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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 12TH ANNIVERSARY ISSUE JULY 2016 VOLUME 11 ISSUE 7 12 THE CYBER TECHNOLOGY ISSUE JULY 2014 VOLUME 9 ISSUE 7 9.95 It Takes a Team to Build a Successful Magazine...and a Successful Credit Union TIM O HARA EMPOWERING CARDHOLDERS TO HELP PREVENT CARD FRAUD Game-Changing Fraud Strategies Every Financial Institution Needs to Know By Nicole Reyes THE YEAR END ISSUE DECEMBER 2014 VOLUME 9 ISSUE 12 9.95 CYBER RISK MANAGEMENT Building a Sound Vendor Program By Paul Caiazzo LOOKING TO REDUCE TECHNOLOGY HASSLES By Jana Fowler One CU Takes a Leap Into the Cloud U.S. Adoption of on Its Way by EMV The Pursuit of the Michelle Thornton Ultimate Credit Union Credit Card Program by Ondine Irving Social Media and Your Brand by Kenneth C. Bator THE BRANCH BUSINESS TRAINING ISSUE JUNE 2014 VOLUME 9 ISSUE 6 9.95 The CU All Stars Paul Nunn (CU Training) Emily More Hollis (CFO Currency) Jennifer Anderson-Kapke (Compliance Update) Keith Kelly (CU Mobile Mortgage) James Collins (CU CEO) Rex Johnson (Lending Solutions) Laura Enock (CU Content) Miriam De Dios (CU Outreach) TeamBuilderGet in the game LENDING The Best Way to Build Branches is to Knock Them Down by James Collins THE E-COMMERCE ISSUE MAY 2014 VOLUME 9 ISSUE 5 9.95 The Changing Face of Business Lending by Laura Enock Lending Tools for a New Generation of Homeowner eMortgages by Keith Kelly CEO VELOCITY CFO CURRENCY LENDING SOLUTIONS MARKETING MATTERS COMPLIANCE UPDATE BRANCH BUSINESS MEMBER BUSINESS Top row from left Emily Mor Hollis Paul Nunn Jennifer Anderson-Kapke Keith Kelly Middle row James Collins Rex Johnson Bottom row Laura Enock Miriam De Dios Credit Unions Keeping Up With Banks for Mobile Banking Services by Roy W. Urrico Products Per Household What Does it Mean to Your Staff by Jack Kelly T H E S T R AT E G I C P L A N N I N G I S S U E The Six Guiding Forces of Credit Union Growth and Success Part 1 SCOTT MCCLYMONDS Three Traits of Successful Strategic Planners How North East Texas Credit Union Met the Challenge Laura Enock OCTOBER 2014 VOLUME 9 ISSUE 10 9.95 Shazia Manus CEO The Members Group The Home Depot Breach THE ONLY ALL-DIGITAL ALL-BUSINESS RES OU RCE FOR CRE D IT U NIONS THE MEMBER BUSINESS LENDING ISSUE APRIL 2016 VOLUME 11 ISSUE 4 Rich Helber TROPICAL FINANCIAL CREDIT UNION The Right CEO At Just The Right Time BY TIM O HARA Cyber Security Shazia Manus CEO The Members Group OCT_2014.indd 1 10 23 14 10 11 AM Fraud Monitoring for Tomorrow BY ERIN O HERN Back to the Future BY AMANDA SMITH Mobile is Taking Payments Full Circle 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 JULY 2016 VOLUME 11 ISSUE 7 THE ONLY ALL-DIGITAL ALL-BUSINESS RESOURCE FOR CREDIT UNIONS 4 6 11 14 17 20 24 29 UP FRONT It Takes a Team to Build a Successful Magazine...and a Successful Credit Union Tim O Hara CU TRAINING 33 37 39 42 44 48 51 MEMBER BUSINESS LENDING The Sun Shines on New Opportunities in Business Lending Josh Glover COMPLIANCE UPDATE Brian Godwin LENDING Are Your Brand and Culture Feeling the Bern Kenneth C. Bator MERGERS & ACQUISITIONS Ivan Seselj MARKETING MATTERS What s Your Policy on Policy Management 3 Ways to Improve Lending Processes Michelle Harbinak Shapiro COMPLIANCE UPDATE Successful Credit Union Mergers Online Reputation Management Six Things Every Credit Union Should Know Eva Lamere CFO CURRENCY CFPB Compliance Connecting the Dots John Short CU DATA 3 Common Credit Union Myths and How to Handle Them Alec Hollis BRANCH BUSINESS Crediting Credit Unions for Data Center Services Mark Gaydos TECHNICALLY SPEAKING Kenneth J. Sole DATA PROTECTION Suncoast De-Mystifying Cloud Computing Growing Strong Branches Organically Kaitlin Morrison CEO VELOCITY The Six Guiding Forces of Credit Union Growth and Success Part 1 Scott McClymonds CU PAYMENTS Credit Union Data Protection Begins with the Right Identity Authentication Tools John Harris Credit Union Takes Strategic Steps to Optimize Auto Loan Performance Outreach to Millennials and Higher Risk Borrowers in the Mix With Call Center Support Carol Cline-Parton 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 CU TRAINING Kenneth C. Bator MERGERS & ACQUISITIONS Ivan Seselj MARKETING MATTERS Eva La Mere CFO CURRENCY Alec Hollis BRANCH BUSINESS Kaitlin Morrison CEO VELOCITY Scott McClymonds CU PAYMENTS Carol Cline-Parton MEMBER BUSINESS LENDING Josh Glover COMPLIANCE UPDATE Brian Godwin LENDING Michelle Harbinak Shapiro COMPLIANCE UPDATE John Short CU DATA Mark Gaydos TECHNICALLY SPEAKING Kenneth J. Sole DATA PROTECTION John Harris C R E D I T U N I O N B U S I N E S S 12 THE CYBER TECHNOLOGY ISSUE JULY 2014 VOLUME 9 ISSUE 7 9.95 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 12TH ANNIVERSARY ISSUE JULY 2016 VOLUME 11 ISSUE 7 It Takes a Team to Build a Successful Magazine...and a Successful Credit Union TIM O HARA EMPOWERING CARDHOLDERS TO HELP PREVENT CARD FRAUD Game-Changing Fraud Strategies Every Financial Institution Needs to Know By Nicole Reyes THE YEAR END ISSUE DECEMBER 2014 VOLUME 9 ISSUE 12 9.95 CYBER RISK MANAGEMENT Building a Sound Vendor Program By Paul Caiazzo LOOKING TO REDUCE TECHNOLOGY HASSLES By Jana Fowler One CU Takes a Leap Into the Cloud U.S. Adoption of on Its Way by EMV The Pursuit of the Michelle Thornton Ultimate Credit Union Credit Card Program by Ondine Irving Social Media and Your Brand by Kenneth C. Bator THE BRANCH BUSINESS TRAINING ISSUE JUNE 2014 VOLUME 9 ISSUE 6 9.95 The CU All Stars Paul Nunn (CU Training) Emily More Hollis (CFO Currency) Jennifer Anderson-Kapke (Compliance Update) Keith Kelly (CU Mobile Mortgage) James Collins (CU CEO) Rex Johnson (Lending Solutions) Laura Enock (CU Content) Miriam De Dios (CU Outreach) TeamBuilderGet in the game LENDING The Best Way to Build Branches is to Knock Them Down by James Collins THE E-COMMERCE ISSUE MAY 2014 VOLUME 9 ISSUE 5 9.95 The Changing Face of Business Lending by Laura Enock Lending Tools for a New Generation of Homeowner eMortgages by Keith Kelly CEO VELOCITY CFO CURRENCY LENDING SOLUTIONS MARKETING MATTERS COMPLIANCE UPDATE BRANCH BUSINESS MEMBER BUSINESS Top row from left Emily Mor Hollis Paul Nunn Jennifer Anderson-Kapke Keith Kelly Middle row James Collins Rex Johnson Bottom row Laura Enock Miriam De Dios Credit Unions Keeping Up With Banks for Mobile Banking Services by Roy W. Urrico Products Per Household What Does it Mean to Your Staff by Jack Kelly T H E S T R AT E G I C P L A N N I N G I S S U E The Six Guiding Forces of Credit Union Growth and Success Part 1 SCOTT MCCLYMONDS Three Traits of Successful Strategic Planners How North East Texas Credit Union Met the Challenge Laura Enock OCTOBER 2014 VOLUME 9 ISSUE 10 9.95 Shazia Manus CEO The Members Group The Home Depot Breach T H E O NLY A L L -D IGITA L A L L -B USINE SS R E SO UR C E FO R C R E D IT UNIO NS THE MEMBER BUSINESS LENDING ISSUE APRIL 2016 VOLUME 11 ISSUE 4 Rich Helber TROPICAL FINANCIAL CREDIT UNION The Right CEO At Just The Right Time BY TIM O HARA Cyber Security Shazia Manus CEO The Members Group OCT_2014.indd 1 10 23 14 10 11 AM Fraud Monitoring for Tomorrow BY ERIN O HERN Back to the Future BY AMANDA SMITH Mobile is Taking Payments Full Circle 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 2 J U L Y 2 0 1 6 C U B U S I N E S S . C O M 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 It Takes a Team to Build a Successful Magazine...and a Successful Credit Union I t almost seems impossible to believe that this month we re celebrating the 12th anniversary of Credit Union BUSINESS magazine. My how time flies when you re having fun When I look back at just how fast the time has breezed by I have difficulty believing it. But at the same time a huge amount of work by a small army of professionals has resulted in the best Business-Oriented credit union trade publication in the industry. The Business focus was first suggested by a top CU chief executive officer from a fast-growing billion-dollar Texas-based credit union. He suggested that there are too many general news trade papers and websites that deal in politics and too much selfinterest in the editorial pages of the association pubs in particular. I want to see a publication like Forbes or Fortune magazines to help me run my credit union he said. Twelve years later CU BUSINESS is truly the business publication serving credit unions The editorial content is current addressing real-time problems and challenges with well-tried solutions. The editorial contributors are all seasoned professionals 4 C R E D I T U N I O N B U S I N E S S and I am very proud to have each of them represented in CU BUSINESS They are the top consultants to the CU industry. We are also proud of the great looking print publication that isn t printed at all but is emailed to each of our paid subscribers in a smooth and easy flip book format. And to make it an even easier read for our paid subscribers we then break the issue down and send out three or four stories in a weekly e-newsletter. To round out our information distribution we have packed creditunionbusiness.com with more than five years of past issues under the Library tab in the navigation station. One could spend a couple of days browsing through them all There is also a helpful Google search area for research purposes. I had lunch last week with the CEO of a bustling South Florida credit union. He told me that he has seven departmental head direct reports. I told him that CU BUSINESS has those seven departments covered every month and then some CEO Velocity (for him) and CFO Currency Lending Solutions Marketing Matters Technologically Speaking Compliance Update Member Business Lending and Branch Business for the others. J U L Y 2 0 1 6 C U B U S I N E S S . C O M UP FRONT INTRODUCING TEAMBUILDER Four Advertising Platforms at Your Service This year we ve introduced a new low-cost highimpact group subscription program that covers the entire C-Level with targeted information to help each department head do his or her job. The Team Builder subscription is selling quickly and here s why For only 500 for the entire year we email the entire issue to those who want it but we also divide the editorial according to topic and send each article to those who need it The CFO gets CFO Currency the Lending Department personnel get Lending Solutions same with Marketing whose department members receive their own copy of Marketing Matters. Branch Business has really taken off in receivership because we send it to every branch manager and branch supervisor of subscribing credit unions. If you don t want to subscribe for the whole Team you can receive all of the terrific CUB editorial products with a single subscription for only 75. And if you pay with a credit card during July you ll also receive a 12 percent discount to celebrate our 12th anniversary Please do so today by using this link creditunionbusiness.com subscription As always thanks for reading Tim 5 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 6 C U B U S I N E S S . C O M CU TRA I NING BY KENNETH C. BATOR MBA Are Your Brand and Culture Feeling the Bern At the time of writing this article Hillary Clinton has become the presumptive Democratic Party nominee in the US Presidential Election President Obama has formally endorsed Clinton and Bernie Sanders is preparing to exit the Democratic nominating battle. The 2016 presidential election and all of its related antics continually reminds me of the supposed Chinese curse loosely translated into May you live in interesting times. in this goofy game of dodge ball we call a general election. So as credit unions what can we learn from the Bernie Sanders campaign As Steve Olsher of Reinvention Radio once told me it doesn t matter whether you like someone or not but what you can learn from that person. I think we can learn at least two things from Bernie one about branding and another about culture building. It was obvious that Sanders built a tremendously loyal brand following among his tribe particularly among the Millennial generation. The Sunday night prior to the California primary as I sat on my front porch enjoying a glass of wine I was approached by two Millennials in full Bernie-gear. They were dutifully and passionately knocking on every front door in my neighborhood ready to tell the Bernie story and garner support for his agenda. What amazed me was they were not only devotedly making the rounds on a Sunday evening but at a time when it was already painfully obvious that Sanders had no mathematical chance of winning the Democratic nomination. Seeing that type of brand loyalty has to be frustrating for every credit union executive trying to attract Millennials to apply for loans much less actually write a positive review of the institution on Yelp 6 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 6 C U B U S I N E S S . C O M F or the record I haven t supported any of the candidates from the very beginning of the race. I personally believe that no one who has or continues to currently run for the office of President of the United States is qualified for the position. None of the candidates offer what this country needs at this stage of its history. However I do find the election thoroughly fascinating and even comically entertaining from a brand culture and strategy perspective. Particularly one could argue that Bernie Sanders may have been more controversial and divisive than Donald Trump. For all of my readers from the BabyBoomer generation and my fellow Gen Xers did you ever think we would see a self-proclaimed Democratic Socialist run for president in our lifetimes Not only did he run but he gained a very passionate following. Sanders was even the last player to get figuratively bashed in the head before the final mono-a-mono matchup between Clinton and Trump CU TRAINING So how did this 74-year old guy attract that level of following among 20-somethings Heck he s too old to even be a Baby Boomer. Technically he s part of the Greatest Generation. But yet his message continually resonated with people about 50 years younger than him. The reason is he spoke with a focus that was all on them and spoke of what was in it for them. He hit all of the hot buttons of frustration and fear whether it was on student debt healthcare costs or affordable housing. Some would say he told his followers only what they wanted to hear and that he couldn t have possibly made good on his promises. Maybe that s true and we may not ever know if he could have made those promises a reality. What we can learn however is that our brand messaging needs to resonate with our audience. We need to hit the trigger points both emotionally and psychologically with our target market. One of those trigger points probably isn t the credit union difference. It probably isn t apply for a Visa at 8.99%. But it may very well be the social causes the credit union supports whether they be Children s Miracle Network Second Harvest or the American Humane Society. That trigger point may be that your credit union is a local business. Research has shown that Millennials in particular are very moral and civic minded and want to shop local. Those are two trigger points that most credit unions can easily and honestly tap into. From a culture building standpoint the Bernie Sanders campaign highlighted how divided this country may be. While some would argue the Trump campaign put a spotlight on the divide among race and religion the Sanders campaign shed some light on the divide among generations. The latter may be a much bigger problem from a team-building perspective. We re trained to not say many of the things that Trump might in his speeches. As credit union employees and managers we re not just taught but drilled on what not to say. We can t talk about Muslims on the teller line. We can t speak sentences 8 C R E D I T U N I O N B U S I N E S S about people of Mexican heritage and building walls during board meetings. We can t even call someone old or fat anymore without HR holding an impromptu diversity seminar the next day. And rightfully so not as much for the primary reason the Human Resources department does so which is for legal purposes but more so because those statements are detrimental to credit union culture. It s almost impossible to build a cohesive and productive team when one or a few of its members feel disenfranchised or marginalized. If we allowed people to speak disparagingly about fellow employees our culture would feel a real burn. But it seems that placing everybody in the Millennial generation in the same negative category is perfectly acceptable. She s a Sanders supporter. She wants everything for free. My employees are all Sanders supporters so they want me to pay them each 75 000 for about five hours a week of actual work. These are actual quotes from credit union managers. And that s just the tip of the iceberg compared to what I hear from some of the small-business owners I work with. So we hear statements like this and then we wonder why Bernie Sanders was so popular with his A Future to Believe In brand principle. The support he received from young voters was blatantly evident in Iowa where according to the entrance poll he won over 80% of the vote a m o n g Democrats under 30 years of age.1 1 http fivethirtyeight.com features why-young-democrats-love-bernie-sanders J U L Y 2 0 1 6 C U B U S I N E S S . C O M 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 CU TABTRAINING We also wonder why Millennials lash out after society has stereotyped them. The frustration is apparent from Pomeroy and Handke in this 2015 article The truth The economic tragedy of the Millennial generation was written before many of us had even learned to read by Baby Boomer parents and grandparents who at once genuinely love and care for us but have also created or perpetuated institutions policies and economic realities that have now hobbled us. Our generation has been called entitled. We beg to differ. If any generation is entitled it s our parents and grandparents generation the Baby Boomers. As a Gen Xer myself I m beginning to feel left out. Will someone please speak disparagingly about my generation just so I don t feel invisible My fellow Gen Xers we may really begin to feel left out soon as according to the Financial Post in the article Like it or not Millennials Will Change the Workplace about 50% of the US workforce will be Millennials in 2020. Just in time for the next presidential election Even the article s title begins with Like it or Not. Not exactly positive is it It sounds like we have and will continue to Feel the Bern whether we Like it or Not. Regardless of our individual political views or affiliations I believe we have the potential for some serious issues within the cultures of many of our credit unions. Bernie Sanders campaign didn t cause the problem but it sure brought it to light in a big way for me. We can t alienate the men and women who are our 10 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 UL L Y Y 2 20 01 16 6 C U B U S I N E S S . C O M CU TRAINING CU TRAINING future and expect our business to survive. So here are a few ways we may be able to embrace the Bern in a way that will help 1. Seek to Understand. I wish Dr. Stephen Covey was still alive because we need his Seven Habits more now than when that book came out in 1989. Rather than becoming frustrated with what you may witness as surface-level behavior with an employee or group ask yourself why. Why would someone think that way Why might someone act that way And ask yourself not in a rhetorical manner but with a real desire to understand the environment personality profile upbringing and other factors that would make a person feel a certain way. 2. Create involvement. As I said in a recent webinar on social media marketing If you want to market to Millennials you better darn well know how to engage the ones that work at your credit union. Proper branding begins internally with the culture and not externally with a marketing campaign. So engage your Millennial workers. Get them involved in different aspects of the credit union other than simply answering phones or handling member transactions. 3. Build the culture one-on-one. This is one of the main points in my seminar Navigating Through Generational Generalities. I understand why stereotypes are created. I understand why we have a need to group people into categories. Focusing on commonalities of certain clusters of people while conducting strategic planning or creating brand messaging may make sense. However it s a dangerous perspective to have in culture building. You build your team best in a one-on-one fashion by realizing each individual s strengths talents and personality. That is embracing diversity. More important than who will be in the executive offices of the White House next year is the mindset of those who will be in the executive offices of your credit union. How those leaders bring people together to create an environment where employees actually want to come to work and members want to keep coming back regardless of generation will be the key to your institution s growth. Bator Training & Consulting Inc.(BTC) established and founded by Ken Bator in 2001 creates environments where employees actually want to come to work and members want to keep coming back. BTC accomplishes this through a combination of Branding Culture building and Strategic planning. This is the unique B C S Formula created by Bator and featured in his latest book. Contact Ken directly at 714-681-2821 or kbator btcinc.net. Ask about our new service the B C S Audit And learn more about BTC s presentation topics at www.btcinc.net. 11 2 0 1 6 C U B U S I N E S S . C O M C R E D I T U N I O N B U S I N E S S J U L Y MERG ERS & ACQ U I S I TIO NS BY IVAN SESELJ Successful Credit Union Mergers M Has your credit union been part of a merger or acquisition If not chances are it may be in the future. What considerations are essential when joining forces with another CU Read on for advice on how to make a complex M&A as seamless and painless as possible before during and after. better rates and services including online and mobile banking platforms surcharge-free ATMs and a wider variety of accounts and loans. Obviously there are a number of considerations for both parties in a credit union merger. While a merger may allow the continuing credit union to grow its assets net worth and market share simultaneously it is essential for both organizations to evaluate whether their respective organizational cultures mission statements and memberships will be complementary. Critical issues pertaining to how the merger will impact product offerings (particularly free products such as savings or loan protection insurance) and whether information technology systems are compatible also need to be addressed. While readily acknowledging that managing a successful merger is inherently complex one of the ergers and acquisitions have become fairly commonplace in the credit union space. The National Credit Union Association reports that between 2003 and 2012 mergers and acquisitions accounted for a 27 percent decline in the total number of credit unions in the United States. Despite the high number of M&As credit unions have managed to continually outpace banks according to findings by the American Customer Satisfaction Index which ranks factors such as interest rate competitiveness transaction speed staff friendliness and customer loyalty. That s somewhat surprising when you think about the history of mergers and acquisitions which has had its fair share of failures (think Sears and Kmart or AOL and Time Warner) resulting in the loss of both market share and consumer confidence. Part of the reason credit unions have a better-thanaverage track record when it comes to mergers is their very make-up. Because their focus is on returning profits to members in the form of higher dividends virtually all credit unions tend to have a similar philosophy regardless of their size or origin. Credit union mergers typically involve a larger more financially solvent CU absorbing a smaller organization that is experiencing negative financial characteristics declining membership negative earnings declining net worth and so on. Although the exact reasons to pursue a merger differ in each instance many are done primarily to give members access to 12 C R E D I T U N I O N B U S I N E S S TURN ON YOUR BRANCH SUPERVISORS & MANAGERS withTEAMBUILDER. 4 BRANCH BUSINESS C U B U S I N E S S . C O M www.cubusiness.com teambuilder buy J U L Y 2 0 1 6 MERGERS & ACQUISITIONS TAB aim to find common ground and agreement on how the task of process management will be approached and if existing approaches need to be revised or abandoned in favor of a new approach. Get Everyone Involved Like any major change in business a merger can be incredibly disruptive. Staffers are likely to be nervous about how the new organization will operate and where they will fit in (if at all). Enabling as many staff members as possible to contribute to the process review and recommendations for improvement can transform what is normally a nerve-wracking experience into a positive development. At the same time it will give staff a greater feeling of ownership over the transition. Senior management should avoid making unilateral decisions unless they are absolutely essential. Staff meanwhile should be encouraged to express their ideas for improvement as a way of helping to build the new credit union. Online process management tools can be employed as a means of working through opportunities identified from throughout the organization and of securing staff feedback across the board. Aim for Minimal Disruption Among Members Although moving forward after the merger is announced is essential it is equally important to recognize that everything doesn t need to happen overnight. It might make more sense and be less disruptive for both the staff and the members of the merged credit unions to retain two separate systems in the short term until decisions can be finalized. Changes can then be adapted gradually over a longer period. As a first step credit unions should catalogue all existing processes and recommendations as to how they are or can be linked together. Once this more complete picture emerges the impact of planned changes can be better understood and evaluated. Prioritize Process Changes When two credit unions merge there will naturally be a number of changes to 13 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 UL L Y Y 2 20 01 16 6 C U B U S I N E S S . C O M other areas that can significantly improve the odds of a successful merger if managed effectively is process management that is capturing and managing the critical process know-how of both credit unions to ensure that the new organization will be stronger nimbler and better placed to perform and grow. With that in mind there are a number of steps that can help credit unions capture retain and leverage critical corporate know-how before during and after a merger. Start Early Early planning and preparation can have a tremendous impact on the long-term success of a merger. For this reason work should begin as soon as the deal has been confirmed. Existing processes within both credit unions should be examined to identify preliminary ways in which they might be brought together. Gathering the new post-merger processes into a central easily accessible location sets a solid platform for individuals at both credit unions to understand and contribute to the new processes. The teams involved in this process review should be comprised of staff from both credit unions. This makeup will encourage positive collaboration and teamwork while helping secure early buy-in from key staff members who subsequently will be better positioned to influence others around them. Teams should also MERGERS & ACQUISITIONS TAB existing processes while some brand new processes will need to be created. To determine which processes are most effective which will need to be combined and which will be replaced cross-organizational and project teams should be used to prioritize and drive progress. Business process management tools can ensure that agreed-upon processes add real value to the new credit union and are actually being used rather than simply becoming merger documents that are consigned to a filing cabinet. Staff will need instant access to new process know-how as well as a simple means of providing feedback to resolve process issues. Process tweaks and updates are also likely to be needed in the months after the merger actually occurs. Make Process Management Business as Usual Once initial changes have been implemented and the new credit union is operating as a single structure the focus should shift to sustaining the new processes and incorporating a best-practice process management culture. At this point process owners should be appointed to monitor processes and encourage ongoing collaboration evaluation and revision where needed. Such an environment can be a significant positive spinoff resulting from the merger a platform of process knowledge and disciplines that establishes a culture of innovation and improvement going forward. The Bottom Line Effective process management plays a critical role before during and after a credit union merger or acquisition. It supports collaboration by providing the language teams need to manage the impacts of change and to express their ideas for the future. Ivan Seselj is CEO of Promapp an industry leading provider of business process management (BPM) software for creating and managing business processes online. He can be reached at ivan.seselj promapp. com. Through careful planning and consistent implementation mergers and acquisitions can deliver more than just the benefits of scale. They can better position the new credit union to thrive in a constantly changing landscape. 14 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 UL L Y Y 2 20 01 16 6 C U B U S I N E S S . C O M MA RK ETI NG MATTERS BY EVA LAMERE Online Reputation Management Six Things Every Credit Union Should Know What members are saying about your credit union online could have long-reaching consequences for your reputation. In fact Internet reviews are increasingly being given equal trust as personal recommendations. With an online reputation management strategy in place your CU can build a positive reputation while discouraging negative comments. ord-of-mouth advertising has never been a more important member acquisition tool for credit unions. Thanks to the power of the Internet and energized by the far-reaching popularity of smartphones members can easily express their opinions about your credit union to virtually any prospect anywhere. And those prospects are probably going to listen. Research shows that consumers overwhelmingly trust the opinions that strangers post online as much as those of their family and friends. In fact a recent study by Outbound Engine found that 88 percent of consumers trust online reviews as much as personal recommendations. Most will read up to six reviews before making a purchase decision. However along with consumers ability to share positive ratings and recommendations comes the freedom to post negative comments. And negative reviews are twice as likely to be posted as positive ones. Think about it Sharing a negative review is an easy way to relieve frustration. It just feels good to vent to and commiserate with others about how you ve been wronged and perhaps prevent someone else from having a similar negative experience. How can credit unions build a positive online reputation while discouraging negative comments 15 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 6 C U B U S I N E S S . C O M W While you can t stop people from saying negative things about your credit union on third-party sites such as Google Yelp Credit Karma or WalletHub a proactive online reputation management strategy can help mitigate the negativity by encouraging more positive messaging and content. 1. What is online reputation management It s controlling what potential or current consumers see when they search your name. It can help stop fix and prevent PR disasters while protecting and promoting your brand. It includes monitoring third-party sites (and more) to stay current on how your company is being perceived online and then proactively managing any negativity. It also includes search engine optimization (SEO) and management to boost your online content ranking in Google and other search engines. And it helps ensure that when consumers do find your content it s relevant real and valuable. 2. What does Google say about you Research your credit union as though you re a consumer to audit your current online reputation. Remember 93 percent of searchers don t go past the first results page and will use the first 10 results to form an impression. Is your reputation MARKETING MATTERS Negative By far the worst category this means you have one or more negative search results tarnishing your reputation. These can be from official rating sites blogs Twitter accounts or any number of other social channels. Irrelevant They don t hurt you but they don t help you either. You may not be losing potential members who are looking for a new financial institution but you won t win their business either. Wrong Confusion can occur when other businesses have a similar name and are more relevant to online searches than you are. Credit unions with names based on the community company or group they serve are especially vulnerable. Aside from consumers not finding information about your credit union they may read negative things about the other business and attribute them to you. Positive and relevant Your search results are full of positive content and your brand is wellrepresented. This scenario is ideal but still requires maintenance to continue. 3. Why Facebook makes sense Social media platforms are one of the fastestgrowing referral sources for businesses of all sizes and types and they are the way many consumers prefer to communicate directly with a brand. According to a Sprout report published by the Center for Media Research 90 percent of those recently surveyed have used social media in some way to communicate directly with a brand. While financial brands seem to have difficulty growing their social media presence credit unions notfor-profit status and community focus make social media outlets a more natural fit for them than for their for-profit bank competitors. So at a minimum make sure you configure Facebook Twitter and Google profiles for your branch locations and upload images and key information to them. 4. Why social should be different than promotional Social channels are powerful portals for two-way dialogue with potential members and community influencers so treat them as such. Too often financial institutions and other brands use Facebook Twitter and Instagram simply as additional vehicles to pump out promotional content. In so doing they miss valuable opportunities to engage their targets in meaningful online conversations. In fact Sprout reports that brands send 23 promotional messages for every one response given to their audience the worst ratio in the past three years. It isn t as if consumers aren t reaching out in search of a response. Social media channels are consumers top choice for customer care communications. Social media even surpasses both the phone and email for reaching out when there s a problem or issue. 5. How to turn a negative into a positive It s simple Answer that negative review and do it in a timely fashion. (To consumers that means four hours or less according to the Sprout study.) Be empathetic and genuine offer a solution to the situation and an opportunity for additional followup. Do it well and you ll often find the reviewer will update his or her negative comment to a positive one and more importantly you ll strengthen your relationship with that member. Of the survey 16 TURN ON YOUR MARKETERS MATTERS U N I O N withTEAMBUILDER. 4 MARKETING www.cubusiness.com teambuilder buy C R E D I T B U S I N E S S J U L Y 2 0 1 6 C U B U S I N E S S . C O M MARKETING MATTERS respondents who posted a negative review that was appropriately answered 70 percent say they re more likely to use the brand s product or service and 65 percent say they have more brand loyalty. 6. How to get more positive reviews Before they feel confident in selecting your credit union people want to see authentic and authoritative reviews that appear regularly and across a range of sites including Yelp and WalletHub. It s imperative your information on these sites is correct and current. Create and populate profiles for the sites your credit union is not on and seize opportunities to remove or respond to negative reviews. Lastly encourage happy members to share their positive experiences on review sites. This can happen at all touch points at the branch on the phone and online with a formal reputation enhancement strategy. 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 The successful online reputation management programs we ve created for clients are multifaceted and include elements of social media SEO and owned earned and paid media. Whether you execute this function inhouse or hire an agency like ours to do it for you it s important to understand how these things impact your online reputation and to use them properly. And it s imperative to do it before a problem arises because it takes considerably more time and resources to repair a negative reputation than to build a positive one. Eva LaMere is president of Austin & Williams an outcomesdriven financial marketing agency headquartered in Hauppauge Long Island N.Y. that provides clients with branding advertising and digital marketing ideas that inspire action. For more information visit austin-williams.com. 2 20 01 16 6 C U B U S I N E S S . C O M J JUUL N E Y CFO CURRENC Y BY ALEC HOLLIS ASSOCIATE ALM FIRST 3 Common Credit Union Myths and How to Handle Them O Your credit union shouldn t believe everything it hears when it comes to blanket statements about the entire CU industry. Keep reading to experience the most common of these myths being debunked. The truth may just set your credit union free of misunderstandings and false beliefs. Managers should regard profitability and member value as synonymous concepts because members can benefit from the enhanced capabilities as a credit union becomes more profitable. ALM First recommends adding ROE to the management toolbox. Another important point regarding ROE ROA analysis of a credit union is that profitability may be understated due to distribution of retained earnings to members (inclusive of above below market deposit loan rates). Adjusting for this understatement will make the analysis more meaningful. ROE ROA analysis should regard risk as well to arrive at a comprehensive assessment of financial performance. Such ideas relate to assessing ccasionally conversations with credit union executives reveal either a misunderstanding or a misapplication of certain topics. To address this issue ALM First Financial Advisors has compiled a list of three of the most common of these statements along with responses we believe might be helpful when addressing them. Return on equity is for banks and return on assets is more appropriate. When compared with return on assets (ROA) return on equity (ROE) is one of the most underutilized and misunderstood profitability metrics. Managers often perceive ROE as a banker s measure of value provided to shareholders that isn t relevant to credit unions. However it is critical to understand the limitations of ROA which shows the effectiveness of total balance sheet utilization but doesn t adjust for balance sheet leverage. In certain cases this oversight may lead credit unions to hold excessive amounts of capital which improves ROA through less allocation to interest-bearing liabilities but is a drag to ROE. So if a credit union isn t effectively deploying its capital base that fact would not be reflected in the ROA. Over the long run an institution can maintain business viability only by generating comparable value for stakeholders relative to their alternatives. 18 C R E D I T U N I O N B U S I N E S S TURN ON YOUR CFO and CEO 4 CFO withTEAMBUILDER. CURRENCY C U B U S I N E S S . C O M www.cubusiness.com teambuilder buy J U L Y 2 0 1 6 CFO CURRENCY CURRENCY CFO CFO CURRENCY CFO CURRENCY are calculated figures not assumptions. The have significant implication on the ALM conclusion. The of time. Credit will need to be assumptions used benefits up the government bond inputs allow the user to model cash flows with an end maturitybenchmark if budget surpluses dry(e.g. in progressive intervals capital adequacy and allocating risk-based capital 6. Non-financialshould be changed culture authorized and member market.service confidence recalculated to determine the impact They have already become reviewed and for pricing the standard and the output should be in safety and soundness and and decay rates that are similar to amortizations. known as risk budgeting. this can take weeks. of aother intangibles different assumption. Dividend and discount rates allow for the present valuemany corporate bonds. increasing the satisfaction from If you are will allow Knowing a member) rates and spreads are uncertain as to being where swap calculations (premiums) in each modeled interestto serve the Low loan rates are the best (and only) way rate scenario. the many requirements of Effective duration calculations can then mathematically bebetter hedging and investment execution. When investors need Conclusion member. applying and sentiment the using derivatives comparedunions of the cite low offering rates ascase effectiveto gauge credit risk and market be viewed as aswapof value Non-maturing deposits effective method curve is franchise value Credit to that often institution s assets. In this a primary Determining the mostcan consider becoming the more important curve to analyze.engaging an external delivery can generated from loyalty ofact between often seem like a balancing the membership when driver calculated value. backing into the price change or benefits duration isof memberby merelyWhile certainly an integral service provider to help you aspect to example if membership credit unions should formula. Forthe value of the liability present value is 100 in the conflicting methods ofwhen dividend rates are low in a higher deposits are retained achieving those goals. However through First Financial analytically-driven approach ALM the steps. institution also consider a full spectrum scenario and 99 in value. Emily Hollis CFA is a partner withcan be valuable for base 101 in the up 100 basis point of ways to deliver the down anmarket environment. And vice versa A financial derivatives making priority determinations. Properly used At ALM First In addition scenario the effective duration one percentAdvisors LLC. a non-maturity dividend rate higher than our 100 basis point to low loan rates methods ofisdelivering that offers market proposed approach focuses oncan offset interest rate risk the present value of value to member-owners might include (i.e. (101-99) 200). to attract hot money will decrease the economic value of its expected value delivered. The that is inherent within the idea is to favor value liabilities. It is imperative model these accounts for more 1. Easier access to lending (credit limits types of delivery that industry today.tomaximumbecause asvalue aof credit union results in theThis is vital present competition competencies to meet the final The second accurate depiction of allow rate unions Sensitivity Analysisloans) requirements.requirements part expected benefits.can interestcreditrisk. be considered loans terms of and final application is submitted when all are grows derivatives Such analysis must to compete more The 2. Higher savings rates on depositsanalyses as a means on an after-tax basis. For example a special dividend regulator strongly suggests sensitivity effectively. completed including dealer contracts. 3. Better effects of changing assumptions. Emily Mor Hollis CFA is a partner with ALM First Financial to quantify theand lower-priced financial services Sensitivity distributing retained earnings to members triggers an Setting up a line at a dealer is similar to becoming a 4. are essential because the core share evaluation Advisors LLC. analyses Distribution of retained earnings to members may immediate tax liability a partner with ALM reduces the Emily Hollis CFA is for the member and First Financial member of the FHLB--it can be laborious and takesand new 5. Expanded capabilities to existing a good deal value delivered. 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. members 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 L Y 2 0 1 6 Credit Union BUSINESS C U B U S I N E S S . C O M 15 CFO CURRENCY In general we believe focusing on delivering value through expansion and advancement in member services is more consistent with the credit union philosophy of education and people serving people. Ultimately this focus will broaden the credit union s ability to meet the needs of both existing and new members. Credit unions that continually enhance their capabilities are also often able to deliver low loan rates through economies of scale and operational efficiency. In other words low loan rates (and high deposit rates) can be thought of as more a result of sound management. Credit unions that focus primarily on distributing retained earnings (through low loan rates high savings rates interest rebates and special dividends) tend to have lower growth in both membership and assets and they may deliver less value to their communities. Of course every credit union is different and each has its unique goals and member profile. Ultimately a membership base might determine a preference for a pro-rata distribution of retained earnings. However this approach can also result in short-term opportunistic members receiving the same benefits as long-term members. Not investing in agency MBS is diversifying my risks of holding mortgage loans This is an argument occasionally used to justify an aversion to adding agency mortgage-backed securities to the investment portfolio. At ALM First we have found this stance to contribute to a false sense of diversification. The assumption is that the risks assumed by holding agency mortgage-backed securities (MBS) versus whole loans are the same but this is a false assumption. It s important to remember that agency MBS is a broad term that includes pass-through CMO structures (e.g. sequential PAC) and CMBS (agency CMBS is backed by multi-family housing only). The risks of each of these structures can and do vary considerably. For example floating versus fixed-rate or pass-through versus PAC structures have very different price risk and prepayment risk respectively. 20 C R E D I T U N I O N B U S I N E S S The availability of these structures is beneficial because it allows risk managers to build a portfolio with suitable risk characteristics that add the most value to a particular balance sheet. The varying structures of agency MBS offer risk managers the means to diversify against the risks of lending. Since depositories tend to (and most effectively) take liquidity and credit risk through the loan book high-quality assets from both a liquidity and credit perspective (e.g. agency MBS) are most appropriate for diversifying the risks of lending. While both mortgage loans and MBS do face prepayment risk this risk is generally very manageable using prepayment models within the ALM framework of the overall firm. For credit unions that avoid agency MBS in hopes of diversifying the most common alternative is a portfolio primarily composed of agency debt securities. But here s the catch ALM First s ex-post analysis shows these institutions really aren t diversifying. In almost all cases the risk-adjusted performance is inferior to a diversified portfolio including agency MBS. Due to their high credit quality agency guarantee robust liquidity and generally good risk-adjusted performance we believe diversified agency MBS generally should form the core of the investment portfolio for credit unions with the modeling capabilities. Alec Hollis joined ALM First Financial Advisors in 2012. Mr. Hollis performs asset liability analyses for financial Institutions various what-if analyses budget forecasting liquidity forecasting and any other modeling requirement to fit the needs of ALM s clients. As an Associate Mr. Hollis s additional responsibilities include the presentation of results to client ALCOs and senior management as well as mentoring new financial analyst team members. Mr. Hollis holds a bachelor s degree in finance from the University of Notre Dame in South Bend Indiana. J U L Y 2 0 1 6 C U B U S I N E S S . C O M BRA NC H BUSI NES S BY KAITLIN MORRISON Suncoast Growing Strong Branches Organically How has one credit union grown from operating out of a briefcase to serving over 700 000 members across 21 Florida counties Careful mindful management lies at the cornerstone of this growth. Discover what smart strategies have led to its success and how they can grow your CU too. n a sense the very first Suncoast branch was actually mobile. Founded in 1934 by Henry Claywell Hillsborough County Teachers Credit Union originally operated out of Claywell s briefcase. These days the first office of Suncoast Credit Union sits on one of the walls inside Suncoast s Training Center lovingly framed and providing a glimpse at the credit union s storied past. From a small organization serving public school teachers in Hillsborough County Suncoast Credit Union has grown to serve over 700 000 members from all career backgrounds and locations throughout the state of Florida. With 59 branches and counting Suncoast now reaches 21 Florida counties. Even as Suncoast continues to grow each branch is carefully guided by a branch manager who knows Suncoast well and is invested in the credit union s legacy. Suncoast Credit Union seeks smart growth and is applying a strategy of careful mindful branch management. This type of planning encourages credit unions to become stronger from within. Looking to Suncoast branch managers and executive teams can learn from a structured-growth approach. Growing new branches should be an activity that keeps the credit union focused on the future without being lost in the details. The Wauchula branch recently reopened with a new building and a smaller carbon footprint showing Suncoast s investment in strengthening its branches. In 21 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 6 C U B U S I N E S S . C O M I fact this facility uses 88 percent less electricity each year than more traditional buildings. By incorporating energy-saving technology and renewable power the new facility represents Suncoast s efforts to preserve the environment. Branch growth can be a messy process but Suncoast has practical strategies for guiding each branch along the path to success. I believe that Suncoast s example can teach us three insights about growing and adding branches that are flexible and member-focused. Following their example requires a deep understanding of local membership needs an openness to scaled problem solving and management who are close enough to their communities to glean insight from them. TURN ON YOUR BRANCH SUPERVISORS & MANAGERS withTEAMBUILDER. 4 BRANCH BUSINESS www.cubusiness.com teambuilder buy TAB BRANCH BUSINESS Insight 1 Grow your branch creatively looking for scaled solutions that extend the reach of your branches before you make the leap. Mindful growth sees opportunities and crafts solutions that fit the problem appropriately. In 1966 Suncoast began expanding outside Hillsborough County but did not initially build a brick-and-mortar branch. The first expansion outside the county used a mobile office housed inside a delivery truck that could easily travel to members and bring financial services to wherever they were. Importantly Suncoast s management saw a potential opportunity and scaled a custom solution. With your credit union there may be more you can do before opening a new branch. Testing the waters with a scaled extension can help you determine how a new branch will be received by the community and can help you hit the ground running when you do eventually open another branch. Scaling also allows you to adjust quickly to the needs of the marketplace without unnecessary risk. Branch managers themselves often have a great deal of insight into local needs and are a great resource for uncovering solutions for their own communities. Insight 2 Grow your people alongside your branches. This will develop managers who can intuitively and naturally understand their own community and its financial needs. Interestingly all of our 60 branch managers were organically grown within Suncoast and promoted through the ranks to their current positions said Sheri L. Eaton senior vice president service center operations. Eaton says that these branch managers stay close to their communities and build relationships with the members who frequent their branch. This way branch managers are connected to their community not just through service opportunities but also through direct interaction with members and their financial needs. As Suncoast grows its branches promoting from within is keeping these new branches centered 22 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 and focused. The managers make it a part of their job to understand their communities intuitively always keeping an eye out for new opportunities. Often they have an opportunity to dig deep into a situation provide relevant financial counseling and make a difference in our members lives Eaton said. Insight 3 Keep senior leadership close to the branches. Be strategically involved and invested in what branches face. Suncoast deliberately keeps management close to the membership by involving them directly in the work the CU s branches do. They [Suncoast management] are all working managers assisting members side by side with their staff while also juggling the daily operational requirements said Eaton. We are fortunate to have such a strong team dedicated to serving our members. This is vital for healthy branches but it s also important for future branch growth. When branch employees see a problem or opportunity and communicate it with senior staff and branch management managers who are involved in the daily life of the branch are better informed. Senior leadership can provide better guidance to branch managers when they engage in this process too. Branch employees as an added bonus learn more about what senior leadership does to make the entire team more successful. Visible leadership may also inspire other employees to engage in strategic thinking about the branch s present and future. J JU UL L Y Y 2 20 01 16 6 C U B U S I N E S S . C O M BRANCH BUSINESS TAB Encouraging Scaled Growth Credit union branches that are responsive to their environments appear to be better positioned for future challenges. Even with technological change they understand their membership well enough to know what services to expand what to change and what to eliminate from their branches. Branches are still very much alive as Suncoast can testify but they are only as alive as they are scalable to member needs. This is what smart growth looks like. Adapting and listening may require management to be more heavily involved with what members need. In the long run this can only strengthen the branch. Strategically raising up new branch managers with this type of community involvement may be just what branches need to save themselves in the midst of changes in consumer finance. With their focus on members credit unions are uniquely positioned to provide a strong and compelling level of service that is not often found in other types of financial institutions. TURN ON YOUR BRANCH SUPERVISORS & MANAGERS withTEAMBUILDER. 4 BRANCH BUSINESS C U B U S I N E S S . C O M www.cubusiness.com teambuilder buy 23 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 UL L Y Y 2 20 01 16 6 CEO V ELO C ITY BY SCOTT MCCLYMONDS L The Six Guiding Forces of Credit Union Growth and Success Part 1 5. Leadership Development Fuels Strategic Momentum 6. Low Operating Expenses Enable Investment and Innovation ast month I began a series of articles on leadership systems based on the many leadership discussions I have had with credit union CEOs around America. I referred to the first system as The 8 Pillars of Strategic Alignment and we examined each of the 8 Pillars in some detail. I started with strategic alignment because aligning a credit union around a particular direction is so important especially as the financial services industry becomes more dynamic and competitive. It s too hard to be everything to everyone and The 8 Pillars provides a framework for you and your team to set priorities. As a follow up this month begins a two part series on what I call The 6 Guiding Forces of Credit Union Growth and Success. You ll see that strategic alignment is one of those guiding forces but it cannot stand alone. We ll look at Guiding Forces 1-3 this month and 4-6 next time. You ll notice a review of The 8 Pillars but also see them in the context of a broader leadership system. These guiding forces are universally applicable to any credit union and the absence of any of them can prevent an organization from becoming all it can be. You may find that you are in sync with these forces or lacking in some of them. Don t be discouraged if you find some gaps. Simply identify one or two gaps and develop a plan to tackle them. Over time you will find your credit union transforming as the gaps are filled. Let s begin our tour through The 6 Guiding Forces. Guiding Force 1 Building Focus Through Strategic Alignment The first Guiding Force involves creating tight strategic alignment around a very focused strategy. The diagram below reviews The 8 Pillars of Strategic Alignment. As I wrote in my last article on leadership systems alignment starts with knowing who you are and who you are not. You cannot be all things to all people and all the other 7 strategic pillars flow from your identity. Great leaders build their strategies based on their identity and member needs and experience are assessed and developed within that strategic context. If you consider these 8 Pillars as a process that cycles continually it is not difficult to imagine significant velocity and momentum building and increasing as your credit union grows in its knowledge of members and how to serve them while holding fast to your identity and focused strategy. 24 2 0 1 6 C U B U S I N E S S . C O M The 6 Guiding Forces of Credit Union Growth and Success are 1. Strategic Alignment Framework Based on Corporate Identity 2. Velocity based on Aligning Leadership Employees and Systems 3. Communication the Glue of Strategic Alignment 4. Selecting Well-Rounded Leaders Builds the Present and the Future C R E D I T U N I O N B U S I N E S S J U L Y CEO VELOCITY The 8 Pillars of Strategic Alignment Know Who You Are close to the level of strategic alignment I have seen in top credit unions and they all fell short of what they could have been. What about your organization Strategic Alignment Exercises Strategy Innovate Measure Strategic Alignment Member Needs Answer each of the five questions below yourself then ask your entire board management team and a sampling of front line people to do the same exercise. Now compare 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. 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 Focused Execution Member Experience Communicate Commentary Commentary What great union leaders achieve with strategic alignment is challenging for any What great credit credit union leaders achieve with strategic organization. However perils alignmentone is is there are greatcreate focus or build a high level ofan organization challenging to not having momentum if strategic for any organization. alignment. For it impossible to is out of alignment because out of alignment means out of control. However there are great perils to not having a high As you in of the level can imagine misalignment can occurelseanyone 8itAis impossible to of strategic alignment. For disarray.Pillars. Not having clarity on your corporate identity can leave everything in clear identity with an unfocused strategy or better momentum if an organization is create focus is no buildand so on. out of alignment because out of alignment means out Copyright CEO Velocity 2016 3 of control. scottm ceovelocity.com ceovelocity.com As you can imagine misalignment can occur in any 479.263.0774 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. Misalignment causes what I call hidden profitability. This is like earnings available to a company but inaccessible because they are locked in a vault and the door won t open. Strong strategic alignment opens the door and lets the hidden profits accrue to your company. While I have worked for and with large and reputable financial institutions ranging from 5 000 to 50 000 employees not one of them came remotely Guiding Force 2 Increasing Velocity Guiding Force 2 has to do with creating focused strategic direction and speed that expedites the achievement of your goals. It s what I call creating velocity. To create a high velocity credit union both speed and direction are essential. Neither velocity nor momentum can occur where one or both ingredients is lacking or hindered. In businesses direction comes from leadership and speed comes from employees and systems. Here s how top CEOs align leaders employees and systems to execute their strategy and increase velocity and momentum. 25 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 6 C U B U S I N E S S . C O M CEO VELOCITY Aligning Leadership Employees and Systems Aligning Leadership Employees and Systems to Execute Strategy to Execute Strategy Leadership managers. Their research says managers account for at least 70% of the variation in employee engagement scores. Guiding Force 2 underscores the importance of trategic alignment between leaders employees and systems. The strong alignment between these three creates focused direction speed and momentum. To the extent that misalignment is present there will be hidden profitability and a lower probability of achieving your goals. Strategy Execution Exercises on Creating High Velocity On a scale of 1 to 5 5 being the highest have your employees rate their managers in the following categories Systems Emlpoyees Commentary For velocity to occur a business main components of leadership employees and For velocity to occur a a symphony. For optimal results the symphony2. Their explanations of how employee job functions systems need to operate in concert likebusiness main components is built leadership employees and systems need to operate of around the 8 Pillars and the musicians operate within that framework. and performance expectations matter to the It isin framework that allowsa symphony. For to focus on a results a concert like each leader and employee optimal credit union s identity strategy and members and it pervades every level of the organization. Commentary 1. How clearly they have communicated expectations for each role. company and members. the symphony is built around the 8 Pillars and the Clarity is the mostoperate aspect of that Pillar framework and clarity brings high 3. How consistently and accurately those musicians important within the 8 framework. performance at the individual and enterprise level as well as a great experience for expectations have been measured. It members. is a framework that allows each leader and employee to focus on a credit union s identity However clarity is not common in American business. According to Gallup Research 4. Whether or not they have provided the tools only 46% of managers and 37% of employees strongly agree with the statement I strategy and members and it pervades every level of systems and training employees need to do their the organization. Copyright CEO Velocity 2016 5 jobs. scottm ceovelocity.com Clarity is the most important aspect of the 8 Pillar ceovelocity.com 5.How much their managers care about them as 479.263.0774 framework and clarity brings high performance at people. the individual and enterprise level as well as a great experience for members. 6.Availability of professional development However clarity is not common in American opportunities. business. According to Gallup Research only 46% of managers and 37% of employees strongly agree with the statement I know what my company stands for and Guiding Force 3 Communication the Glue of what makes our brand different from our competitors. Strategic Alignment For clarity of identity and strategy to result in high As important as it is for management to have a clear performance it must be translated by managers into corporate identity and strategy they can be rendered required job functions and outcomes. Referencing ineffective without a strong commitment to companyGallup again the number one action a company wide communication and a corresponding process to must take to achieve high performance is hire great ensure its effectiveness. 26 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 6 C U B U S I N E S S . C O M CEO VELOCITY Commitment to a strong communication process is the glue that lets leaders achieve strategic alignment. Great CEOs develop communication and feedback loops that make sure everyone is heard and knows the important information. The following diagram shows a communication process used by top CEOs for regularly communicating with all employees not just direct reports and board members. Processes like these are vital to formulating vision strategy and strong strategic alignment. Commentary While the need for a strong communication process seems obvious it does not always exist and it takes thought time and commitment to develop and maintain. Without it strategic alignment is truly Communication Exercises impossible. 1. Outline your communication process including As I ve mentioned before misalignment results feedback loops. Be sure to include direct reports in hidden or unrealized profitability so in diagnosing your board front line and operations employees your own institution for hidden profitability your and vendors. communication practice is one of their first places to Commitment to a strong communication process is the glue that lets leaders achieve 2. How make look. Wouldn t it be great to unlock some of that hidden strategic alignment. Great CEOs develop communication and feedback loops thatoften do you engage each constituency in sure everyone is heard and knows the important information. profitability just by developing a better communication your communication process and how do you do it process diagram shows a communication process used by top CEOs for regularly The following 3. What forums do you provide for your employees to communicating with all employees not just direct reports and board members. give you honest feedback and how do Processes like these are vital to formulating vision strategy and strong strategic alignment. you make them feel safe doing so The Strategic Communication The process used by great credit union leaders is not fancy just emails town hall meetings and an open door. There is no great expense involved. Improving your communication process and committing to it can provide no cost profitability increases. The real question is why don t more companies adopt this model or something similar and commit to it Why don t more CEOs commit to this level of consistent communication We hear all the time how important communication is but how many times do we say we re too busy to commit to the disciplines of regular communication If we find ourselves saying this it is a sure sign that we don t see the value in it. Process The Strategic Communication Process Town Hall Mtgs 4. Where might you have weak links in your communication process and how will you fix them 5. Have each of your direct reports perform steps 1 and 2 above for their communication process. All Empl Weekly Emails Open Door CEO Sr Ldshp Team Board External Partners Front Line Ldrs Front Line Empl 6. Have you matched the performance evaluations of your direct reports with their skillfulness and commitment to communication If not why Commentary 27 While the need for a strong communication process seems obvious it does not always exist RandD Itakes thought time and commitment to develop andJmaintain. Without6it it T C E U N I O N B U S I N E S S U L Y 2 0 1 strategic alignment is truly impossible. C U B U S I N E S S . C O M CEO VELOCITY TAB Summary In our continuing discussion of leadership systems we first defined a system for creating strategic alignment. In this article we have created greater context for strategic alignment by describing a broader leadership system called The 6 Guiding Forces of Credit Union Growth and Success. We acknowledged that strategic alignment is important but is most effective when supported by 5 other guiding forces of growth and success. This article outlined three of the 6 Guiding Forces Alignment Velocity and Communication and next month s article will describe Guiding Forces 4-6. Oh and before you put this article down don t forget you have some important questions to review with your team to evaluate where you stand in Guiding Forces 1-3. Scott McClymonds of CEO Velocity coaching and consulting specializes in helping credit unions acquire and retain profitable members. His focus on creating value for members helps credit unions stay competitive and relevant while building profitability and brand strength. Subscribers to CU Business can ask Scott questions about how getting to know their members better can generate greater returns. He can be reached at 479.263.0774 or scottm ceovelocity.com. Scott McClymon ds and CEO Velocity help credit union s acquire and retain profitable mem bers. Using mem ber portfolio management and other advanced strategies CEO Velocity helps you imp rove profits wh ile better servin g the needs of your members and co mmunities. Do you n eed to stand out more from your local fin ancial services providers Wo uld you like to have deeper m ore impactful relation ships with your members Do you n eed more profitable members Does you r profitability need to increase Do you r have business un its or branches that need to improve performance Do you n eed to more effectively reach you r market Email scottm ceovelocity.com to request a free paper on how to find and 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 28 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 UL L Y Y 2 20 01 16 6 C U B U S I N E S S . C O M CU PAYMENTS BY CAROL CLINE-PARTON Credit Union Takes Strategic Steps to Optimize Auto Loan Performance Outreach to Millennials and Higher-Risk Borrowers in the Mix with Call Center Support W Do seesawing auto sales have your credit union in a panic One credit union is taking some nontraditional approaches to maximizing its lending opportunities. As a result it is riding the ups and downs. Read on to see exactly what this CU is doing differently. hile 2016 auto sales through May were up and down the National Automobile Association continues to believe that sales this year are on pace to reach its 2016 forecast of 17.7 million vehicles. Whether the auto sales experts projections become a reality or fall short it s important for credit unions to maximize any and all opportunities. Especially if sales are soft. We recently talked to a lending expert with ties to CO-OP Member Center about his credit union s lending program. David Kelsay SVP of Lending at Sierra Central Credit Union (www.sierracentral.com) in Yuba City California with assets of 827 million says Sierra Central CU has implemented a very successful auto lending strategy. It has accomplished this feat by seeking new lending opportunities and not taking anything for granted. Even if auto sales nationally do not reach this year s projections Kelsay feels confident that Sierra Central s active marketing and cross-selling programs coupled with its leading position in the Northern California auto lending market will result in the CU achieving its goals. 29 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 6 C U B U S I N E S S . C O M David Kelsay SVP of Lending at Sierra Central Credit Union Attracting Millennials One of the credit union s key initiatives is to reach out further to Millennials. To that end Sierra Central CU has a first-time auto buyer program coupled with a promotional campaign to attract more Millennial borrowers says Kelsay. CU PAYMENTS The goal he states is to bring a new generation of younger members into the credit union to balance the current average age of its membership of 54 years. This is a critical strategic objective of Sierra Central CU s marketing campaign. We recognize [that] the growth potential of Millennial consumers in our market area is off the charts but these consumers also require a more targeted promotional outreach that will resonate with them and their lifestyle says Kelsay. Higher-Risk Borrowers The Sierra Central CU auto loan program is based on a set of criteria that takes into account the fact that young borrowers most likely do not have a loan track record or any significant income. At the same time it embraces the notion that Millennials present a calculated risk that is worth taking. We realize they are early entrants into the financial world and probably have little specific knowledge about borrowing money and other aspects of finance that require a track record such as a FICO score says Kelsey. So we structured a program that takes into account who they are today without the benefit of a credit score or loan history and measure that against the potential they have as future members and borrowers. Along with reaching out to younger consumers Sierra Central CU has targeted potential borrowers who are older and might have a blemish on their loan record due to the economy job loss or other disruption. To this end Sierra Central utilizes a program offered by Open Lending (www.openlending.com) called Lenders Protection. This initiative provides a form of loan default insurance for higher-risk direct and or indirect auto loans such as subprime-type loans. Kelsay says that although Sierra Central CU s interest rate is the same as a regular auto loan the loans are structured through Open Lending to compensate for the risk factor and to be profitable. We are a very traditional lender and that higherrisk portfolio through Open Lending performs well for us with a good return on investment says Kelsay. We are also receiving positive responses from dealers. In addition Sierra Central has taken another step that has improved its auto loan performance. It has contracted with a call center specifically CO-OP Member Center to handle off-hours lending activity especially on weekends when a large percentage of auto sales occur. 31 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 6 C U B U S I N E S S . C O M CU TABPAYMENTS CO-OP Member Center has increased our loan activity and the return on investment is better than we ever thought it would be says Kelsay. We are very pleased with the results. Carol Cline-Parton is Vice President COOP Member Center a wholly-owned subsidiary of CO-OP Financial Services (www.co-opfs.org). Cline-Parton can be reached at carol. cline-parton coopmc.org or (888) 869-5552 ext. 5576. 32 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 UL L Y Y 2 20 01 16 6 C U B U S I N E S S . C O M MEMBER BUSI NES S L ENDING BY JOSH GLOVER SVP COMMUNITY & REGIONAL FINANCIAL INSTITUTIONS AT NCINO INC. The Sun Shines on New Opportunities in Business Lending S There is no time quite like when you re flipping burgers on the grill and splashing around in the pool to be thinking about your credit union s business loan portfolio. The insights and strategies that follow will help you cook up a second half of your CU lending year to perfection. The appropriate use of the personal guarantee waiver is among the greatest opportunities credit unions have to meaningfully connect with their business members says Larry Middleman president and CEO of CU Business Group LLC a business services CUSO that serves over 500 credit unions in 46 states. But it is important to use this newfound flexibility judiciously and not simply for the sake of being competitive with the bank up the street. Middleman cautions that most business loans still warrant the obtaining of personal guarantees from all owners unless there are mitigating factors such as strong collateral positions significant business cash flow and a long-term track record of success in the industry. Another area of opportunity within the new rule is the exemption of non-member participation loans from the MBL cap. Credit union participation loan balances have grown substantially over the past five years even while loan quality has improved (Fig. 1). With ummer is a time for barbecues pool parties and family vacations. It is also a great time to plan your credit union s strategy for growing your business lending portfolio in the second half of the year. Here are a few areas of exciting opportunity in member business lending. Let s brush off the grill and turn the flame on high Cooking with Gas NCUA s New MBL Rule In February the National Credit Union Administration (NCUA) enacted a major and welcome reboot of its MBL rule replacing the agency s long-held prescriptive-based philosophy with a more flexible principles-based approach. Some highlights of the final rule include Ability to waive personal guarantees Removal of explicit loan-to-value limits Lifting limits on construction and development (C&D) loans Exclusion of non-member business loan participations from the MBL cap Elimination of the onerous waiver process The first provision of the new rule to be implemented is the automatic personal guarantee waiver. It went into effect May 13 2016 all other provisions will be implemented January 1 2017. 33 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 6 C U B U S I N E S S . C O M MEMBER BUSINESS LENDING this new provision the opportunity is even greater for credit unions to diversify their business loan portfolios. Although credit unions previously were able to apply for individual or blanket waivers on participation loans the NCUA has for the first time explicitly clarified that such loans do not count toward the statutory cap. Credit unions may now benefit from purchasing business loan participations within their individual risk tolerance parameters without restricting the ability to serve the needs of their own members. Thanks to the NCUA s new more flexible approach the reworked MBL rule is a fantastic opportunity for credit unions to serve members their way in accordance with local market conditions staff expertise and resources and their individual tolerance for risk. mend that credit unions select just a couple of target industries to get started especially in markets the institution has previously served with conventional business loans. This approach allows a credit union to develop experience in SBA lending serving businesses where there is an established comfort level and trust while working through the unique operational challenges of the SBA lending process. 2. Ensure your credit policy covers governmentguaranteed loans. It is important that you explicitly write your SBA lending criteria into your commercial lending policy. With the NCUA s recent overhaul of its MBL rule credit unions must update their loan policies anyway so it is a great time to review them and ensure that you can originate SBA and other government-guaranteed loans in accordance with regulations and your own tolerance for risk. 3. Hire an experienced back office. With the growing popularity of SBA lending it is becoming more difficult to recruit lenders with years of experience in this area. That is where lending service providers consultants and credit union service organizations (CUSOs) may be able to fill the gap. If you are having difficulty finding lenders in your market who have a history of working closely with the SBA and with analyzing the needs of startup businesses consider contracting with a third party on an as-needed basis. 4. Ensure your sales team is comfortable selling SBA products. As stated above experience is a crucial component of any successful SBA program. Your members count on the expertise and experience of their financial institution to navigate a sometimes confusing and arcane federal government qualification and application process. Lenders and business development officers perform a crucial role in this process by helping to determine whether your business members are eligible for the program. As a liaison between the 34 2 0 1 6 C U B U S I N E S S . C O M Reduce Flare-Ups through SBA Guarantees A growing number of credit unions are discovering the benefits of the U.S. Small Business Administration s (SBA) guarantee programs. Over the past five years average credit union SBA loan balances have grown by almost 150 percent. The SBA offers a variety of programs that can be an attractive and core part of your credit union s member business lending (MBL) portfolio. These include the flagship 7(a) Loan Program (including the popular SBAExpress) and the Certified Development Company 504 fixed asset purchase program. Participating in the SBA s (7)a and SBAExpress programs offers several benefits to your credit union and to your business members. These include the potential for portfolio growth a reduction in credit risk and the opportunity to support small businesses and job creation right in your community. And as the icing on the cake the guaranteed portions of SBA (7)a loans do not count against credit unions statutory business lending cap. Here are five keys to implementing a successful SBA lending program at your financial institution 1. Start small and have a plan. Experts recom- C R E D I T U N I O N B U S I N E S S J U L Y MEMBER BUSINESS LENDING TAB member and the government agency the loan officer helps set the business owner s mind at ease and aids in improving the overall process for all involved. 5. The right technology is essential. To do SBA the right way your loan origination platform must be able to handle numerous special requirements including spread analysis processing documentation and closing. The application process for SBA (7)a loans contains many additional steps compared with conventional commercial loans and ongoing loan monitoring and tracking is required. Today s leading cloud-based bank operating systems have been designed with SBA lending in mind and they offer the flexibility transparency and customization required to handle both government-guaranteed as well as conventional loan origination and servicing. sition your credit union as a knowledgeable resource in depository services. Commercial banks have long recruited and trained cash management officers to sell these next-level depository services to their customers. To make inroads in this market credit unions need to arm themselves with such knowledge and expertise as well. Nothing beats the heat of summer like a tall cool drink and a backyard cookout. By planning now to capitalize on these exciting opportunities your business lending program will be fired up and ready to go this fall Fig. 1 The Secret s in the Sauce Building Lasting Business Relationships Whereas credit unions have traditionally served micro-businesses those entities with annual sales of under 1 million adequately they have been challenged to meet the needs of the 1 million and over businesses with 1 to 10 million in annual sales. Businesses in this group tend to be more profitable for financial institutions in the long term. They have more employees and higher cash flows they keep larger account balances and they have a need for more sophisticated financial services. In order to reach this market your credit union needs to offer a next level business deposits package Middleman says. These packages typically include services like analyzed business checking true business online banking remote deposit capture and ACH origination. Middleman emphasizes the importance of hiring dedicated experts to sell such sophisticated services. Do not underestimate the expertise needed to po35 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 UL L Y Y 2 20 01 16 6 C U B U S I N E S S . C O M Source NCUA TURN ON YOUR LENDING DEPARTMENT withTEAMBUILDER. 4 LENDING SOLUTIONS www.cubusiness.com teambuilder buy COMP LIA NC E UPDATE BY BRIAN GODWIN What s Your Policy on Policy Management O If policy strategy puzzles your credit union rest assured you re in good company. The topic tops the list of those CUs tend to inquire about. Credit Union BUSINESS s compliance expert offers a few of his favorite tips to help credit unions streamline their policy management process. ne of the topics credit union professionals ask me about most often is policy strategy. Although it s possible the name of my employer weighs into the frequency of this inquiry I suspect it goes deeper than that. Policies are a consistent topic across all credit unions regardless of size complexity or geographic location. That s because everyone knows a credit union s policies will always be on an examiner s request list. They will be reviewed and scrutinized during each audit and every exam. A credit union s policies are supposed to serve as a set of guidelines under which it will operate. Each written policy a credit union drafts should set the parameters by which it will conduct business and be approved by the board of directors. Throughout my tenure in compliance I ve developed some efficiencies in the drafting approval and implementation of policies. What follows are a few of my tips which should help streamline your policy management process. Take annual reviews seriously. Credit unions often ask if a particular policy needs to be reviewed and approved by the board on an annual basis. I tell them If the topic is important enough to warrant its own policy it is important enough to have the board review it each year. Create efficiencies for your board. A credit union s policies can be complex and sometimes lengthy. They are also quite similar from year to year absent any significant regulatory changes related to a specific topic. Providing a full version of the policy with any revisions highlighted can help your board focus on the most critical aspects for review. Assuming the board approved the policy last year and no significant changes to the credit union s operations have occurred the revised language will likely require the most scrutiny. Train your board. While board training is a requirement in specific areas of regulation such as the Bank Secrecy Act (BSA) it can be quite helpful from a policy standpoint too. Providing background as to the reason for a change in policy will help board members direct the credit union in the correct manner and will result in a more efficient review process. Make policy reviews a standing agenda item. Slow and steady wins the race. Breaking policy reviews down into more easily digestible portions may increase the effectiveness of the reviews. Rather than asking the board to review all policies during the last month of the year create a review schedule and ask them to review three or four policies per meeting. They will be more engaged and the task won t feel as daunting. 37 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 6 C U B U S I N E S S . C O M TAB COMPLIANCE UPDATE Keep policies and procedures separate. Policies provide the structure the board has established for the credit union. Procedures on the other hand help ensure the credit union is operating within that framework by establishing the business processes the credit union will follow. While the policy may be changed minimally from year to year procedures may be altered much more frequently. And because policies are board approved each subsequent revision will require presentment to the board. Reference each document within the other as necessary but avoid creating more work for yourself and the board. Keep policies top of mind. When new or revised rules are published consider their impact on your current policies. Are revisions required May it be necessary to draft a new policy Also ensure any new product offerings are addressed. You ll want to ensure the board has approved the product and that appropriate guidelines have been established. Above all follow your own policies. If your board has approved specified criteria for an area of the credit union s operations it is of utmost importance to follow the established guidelines. Some of the most difficult conversations with regulators occur when the credit union fails to follow its own policy. Credit union policies are living breathing documents that change over time. Revisions may result from external forces such as regulatory actions. They may also result from internal pressures including new product offerings or the addition of a new department or team leader. It is important to keep policies current to be most effective. After all they re the structure upon which your credit union is built. Brian Godwin is director of compliance solutions for PolicyWorks a national leader of credit union compliance solutions. He can be reached at briang policyworksllc.com. Loan Originator training You ve got this. Do you still need to satisfy your training requirements Look no further than the comfort of your own office. A new NMLSapproved self-study course is specifically designed for credit unions and meets the continuing education requirements of Reg Z. Enroll today at www.cuna.org MLO Check it off your to-do list Enroll today at www.cuna.org MLO OFFERED BY INSTRUCTED BY The services provided by PolicyWorks should not be construed as legal services legal advice or in any way establishing an attorney-client relationship. Making compliance easy for you. 866.518.0209 POLICYWORKSLLC.COM 38 C R E D I T U N II O N U N O N B U S II N E S S B U S N E S S J JU UL L Y Y 2 20 01 16 6 C U B U S I N E S S . C O M L ENDING BY MICHELLE HARBINAK SHAPIRO 3 Ways to Improve Lending Processes W Are you ready to transform your credit union s lending processes and become a true innovator Lending automation can help you accomplish those aims. These three recommendations will help your CU automate its loan processes so you can continue to stay competitive in today s digital-first environment. hether you re serving consumer mortgage or business lending achieving superior service is an underlying goal that will lead your credit union to success. In today s digital-first world consumers have grown accustomed to fast seamless and personalized service. For credit unions that means delivering fast and personalized service from the first interaction in new business onboarding through ongoing support and requests. In my 15 years in the financial services industry I ve seen a shift in how credit unions have repositioned themselves as true innovators. They ve done so by embracing new technology and concepts to give their members the services they need. But maintaining the status as an industry innovator requires a credit union to also embrace transformative processes. Over the years we at Hyland have had many credit unions approach us about transforming lending processes within their organizations specifically asking about best practices for lending automation. Recently Callahan & Associates reported on the strong performance of Q4 2015 in which credit unions experienced a 10.6 percent increase in loan growth. This number puts a larger emphasis on how credit unions can keep up with industry growth and lending trends. 39 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 6 C U B U S I N E S S . C O M Here are the three steps I recommend to automate loan processes 1. Connect your technology systems to increase communication. As financial institutions rely more and more on technology it s imperative to eliminate data silos by ensuring systems easily communicate. There s no better way to frustrate your employees than by forcing them to switch between applications and input duplicate information into several systems both of which can slow down processes and cause errors. By TURN ON YOUR LENDING DEPARTMENT withTEAMBUILDER. 4 LENDING SOLUTIONS www.cubusiness.com teambuilder buy LENDING integrating core systems with an enterprise information platform credit unions are able to automate their lending processes with workflow and make them electronic thus speeding them up and making them more accurate. But to truly transform those processes you need to do more than just turn the current ones into electronic iterations. It s important to take time to evaluate the lending process from origination through final signatures and then decide if it is as efficient and streamlined as possible. If there are bottlenecks identify the issues that halt the process and determine how to eliminate those roadblocks to keep lending operations moving. 2. Connect people with the right information. Despite an organization s best efforts sometimes processes continue to heavily rely on paper. While it s hard to eliminate paper entirely it s important to make sure you capture loan information electronically priming it for an electronic lending process. Once information is stored electronically route thatinformation to employees through work queues. Doing so ensures the right employees receive the right information at the right time. And because you ve integrated your enterprise information platform with the loan origination system (LOS) employees can easily work within a familiar interface without needing to switch screens to find what they need. users gain greater insight and transparency into the loan process because they can look up the real-time status of any loan. Workflow tools are essential to increasing the speed and accuracy of loan processes because they eliminate any variances in the way employees handle such processes. As a result risks decrease because of the surety that employees are consistently handling processes the correct way. This consistency enables your credit union to stay in compliance with local state and federal regulations. And because the solution gathers real-time document and process statuses as well as historical data your credit union also eliminates issues during the next audit making it easier for both you and the auditor. More credit unions are utilizing a single enterprise information platform to help them deliver better service. Use of the functionality inherent in the platform such as enterprise content management (ECM) case management business process management (BPM) records management capture and workflow capabilities aids in this delivery. The innovative solutions within the right enterprise information platform give your credit union the ability to manage loan information from a central location. They also increase the speed and accuracy of loan processes and close loans faster to help CUs gain a competitive advantage. 3. Connect processes to optimize lending. Workflow isn t just a way to automatically push documents through work queues. It also optimizes processes to ensure your credit union assesses loan information as fast and accurately as possible. Faster processes lead to finalizing underwriting and servicing loans quicker which in turn leads to happier members. Further optimizing processes your enterprise information platform can facilitate the entire loan process by setting rules around tasks and giving users all related information tied to a loan. Additionally end 40 C R E D I T U N I O N B U S I N E S S 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 2 0 1 6 J U L Y 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 LENDING fringe of American culture and the business was losing money. Harley Davidson was irrelevant to most people which is not a good place for a brand to be. 12 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 6 C U B U S I N E S S . C O M But not all workflow solutions are created equal. Make sure the technology you re considering is flexible and agile enough to handle the transformation you want while growing with you in the future. When data along with supporting documents and information is automatically routed to the appropriate person it empowers employees to make betterinformed decisions. And because the entire process is tracked within the system managers and executives have greater insight into the status of an individual loan at any given time. This increased speed and access to information helps to provide better service to members and ensures loans close quickly. The quicker your credit union responds to members and provides an updated status of a loan the better the chances are to continue doing business with those members for years to come. Historically credit unions are among some of the first organizations to embrace new and innovative technology to drive change. But it s important to keep in mind the strategy behind new technology solutions. It s not enough to simply recreate former processes with new technology especially within the tedious lending cycle. By combining innovative technology with new ideas and ways to evolve processes your credit union is poised to stay competitive. Michelle Harbinak Shapiro is financial services marketing portfolio manager at Hyland creator of OnBase. 41 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 6 C U B U S I N E S S . C O M COMP LIA NC E UPDATE BY JOHN SHORT CHIEF COMPLIANCE OFFICER FOR FORTEGRA CFPB Compliance Connecting the Dots Does your credit union know the right way to handle debt collection If not you re not alone. The Consumer Financial Protection Bureau s guidelines are vague at best and slippery at worst. Rather than wading through the CFPB s thousands of pages read this article first to set the compliance matter straight. BY SCOTT MCCLYMONDS Y vance The CEOs Main onsibility he Consumer Financial Protection Bureau (CFPB) has been widely criticized for regulating by enforcement actions rather than embarking on rulemaking proceedings gleaned at the recent Cornerstone Credit om the experience he in delineating the regulatory rules of the road for the financial Union BUSINESS s CEO expert gue s annual convention Creditservices industry. In a March 9 advice on how to stay relevant in today s endeavored to explain 2016 speech Director Cordray financial environment. roll your the method to the CFPB s enforcement madness. While eyes about the relevancy talk ... again ... prepare for a honest take on the matter. understanding the director s perspective is helpful that speech Cornerstone In my column this month I m going to address the ast week I attended the failed to connect all the dots for the compliance t Union League s annual convention in topic of relevance but please don t be offended if I world. homa City. Since the League includes seem impatient. On one hand I ve had enough of this So what did Director Cordray say The Bureau s s Oklahoma and my home state of discussion of relevance. But on the other hand I realize nsas I ve beensupervisoryexhibit patience and a gentle hand are needed. The Bible the able to attend work is largely confidential between says umber of its events. Dick Ensweiler s A gentle answer turns away wrath so my purpose in company being examined as in all the CFPB.write is to encourage this article and the articles I However the ff puts on first-class events. CFPB publishes quarterly report called Supervisory akers at this event stood out to me. a you with a gentle answer. However I admit I am a bit Meyer CEO of Filene Research and the frustrated with the relevance discussion. Highlights to bring transparency to its oversight chmidt one of the engineers of Harley program. The Bureau expects the with the Relevance owned turnaround in the late 1980s and Why I m Frustrated industry to take note en last year at the League of Southeast Topic of the major issues addressed in its examination work LSCU) conference and he was great The impatient Scott says relevance is common sense and to immediately that the topic of relevance is irrelevant. actions respond to the remedial Companies and T 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 noted in those reports. As to enforcement actions Director Cordray said It would be compliance malpractice for executives not to take careful bearings from the contents of these orders about how to comply with the law and treat consumers fairly. He also suggested that the CFPB consent orders are meant to expose a pattern of actions for the industry to decipher. Let s try applying these statements to the number one consumer complaint category for the CFPB debt collection. In 2015 the CFPB had 15 consent orders related to debt collection practices. From those orders it s easy to identify what the CFPB doesn t like. However it s not readily apparent what the right way to handle debt collection is at least in the CFPB s eyes. Pulling out the December 16 2015 consent order for EZCORP in-person debt collection tactics were criticized including wearing company name tags and stating the company name when going to borrowers homes or places of work. The CFPB even issued a bulletin titled In-person Collection of Consumer Debt along with the EZCORP consent order where it stressed the heightened risk associated with committing unfair acts or practices when conducting in-person debt collection efforts. Yet in neither the EZCORP consent order nor the bulletin can the industry find how to handle those activities in a compliant manner. The industry was warned yet it was given zero guidance. 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 42 J U L Y 2 0 1 6 C U B U S I N E S S . C O M COMPLIANCE UPDATE TAB For the financial services industry to connect the dots we need to look more broadly. For example when companies sell add-on products a good place to start is the CFPB s Examination Manual for Credit Cards Module 6 Marketing Sale and Servicing of Credit Card Add-on Products. No it doesn t matter if you aren t working for a credit card company. That portion of the manual lays out seven practices the CFPB has found to be deceptive. The fifth deceptive practice listed is representing that the products would improve the consumer s credit score. It would take considerable effort to find where that practice was found deceptive in a consent order since the CFPB has issued over 100 such orders but the Bureau made it easier to find by adding it to the 1 000 -page manual. Sometimes the industry needs to look beyond the CFPB s actions. Redlining refers to the practice of denying services to consumers based on race or ethnicity. As an example last fall the CFPB found that a New Jersey bank was engaged in redlining in the following ways The bank avoided locating branches and loan officers in majority Hispanic and or AfricanAmerican communities. The bank avoided using mortgage brokers in these communities. The bank even excluded majority Hispanic and or African-American communities from its marketing strategy and credit assessment. Locating dealerships in areas where a majority of residents were African-American Offering sale prices down payments and interest rates disproportionately higher than other subprime used car dealers These practices resulted in default and repossession rates that were higher than other subprime used car dealers. To develop a comprehensive picture of the compliance landscape enforcement actions by the DOJ the Federal Deposit Insurance Corporation the Office of the Comptroller of the Currency and even the Federal Trade Commission have to be monitored to put the CFPB s actions into perspective. Here it s clear that redlining and reverse redlining are Equal Credit Opportunity Act compliance considerations for any brick-and-mortar lender. So yes it was helpful for Director Cordray to explain the method to the CFPB s enforcement approach and for him to encourage the industry to connect the dots to receive his compliance messages. But keep your eye on a broader set of data points than just Supervisory Highlights and enforcement orders Know the language of the CFPB and keep your company poised for financial growth and stability. John Short is the chief compliance officer for Fortegra. Fortegra Financial Corporation (a Tiptree Financial Inc. company) and its subsidiaries comprise a single-source insurance services provider that offers a range of consumer protection options including warranty solutions credit insurance and specialty underwriting programs. He can be reached at jshort fortegra.com. (Contact for proof lydia blastmedia.com) For compliance-focused executives it might be easy to check this one off and say This is a mortgagerelated issue and not our concern. Yet by following Department of Justice press releases you would discover that reverse redlining was a legal theory applied to Buy Here Pay Here auto dealers. Two auto dealers were found to be intentionally targeting African-American customers for the extension and servicing of credit on unfair and predatory terms such as 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 UL L Y Y 2 20 01 16 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 Y vance The CEOs Main onsibility 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 om the experience he gleaned at the recent Cornerstone Credit gue s annual convention those Likes for tailoring services to leverages all Credit Union BUSINESS s CEO expert advice on how to stay relevant in today s financial environment. specific population subsets. For example Facebook roll your eyes about the relevancy talk ... again ... prepare for a knows matter. honest take on thethat 3 million couples in the United States are engaged to be married. These couples make a great ast week I attended the Cornerstone In institutions because they are about target for financial my column this month I m going to address the t Union League s annual convention in topic of relevance but please don t be offended if I to make major financial decisions involving joint homa City. Since the League includes seem impatient. On one hand I ve had enough of this checking investments homeownership minivans s Oklahoma and my home state of discussion of relevance. But on the other hand I realize nsas I ve been able to attend exhibit patience and a gentle hand are needed. The Bible says insurance and more. Facebook realizes the value of this umber of its events. Dick Ensweiler s A gentle answer turns away wrath so my purpose in data and it article as in all the articles I institutions as ff puts on first-class events. packagesthis for sale to financial write is to encourage akers at this event stood out to me. you with a gentle answer. However I admit I am a bit targeted advertising. Meyer CEO of Filene Research and the frustrated with the relevance discussion. Smart Harley chmidt one of the engineers of credit unions leverage large amounts of owned turnaround in the late 1980s and unlock Frustrated with the Relevance in data (big data) to Why I m various trends and patterns en last year at the League of Southeast Topic human behavior. The every Scott says institution data is LSCU) conference and he was great For impatientfinancialrelevance is common sense and that the topic of relevance is irrelevant. Companies 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. BY SCOTT MCCLYMONDS 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 behavior and perform targeted segmentation and buyer personas. Information is power to Better understand member needs Obtain competitive advantage Improve profitability 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 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. 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. 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 44 J U L Y 2 0 1 6 C U B U S I N E S S . C O M CU DATA 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 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. 45 C R E D I T U N I O N B U S I N E S S 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 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 2 0 1 6 C U B U S I N E S S . C O M J U L Y CU DATA TAB contracts. The DCSM solution has been so beneficial that approximately 350 users have been assigned permission to use Nlyte. 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 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. The 1 Solution for Member Business Lending ncino.com 47 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 UL L Y Y 2 20 01 16 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. SOLE De-Mystifying Cloud Computing Much of a credit union s computing activities take place in the cloud these days but what is this nebulous space in the Internet skies really all about Credit Union BUSINESS s tech expert takes away some of the mystery surrounding cloud computing and clarifies it in language your CU can understand. A s a holder of a private pilot s license I have been taught that flying through clouds requires specialized knowledge and the use of sophisticated electronic instrumentation for navigation. So too with venturing into the world of cloud computing the credit union should be fully prepared through education and diligence ..... The term cloud computing has been applied to all forms and manner of remote processing in recent times. It is utilized to describe everything from a simple VPN (virtual private network) link to a remote service provider (the traditional data center) and often includes myriad other iterations of remote computer processing as well. In some ways these applications may all apply but the formal definition of cloud computing is the practice of using a network of remote servers hosted on the Internet to store manage and process data rather than a local server or a personal computer. This definition is further broken down into three main sub-categories or types of cloud offerings (i.e. IAAS (Infrastructure as a Service) SAAS (Software as a Service) and PAAS (Platform as a Service)). Taking a closer look at each of these definitions IAAS is the practice of utilizing hardware that resides in the cloud to store data and programs. This hardware can come in the form of file servers PCs data storage telecommunications and other traditional network components. Advantages of IAAS include rapid deployment of resources not having to be burdened 48 C R E D I T U N I O N B U S I N E S S As a holder of a private pilot s license I have been taught that flying through clouds requires specialized knowledge and the use of sophisticated electronic instrumentation for navigation. So too with venturing into the world of cloud computing the credit union should be fully prepared through education and diligence... with maintaining and securing hardware not having to deal with obsolescence and never having to worry about backup computer capabilities in the event of an unplanned outage. IAAS also easily facilitates scalability the practice of adding and eliminating computer resources based upon demand. SAAS tends to identify itself more closely with what the industry has known to be the traditional service center type of application processing. A service provider might have an application processing system such as a loan origination capability or a financial analysis function and offer it via a cloud-based infrastructure. In this instance the subscriber of the cloud capability does not have to deal with software J U L Y 2 0 1 6 C U B U S I N E S S . C O M TECHNICALLY SPEAKING upgrades patch applications regulatory changes and other normal software maintenance functions that are usually associated with management of software. PAAS is the practice of utilizing the availability of productivity software provided by one or more cloud computing capabilities. Microsoft s Office 365 is the most common application of this model. It offers great licensing cost benefits in addition to eliminating the need for upgrades and applying security updates. There is a fourth term that is being driven by certain vendors and that is RAAS (recovery as a service). This terminology applies to disaster recovery capabilities being offered by certain vendors of such services. However I still see this as a sub-set of IAAS. One of the greatest challenges facing the CIO of a financial institution with regard to the utilization of cloud technology is weighing the advantages of the efficiencies and cost benefits associated with the cloud against the security risks (whether real or perceived) that are also inherent in this type of an infrastructure. An additional concern is the regulatory scrutiny that is certain to follow the utilization of cloud-based technology. While this technology and the capabilities that come with it are experiencing rapid acceptance and proliferation I find that the regulatory agencies such as NCUA OCC and FDIC are still somewhat hesitant to offer resounding endorsements and are still somewhat wary with regard to the level of security. Where the data actually resides will determine the level of risk the organization may be assuming. If the corresponding data resides in the cloud as well then a high level of risk normally associated with the management of member and other non-public information is assumed by the financial institution. Core Applications - Strategic Planning - Infrastructure Compliance Celebrating 28 years of quality services and solutions.... 49 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 6 C U B U S I N E S S . C O M TECHNICALLY SPEAKING With this in mind the credit union as well as all financial institutions are well served to accomplish the appropriate diligence in terms of risk and security. Understanding the deployment model or reach of the network is also paramount in determining risk and security concerns. There are three basic configurations of cloud capabilities the private cloud which is an infrastructure operated solely for a single organization the public cloud which consists of services rendered over a network that is open for public utilization and the hybrid cloud which is a composition of multiple types of clouds (both private and community) that are bound together to comprise the total capability. A specialized variation of these clouds might be a community cloud which is restricted to a specificpurpose community such as a multi-organizational credit union demographics repository. All of these cloud formations offer different levels of concerns regarding privacy and security and must be thoroughly vetted before choosing and implementing any cloud-based solution. One of the chief concerns regarding this technology is what I refer to as the reach of the cloud solution. Is the configuration restricted to the contiguous 48 states of the USA or is an international network being utilized I still advise my clients to be very wary of any overseas or international configuration. It is extremely difficult to apply regulatory governance and security over a set of servers and storage devices that may reside in Malaysia for example. Another aspect of this risk applies to non-public information (NPI) that may reside in the cloud. There are two concerns in this regard. The first is data in motion (DIM) which is data that is being transmitted to and from the subscriber or between various cloud nodes. The second is data at rest (DAR) which applies to data being stored somewhere out in a cloud storage facility. Both are equally critical and the application of security surrounding each of these components must be explored and understood. I strongly recommend that the appropriate diligence be performed by obtaining a 50 C R E D I T U N I O N B U S I N E S S copy of the SSAE-16 Report of Service Organization Operations and Controls (annually) to ensure that the appropriate governance is being applied to the cloud solution by the vendor being considered for use. Lastly the financial institution must recognize that any form of cloud solution is a compromise strategy at best. Although the cloud may offer cost and scalability advantages it certainly will sacrifice some measure of control and place a large dependency upon the cloud vendor to act prudently in managing and securitizing resources on behalf of the financial institution. The CIO is well advised to adopt a formal strategy with regard to the direction of the organization. Once that direction is approved and employed then the administrator must develop the appropriate policy statements with regard to the management and deployment of cloud capabilities. In addition that person must exercise diligence and the appropriate levels of governance with respect to the cloud as well as any and all new technologies or service offerings. 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 USA 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. He has also been engaged as an instructor and guest lecturer. J U L Y 2 0 1 6 C U B U S I N E S S . C O M DATA PROTEC TIO N BY JOHN HARRIS Credit Union Data Protection Begins with the Right Identity Authentication Tools T It used to be that credit unions could ensure the identity of their members just by building personal relationships with them. But with online and cloud-based financial transactions becoming ubiquitous such identification is suddenly trickier. Learn the tools you need to keep your CU s personally identifiable information safe from cyber criminals. signed with e-signatures or an account is accessed online from a member s home credit union staffers lose that luxury. Identities are hidden behind a digital wall but they still need to be correctly verified. Stacey Foster vice president of member services with Bar-Cons Federal Credit Union in Columbus Indiana said her credit union uses identity authentication to ensure cloud-based transactions are secure and legitimate. Many of our members sign loan closing documents online by using secure e-signature technology added Foster. Because those loan documents are legally he higher we climb toward digital ubiquity the more we expose our data to cyber vulnerability. In 2015 alone there were 781 data breaches tracked an 8.1 percent increase over 2014 according to the Identity Theft Resource Center. Credit unions spent an average of 226 000 in costs associated with merchant data breaches in 2014 per the National Association of Federal Credit Unions. Financial information and personally identifiable information both of which are commonly found among credit union digital documents and accounts are extremely valuable to cyber criminals. That s why credit unions face more pressure than ever before to secure member data. The foundational element for this security begins with identity authentication measures. Identity authentication at its core is the process of making certain that only the right people have access to sensitive information and documents. Many credit unions achieve this certainty simply by building personal relationships with their members personnel know who the customers are when they walk through a door. Of course asking for valid identification like a driver s license is common whether or not a personal rapport has been established. But when documents are 51 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 6 C U B U S I N E S S . C O M DATA PROTECTION binding agreements it is absolutely imperative that we have procedures in place to verify the right person has access to those documents and [that] they are in fact the right signers. Once those documents are signed those parties owe us money so authentication is as much of a bottom line issue as is it a cyber security issue. With credit unions rapidly adopting cloud technology which allows users to participate in digital transactions even loan closings anywhere at any time there are many different identity authentication methods to consider. Each one may have a different outcome with regard to security and convenience. breached it s likely not the only one. Seventy-three percent of online accountholders use the same password for multiple accounts according to a TeleSign report. As such email authentication is typically best suited for low-risk information and transactions. Shared Secret Questions Credit unions can also require members to provide their unique answers to selected personal questions or shared secret questions such as What was the street you grew up on or Who was your best childhood friend Users are later asked for these answers when accessing information. It s added protection from email-only authentication but like several other methods it does require an extra step. Email-Only Authentication Everyone has likely encountered email-only authentication before even if it s just confirming you want to receive a weekly newsletter from a website. Email authentication prompts the user to click a link sent to his email account before he can proceed with e-signing any documents or retrieving information. The assumption is that only the user knows her email username and password and since she clicked the link she is indeed the correct party. Email-only authentication is by far the most convenient identity authentication measure available but it is also the least secure. Usernames and passwords can be easily compromised. And if one account is Text Message Authentication Credit unions can also work with technology providers to send a one-time PIN code to a member s cell phone. The member first proves her identity via email and then supplies the code sent to her phone before she s granted access. Text message authentication that follows email authentication is one of the most popular and userfriendly forms of two-factor authentication. This type of authentication combines something you know (your email username and password) with something you have (your mobile phone for receipt of the one-time PIN code) since almost everyone today has a mobile phone. TURN ON YOUR COMPLIANCE Know Your Customer Authentication Know Your Customer (KYC) authentication requires a user to divulge closely guarded information to prove his identity. This disclosure may include providing a date of birth or a Social Security number. The KYC method may also ask members to provide account numbers and passcodes to confirm their identity. Because KYC requires authentication of sensitive information that is not easily known by others apart 52 OFFICER withTEAMBUILDER. 4 COMPLIANCE UPDATE U N I O N www.cubusiness.com teambuilder buy C R E D I T B U S I N E S S J U L Y 2 0 1 6 C U B U S I N E S S . C O M DATA PROTECTION TAB from the user it can offer a higher level of security than email-only authentication. Knowledge-Based Authentication Knowledge-Based Authentication (KBA) is the most secure standalone form of identity authentication. Before accessing documents or information the user is required to provide a date of birth and Social Security number that match public records. Once this matching is confirmed she is then challenged with a series of multiple-choice questions that are based on 30 years of information found in public databases. These questions may ask about vehicle registrations property ownership or any other personally identifiable details that exist in public records. If one of the questions is incorrectly answered the member may be provided with two more questions that must be answered correctly. While KBA is an excellent way to restrict unauthorized access to sensitive information it requires several steps. And for some users because the questions demand information that may stretch back many years they can present obstacles even for the correct user. Though Social Security numbers aren t widely known outside of the individual they belong to they can be stolen explained Foster. So combining shared secret questions with KYC authentication that must match public records gives us and our members assurance that our loan transactions and information are kept secure without putting much strain on the process. It was the right choice for us. The right choice for one credit union may be the wrong choice for another but the golden rule of authentication remains consistent Any identity authentication used is substantially better than none at all. John Harris is the chief technology officer at SIGNiX a Chattanooga Tenn.-based digital signature solutions provider that makes signing documents online safe secure and legal for any business. SIGNiX offers the only independently verifiable cloud-based digital signature solution which combines workflow convenience with superior security. Learn more about what makes SIGNiX different at www.signix.com. The Balancing Act A credit union may decide to deploy several different types of authentication for different types of transactions and data. Ultimately a CU must decide which tools provide an appropriate level of cyber defense without requiring unnecessary effort from the member. When only basic information is at stake say if a member needs to e-sign a consent form email-only authentication may be a desirable choice. But if a member has the ability to deposit withdraw or transfer money within his account those extra security steps are worth it especially compared to what could happen if a fraudster breached the account. For its loan e-signings Bar-Cons Federal Credit Union chose to combine authentication elements. It deploys KYC but fortifies the process further by adding shared secret questions. 53 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 UL L Y Y 2 20 01 16 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. Our reliable cash coin check and ATM solutions move low-value deposit and cash handling transactions away from your tellers reducing operating costs and improving staff performance. Your branches are more productive and pro table and your customers get a better experience. Simple yet effective branch automation technologies from Cummins Allison add to your bottom line and allow your staff to focus on what matters most more meaningful engagement with customers. MONEY. cumminsallison.com automation GET MORE AT