore impactful relation ships with your members Do you need more profitable memb ers Does your profitability need to increase Do you r have business units or branches that need to improve performance Do you need to more effectively reach you r market Email scottm ceo velocity.com to request a free paper on how to find an d close earni ngs gaps in your credit union. I have worked with hundreds of clients on strategic marketing programs over the last 20 years and Scott McClymonds is at the top of the list. I would highly recommend Scott as a resource to anyone looking to improve their performance. - Tim Keith Partner and Chief Strategist Infusion Marketing Group 14 C R E D I T U N I O N B U S I N E S S J U N E 2 0 1 6 C U B U S I N E S S . C O M CU TRA INING BY KENNETH C. BATOR MBA Merger Strategy Think Water and Ice Does the word merger send shivers down your spine The credit union mergers of today are nothing like the ones of a decade or two ago. See how they ve changed from desperate survival acts focused on operational efficiencies and asset grabbing into lifeboats for thriving with two real-world case studies. How are you likin this merger now This was a statement I made to a colleague of mine probably a half dozen times in 2000. In 1999 he and I were two of about 100 employees involved in a significant credit union merger. Shortly after the intent to merge was announced by the two CEOs details of the unification started to filter through our management team. My colleague a fellow VP with whom I had worked with for six years sat in my office with the door closed while we discussed the recent announcements. I mentioned a few concerns based on the initial information. He retorted with as much of a straight face as he could muster This is a good thing. It will be good for the members. It will be good for all of us. We both smiled knowing full well that what he said was little more than purely optimistic thinking. I responded with I hope you re right trying my best to psychologically jump completely onto the This is a good thing bandwagon. Those who have read my latest book The Formula for Business Success B C S may remember my reference to this merger and that it sure didn t turn out to be a good thing. Shortly after the merger took place there were system issues and pricing promises we couldn t live up to that damaged the brand. Exacerbating these problems was a confused culture where two completely different teams with dissimilar personalities were thrown together to try to achieve lofty goals amidst a storm of unforeseen complications. 15 C R E D I T U N I O N B U S I N E S S J U N E 2 0 1 6 C U B U S I N E S S . C O M Speaking of goals the aggressive strategy the newly combined management team had compiled soon had little chance of being fully implemented much less achieved as we sailed through a sea of complexities created by a fractured brand and disorganized culture. While I truly believe those who were responsible for making this merger happen did so principally with the proper intentions they did not go into the amalgamation with the proper mindset. I believe they were mesmerized by the black-and-white surface-level attraction of what combining assets and operations would look like. As I mention in the book The example I shared from my experience went something like that. We took the name of firm A since it had better brand recognition. We took the IT structure from firm B since it was more advanced. We CU TRAINING took the sales team and approach from firm A since it had achieved better results. We took much of the operations function from firm B since it was more robust. And so on and so forth. This may sound great on the surface. However it is the equivalent of a child playing with two jigsaw puzzles. Say his two favorites are one of Superman and one of Daffy Duck. He loves the Superman portion but hates the background of the Fortress of Solitude in the puzzle. The kid isn t a huge fan of Daffy Duck but he loves the face the character makes and the pond in the lower right portion. So he assembles the first puzzle with just the Superman portion. He then takes just the pieces that encompass the pond and Daffy s bill and tries to force the edges together somehow to firmly stick with Superman. Imagine how that looks. The child eventually learns that the pieces simply just won t fit. After some frustration he probably crawls over to the other side of his room to break a toy or something. Unfortunately some executives in this best of breed situation aren t as bright as most children. We can shove this squared portion of this puzzle into this roundish hole I know we can If you say we can t you just have a bad attitude While my fabricated quote is obviously extreme to make a point it isn t as far from reality as some may think. ... in a true merger-of-equals scenario it s better to look at the two organizations as two separate ice sculptures rather than puzzles. True reinvention then is melting down both sculptures into water and refreezing the water into ice in order to create one brand new work of art. What that entails is starting at the very foundation with mission vision and values. This also means that everything is fair game for change including all positions from front lines to CEO all policies all ways of doing business all aspects of the Brand and the Culture. That is true reinvention but it seldom if ever happens since everyone would need to check their egos and preconceptions at the door. It also takes a true entrepreneurial spirit to take all of the resources available and reorganize them like you would a brand new company. Fortunately today in an age where it at least seems like there is more focus on mergers within the credit union industry than ever before I see many more CEOs thinking water and ice rather than multi-puzzle. While they may start by reviewing 5 300 reports they re also asking the right questions such as Will this merger improve our brand What will the effects be on all employees Does this merger truly fit within our long-term strategy TURN ON YOUR TRAINERS 4 CU withTEAMBUILDER. TRAINING 16 C R E D I T U N I O N B U S I N E S S J U N E 2 0 1 6 C U B U S I N E S S . C O M www.cubusiness.com teambuilder buy Bob Steensma CEO of Five Star Credit Union in Dothan Ala. states There are two primary things we look at. What is the market they (the merger candidate) serve and what is the culture of the organization. Early CU TRAINING on in the process HR meets with HR. We jump into deep discussions on policies procedures staffing and responsibilities. It starts to uncover some of the cultural aspects. It s more than just statistics. Ken Landis CEO of Pasadena Service FCU in Pasadena Calif. asks some comparable questions from the start. If the merger candidate is struggling Ken and his team try to make some determinations. Why are they not competing well What are they doing to market themselves Ken adds that the answers lead to more important questions such as Are we going to be able to turn them around Are we going to be able to make them a part of what we do All of these questions are brand- and culture-related ones ... much deeper queries than those of a finance accounting or operations nature. Both CEOs also understand the importance of having a strategy from day one to integrate the brand and culture. Ken Landis explains how he takes that approach during the initial conversation with the CEO of the other institution. I explain how we look at mergers. In a merger with us you keep your identity. Employees keep their jobs. Ken also discusses how his CU takes away the burden from the merging CEO in that we take regulatory responsibilities and other headaches off their plates. Everyone gets up and goes to work after the merger just like they used to before the merger but with a better opportunity to focus on the members. Ken describes how immediately after the merger there is an exchange of employees between branches. It allows us to meld everyone together. We then work into what the expectations and goals are. This approach provides structure and in sticking with the water analogy begins the absorption process within the culture. Most adapt just fine Ken states when talking about welcoming and integrating the new employees from the merger. Bob Steensma talks about how his CU sells the credit union to the new staff. We give them a dose of Five Star. The mission vision and values are used in most conversations. We evangelize the Five Star difference 17 C R E D I T U N I O N B U S II N E S S B U S N E S S and train them as we would a new employee. He adds that the brand is just as important as the culture. Logo apparel name tags and signage are provided almost immediately. We explain that Credit Union is just as important as Five Star in our name. Thankfully many mergers today are not about operational efficiencies and asset grabbing. They re not simply about being able to survive but about being able to thrive. As a consultant I used to be almost staunchly against mergers ... not surprisingly so after my How are you likin this merger now experience. Of course if I had a better and broader perspective in 1999 as I do today I may have played a more valuable role in aligning the brand culture and strategy of that institution. Because today mergers can actually be part of an organic growth strategy that enhances a credit union s B C S Formula. As one current client continually discusses with me the intent is not only to keep the employees of the merger partner but also to possibly add to the staff of that branch. With this growth strategy it s all hands on deck. To me that sounds a lot more like forming a bigger and better ice sculpture than just forcing a new piece into an old puzzle. Ken Bator has more than 20 years of experience in helping organizations make money save money and survive internal challenges and tough economic conditions.As a facilitator for training and strategic planning sessions and an expert in brand concept culture building and management Ken has helped hundreds of organizations since 2001. JJ U N E U N E 2 20 01 16 6 C U B U S I N E S S . C O M CU BU S INES S BY EMILY HOLLIS CFA Want Stronger Capital Strengthen Your Stress Testing Process A t ALM First Financial Advisors we ve heard from a number of larger credit unions asking about the value of capital stress testing. Although NCUA s current capital stress testing guidance is directed to those with 10 billion or more in assets we believe that these tests or scaled-down versions are also a valuable exercise for credit unions below this threshold. First of all it helps determine if your credit union can weather a future market downturn. Beyond that it gives the board and management a heads up to potential problem areas like portfolio concentration. And finally it s very useful in capital planning helping to determine if risk-reward assumptions need to be revised. Let s take a deeper look Testing Capital Adequacy Think about the challenging conditions auto manufacturers put their vehicles through to determine how much stress and damage they can withstand. It s the same with capital stress testing which analyzes a depository institution s ability to absorb the impacts from negative financial or economic events. But different from ALM analyses which primarily assess interest-rate risk stress testing also incorporates credit factors. The requirements for sophisticated stress tests are part of regulations introduced in the past couple of years to evaluate various aspects of risk in a balance sheet All of us continue to carry the painful memory of the global economic crisis and its far-reaching repercussions within the financial industry. Depository institutions continue to struggle under the weight of more and tighter regulations among other major impacts. The joint supervisory guidance issued by the Basel Committee on Banking Supervision and U.S. regulators is a glaring example that calls for capital stress testing for institutions with 10 billion in assets. And under Dodd-Frank Act (the Comprehensive Capital Analysis and Review and Dodd-Frank Act ) stress tests are designed to gauge the capital adequacy of individual depository institutions and reassure investors. You may recall it was introduced by the Federal Reserve in 2009 to restore confidence in U.S. banks to measure the vulnerability of a portfolio an institution or a financial system under hypothetical scenarios. The requirements for sophisticated stress tests are part of regulations introduced in the past couple of years to evaluate various aspects of risk in a balance sheet. While not all are directed at credit unions they are useful to understand Basel III This rule is meant to strengthen a depository s capital requirements as developed by the Basel Committee in 2010. It s scheduled to take effect by March 31 2019. The guidance establishes tougher capital standards through more restrictive definitions additional capital buffers and elevated requirements for minimum capital ratios. Dodd-Frank Act Stress Test (DFAST) Most of us are familiar with Dodd-Frank which requires midsized bank-holding companies with consolidated assets between 10 billion and 50 billion to follow a forecasting exercise to evaluate their capital positions. The Fed selects three scenarios for all applicable bank-holding companies to use in their stress testing a base case or expected situation a more adverse 18 C R E D I T U N I O N B U S I N E S S J U N E 2 0 1 6 C U B U S I N E S S . C O M CFO CURRENCY CURRENCY CFO CFO CURRENCY CU BUSINESS are calculated figures not assumptions. The have significant implication on the ALM conclusion. The of time. Credit will need to be assumptions used should be changed government bond inputs allow the user to model cash flows with an end maturitybenchmark if budget surpluses dry up thein progressive intervals reviewed and pricing authorized The the output should Capital Analysisand for Review and environment reflecting and They have already become the standard and decay rates that are similarato change in the economy market.Comprehensive be recalculated to determine the impact amortizations. this can take weeks. that causesand discount rates fluctuate and present valuemany corporate bonds. of a different CCAR requires large bank-holding Dividend interest rates to allow for the a severely (CCAR) assumption. If you are than 50 adverse environment which adds another scenario. Knowing with swap rates and spreads are uncertain as to calculations (premiums) in each modeled interest rateimpact companies where consolidated assets greater will allow the capital plan need such duration calculations can then As examples billion to submit an annual proposedmany requirements of Effective as a weakened housing market.mathematically bebetter hedging and investment execution. When investors to the Conclusion applying to using derivatives regulators might choose scenarios such as a drop in the Fed. The plan is evaluated by the Fed anddetermine if compared to that of the institution s assets. In this case effectiveto gauge credit risk and market be viewed as aswap curve is Non-maturing deposits can sentiment the franchise value the bank has sufficient capital consider to continue operations stock market a decline in the GDP a crash in the real becoming the more important curve to analyze.engaging an external duration is calculated by merely backing into the price change or benefits generated from loyalty of the membership when service provider to help estate market or other negative economic factors. The through times of financial and economic stress. If you formula. For example if the liability present value is 100 in the deposits are retained when dividend rates are low in a higher through plan. approved CFA is publishes with ALM First Financial analysis tests the effect on revenue income liquidity Emily Hollis the bank a partner its capitalthe steps. base 101 in theunder the specified conditions 99 inathe down market environment. And vice versa A financial derivatives up 100 basis point scenario and for nineand capital Properly used institution Advisors LLC. 100 basis point scenario the effective durationall one percent that offers a non-maturity dividend rate higher than market quarter planning horizon. Because is affected can offset interest rate risk (i.e. (101-99)institutions test on the same three scenarios Shifting Risk Burdenwill decrease the economic withinofthe to attract hot money From Taxpayers depository 200). that is in the value its Too big to fail is a term that s been inherentbanking liabilities. It is imperative This is vital because as competition required by the Fed the program provides consistency credit union industry today.to model these accounts for a more competencies to meet the final requirements. The second part sector for years but since the Great Recession it s accurate depiction of allow rate unions to compete more Sensitivity Analysis submitted when all requirements are becomederivatives can interestcreditrisk.new stress-testing across all the holding companies. Further because grows a more significant term. The and final application is The regulator releasedsuggests Fed every analyses as a means effectively. results are strongly by the sensitivity year it provides guidelines are meant to force the largest lenders to raise completed including dealer contracts. to transparency to investors. quantify the effects of changing assumptions. Sensitivity asEmily Mor Hollis CFA isin partner with ALM First 2021 much as 1.19 trillion a debt or securities by Financial Setting up a line at a dealer is similar to becoming a Advisors LLC. analyses are essential because the core share evaluation may Emily Hollis CFA is a partner with ALM First Financial member of the FHLB--it can be laborious and takes a good deal Advisors LLC. Exhibit 4 The outputs Some analysts view swaps as the most likely replacement for Treasury bonds as a financial benchmark if budget surpluses dry up the government bond market. 19 www.cubusiness.com C R E D I T U N I O N B U S I N E S S November 2014 J U N E 2 0 1 6 Credit Union BUSINESS C U B U S I N E S S . C O M 15 CU BUSINESS which could be written off if bank losses were to cause another major recession. The Fed wants to change how banks fund themselves so they can weather severe downturns better and ideally the cost of a very large bank s failure would be borne by its investors not taxpayers. For its part the NCUA implemented its new Capital Stress Testing guidance Part 702 in May 2014. Because only a handful of credit unions are affected by the 10 billion threshold the NCUA may well lower this threshold. Also given that approximately 2% of banks would be required to comply with the DFAST criteria the threshold for the credit union industry is likely to be decreased to 2 billion currently affecting some 130 credit unions. The NCUA also has mandated its own stress tests including reverse stress tests aimed at finding a credit union s breaking point that is the exact scenario that would cause it to move from survival to default. Strengthening capital planning Historically short-term declines in economic activity have been followed by short-term gains. These fluctuations sometimes caused by seasonal or regional changes are normal. When tracked over a long time period they reveal a growth trend. A recession occurs when the changes in economic activity vary from the long-term growth trend in a negative way. Of course no depository institution is isolated from global or national economic factors that can cause market conditions to deteriorate rapidly. But informed and intentional analysis can help your credit union be equipped for the bad times as well as the good. Capital stress testing is invaluable as a forwardlooking quantitative evaluation of an institution s ability to withstand the future come what may. Informing capital planning More than just a regulatory requirement depository institutions of any size can benefit from capital stress testing to identify hot spots that will aid in risk management and strategic planning processes. And as mentioned the board and senior management can use stress testing results to determine lending concentrations at the portfolio level the adequacy of capital and the allowance for loan and lease losses and the overall risk facing the depository institution. Stress testing is an excellent practice to see how much your credit union can withstand. But there are threats beyond balance-sheet risk. For example cybersecurity is considered a major challenge in the foreseeable future with expenditures for protection expected to increase by at least 10% each year through 2020. To obtain a more realistic picture of a depository institution s true position risks that are harder to pinpoint also should be taken into account in stress tests e.g. cybersecurity reputation and legal risks. 20 C R E D I T U N I O N B U S I N E S S J U N E 2 0 1 6 C U B U S I N E S S . C O M Emily Hollis CFA is a partner with ALM First Advisors LLC. BRA NC H BUSI NES S BY MEREDITH DEEN The Perfect Universal Associate Branch Recipe I Has your credit union s recipe for the perfect Universal Associate branch turned into somewhat of a kitchen disaster An outsourced performance management firm might be just the ingredient your CU is missing. The following strategies will help you whip up a UA culinary CEO VELOCITY masterpiece. BY SCOTT MCCLYMONDS t seems everybody has the perfect recipe for the two different gourmet meals with UAs. Not only Universal Associate (UA) branch model. First do you align every single branch interaction between create a pod-like environment in the branch accountholders and highly-skilled sales and service inviting a more personal interaction without a representatives but you also potentially realize a teller window in the way. Next have employees experience he gleaned at costsrecent Cornerstone Credit reduction in staffing the through front-line staff Drawing from the Union service annual convention readily in place by the pods to handle mostLeague sand consolidation. Credit Union BUSINESS s CEO expert sales interactions thus creating a offers up advice on how to stay relevant in today s financial environment. seamless process Before you roll your eyes about the relevancy talk ... again ... prepare for a between the greeting and a more in-depth conversation. fresh and honest takeFinding the Right Candidates on the matter. Voil you now have a functioning UA branch or do You may have some front-line staff members who can you his past week I attended the Cornerstone In my column this month I m going to address the transition into UA roles but in all likelihood many Credit Union League s annual convention in topic of relevance but please don t be offended if I Unfortunately it s not the step-by-step instructions will not. includes seem impatient. On one hand I ve had enough this Oklahoma City. Since the League When searching for external candidatesoffor in the recipe that can get complicated. Rather it s the and my home state of discussion of relevance. But on the other hand I realize Texas Oklahoma UA positions look for ones with any and all types of gathering of the right ingredients that makesArkansas I ve been able to attend exhibit patience and a gentle hand are needed. The Bible says this dish sales experience A gentle answer turns away wrath in the retail and speak at a number of its events. Dick Ensweiler s but searching specifically so my purpose in so difficult to prepare. Cornerstone staff puts on first-class events. (like the this article Store) the articles awrite is to encourage industry Apple as in all can be I great place to Several the at this Finding key ingredients including speakersright event stood out to me. you with a gentle answer. However I admit I am a bit start. These individuals with adept at discussion. Onewas Mark Meyer CEO of Filene Research and the frustrated are the relevance working with the employees performance management Ken Schmidt one of the engineers of Harley technology other was average consumer off the street and oftentimes are Davidson s renowned turnaround in the late 1980s and Why I m Frustrated with the Relevance and UA-specific training firms can make or break used to working on Saturdays. saw the success of a UA branch. After1990s. Unions wouldconference and he was great Topic all IhowKen last year at the League of Southeast a Credit (LSCU) Need additional impatient Scott in finding is common sense The assistance says relevance candidates smothered chicken casserole taste thereyou substituted if too. and Some sophisticated that the topic of relevancetechnologies are staff acquisition is irrelevant. Companies Mark spam for chicken or completely left report both the garlic out on stood out to me because in discussing Filene s Credit Unions in salt and pepper from the recipe 2025 he brought up the Relevance The CEOs Main Responsibility T R word relevance. How many times have we heard that word in the last few years We ask ourselves How will we remain relevant UAs (aka universal employees) are Conversely Kenstaff front-line stood out because he branch members who handle the majority of all answered the question of how to product and service interactions. You get the best one remain relevant in of word lifestyle. So Why Is the Universal Associate Dish Delicious C R E D I T U N I O N B U S I N E S S C R E D I T U N I O N B U S I N E S S 22 11 J U N E 2 0 1 6 M A Y 2 0 1 6 C U B U S I N E S S . C O M C U B U S I N E S S . C O M BRANCH BUSINESS TAB available to help identify and screen potential UA candidates. Utilizing Sophisticated Performance Management Technology Knowing exactly what a high-performing universal branch looks like remains a vague concept for many banks and credit unions. Furthermore managing an ongoing UA model can be next to impossible without a well-defined performance management process. Since it s all so new for credit unions many of them are leaning on outsourced performance management firms to help them establish and improve their UA branches. FMSI for example offers universal modeling to help with scheduling UAs to actual need alongside other branch employees. In addition other critical real-time UA sales and service metrics are available through lobby management systems. They include cross-sell ratios wait times assist times and product service interaction splits. Ultimately having this powerful information to compare and contrast traditional frontline employee performance to UA performance is a key component in determining a UA program s effectiveness. If a credit union is investing in a true UA model it should expect to see a considerable uptick in sales and service performance. Allow firms with the experience in UA models to help you establish and achieve the desired results. Meyer & Hubbard help banks and credit unions with sales and service training that is tailored specifically for UAs. Understanding what it takes to transform frontline employees into high-performing sales and service professionals in a universal environment can be a difficult process. Having the dedication and expertise of outsourced training professionals can be a critical component toward a successful transformation of your branch staff. The culinary world s crowning achievement is the three-star Michelin rating a very rare score given to restaurants by the French company Michelin. Worldclass chefs and restaurants work tirelessly to achieve this status as it can have a dramatic effect on the success of their restaurants. Much like the challenges associated with the Michelin rating credit unions face many obstacles on their journey to implementing and sustaining a desirable UA program. However if they use the right ingredients and recipe their dish will likely be perfect resulting in considerable increases in earnings for their branch network. Meredith Deen is president of Alpharetta Ga.-based Financial Management Solutions Inc. (FMSI) which provides financial institutions with business intelligence and performance management systems for efficient branch staff scheduling and lobby management. She can be reached at meredithd fmsi.com. 23 2 20 01 16 6 C U B U S I N E S S . C O M Universal Associate Training Ongoing and specialized UA training is a critical component of a successful program. Firms like St. C R E D I T U N II O N U N O N B U S II N E S S B U S N E S S J JU UN NE E PAYMENTS BY CLEVELAND BROWN Perceived Dangers Make Mobile Payment Technology Slow to Take Off S Consumers are interested in mobile payment technology but it turns out that interest isn t equating to actual usage. One of the major obstacles to widespread adoption is fraud and credit unions are particularly vulnerable. What can your CU do to protect itself Find out how to allow the technology to live up to its full potential. North Americans reported using the technology on a regular basis.(3) In other words consumer use of mobile payment technology has yet to meet up with consumer interest in mobile payment technology. Arguably the most prominent form of mobile wallet remains Apple s Apple Pay. Despite Apple Pay having been around since 2014 only one in 50 people who use an iPhone 6 avail themselves of the technology on a regular basis.(4) Even though Apple Pay is available in over two million retail locations (5) it has been reported that only 16.6 percent of iPhone 6 users have ever tried Apple Pay while making a purchase.(6) martphones have completely changed the way we live. As technology improves the ease with which we go about our daily lives has improved and this carefreeness naturally has extended into the way we make payments. Mobile payment technology has been an incredibly convenient innovation allowing consumers to make transactions without the need to carry cash or cards. Partly due to this convenience factor it is predicted that transactions made using mobile payment technologies will reach 9.9 billion in 2018.(1) However despite consumer tendency to quickly adopt technology that facilitates daily living mobile payment technology has been slow to catch on. There are more consumers who are aware of the technology than there are consumers who actually use the technology. While 57 percent of consumers reported that they were interested in mobile payment technologies only three percent of mobile phone owners stated that they have used mobile wallets for in-store purchases within the past three months.(2) Additionally a recent Accenture survey revealed that 52 percent of North Americans stated that they were extremely aware of mobile payment technology however only 18 percent of 24 C R E D I T U N I O N B U S I N E S S TURN ON YOUR TECH STAFF withTEAMBUILDER. 4 TECHNICALLY SPEAKING www.cubusiness.com teambuilder buy 2 0 1 6 C U B U S I N E S S . C O M J U N E PAYMENTS TAB Samsung has launched Samsung Pay and Google has launched Android Pay to have their place in the mobile payment technology competition. However those apps also have yet to catch on. A recent survey conducted by Crone Consulting found that only one percent of the five million Android Pay users use the app to make at least two transactions per month and only four percent of the five million Samsung Pay users use the app for at least two transactions per month. The perceived risks of fraud have played a major factor in the slow adoption growth of mobile payment technology. While consumers are not liable for fraudulent purchases the inconvenience of having to deal with fraudulent card activity outweighs the convenience of being able to make a purchase using a smartphone. A recent survey found that 18.7 percent of those who are unwilling to use Apple Pay do not use the service because they had concerns about the security of the technology.(7) Developers of mobile payment apps have put in a number of security features to make the technology secure. With mobile payments the actual credit or debit card number is not transmitted to the merchant as a security measure.(8) Many mobile wallet apps utilize PIN fingerprints and other biometrics to keep consumer information secure yet consumers still lack confidence that these security features will do enough to protect sensitive financial information. Experts also have their doubts. A 2015 survey conducted by cybersecurity association ISACA polled over 9 000 cybersecurity professionals and revealed that 47 percent of them felt that not only are mobile payments not secure but they carry significant perceived security risks. Of those respondents 87 percent also predicted a large increase in the number of mobile payment data breaches over the next 12 months.(9) The statistics on mobile payment fraud don t do much to assuage consumer fears. Mobile devices make up a large share of the 6 billion in annual fraud costs for merchants and card issuers.(10) Mobile payments comprise 14 percent of transactions among the merchants that accept the form of payment 25 C R E D I T U N II O N U N O N B U S II N E S S B U S N E S S however they account for 21 percent of fraud cases. (11) Additionally only 0.1 percent of fraudulent purchases are made using stolen physical credit cards while six percent of Apple Pay transactions are made with stolen credit cards.(12) Credit unions are vulnerable when it comes to mobile payment fraud. Fraud was responsible for the failure of 41 percent of credit unions over the past 10 years. Out of the 192 credit unions that failed during this time span 78 of those failures were attributed to fraud. (13) Recently fast-food chain Wendy s had a data breach negatively affecting a number of credit unions that all reported a high level of debit card fraud. The negative impact was so severe in fact that one CEO reported his credit union may face five to 10 times the loss it dealt with following the Home Depot and Target data breaches. The Home Depot data breach impacted 56 million credit and debit cards while Target s highprofile data breach negatively impacted approximately 40 million credit and debit cards. (DISPATCH) While EMV adoption in the United States has been a large-scale effort to cut down on fraud in card-present transactions credit unions still need to be vigilant when it comes to fraud in card-not-present (CNP) transactions. EMV makes it harder for fraudsters to use stolen information in brick-and-mortar stores however it is predicted that fraudsters will switch over to CNP fraud instead. Because mobile payment technology is still in its infancy swindlers have a ripe playground on which to work their damage. J JU UN NE E 2 20 01 16 6 C U B U S I N E S S . C O M PAYMENTS To protect themselves credit unions should invest in behavioral analytics which can help determine the legitimacy of a transaction by determining if the activity is routine and expected or deviates from the norm and is suspicious. By comparing a cardholder s past actions potential fraud can be rooted out and stopped before it has a chance to harm the consumer and the credit union. Additionally cardholder controls can give the cardholder power over his or her transactions. By setting up parameters (such as spending limits or location range) the cardholder can be put in control by receiving alerts via text or email that enable him or her to verify the validity of suspicious transactions. Because today s e-commerce landscape is increasingly competitive it is vital for all parties involved in payments to step up their game. Mobile payment providers need to increase the actual and perceived security of the technology to make customers feel comfortable with using the services. Additionally merchants need to embrace the new technology and allow consumers to be able to make mobile payments so that the feature is as convenient as it purports to be. By adopting this new technology on all fronts we will move fully into the 21st century and allow the convenient technology to live up to its full potential. 1. Patel Chris. Millennials and the Mobile Wallet Credit Union Times April 24 2014. cutimes.com 2014 04 24 millennialsand-the-mobile-wallet Bonderud Douglas. Mobile Payment Technology Secure or Subpar Security Intelligence April 3 2015. https securityintelligence.com mobile-payment-technology-secure-orsubpar Silbert Sarah. How Mobile Payments Will Grow in 2016 Fortune October 29 2105. http fortune.com 2015 10 29 mobile-payments-grow-2016 Pressman Aaron. Apple Google and Samsung Try to Spark Mobile Payments Yahoo Finance August 26 2015. finance. yahoo.com news apple--google-and-samsung-try-to-sparkmobile-payments-114339557.html Hall Gina. Apple Pay to Expand to Mobile Web by Christmas Silicon Valley Business Journal March 24 2016. http www. bizjournals.com sanjose news 2016 03 24 apple-pay-to-expandto-mobile-web-by-christmas.html New Apple Pay Adoption Numbers PYMNTS October 26 2015. http www.pymnts.com news 2015 new-apple-payadoption-numbers Pegoraro Rob. Don t Take My Money Why Mobile Payments 26 C R E D I T U N I O N B U S I N E S S 8. 9. 10. 11. 12. 13. Haven t Taken Off Yet Yahoo News March 29 2016. https www.yahoo.com tech shut-up-don-t-take-1393363998662710. html Experts Cast Doubt on Mobile Payment Security PYMNTS September 28 2015. http www.pymnts.com in-depth 2015 experts-cast-doubt-on-mobile-payment-security Mobile Payment Fraud Is Becoming a Pricey Problem Bloomberg February 12 2015. http bloomberg.com news articles 2015-02-13 mobile-payment-fraud-is-becoming-apricey-problem Kharif Olga. Watch Your Mobile Wallet Bloomberg Businessweek February 12 2105. bloomberg.com news articles 2015-02-13 mobile-payment-fraud-is-becoming-apricey-problem Jones Dennis. Debunking Myths Around Apple Pay Fraud The Next Web April 8 2015. http thenextweb.com insider 2015 04 08 debunking-myths-around-apple-pay-fraud Anderson Heather. Fraud Kills 41% of Failed Credit Unions Credit Union Times January 15 2015. http www.cutimes. com 2015 01 15 fraud-kills-41-of-failed-credit-unions (13) Malone JD. Wendy s Data Breach Among Worst Chief of Credit-Union Group Says The Columbus Dispatch March 3 2016. http www.dispatch.com content stories business 2016 03 03 0303-wendys-data.html 2. 3. 4. 5. 6. 7. Cleveland Brown is CEO of Payscout a global payment processing provider covering six continents by connecting merchants and consumers via credit debit ATM and alternative payment networks. Payscout s mission is to support the entrepreneurial dream one transaction at a time which it achieves by being a thought leader in the payments industry. Its Go Global Now technology platform gives merchants instant access to 100 countries billions of consumers and trillions of dollars. Payscout offers payment processing solutions for brick-and-mortar and e-commerce transactions and has earned acclaim as a new-generation provider of merchant banking services. The company specializes in online e-commerce retailers with a predominant proportion of card-not-present (CNP) transactions. It is one of the few providers to deliver a true global payment solution that encompasses all merchant risk verticals. 2 0 1 6 C U B U S I N E S S . C O M J U N E MEMBER BUSINESS LENDING BY PAM EASLEY CEO OF EXTENSIA FINANCIAL Moving Toward a New Dawn in Member Business Lending T The new member business lending rule offers credit union s an unparalleled opportunity to not only expand their loan portfolios but also extend a valuable service to their members. These six pointers will help your CU chart a roadmap for proceeding in the new regulatory environment so you can capitalize on MBL. Capitalizing on Ideal Market Conditions While the non-prescriptive environment will present credit unions with the opportunity to engage in MBLs responsibly current market conditions are ideal for offering commercial loans to members. Business lending in the United States has grown slightly in some areas and is flattening in others. Meanwhile demand for these loans has continued to grow. Underemployment nationwide has caused an increased need for multifamily housing while growth in construction starts has led to opportunities to lend in secondary markets. As credit conditions have recovered to pre-recession levels meaning that more consumers have better credit and are better potential borrowers credit unions have the chance to originate business and commercial loans to current and prospective members with sound underwriting practices. Pricing competition he non-prescriptive nature of the new MBL rule is one our industry has requested for many years. After January 1 2017 credit unions will have an opportunity to redefine their commercial lending programs in alignment with market conditions while maintaining safe and sound lending practices. This redefinition presents credit unions with the opportunity of developing a sound MBL plan within the new regulatory environment. Such an environment provides for credit unions to work with strategic partners to ensure that the institution has the necessary knowledge to embark on sound commercial and business lending. It also allows CUs to complete an originations selection process and take an underwriting approach that ensures borrowers ability to repay. This new way of doing things requires lenders to know more about their borrowers than ever before. It also necessitates gauging the amount of information required to responsibly lend in order to determine the level of repayment ability. To offer member business loans to members with this new freedom individual credit unions need to create a specific plan that takes into consideration their particular goals their resources and internal knowledge and their appetite for risk. 27 C R E D I T U N I O N B U S I N E S S J U N E 2 0 1 6 C U B U S I N E S S . C O M MEMBER BUSINESS LENDING has also increased alongside the growing demand for commercial loans and a high number of qualified borrowers. This tendency demonstrates that the market would welcome additional lenders. Such demand has enabled nontraditional lenders to strengthen their market share through pricing strategies that produce lesser yields while buying market share. Deploying risk-based pricing that is focused on the risk and opportunity at an individual loan level rather than a one-size-fits-all pricing strategy can help ease this competition if more borrower education is deployed as well. As the market recovers nationwide credit unions are faced with an opportunity and a challenge entering into a growing market full of opportunity that is somewhat competitive in pricing. With this said credit unions continue to be a sound alternative because it is in their nature to continue to lend responsibly. Post-Recession Standards Prior to the NCUA ruling credit unions were held to a strict set of guidelines designed to protect them from facing high default rates such as were seen at the beginning of the recession. The regulations that were implemented during this timeframe focused on establishing a strict credit risk rating system and effective monitoring. This monitoring process included a comprehensive annual review of credit unions loan portfolios to ensure 1) the portfolio stayed within the credit union s appropriate risk profile and loan quality and 2) that borrower behaviors contributed to the health of the loan on an ongoing basis. Under the new rule this expectation does not change. In fact it becomes the core of a successful business and commercial lending program going forward. While the annual loan review was considered more of an annual compliance requirement it has become an early warning detection system for portfolio risk. Such detection involves assessing a borrower s credit standing changing collateral values embracing borrower and guarantor concentration making economic or geographic changes surrounding 28 C R E D I T U N I O N B U S I N E S S the asset and even shifting risk in the asset class itself. Other factors are tied to the specific asset class itself. Examples are environmental considerations or regulatory changes that may impact the asset. Under the new rule these expectations will not change but the method by which credit unions must go about assessing these risks might continue to evolve. Greater emphasis beyond more traditional risk management toward enterprise risk management as stated in the new rule will be key to maintaining a greater understanding of the credit union s portfolios. Ensuring that the credit union s risk rating methodology still makes sense having a more formalized method for measuring risk migration within the portfolio and understanding the impacts of borrower guarantor behavior on individual credits will be essential components to a successful business and commercial lending program. Additionally the new rule addresses guarantors. This shift from the previous guidance is helpful but carries with it a great deal of responsibility to further understand the risk within each deal more completely. It also places a lot of emphasis on the need to stress test the portfolio in case of default. In addition it bears the question Will the credit union have amply underwritten the credit and be protected should the credit stop performing In these cases a guarantor may be a risk mitigant that should be continually considered. Charting a Roadmap Forward With these new guidelines about to be in effect forcing credit unions to assume responsibility for sound origination and portfolio management practices credit unions need to develop a roadmap that outlines their relationship with MBL. It is crucial that credit union management teams are fully invested in this process which will determine the success of the MBL program. Each credit union s management team needs to ascertain how MBL fits in the CU s overall strategy. Too often CUs explore new ventures without having the right infrastructure in place to make them a success. Establishing strict guidelines for each credit union J U N E 2 0 1 6 C U B U S I N E S S . C O M MEMBER BUSINESS LENDING TAB moving forward is essential since NCUA s new rule has left many credit unions unsure of how to proceed. Having a comprehensive roadmap in place will enable credit unions to engage in MBL safely and will ensure that their loan portfolios remain in line with their ideal risk profiles. Areas to consider for your roadmap are 1. Guidelines and Standards Ensuring there is alignment with the credit union s current and future lending practices 2. Pricing and Yield Continuing to monitor and be realistic about market conditions with regard to commercial and business lending pricing to be competitive in a safe manner using risk-based pricing when it is appropriate to do so ensuring there is alignment between lending activities and the financial needs of the credit union 3. Enterprise Risk Management Framework Now than ever before enterprise risk management helps to expand management s visibility into the total risk within the credit union but more specifically within the lending portfolios as well. More comprehensive risk management beyond compliance in the way of increased analysis and stress testing measured collateral geographic borrower guarantor and asset class and if appropriate environmental factors will ensure alignment and that the credit union is reserving and mitigating risk in a knowledgeable way. 4. Governance The way in which management including the Board of Directors oversees commercial and business lending activities to ensure compliance with internal guidelines policies and procedures as well as consistent education and training to keep everyone current with market and risk trends 5. Tools for Success Ensuring that underwriting guidelines continue to be realistic and appropriate for the credit union s risk appetite ensuring that the risk rating methodology being used continues to be reviewed for adequacy given today s and the future s risk trends creating and using improved risk reports to detect positive and negative trends for proactive portfolio management and continuing education and participation in industry dialogs on the subject 6. Teaming with Experienced Partners The new rule stresses the value of strategic partners such as CUSOs to expand the knowledge and experience of the credit union s current team. Through these partnerships a credit union can not only embark successfully into business and commercial lending but also expand its service offerings to its members while diversifying its own portfolio for balance. Moving Forward Credit unions have a great opportunity to expand their loan portfolios and offer members a valuable service through MBL. To take advantage of this new environment credit unions management teams need to determine how commercial lending plays a role in their overall strategy. To do so responsibly members of management may elect to cultivate more in-house TURN ON YOUR LENDING DEPARTMENT withTEAMBUILDER. 4 LENDING SOLUTIONS C U B U S I N E S S . C O M www.cubusiness.com teambuilder buy 30 C R E D I T U N II O N U N O N B U S II N E S S B U S N E S S J JU UN NE E 2 20 01 16 6 MEMBER BUSINESS LENDING TAB knowledge regarding commercial lending. They may even plan to work with a trusted commercial lending advisor or they may elect a combination of both. Partnering with an outside firm can help supplement the internal knowledge of the credit union. A trusted partner can bring insight into commercial lending including having access to recent knowledge in commercial markets expanding the capability to originate sound loans for the credit union having access to CUSOs that specialize in enterprise risk management and credit risk monitoring gaining accessibility to experienced commercial underwriting knowledge and capabilities and leveraging commercial servicing capabilities and the processes needed to be in place to oversee the program. Since NCUA has adopted a less prescriptive approach to MBL credit union management should build a roadmap that is focused on sound origination practices and risk analysis. Doing so will ensure that they are investing in sound loans based on consistent guidelines. Pam Easley is the CEO of Extensia Financial LLC. Extensia provides business and commercial origination regionally and nationwide back office underwriting commercial servicing business and commercial lending education to staff management and boards and consulting services in enterprise risk management including annual loan reviews risk consulting and framework creation. If you would like to reach Extensia call (800) 894-8328 to find out more. 31 C R E D I T U N II O N U N O N B U S II N E S S B U S N E S S J JU UN NE E 2 20 01 16 6 C U B U S I N E S S . C O M REA L ES TATE L ENDING BY TIM MISLANSKY For CUs the Real Estate Advocacy Trend Comes of Age W Is your credit union s purchase mortgage business thriving as well as it should be If not the lessons learned and the trends that emerged from the housing crash could prove fertile ground for growing a purchase mortgage services program. Keep reading to help get your CEO VELOCITY CU up to speed on real estate advocacy. BY SCOTT MCCLYMONDS hen is a trend no longer a trend When Scottsdale Ariz.-based entrepreneur was searching does it become the new normal or an for a new home and selling his existing one. He found industry standard against which all the entire real estate experience to be expensive timeother efforts are measured consuming and inefficient. Corn who had launched and Drawing from the experience he gleaned at the recent Cornerstone Credit During the 2007 2012 housing sold several thriving tech companies was frustrated Union League s annual convention Credit Union BUSINESS s CEO expert market crash many lenders struggled. Some failed. how wondered about better options. He believed buyers offers up advice on and to stay relevant in today s financial environment. Home sales and new construction evaporated roll your eyes about ablerelevancy talk ... again ... prepare for a Before you and of should be the to preview homes online and spend fresh applications on money buying them. It s important to remember course the stream of purchase mortgageand honest takelessthe matter. came to a virtual standstill. Instead refi loans ruled that this was long before the days of direct access to his past week I attended the Cornerstone In my column this month I m going to address the supreme. That changed. Since that time Credit Union League s annual convention in databases so thisplease don t be offended if I in spite of web-based MLS topic of relevance but was a very cuttingOklahoma City. some ups and downs consumer confidence has crept Since the League includes seemshared his one hand I ve had enough of this edge concept. Corn impatient. On experience with Craig Texas Oklahoma and my home state of discussion of relevance. But on the other hand I realize up. People are shopping for homes again. Arkansas I ve been Davis a friend and realand a gentle hand are needed.theyBible says able to attend exhibit patience estate broker and The began and speak at a number of its to develop an idea to offer a better way to so my purpose in That s all great news but that s not the whole story. events. Dick Ensweiler s A gentle answer turns away wrath buy and sell this article as in all the articles I write is to encourage Cornerstone staff puts on first-class Something big transpired during the Several speakers at this event events.out to me. you with a gentle answer. However I admit I am a bit housing crash. homes. stood Onewas Mark Meyer CEO In the absence of normal mortgage operations a of Filene Research and the was thewith the relevance discussion. work. Integration frustrated cornerstone of their other was Ken Schmidt one of the engineers of Harley trend emerged Credit unions increased their efforts Corn late 1980s and Why I m Frustrated with the Relevance give and Davis believed it was important to Davidson s renowned turnaround in the to develop a stronger watchdog approach over their at the League of Southeast Topic experience integrating all the homebuyers a seamless 1990s. I saw Ken last year Credit Unions (LSCU) conference and he was great The impatient Scott says relevance is common sense members real estate interests. And as a result they tools needed to search for a home research markets there too. and that the topic of relevance is irrelevant. Companies discovered innovative opportunities Mark stood out totheir to grow me because in discussing Filene s report on Credit Unions in purchase mortgage business. Here s how the real 2025 he brought up the estate advocacy trend started matured word emerged as R and relevance. How many times have we heard the industry standard for any CU that wants to develop that word in the last few a thriving purchase mortgage services program.ourselves years We ask Relevance The CEOs Main Responsibility T Before It Was a Trend The spark of change occurred in the crash. This is when Mike How will we remain relevant Conversely Ken stood out because he 2000 a decade answered before the question of how to Corn a successful remain relevant in one word lifestyle. 32 11 C R E D I T U N I O N B U S I N E S S C R E D I T U N I O N B U S I N E S S J U N E 2 0 1 6 M A Y 2 0 1 6 C U B U S I N E S S . C O M C U B U S I N E S S . C O M and the fact that Sam s and the Ford dealer take good care of it gives me wonderful peace of mind. So it s not just a matter of tires brakes and an oil change is it Did I mention the fact that the dealership s staff company s motorcycles was inferior the brand appealed to a small but loyal group of people on the fringe of American culture and the business was REAL ESTATE LENDING losing money. Harley Davidson was irrelevant to most people which is not a good place for a brand to be. and get financing into one program. They also felt it C R E D I T U N I O N B U S I N E S S M was necessary for homebuyers and sellers to work with knowledgeable competent real estate agents who had been properly vetted. And finally the new model needed the right kind of client ... credit unions. According to Corn We identified credit unions as the perfect fit because of personal experience because they are very member-focused and always striving to cultivate strong customer relations. We knew this concept would help credit unions improve on what they were already working hard to do. The result In 2004 a new CUSO CU Realty Services was born. In that same year the startup began working with select credit unions to finalize development of a turnkey real estate program called HomeAdvantageTM. 12 A Y industry s most experiencedSand highly-regarded C U B U I N E S S . C O M agents. 3. Provide credit union members with a financial incentive. Along with the convenience of online shopping members who use the program should also enjoy financial benefits that reduce their out-of-pocket costs. 2 0 1 6 The Secret Sauce A primary goal of the venture was to ensure everyone involved was a winner including members credit unions and real estate agents. This meant that the HomeAdvantage program needed to 1. Drive more business to partnering credit unions. But more than that it had to help CUs build a bigger lead pipeline by identifying buyers and sellers early in the lead process before they typically talk to a lender. 2. Be valuable and worthwhile to a network of select real estate agents. These professionals would be integral to a credit union s success so the program had to consider their needs. Hot qualified prospects quickly attracted the 33 C R E D I T U N I O N B U S I N E S S These goals though were dependent on one key change Credit unions would need to embrace a paradigm shift away from being seen as just a lender. And to do this they would have to MOVE OUT of their long-held position of selling competitive mortgage rates and INTO a new much more proactive role as a real estate advocate. The difference between lender and advocate is that one focuses on the loan while the other focuses on the member. Lenders sell mortgages rates and terms. Advocates educate equip and serve as a partner during the entire real estate journey from finding a home to financing it. This was an unprecedented shift in both the credit union world and the real estate industry because it positioned the CU as the First Point of ContactTM a role traditionally held by the real estate agent. The First Point of Contact can influence every aspect of the real estate transaction including and most importantly the selection of a lender. CUs serving as advocates are connected and engaged with their members early in the home-buying lifecycle long before they are ready to talk about home loans. This means that credit unions are perfectly positioned to earn their members mortgage business. J U N E 2 0 1 6 C U B U S I N E S S . C O M REAL ESTATE LENDING Early Adopters and First Successes Remarkably Corn and Davis were able to bundle all of this into one powerful package and then offered a beta version of HomeAdvantage to a few select credit unions. In 2004 Wright-Patt Credit Union (WPCU) Inc. (WPCU out of Beavercreek Ohio) became one of the first to use CU Realty s HomeAdvantage program. This 3.1 billion 300 000-member credit union immediately saw an increase in loans closed and member savings which came through rebates. Additionally the CU saw an improvement in relationships with local real estate agents who had not previously valued Wright-Patt as a home lender. In full transparency I serve as the senior vice president and chief lending officer at Wright-Patt and I m a member of CU Realty s Board of Directors. WPCU is also one of the owners of the CU Realty CUSO. This association however does not detract from the very real results achieved at Wright-Patt or any of the other credit unions that have adopted the real estate advocacy model. No one can argue over the results we ve seen like this In 2015 WPCU now the 1 purchase mortgage lender in our MSA closed 260 mortgages through the HomeAdvantage program. Almost 94 percent of the members who use the program get their mortgage through us. Looking beyond WPCU there are some other early adopters that have been partners with CU Realty Services for a decade or more. These include 3.9 billion Bank-Fund Staff Federal Credit Union in Washington D.C. and 2.6 billion Northwest Federal Credit Union in Herndon Va. Last year their members saved 465 000 and 462 000 respectively through the rebate program. and the HomeAdvantage program. The successes are quantifiable. They have been and continue to be tracked measured and validated. From a corporate perspective 2015 marked the fifth year in a row that CU Realty Services saw yearover-year growth and expanded into new markets. Nine new credit unions partnered with CU Realty to implement HomeAdvantage. Five new markets were added through expansion into San Diego Calif. Vancouver Wash. Melbourne Fla. San Francisco Calif. and Charlottesville Va. More than 4.3 million in savings were rebated to members through the HomeAdvantage program a 21 percent increase over 2014. 23 000 members signed up to use HomeAdvantage a 17 percent increase over 2014. Each completed a short questionnaire about his or her future purchase including timeline and pre-qualification status. These profiles and other transactional data are available to the credit union. 8 500 referrals of members to agents were processed through HomeAdvantage a 10 percent increase over 2014. Nearly 3 000 closings were reported through HomeAdvantage an 18 percent increase over 2014. TURN ON YOUR LENDING DEPARTMENT withTEAMBUILDER. The Trend Becomes the Standard Now 15 years after Corn s original idea CU Realty is the largest real estate CUSO in the United States. More than 100 CUs and mortgage CUSOs millions of members and nearly 500 real estate agents across the USA are reaping the rewards of the advocacy model 34 C R E D I T U N I O N B U S I N E S S J U N E 4 LENDING SOLUTIONS C U B U S I N E S S . C O M www.cubusiness.com teambuilder buy 2 0 1 6 REAL ESTATE LENDING While that macro snapshot is impressive the success metrics of the individual credit unions paint an even more complete picture. For example in 2015 WrightPatt members saved more than 225 880 from rebates through the HomeAdvantage program landing it in CU Realty s top five credit unions with the largest payouts. WPCU is one of five CUs that saw member savings of almost 1.5 million. 1. Bank-Fund Staff Federal Credit Union (Washington D.C.) 365 855 2. Baxter Credit Union (Vernon Hills Ill.) 363 799 3. Northwest Credit Union Association (Herndon Va.) 318 957 4. Wright-Patt Credit Union (Beavercreek Ohio) 225 880 5. Tower Credit Union (Laurel Md.) 214 548 As success stories and figures like these are shared throughout the industry more and more credit unions see the great value associated with adopting CU Realty s real estate advocacy model. There is a bit of a snowball effect now. What was once a new idea has transitioned to become the benchmark of success. Bank-Fund says HomeAdvantage provides members with everything they need during their home-buying process and allows the mortgage team to engage well ahead of mortgage application time. By connecting with members early on and [by] assisting them along each step we are doing more than growing mortgage volumes. We are strengthening relationships. Develop Stronger Member Relationships Credit unions that already enjoy strong relationships with members report that HomeAdvantage improves those relationships significantly. Baxter Credit Union (BCU) is a great example of this. Director of mortgage sales at BCU Bob Pondelicek says the HomeAdvantage program strengthened the CU s relationships with members substantially. When members come to us they are already trusting us as their financial institution. And now they re coming to us as well for a real estate agent relationship. Members Love One-Stop Shopping Providing members with a one-stop shopping experience while walking them through the homebuying process has fostered fierce loyalty for Northwest Federal Credit Union (NWFCU) ever since it partnered with CU Realty in 2004. In the last 15 months the CU has had nearly 700 registrations and given nearly 400 000 in HomeAdvantage rebates back to both buyers and sellers. Joe Talmadge the VP of mortgage lending for NWFCU said We know that when our members use this program we have an 85 percent chance of keeping their business and that is significant to us. What Other Big Payout CUs Say about Real Estate Advocacy and HomeAdvantage For CUs that want to grow their purchase mortgage business there is much to be learned about real estate advocacy and the HomeAdvantage program from the other CUs that landed in the top tier. Their insight goes well beyond those fantastic member rebates. Early Engagement Grows Mortgage Volumes and More Along with Wright-Patt Bank-Fund Staff Federal Credit Union partnered with CU Realty Services in 2004. As one of the CUSO s first customers this CU has a long rich history of success. Last year it saw the largest member rebate payout. What s behind that Dan Rogan general manager of lending at 35 C R E D I T U N I O N B U S I N E S S CUs New to HomeAdvantage See Success Early Sacramento Calif.-based Schools Financial Credit Union implemented HomeAdvantage in late 2015 to bolster purchase mortgage volume after rising interest rates hampered the refinancing side of the CU s business. The 1.6 billion credit union hopes to achieve a new goal becoming the go to name for both 2 0 1 6 C U B U S I N E S S . C O M J U N E REAL ESTATE LENDING refinancing and mortgage lending. David Menker vice president of real estate lending at Schools Financial Credit Union says results were almost immediate. I wasn t expecting to have much success [closing loans] in such a short amount of time. It s very encouraging for us. Plus We ve found the HomeAdvantage program is particularly helpful for first-time homebuyers. There s a lot of personal attention. Loan officers and real estate agents help coach our members through the entire home process from beginning to end. In December 2015 Consumers Credit Union (CCU) out of Illinois partnered with CU Realty Services to offer members a one-stop home-buying experience. The 883 million credit union was in search of a way to boost growth in mortgage closings. With HomeAdvantage CCU saw its mortgage pipeline expand by more than 100 members in less than 60 days CCU s director of mortgage lending Gil Chavez says The biggest thing I value about this program is that we re getting to these buyers early. Most of our new registrations don t have an agent or financing set up. Reaching them early is critical to accomplishing our goal of growing our mortgage pipeline. Chavez added We should have joined with this program several years ago. Who knows where we d be at this point if we worked with HomeAdvantage earlier. We ve already seen results and I can only imagine what the coming months will bring. The New Standard Corn and his team at CU Realty Services have developed HomeAdvantage into an industry-altering solution for credit unions helping them to be a contender in the home mortgage business. But even more the program s impact can be felt by members who are able to find a friend as well as savings in their credit union and by local agents who are able to develop new relationships with the credit union community. Timothy J. Mislansky Senior Vice President & Chief Lending Officer Wright-Patt Credit Union Author of the CU-focused blog mortgagesarememberlicious. com. Mislansky s career at WPCU began in 2001. His duties include formulating and administering highlevel organizational strategies and initiatives as well as executive responsibility for consumer mortgage and commercial lending. Prior to joining WPCU Mislansky was vice president of member services at Chaco Credit Union in Hamilton Ohio where he was responsible for branch operations lending and collection functions. Currently Mislansky serves as a member of the Board of Managers for the HomeOwnership Center of Greater Dayton. Additionally he serves as a director for CU Realty Inc. a director for America s Credit Union Mortgage Association and a member of the Fannie Mae Credit Union Advisory Board. A graduate of Miami University in Oxford Ohio Mislansky holds bachelor s degrees in both accountancy and finance. He and his wife Julie live in West Chester Ohio with their two children Joe and Mary. 36 C R E D I T U N I O N B U S I N E S S J U N E 2 0 1 6 C U B U S I N E S S . C O M C U DATA BY MARK GAYDOS Crediting Credit Unions for Data Center Services T Is your credit union leveraging data to its best marketing advantage Targeting customers based on their need for your financial services is critical to your CU s ability to thrive. In that respect optimizing the information a data center provides is key. Here s how to get the most out of this important tool. behavior and perform targeted segmentation and buyer personas. Information is power to Better understand member needs Obtain competitive advantage Improve profitability he idea that financial services can leverage data center abilities to streamline and improve operations is not new. How important is data to financial decisions Just ask Facebook. The social media platform leverages all those Likes for tailoring services to specific population subsets. For example Facebook knows that 3 million couples in the United States are engaged to be married. These couples make a great target for financial institutions because they are about to make major financial decisions involving joint checking investments homeownership minivans insurance and more. Facebook realizes the value of this data and packages it for sale to financial institutions as targeted advertising. Smart credit unions leverage large amounts of data (big data) to unlock various trends and patterns in human behavior. For every financial institution data is the key to unlocking patterns and how those patterns relate to customers purchasing home equity loans a business line of credit and retirement plans. Data centers are needed to constantly churn information from ATM transactions website statistics fraud detection even population household income and other demographic shifts. Without the data center processing information it s extremely time consuming to properly manage credit oversee operational risk predict member 38 C R E D I T U N I O N B U S I N E S S Although data centers process all this big data to help credit unions produce better services and achieve a competitive advantage it does not mean they have to undergo large OPEX and CAPEX to run these databases. Existing data center resources can be optimized for better performance. TURN ON YOUR CFO and CEO 4 CFO withTEAMBUILDER. CURRENCY www.cubusiness.com teambuilder buy 2 0 1 6 C U B U S I N E S S . C O M J U N E CU DATA Credit unions need to think of their data center as a tool. It takes the right tool and best-performing resources to transform random data bits into targeted client services. A well-optimized data center will enable a credit union to better compete with big banks that always have larger marketing budgets. In addition to being nimbler all this data helps better target potential members based on their credit scores or even their buying or borrowing history. Data centers do all the heavy lifting to transform random buyer activities into solid insight on customer money needs. But these facilities are often working harder than they need to thereby cutting into credit union profits. Information Is Power & Power Should Not Be Wasted A good example of how a financial services institution can leverage optimal data center services can be found with TransUnion. This 4 100 employee 1.3 billion company provides consumer reports risk scores analytical services and decision capabilities to businesses. Consumers use TransUnion s solutions to view their credit profiles and access analytical tools. In this way they can better understand and manage their personal information as well as take precautions against identity theft. TransUnion operates a primary data center in Chicago and also has data centers running in colocation facilities. Additionally the company leverages various managed IT services. In 2013 TransUnion decided to build a second 12 000-square-foot data center outside the Chicago area to consolidate several scattered dataprocessing resources and to ensure high availability across the remaining facilities. Although the progressive company was in tune with customer services its data center management practices needed improvement. Data center floor managers used spreadsheets for asset management and to support service requests. Dozens of service request forms were constantly being filled out by server 39 C R E D I T U N I O N B U S I N E S S network storage or mainframe teams requesting space planning power hardware installation or additional network connections. These forms didn t always align specifically to data center resources and were often incomplete because they were filled out with varying degrees of information and knowledge about the requested action. Our primary goals were to increase the operational efficiency with which we maintained our data centers build sophisticated workflows that could easily accommodate our change requests and ultimately give us more control over our environments said Josh Neyer senior director of Global Data Center Infrastructure at TransUnion. Workflow functionality is critical to TransUnion but the company found that many of the software offerings on the market either weren t adequate for its needs or would require significant additional cost for professional services on an ongoing basis to manage workflow edits and changes. In an effort to streamline operations and accepting the fact that organizations are becoming less dependent on manual spreadsheets TransUnion selected Nlyte a software resource firm that automates the management of services provided by the data center. Using Nlyte s Data Center Infrastructure Management (DCIM) solution TransUnion now logs information about the server and card assets including make model serial number and asset tag into the software database rather than individual spreadsheets. Implementing change in organizations is always a challenge but the Nlyte workflow process has made it seamless and transparent said Neyer. Now we re more collaborative and knowledgeable of the hardware requirements long before installation starts. By using Nlyte as a planning tool we can see hardware requests come in and ensure there is space network and storage available to support [them] before the change begins. TransUnion found a great deal of value using Nlyte features and modules such as Connection Manager Floor Planner Dashboard and Reporting Workflow J U N E 2 0 1 6 C U B U S I N E S S . C O M CU TABDATA Manager Intelligent Asset Allocation and Ngage API. Many of the company s IT departments are now relying on the Data Center Service Management (DCSM) solution for network servers and storage. In addition to IT individuals several employees in the purchasing procurement department leverage the DCSM software to produce reports about decommissioned assets ensuring quick removal from existing maintenance contracts. The DCSM solution has been so beneficial that approximately 350 users have been assigned permission to use Nlyte. services. They are also finding out that processing all this information takes a considerable investment in data center infrastructure like hardware software and skilled personnel. However the smart credit unions realize that data center optimization can be achieved at every level to better control CAPEX and OPEX if the correct software tools are deployed. DCIM and DCSM solutions are quickly becoming a preferred tool to optimize operations control costs and improve profit margins for any credit union relying on IT services. Unless you have a quill pen working with ink into a ledger that s everyone Mark Gaydos is Chief Marketing Officer for Nlyte Software the leading data center service management (DCSM) solution provider for seamlessly automating data center operations and infrastructure into an enterprise s IT ecosystem. Conclusion There are literally hundreds of options for consumers to select from when choosing financial services. Credit unions realize that data is a valuable form of currency that must be leveraged to unlock targeted marketing programs and provide customers with new digital 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 40 C R E D I T U N II O N U N O N B U S II N E S S B U S N E S S J JU UN NE E 2 20 01 16 6 C U B U S I N E S S . C O M MEMBER BU SI N E S S L ENDING BY JOSH GLOVER Cultivating Healthy Tension to Become a Lead Dog in Business Lending Y vance The CEOs Main world. onsibility usiness lending can be a dog-eat-dogcaution Former commercial bankers often om the experience he gleaned at the ruthlessCornerstone Credit that it can be a recent environment one gue s annual convention Credit Union BUSINESS s CEO expert that sometimes conflicts with the highly advice on how to stay relevant in today s financial environment. roll your eyes about communicative member service-oriented the relevancy talk ... again ... prepare for a credit union milieu. For credit unions that are new to honest take on the matter. B When it comes to business lending is your credit union the alpha pack mate All the snapping and growling that comes with that role can be counter to the CU member-first mentality. But one credit union has managed to grow its business lending without sacrificing its service culture. BY SCOTT MCCLYMONDS business services it can be a real culture shock. ast week I attended the Cornerstone In my column this month I m going to address the Challenges for business lending executives include t Union League s annual convention in topic of relevance but please don t be offended if I meeting business borrowers one hand I ve had enough for homa City. Since the League includes seem impatient. On high expectations of this s Oklahoma and my home state of discussion ofworking through the Iloan speed and transparency relevance. But on the other hand realize nsas I ve been able to attend exhibit patience and a gentle hand are needed. The Bible says request Ensweiler s A gentle answer turns away wrath so my purpose in umber of its events. Dick pipeline in an efficient manner and managing this ff puts on first-class events. the natural tensionarticle as in all thethe front-end encourage between articles I write is to sales akers at this event stood out to me. you with a gentle answer. However I admit I am a bit organization the the back-office credit underwriting Meyer CEO of Filene Research andand frustrated with the relevance discussion. chmidt one ofand processing functions. the engineers of Harley owned turnaround in the late 1980s and Why I m Frustrated with the Relevance en last year at the League of Southeast Topic LSCU) conference and he was great The impatient Scott says relevance is common sense and that the topic of relevance is irrelevant. Companies out to me because in discussing Filene s t Unions in ght up the vance. How e we heard he last few ourselves we remain Ken stood e answered of how to nt in one 11 N I O N B U S I N E S S Yet SAFE Credit Union a 2.3 billion-asset institution based outside of Sacramento in Folsom Calif. has successfully married its growing business lending operation with the credit union service culture. Currently serving more than 190 000 members with 22 branches in 12 counties in Northern California SAFE began offering member business loans in 2006. But the CU really didn t start ramping up its program until 2011. Now SAFE has grown its business loan portfolio to more than 75 million alongside another 70 million in participation purchases. The portfolio has experienced 35 percent to 45 percent growth in the past 12 months alone. This year the credit union is generating on average 4 million per month in new business loan volume. SAFE handles all of this activity through a dedicated and high-functioning team of specialists. Ken Getz vice president of business banking manages the business sales division consisting of two teams. A business lending manager leads one team of five sales officers and focuses on large commercial real estate deals. The second team of five professionals is dedicated to small business relationships and is headed up by a business deposits manager. This team works C R E D I T U N I O N M A Y 2 0 1 6 B U S I N E S S C U B U S I N E S S . C O M 41 J U N E 2 0 1 6 C U B U S I N E S S . C O M MEMBER BUSINESS LENDING TAB closely with SAFE s branch network to develop strong full-service relationships with its business members. On the credit side Colin Paterson assistant vice president of commercial lending oversees a team consisting of a credit manager three underwriters three loan processors a systems administrator and a commercial loan portfolio officer to perform loan reviews and manage problem loans. Paterson s group handles all incoming MBL and Small Business Administration (SBA) loan requests and underwrites participation purchase loans. The group also manages the relationship with SAFE s lender servicing provider MBL LLC (a credit union service organization focused on member business lending). With so many moving parts managing the pipeline can be a lot like herding cats. To minimize confusion SAFE has implemented a cloud-based bank operating system that helps manage workflow and communication among various staff external parties and the members. Everyone s using the cloud-based platform Paterson says. A lead is entered initially on the front end by the business banker or business development officer and the data flows seamlessly through to underwriting processing closing and funding. With two decades of experience working in commercial lending production Getz has seen firsthand To give credit to our bank operating system it s a huge advantage to have transparency. You have a web-based system containing all of the information that s transparent to everyone in the deal. how tension between the credit and sales areas can negatively impact an organization. I ve never worked anywhere that is this good Getz says. To give credit to our bank operating system it s a huge advantage to have transparency. You have a web-based system containing all of the information that s transparent to everyone in the deal. A System that Facilitates Open Communication Employing a robust and efficient technology solution is critical but other elements are every bit as important in assuring that the front- and back-office areas work well together. Open and frequent communication is one tried-and-true method that SAFE employs. SAFE s business services team holds several standing meetings every week including a pipeline meeting on Mondays a mid-week supervisors meeting and a quick pipeline recap call on Fridays. At the end-of-the-week wrap-up meeting we look in the pipeline dashboard within our cloud-based bank operating system to see what loans are in production Getz says. That way no one can say they don t know what is happening with their deals. It helps to bring the team together. As far as the relationship between sales and backoffice there isn t any one system that can solve all potential issues adds Paterson. It really comes down to the culture processes and procedures that you have in place. But the system can help facilitate that and make 42 TURN ON YOUR LENDING DEPARTMENT withTEAMBUILDER. 4 LENDING SOLUTIONS www.cubusiness.com teambuilder buy C R E D I T U N II O N U N O N B U S II N E S S B U S N E S S J JU UN NE E 2 20 01 16 6 C U B U S I N E S S . C O M MEMBER BUSINESS LENDING TAB it happen. Among the biggest benefits we get from our web-based system is that it is a platform that allows for open transparency and facilitates good communication. SAFE also ensures that the member relationship gets off on the right foot through a standardized member kick-off meeting. The sales officer schedules a group conference call with the member and the underwriter closer and loan processor working on the request. The purpose is to make introductions and explain everyone s respective roles in the process. Internally the kickoff meeting synchronizes the team to the transaction Getz says. We approach the member as a team not as a sales versus credit mentality. From the member s perspective because of the long timeframe of closing a commercial loan members get frustrated if they are constantly handed off to another person. If they re introduced upfront it takes some of the pressure off. The feedback from SAFE members has been very positive. A lot of it is just setting the proper expectations upfront adds Paterson. That goes a long way in building a positive member experience. We literally go through the list of recommendations bullet by bullet and say This is where we are with all of these. Some of them we couldn t do some we could do some we completed some we re working on. Our team gets a sense that their opinions absolutely matter. The team also gets together informally for celebrations throughout the year and attends at least one scheduled fun teambuilding event annually such as a baseball game. Transparency Fosters Healthy Tension A natural tension between the sales and credit areas is to be expected and in some ways welcomed. Best practice dictates that business lending shops employ a system of checks and balances. It is also important for team incentives to be aligned with desired results. At SAFE sales officers are eligible for an incentive compensation program based on production volumes. But credit underwriters are not they have individual approval authority up to designated limits and maintain structural independence from the sales function. This division results in occasional conflict around timing to approval and closing and sometimes management needs to step in. But more often individual team members work things out among themselves. It also helps that the system of record is fully transparent. It s easy to document conversations both internal and external Paterson says. Everyone s looking at the same data. It facilitates good communication and a good relationship between sales and credit but it is really incumbent upon everybody to do their part and constantly work at it. At SAFE one practice is absolutely non-negotiable everyone must buy in to the process. We enforce the utilization of the bank operating system Getz says. You cannot fund a business loan here at SAFE without using that platform. There is no way to get credit for the loan no way to process a loan outside of it. The Importance of Culture Establishing a positive and friendly organizational culture is another critical factor in ensuring a smooth and productive operation. At SAFE this goes well beyond the business banking team. It starts at the very top Getz says. Our senior leadership team and board of directors have instituted a culture here that when an end result is off target you own it. When you have that culture it allows you to open up honest dialogue and have a difference of opinion and it s understood that it is okay (to have these differing viewpoints). To help foster teamwork and collaboration SAFE s business banking division holds two formal meetings each year. The agenda always includes a follow-up on suggestions made by the team at the prior semi-annual meeting. 43 C R E D I T U N II O N U N O N B U S II N E S S B U S N E S S J JU UN NE E 2 20 01 16 6 C U B U S I N E S S . C O M MEMBER BUSINESS LENDING This mandatory usage forces the team to work together and eliminates much interpersonal frustration. Everyone understands the process and is fully trained on the system. All data member correspondence and internal communication is completely transparent and open as well. It isn t an optional system to use or a process Getz emphasizes. You can t just print out your file and stick it in a folder or email a spreadsheet. That is so key. Without that the whole system falls apart. Taking a bite out of the notorious commercial lending institutional climate can be a challenge for credit unions. It takes dedicated effort to build a culture based on healthy and honest dialogue as well as open and transparent systems and processes. But the rewards in terms of loan growth and serving your members needs make it well worth the effort. By following the examples of SAFE and other innovative credit unions you can have your doggie biscuit and eat it too Josh Glover leads nCino s community and regional financial institutions sales team and is responsible for sales and account management within community banks and credit unions. As an early member of nCino Josh gained extensive experience helping customers maximize profitability and efficiency while moving their business to the cloud. Prior to nCino Josh served as a relationship manager at Live Oak Bank managing a portfolio of small business loans. Josh is a graduate of the U.S. Naval Academy and holds an MBA from Duke University s Fuqua School of Business. He can be reached at josh.glover ncino. com. The 1 Solution for Member Business Lending ncino.com 44 C R E D I T U N I O N B U S I N E S S J U N E 2 0 1 6 C U B U S I N E S S . C O M CU PAYMENTS BY BILL PRICHARD Perfecting Digital Banking for a Nation of Multi-Screeners W Is your credit union prepared for mobile devices impending majority takeover of financial transactions Accommodating all the various such devices your members use will be a main concern for CUs in the very near future. These tips will keep you serving your members as mobile tech takes over. ithin two years more than 50 percent of all banking transactions will take place on mobile devices. This means that a majority of your member interactions will happen over a mobile phone or tablet and you need to be ready. Google originally coined the term multiscreeners to describe a shift in consumer behavior that is playing out in the marketplace today said Stephen Bohanon founder and chief strategy and sales officer for Alkami Technology Inc. (www.alkamitech. com) of Plano Tex. The life of a multi-screener is all about speed convenience and constant connection. The average multi-screener juggles a variety of devices throughout the day and expects the experience you provide digitally to be consistent across all of them. Bohanon emphasizes that mobile technology may be playing a greater role in the member experience today than many credit unions realize and this trend is only going to accelerate in the future. Ten times a month the average credit union member logs in to a digital banking system and most of the time they are on a mobile device he said. If your mobile functionality is limited you are limiting your opportunities to serve and sell to your members. What Digital Consumers Expect While offering a mobile banking app is a great first step toward serving today s digital consumer the quality of the mobile experience you provide is equally important. Delivering Functionality Across Devices According to Bohanon meeting these expectations within a digital banking application requires a highly flexible extensible platform that delivers dependable functionality in every possible context. As a credit union you never want to deny your member a product simply because that member is using the wrong device he said. If a member wants to open a loan from a smartphone you need to be able to accommodate this request or you are driving that business right into the hands of a competitor. 45 C R E D I T U N I O N B U S I N E S S J U N E 2 0 1 6 C U B U S I N E S S . C O M CU PAYMENTS Your mobile application should have a native feel said Bohanon. This means that everything a member views and does on the mobile device should appear like it was purpose built for mobile. Bohanon notes that integration across devices is also about more than easy navigation its real value goes directly to your service proposition. Information needs to be synced in real time across channels or it may appear to members that your right hand doesn t know what the left hand is doing he said. For example if a member applies for a home equity loan in a branch and the next day logs in to the digital banking system only to find that the application has not been recorded the member s confidence in your credit union can be compromised. And even subtle disconnects are not lost on today s consumer. The branding elements must be impactful and applied across all devices he said. Consumers really can tell when that is not the case. From the typefaces to the naming conventions graphics and navigation consumers value quality brands and are very savvy about recognizing them. Apple is a great model for credit unions. No matter which device you are using or which studio made the movie or album the iTunes experience looks exactly the same. And Apple goes one step further to extend that brand continuity across all of the company s products packaging and stores. To prepare credit unions for the digital member of the future Bohanon advises them to consider one simple question. If all of your physical branches were hypothetically shut down tomorrow what would members be missing in the digital experience and especially on mobile he said. He concludes Branches add tremendous value to your service model and are here to stay. To be successful in the long run credit unions also need to deliver every product and service across every channel their members access and they need to make the experience as seamless and engaging as possible. CO-OP Financial Services (www.co-opfs.org) a Rancho Cucamonga Calif.-based fintech company and business partner of Alkami is offering Credit Union BUSINESS readers a free white paper Modernizing Your Digital Banking System A Blueprint for Success which can be downloaded here (PDF). Bill Prichard is senior manager public relations and corporate communications for CO-OP Financial Services (www.coopfs.org) a Rancho Cucamonga Calif.based provider of financial technology to credit unions. Prichard can be reached at 1-800-782-9042 ext. 3450 and bill. prichard co-opfs.org. TURN ON YOUR COMPLIANCE OFFICER withTEAMBUILDER. 4 COMPLIANCE UPDATE U N I O N www.cubusiness.com teambuilder buy 46 C R E D I T B U S I N E S S J U N E 2 0 1 6 C U B U S I N E S S . C O M L ENDING SOLU TIO NS BY ED SWANSON First-Time Buyer Program Y vance The CEOs Main onsibility their parents members The majority of Are F Start by Asking the Right Questions If you treat them right and provide them with true world-class service First-Time Buyers will be loyal to the credit union and you ll have their business for life. Our team here at LSCI is great at showing credit unions how to avoid the pitfalls and build a great first-time buyer program. We re hosting a webinar on this very topic on August 18th. For more information or to register visit our website at www.rexcuadvice.com. Ed Swanson irst-Time Buyers (FTBs) represent a very lucrative yet potentially risky portion SCOTT MCCLYMONDS of your membership. CreditBY unions can position themselves for long-term success by implementing proven strategies for FTBs. The key like with many things in life is to start off by asking the right questions What is their motivation Cornerstone In my column this month I m going to address the ast week I attended theIs this the first car they ve ever purchased from t Union League s annual a dealer topic of relevance but please don t be offended if I convention in homa City. Since the League includes seem impatient. On one hand I ve had enough of this Do state know or of relevance. But on the the value of s Oklahoma and my home theyof discussiondid they look up other hand I realize nsas I ve been able to attend vehicle patienceare a gentle hand are needed. The Bible says the exhibit they and buying umber of its events. Dick Ensweiler s A gentle answer turns away wrath so my purpose in this a commitment for I write is to encourage ff puts on first-class Do they have article as in all the articles the insurance events. akers at this event Do they knowwith a cost of the However I admit I am a bit stood out to me. you the gentle answer. insurance Meyer CEO of Filene Research and the frustrated with the relevance discussion. Where is chmidt one of the engineers of Harley their checking and savings accounts owned turnaround in late 1980s and Why I m Frustrated with the Relevance the How much money have they saved to put down en last year at the League of Southeast Topic What is their level of education LSCU) conference and he was great The impatient Scott says relevance is common sense and that the topic of relevance is irrelevant. Companies your gleaned at the recent it would help to om the experience he FTBs are younger soCornerstone Credit gue s annual convention Credit Union BUSINESS s history. know something about their family CEO expert advice on how to Do they rent or live with financial What is their stay relevant in today s parents environment. roll your eyes about the relevancy talk ... again ... prepare for a payment history with any landlords honest take on the matter. out to me because in discussing Filene s t Unions in ght up the vance. How e we heard he last few ourselves we remain How did they get their last job What is their performance evaluation Do they like their job and what are their future prospects there A good interview is absolutely essential you want to get to know these members. It takes a little more time but it can mean the difference between having a Ken stood e answered of how to nt in one 11 N I O N B U S I N E S S C R E D I T U N I O N M A Y 2 0 1 6 B U S I N E S S C U B U S I N E S S . C O M J U N E 2 0 1 6 C U B U S I N E S S . C O M LENDING SOLUTIONS profitable long-term relationship vs. losing money on a bad loan. (LSCI has developed a special First-Time Buyer checklist which you can see a snapshot of on the next page). In addition to asking the above questions it s important to establish and follow guidelines for FTBs. LSCI recommends the following The loan request should not exceed 50-75% of the member s gross annual income. Direct deposit and automatic payments are highly recommended. Payment protection plan (credit life disability insurance) is strongly encouraged. For car loans GAP insurance is suggested and loan-to-values of no more than 80%. (Many credit unions have taken huge losses by financing the full value of the vehicle plus all the dealer extras which can be up to 130% LTV). A solid down payment. Co-signers are used by many lenders to help younger members build up their credit and LSCI recommends credit unions get co-signers when possible. However the co-signers must be strong great credit parent who is a member not a bankruptcy threat etc. Another tool that many credit unions are using to enable them to keep losses down when lending to members with poor limited credit is GPS Driver Interruption Systems. Members pay a premium to have these systems installed and credit unions can disable the vehicle upon the loan going delinquent. Credit unions that utilize these systems almost unilaterally report very low delinquencies on these loans. LSCI can recommend several good providers of these services. Since they are generally very young and have limited financial experience First-Time Buyers are prime candidates for your financial education tools. Take advantage of the opportunity to educate them and it will open up opportunities for you to cross-sell additional products now and down the road. TURN ON YOUR LENDING DEPARTMENT withTEAMBUILDER. 4 LENDING SOLUTIONS 48 www.cubusiness.com teambuilder buy C R E D I T U N I O N B U S I N E S S Ed Swanson Vice President Consultant at Lending Solutions Consulting is a 28-year veteran of the financial services industry and a 25-year veteran of the credit union industry. Swanson helps credit unions to strengthen themselves in areas of consumer lending loan underwriting risk-based lending mortgage lending indirect lending collections sales development member service and incentive programs. For more information on Ed Swanson and scheduling Ed to consult for your credit union please contact Valerie Lentz at 877-915-7675 x63. J U N E 2 0 1 6 C U B U S I N E S S . C O M LENDING SOLUTIONS Y OUNG F IRST -T IME B UYER C HECKLIST W hat is their m otivation Are their parents m em bers Rent or live with parents - If rent what is their payment history with any landlords Vehicle loan - Loan-to-value - Down payment - Insurance secured W here is their checking and savings account Education level Job - Where do they work and how did they get the job - Performance evaluation - Future prospects Loan request to incom e ratio Direct deposit Auto pay Paym ent protection GAP insurance Co-signer GPS Driver Interruption System Cross-sell opportunities 49 C R E D I T U N I O N B U S I N E S S J U N E 2 0 1 6 C U B U S I N E S S . C O M THEY SAY... TIME is We give you more of both. Cummins Allison branch automation technologies have helped thousands of FIs become more ef cient. 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