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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 T H E P AY M E N T S I S S U E UP FRONT AUGUST 2016 VOLUME 11 ISSUE 8 Donna Bland TIM O HARA Consummate Credit Union Leader BIG DATA Unearthing Hidden Treasure How Credit Unions Can Get More Value From Data They Already Have DWAYNE SPRADLIN PAYMENTS Here s How to Fight Account Takeover Fraud BILL PRICHARD Empower Your Credit Union with Enhanced Member Service Empowered C-Level Employees and Create Miracles In Your Community 500 ANNUALLY (And now WITH A 20% INTRODUCTORY DISCOUNT) FOR Your team members receive o no on o ow o d n on Let s TEAM Up 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 CFO CURRENCY Emily Hollis BRANCH BUSINESS Meredith Deen CEO VELOCITY Scott McClymonds CU PAYMENTS Bill Pritchard MEMBER BUSINESS LENDING Corinne Kalsky BIG DATA Dwayne Spradlin LENDING SOLUTIONS Lorrie Wohlfeil TECHNICALLY SPEAKING Kenneth J. Sole TECHNICALLY SPEAKING Matt Cullinae CREDIT DEBIT CARDS Render Dihiya IT CHALLENGES Paul LaPorte CALL CENTERS Art Coombs MOBILE BANKING Dierdre Davis C R E D I T U N I O N B U S I N E S S 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 F O R C R E D I T U N I O N S T H E P AY M E N T S I S S U E UP FRONT AUGUST 2016 VOLUME 11 ISSUE 8 Donna Bland TIM O HARA Consummate Credit Union Leader BIG DATA Unearthing Hidden Treasure How Credit Unions Can Get More Value From Data They Already Have DWAYNE SPRADLIN PAYMENTS Here s How to Fight Account Takeover Fraud BILL PRICHARD 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 A U G U S T 2 0 1 6 C U B U S I N E S S . C O M TABLE OF CONTENTS AUGUST 2016 VOLUME 11 ISSUE 8 THE ONLY ALL-DIGITAL ALL-BUSINESS RESOURCE FOR CREDIT UNIONS 4 6 9 15 20 23 25 29 37 UP FRONT Donna Bland Consummate Credit Union Leader Tim O Hara CU TRAINING 41 44 48 53 58 60 CREDIT DEBIT CARDS The Fintech behind Credit and Debit Using Technology to Drive Revenue in Today s Dynamic Market Render Dahiya CU PAYMENTS Bill Prichard MEMBER BUSINESS LENDING Merger Strategy 2 You Wanna Dance With Me Kenneth C. Bator TECHNOLOGY Here s How to Fight Account Takeover Fraud 5 Things to Consider Before Offering Third-Party Services Corinne Kalsky IT CHALLENGES How Credit Unions Can Protect Themselves with AML & KYC Requirements Matt Cullina BIG DATA Unearthing Hidden Treasure How Credit Unions Can Get More Value from Data They Already Have Dwayne Spradlin LENDING SOLUTIONS Lorrie Wohlfeil CFO CURRENCY Emily Hollis BRANCH BUSINESS The Top 3 IT Challenges for Credit Unions in 2016 Paul LaPorte CALL CENTERS Due Diligence is Key to Lending Success Security Ranks as Top Focus When Investing in Call Center Technology Art Coombs MOBILE BANKING Tips to Enhance Your ALM Process Universal Associates Model Produces Gains and Challenges Meredith Deen CEO VELOCITY Mobile Banking with MSU Federal Credit Union Deidre Davis The Six Guiding Forces of Credit Union Growth and Success Part 2 Scott McClymonds TECHNICALLY SPEAKING 6at tack Kenneth J. Sole 3 TAB FRO NT UP HERE BY TIM O HARA Donna Bland O Consummate Credit Union Leader In the May 2016 issue Diana Dykstra president and CEO of the California and Nevada CU Leagues penned another outstanding article Why Credit Unions Succeed in Building a Nation One Community at a Time. Therein she chronicled Bland s many achievements during her exciting career (also linked for your enlightenment). Dykstra documents how a dynamic credit union like Golden 1 can work within the community to foster economic growth and opportunity. Last year Dykstra points out Golden 1 CU awarded more than 400 000 in scholarships for local students to receive education in local colleges. And in a herculean effort to help rebuild her credit union s hometown of Sacramento Bland led the effort to gain the naming rights to the Golden 1 Center which will serve as the monumental new home arena of the Sacramento Kings NBA basketball franchise. The center is expected to attract millions of dollars in new revenues for the Golden State s capital city each year On a trip to Sacramento in early July I was fortunate to be able to spend an hour with Donna in the gleaming glass and steel Golden 1 Credit Union headquarters building. At first I was taken aback by her youthful appearance. But when she took her seat and began speaking about her philosophies experiences and plans for the future for the credit union its workforce and the vast and growing communities it serves I quickly realized this was the essence of the credit union BUSINESS Thanks for reading. Tim ne day soon I am going to get around to compiling a greatest hits collection of CUB articles. And I know just where to start ... with two articles written about Donna Bland the brilliant CEO of California s Golden 1 Credit Union. The articles ran in our May issues during two consecutive years and each is linked to the archive for your reading pleasure. In May of 2015 regular CUB contributor Scott McClymonds owner of CEO Velocity an outstanding management consultancy for top credit unions chronicled Donna Bland s amazingly productive career at Golden 1. He did so with this article CEO Spotlight Five Ways Golden 1 s CEO Donna Bland Achieves Alignment Innovation and Growth. During her 20 years with Golden 1 the article recounted Bland worked primarily in finance including time spent as controller and CFO prior to her ascension to the CEO post six years ago. With her guiding hand the credit union has been led to the three-pronged mission of providing superior product and services to its members nurturing employees toward professional growth and giving back to the communities they serve. And the milestones along the way mark the route to Golden 1 s monumental success. Those route markers include but are not limited to Doubling the CU s membership base in only 16 years to 750 000 members Growing from 1.5 billion in assets to over 10 billion in just five years and Positioning the credit union to duplicate the success it found in its Northern California base to the more populous Southern California communities. C R E D I T U N I O N B U S I N E S S 4 2 0 1 6 C U B U S I N E S S . C O M A U G U S T 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 CU TRA INING BY KENNETH C. BATOR MBA Merger Strategy 2 You Wanna Dance with Me My article in the June 2016 edition of CU Business Magazine titled Merger Strategy Think Water and Ice certainly gave a valuable perspective on the B and C i.e. Brand and Culture portion of the B C S Formula I felt we didn t delve far enough into the S. After all the second word in the title is Strategy. So I took some time to meet with one of my Southern California colleagues Mike Richards. used to make fun of movie sequels. I used to shout Can t the folks in Hollywood come up with something new I mean did we really need Breakin 2 Electric Boogaloo to answer all of those unanswered questions left hanging from the first Breakin Maybe it was that Electric Boogaloo part that made the big difference. Not seeing either movie I couldn t tell you. But now that I live in Los Angeles instead of Chicago I have to be a bit more guarded about my Hollywood criticism. Plus I have learned that some sequels are just better than the first of the series. For instance I will argue vehemently that Captain America Civil War is slightly superior to the first two Captain America films. That s the case with my second installment on merger strategy. While my article in the June 2016 edition of CU Business Magazine titled Merger Strategy Think Water and Ice certainly gave a valuable perspective on the B and C i.e. Brand and Culture portion of the B C S Formula I felt we didn t delve far enough into the S. After all the second word in the title is Strategy. So I took some time to meet with one of my Southern California colleagues Mike Richards. Mike is the CEO of Richards & Associates CPAs as well as a fellow expert for VirtualCorps.com webinars. He has also been working with credit unions for nearly 40 years. So to say that he s seen a few things in the industry would probably be an understatement. One of the first things Mike mentioned was that the growth of credit unions peaked in 1969 with over 23 000 financial cooperatives. Today with about 6 000 credit unions that equates to losing a credit union per day for the past 46 years. That is an amazing statistic that I wasn t aware of not only the losing-a-credit-uniona-day thing but also the fact that the number peaked the year I was born. Hopefully my birth didn t cause a domino effect for the industry. 6 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 6 C U B U S I N E S S . C O M I CU TRAINING Another interesting characteristic of mergers is the change in reasons for doing so. Back in the 90 s mergers happened because of a loss of a sponsor company or simply financial difficulties. Today mergers happen for one of three reasons said Mike. The three reasons he cited were Compliance Technology Interest rates Regulatory burden is often brought up as a significant issue among most credit union CEOs I speak with. Another VirtualCorps.com colleague of mine Randy Thompson of TCT Risk Solutions even mentioned to me during the Police Officers Credit Union Conference earlier this year that many CEOs spend well over 50% of their time dealing with compliance. Mike Richards added that the creation of the Consumer Financial Protection Bureau has had an unintentional adverse effect on small credit unions. While it was meant to govern over the big banks small institutions still need to comply with each and every new regulation. Mike continued with Technology is moving so fast that some credit unions just can t keep up or catch up. Both of us shared stories of clients that just didn t have the resources to provide enough technological convenience to their members to survive. Sometimes the lack of resources isn t money but time or knowledge. Low interest rates still present a problem. There are credit unions out there that just can t make any money exclaimed Mike. I often argue that failure is more a function of the overall business model than interest rates. This is why I frequently pose the following question during speaking sessions Are you running a credit union that just so happens to be in business or are you running a business that offers quality financial services to a specific niche that just so happens to be a credit union If the mindset is more akin to the latter half of the question interest rates are only a part of the equation. However while interest rates may not be the sole reason for the challenges of small credit unions it certainly is a reason for some of the significant problems. 7 C R E D I T U N I O N B U S I N E S S I asked Mike what he suggests to small credit unions that may need to look for a larger institution to merge into. The primary point he stressed was Start looking for a merger partner before you re in trouble. This is a sentiment that has also been expressed by the NCUA as I have heard in at least one of their webinars. The fact is that a small credit union that still has some positive characteristics to it one that despite some serious obstacles can limp along without making any changes for a long time before complete failure has some significant negotiating power. When you don t absolutely have to merge in the near future you have some leverage over issues such as Keeping branches Obtaining board seats Paying bonus dividends to members Retaining employees So don t be the runt sucking hind tit as one of my business associates characterizes restaurant owners he targets for his program just before they have to declare bankruptcy. At that point the only negotiating power you may have left is what pen you can use to sign whatever deal you ve been handed. As another colleague of mine in the financial industry has said I look for those institutions that are just days away from that Friday afternoon when the black van pulls up to the door. Don t wait for the day that driver of the van types your address into the navigation system figuratively speaking of course. However if you are running a credit union that is somewhere in the middle of the scale between thriving and dying I suggest a really hard and deep introspection. As Mike mentioned in our conversation When the merger trend settles down the small credit unions that do survive will have a real opportunity. I completely agree with that. Small credit unions can survive when they concentrate on a specific niche and actively build a unique brand... a brand that is something other than just another credit union that so happens to be in business. 2 0 1 6 C U B U S I N E S S . C O M A U G U S T CU TRAINING That really hard and deep introspection needs to confront the brutal facts in true Good to Great fashion. Some of the tough questions to ask are Do we truly have a niche membership that we can use as a basis for growth not necessarily assets but income Do we have or can we easily access the expertise we need to build the brand i.e. marketing technology optimum product mix etc. And even if we can truthfully answer yes to both of the questions above do we have the energy and passion to actually do the work that is necessary. That last question is the toughest. Unfortunately there are some credit union CEOs that are retired mentally and emotionally but are still physically holding the position. That situation unless there are one or more potential successors that do have the necessary energy and passion to move the credit union forward may be the best reason to look for a merger partner. At minimum it s as good of a reason as compliance technology or interest rates. One of the final questions I asked Mike was what should a credit union seeking smaller institutions to merge in order to grow consider The potential is the most important thing he replied. He emphasized to not simply merge in a credit union because of their balance sheet but more so for the probability that the merger will lead to more borrowers. A fortunate aspect of merger trends today is there are a number of options available from collaboration and assistance to full traditional merger. Today there are non-surviving credit unions keeping their name after the merger. There are examples of one CEO running two or three separate cooperatives. There are large credit unions providing services through small credit unions. There is even a Network Credit Union Model where a non-surviving credit union still keeps an advisory board. Point being for an institution trying to grow through mergers there is an array of possibilities to bring healthy or semi-healthy small credit unions 8 C R E D I T U N I O N B U S I N E S S to the table. An all-or-nothing approach is no longer necessary. So at the end of the day whether you are a small credit union looking for a merger partner or a surviving credit union searching for viable merger targets you have to decide what kind of dance you are willing and able to do. If it is the Electric Boogaloo may I suggest a particular movie from the 80 s for you Ken has more than 20 years of experience in helping organizations make money save money and survive internal challenges and tough economic conditions. As a facilitator for training and strategic planning sessions and an expert in brand concept culture building and management Ken has helped hundreds of organizations since 2001. In addition to his career of working with CEOs CFOs and COOs he has also served as an executive of three different financial institutions throughout the country and has assisted many small- to medium-sized businesses to reach new levels of effectiveness. Ken is also a co-founder of the Police Officers Credit Union Association and author of The Formula for Business Success B C S The Pocket Guide to Strategic Planning The 90-Day Quick Fix for the Business Owner or Manager and The Strategic Planning Workbook and Guide for Financial Institutions. His articles have appeared in many trade publications including Lifestyle Entrepreneur Magazine The Credit Union Journal and ABA Bank Marketing. Born and raised in Chicago he earned a Bachelor of Science in Finance and an MBA in Entrepreneurship from DePaul University as well as a Certificate in Integrated Marketing from the University of Chicago. 2 0 1 6 C U B U S I N E S S . C O M A U G U S T TEC HNO LO G Y BY MATT CULLINA How Credit Unions Can Protect Themselves with AML & KYC Requirements T AML and KYC initiatives are designed to cut down on fraudulent activity but the requirements behind them represent a downside for credit unions. In fact they may make CUs bigger targets for cyber threat. Learn how your credit union can protect itself against these unintended consequences without unnecessary headaches and expense. and by putting all of that data in one place the CU will have created something it may not have expected a new target for cyber threats. What was supposed to provide better security could actually lead to a much more damaging risk of breach. A hacker who finds his or her way into just one institution and pilfers data from a single master database can reap a spectacular payoff. These database files packed with exactly the kind of information prized by thieves are sure to have immense value on the black market. That s worrying for large financial institutions (FIs) but it s a major concern for smaller CUs. Small credit unions haven t historically been a primary target for cyber thieves and it s possible their security defenses aren t sufficient to repel a determined sophisticated attacker. he regulatory environment is constantly evolving responding to new concerns or needs and taking advantage of new technology opportunities. One of the most recent changes involves stringent new data verification and analysis mandates around anti-money laundering and know your customer (AML and KYC respectively) initiatives. These regulations are intended to help financial institutions better identify illicit activity and cut down on crime but credit unions need to know how to protect themselves from the potential downsides tied to the increased data collection and processing requirements included in AML and KYC. New concerns increased risks Information security awareness is already a top priority for CUs. One potential negative effect of AML and KYC (and it s a big one) is that cyber threats to the consumer and financial data held by CUs will only go up as the volume and value of that data increases. Initiatives like AML and KYC sometimes bring unintended consequences. By gathering more data everything from consumer information to transactional histories in an effort to comply with the mandates 9 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 6 C U B U S I N E S S . C O M TAB 10 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 6 C U B U S I N E S S . C O M TECHNOLOGY TAB With the risks increasing and as part of the transition toward broader AML and KYC compliance many CUs are reviewing their systems and processes to determine where potential security vulnerabilities may be lurking. They are looking at the landscape through the eyes of an eager hacker searching for weaknesses that pose a far greater risk now than previously thought. Some will need to boost security to keep up with the threats whether in the technology used for data protection or how operational protocols are structured. Technology solutions help FIs keep pace Internal systems must be ready to meet the next phase of security challenges credit unions are likely to face. Just as CUs leverage early warning systems to alert them to suspicious transactional activity they should deploy similar tools around sensitive data assets. The latest generation of network monitoring platforms is able to flag anomalous actions such as system logins that occur during non-business hours or from unusual places (outside the country for example). Some solutions can also track details including bandwidth usage and the number of simultaneous system users. This data is useful in revealing attack attempts or other potentially risky events before they lead to a breach. Other technology solutions can also be helpful in protecting member data. Encryption tools for instance are simple to use and highly effective. A CU doesn t need to spend much money for an encryption platform that can secure data on the network as well as on tablets smartphones and thumb drives. Another inexpensive security upgrade is to separate sensitive member information from operational data. Many organizations have inadequate segregation between the various types of information they store and process. It s not uncommon to find member data saved on the same server where facility diagrams and notes from previous board meetings are also stored. Establishing clear perimeters around the data used in AML and KYC helps to reduce the risk of unauthorized access and ensures that data destruction and other privacy measures are carried out correctly. Some organizations also have network measures in place that restrict employees ability to add attachments to outbound emails or that monitor and flag transmissions that include multiple documents from a single user account. This type of checks-and-balances solution can be an efficient way to reduce the damage an individual can inflict by limiting his or her options for moving protected data out of the organization. It s a useful tool to thwart not only malicious insiders but also innocent employees who have simply forgotten they aren t supposed to send files home so they can work on them over the weekend. The cost and effort to address the increased risk factors related to AML KYC and member data may appear overwhelming but a few simple guidelines can keep the strategy moving forward without allowing it to turn into something cumbersome and expensive. First the CU should take a detailed inventory of its data assets. How much member information already exists Where is it stored Note if any protected data is landing on or transiting through a third party s system such as a cloud provider or transaction processor. Then examine how new information is added to the master database. Some may be input by employees directly some is likely transferred from other systems that are busy monitoring processes and flagging transactions while other pieces could be dropped into the database by the members themselves via a secure online portal. Once the CU has a good handle on its data structure the team needs to identify those files the master member database employment data etc. that 11 22 00 11 66 C U B U S I N E S S . C O M 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 AAUUGGUUSST T 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 TECHNOLOGY TAB require the highest level of security. The most robust protective measures can then be deployed around those top-priority assets saving the company the effort and expense of trying to support the very strongest security around data that doesn t require it. The CU is thus able to spend funds wisely while also enjoying heavy protection where it s needed most. Security measures can then be stepped down for other network locations as the risks decrease. Updated operations improve security A host of internal practices will also likely need to be updated as AML and KYC become stronger operational drivers for CUs. For example it may be necessary to change employees login levels to limit who is able to view add modify and delete member records. Top-level credentials should be issued only to those employees whose duties require access to member data. Network policies for workers outside that sphere should be less permissive and their access should be more closely aligned with their specific job responsibilities. Another operational area that should be reviewed are those tasks a CU has chosen to outsource. Thirdparty vendors have likely been contracted to build some of these master member databases and outside experts may continue to be used for fraud spotting and other work. Consider where security vulnerabilities may exist in these relationships either in the handoff of data from one organization to another or in any instance where a vendor s protective measures are 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 AAUUGGUUSST T 22 00 11 66 C U B U S I N E S S . C O M TAB TECHNOLOGY less robust than the CU s. This is also a good time to review the contract language for third-party vendors to determine how (and how quickly) the CU would be notified of any potential data breach. In light of the growing risks of cyber theft and data breach CUs must do their due diligence when choosing an external partner. Though vendor relationships may create some additional challenges in terms of securing the transfer of sensitive data many CUs will still rely on third-party providers to help with AML and KYC compliance. It s a trickle-down effect that impacts smaller CUs more heavily but vendor contracts should be treated as a high-priority area for every CU working to improve its data security posture. Member education strategies remain a priority Providing members with education about scams and safe practices will continue to be one of the best security measures CUs can deploy especially as engagement increases as a result of AML and KYC. From posts on social media to updates in online banking members are sure to have questions along the way. Ensuring that members are active partners in your CU s security program will help protect their information while boosting satisfaction and retention. Informational campaigns distributed across the membership base can be instrumental in maintaining a strong security posture even as your CU s cyber risks continue to evolve. For example the CU is in a perfect position to warn members about the dangers of clicking on suspicious email links since so many phishing scams target FI customers. Remind them that your CU will never ask for personal information through an email or text message. Requests for verification and other identifiers may crop up as part of AML and KYC and it s important members know how to confirm that any inquiry is legitimate. Provide them with information on who to contact if they ever question the authenticity of a communication that purports to be from your CU. CUs may also consider offering additional benefits to members that are designed to help them deal with the increased risk of identity theft and fraud they now face. Businesses in industries from retail to healthcare have suffered large-scale data breaches putting members data in harm s way through no fault of their own. Just as CUs monitor transactions for suspicious activity identity management services and similar tools give members a way to ensure that their personal information is protected and that potential fraud is quickly spotted and addressed. They will also gain access to experts who can help them resolve any identity theft issues that may arise. Members may have already been offered the standard levels of credit monitoring if their information was breached but the more comprehensive tools available with identity management services will help differentiate your CU from other FI competitors. Matt Cullina is CEO of IDT911 a cybersecurity and identity theft protection firm. His email address is mcullina IDT911.com. 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 AAUUGGUUSST T 22 00 11 66 C U B U S I N E S S . C O M BIG DATA BY DWAYNE SPRADLIN Unearthing Hidden Treasure How credit unions can get more value from data they already have Think your credit union has to search far and wide to uncover the big data troves that banks enjoy Turns out such treasure chests may be buried right under your CU s nose. Keep reading for tips on how to dig up a data goldmine and reap its many rewards. How To Make The Best Use Of Data For credit unions trendy ideas like big data may seem to belong to a faraway realm accessible only to the fabled giants of the banking world. But credit unions may be overlooking some true treasure buried in their core banking systems is a wealth of information that they can access and analyze fairly easily. Most credit unions in fact aren t necessarily making the best use of this data which could prove to be a goldmine for improving marketing strategies increasing noninterest income and generally boosting the bottom line. To reap these rewards however credit unions do need to put in place the right resources by either investing in internal capabilities or outsourcing to external providers. This article will examine the kinds of data credit unions can better use the types of analysis they can conduct how credit unions can best leverage their data and analysis and practical steps they can take to ensure they do. The most basic information would include the age and gender of each accountholder cardholder or loan recipient which allow for division of the member base into demographic groups. In addition the core has individual and household income and credit rating data which can contribute to further groupings. Another way to look at members is by the products and services they use including checking and savings accounts loans and credit or debit cards plus the balances and interest rates paid or received for each. A more detailed breakdown of credit and debit card usage could include total and monthly average number of swipes and their value where and when the cardholder TURN ON YOUR BRANCH SUPERVISORS & MANAGERS withTEAMBUILDER. Know Your Members The most important nugget embedded in the banking core is of course the member account data. This intelligence includes information on the members themselves the products and services they use and the value the institution derives from them. 4 BRANCH BUSINESS C U B U S I N E S S . C O M www.cubusiness.com teambuilder buy 15 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 6 TAB DATA BIG uses them balances and enrollment in and usage of loyalty programs. Finally there is the account value including annual noninterest income and the total revenue the institution derives from that member s deposit accounts loans and services minus associated costs. Analyze This With the right analytical methods credit unions can slice up the rich banquet of data they have available in any number of useful ways. These include product adoption and profitability lifetime value of members card usage loyalty program engagement and crossselling effectiveness all broken out by demographic group geographic distribution and other factors. Analysis of individual product lines can be very detailed. For example a credit union might segment its auto loan portfolio by age group looking at which group buys the most cars and in what price range. Does the institution make more return from a 45-year-old 16 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 member who buys a 50 000 car or from a 25-year-old member who buys a 20 000 car The older member may have taken out a larger loan but because her credit rating is better she pays a lower interest rate. Other elements of the analysis might look at whether the loan recipient was an existing accountholder with a standing balance or whether he just became a member when he took out the loan. It could also show the efficacy of the credit union s efforts at cross-selling other products to these new members broken out by demographic and financial profiles by branch or even by individual employee. AAUUGGUUSST T 22 00 11 66 C U B U S I N E S S . C O M BIG DATA TAB Similarly the credit union can break out its debit card or checking account products by age groups considering noninterest income and activity level. For members under 18 for example 85 percent will likely have a free checking account and a high average number of card swipes per month but chiefly for very small amounts. While free checking most likely has the largest member base analysis could prove it to be a more valuable product than premier checking which attracts 30- to 45-year-old members who spend a great deal more through their debit cards with fewer monthly transactions. takes up the stickier he or she is because it becomes very inconvenient for him or her to switch to a rival institution. Use it Well However sophisticated or deep dive the data analysis it won t yield the riches that credit unions hope for if they don t use it properly. Ultimately the right analysis can help credit unions incentivize desired member behaviors make decisions about product lines create and focus marketing plans cross-sell products and services place branches and ATMs and choose local business partners. Analysis of members spending patterns or those of members with similar demographic profiles can help in tailoring incentives such as rewards points for a favorite spending category. Many credit unions want members to switch to paperless electronic statements for instance which can save them considerable costs. Offering additional rewards or account benefits for enrolling in e-statements would represent one simple way for a credit union to incentivize more profitable behavior. Credit unions can use these types of tactics to encourage other desired behaviors such as enrollment and engagement in a loyalty rewards program thereby increasing use of debit cards to boost noninterest income or direct deposit enrollment. Such strategies can also be helpful in incentivizing inactive accountholders to do more by pushing out promotions keyed to the activity of those with a similar profile. Go Deep A more in-depth analysis of debit and credit card usage could also include geographic distribution of transactions whether those card swipes take place near the member s home or workplace which specific neighborhoods attract spending from particular age groups and which merchants bars and restaurants members with particular demographic or financial profiles patronize. If the institution has a card loyalty rewards program the data it produces can yield a useful analysis of its effectiveness. This insight could include enrollment by demographic groups and point accumulations or redemptions by age groups neighborhoods and individual businesses. Likewise the data will show how well different member groups respond to promotions and which businesses they favor. Perhaps the most sophisticated analysis that credit unions can do using their member data is estimating a lifetime value for members both individually and by demographic groups. This value would encompass a number of variables including interest and noninterest income loan profitability deposits and ancillary products such as safe deposit boxes. It can also show the inactive rate for members and calculate missed revenues because they are not engaged. Considering the breadth of products each member uses can yield an estimate of that member s stickiness. Generally the more products and services a member 17 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 AAUUGGUUSST T 22 00 11 66 C U B U S I N E S S . C O M TAB DATA BIG Likewise member profile information is valuable for cross-selling and up-selling. Staff members can use demographic and individual member profiles to target and customize sales efforts and to direct in-branch conversations. For example analysis might show that a member over the age of 45 who has a standard balance of 10 000 and has had an auto loan for two years may be in the market for a new auto loan. Credit unions might also use the analysis to identify members who have not taken up certain products that are popular with other members who fit a similar profile and then target product or service offerings to them. Knowing which products are more profitable and why may help credit unions boost the bottom line. Since supporting too wide a product range can be costly it might be lucrative for credit unions to cut back on less profitable less popular and outdated lines. Member profile information could be useful in finding ways to shift older groups into newer products with similar features. 18 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 Stay Focused One of the most valuable uses for member data analysis is in developing highly focused marketing plans. These objectives can target particular demographic groups or neighborhoods placing signs and billboards near places that certain member groups frequent for instance or customizing promotions for each group. This kind of analysis can also drive promotions tied to particular local businesses and help credit unions choose the most valuable ones as partners. This is particularly pertinent for card loyalty rewards programs that emphasize supporting small business. These programs can incentivize point accumulation and redemption at merchants bars restaurants and other businesses that are popular with the institution s member base or with demographic groups within it. Some credit unions have even used their member spending and loyalty rewards program data analysis to open doors for new commercial accounts from local AAUUGGUUSST T 22 00 11 66 C U B U S I N E S S . C O M BIG DATA TAB business partners. For example an institution can approach merchants with a high level of loyalty point redemption from its members and offer marketing and other support which may lead to commercial account growth down the line. Detailed breakdowns of spending patterns can also help credit unions choose where to place new branches and ATMs. Putting a branch or machine inside the grocery store where its most valuable member groups shop would be an obvious example. Understanding whether the institution s members shop near home or work can further refine branch placement and promotion. needed credit unions should order custom reports to support a key effort. Don t Lose Out Credit unions that don t make the most of their information can end up losing a great deal. It s crucial for credit unions to understand their member base especially which members and groups are making or costing them money. It s also difficult for an institution to know the way forward if it can t measure the success of programs it implements. The costs can be considerable either in actual wasted resources or missed opportunities since the lack of analysis may lead to strategic missteps and because competitors may be doing a better job with their own data. If credit unions want to benefit from the treasure at their disposal they must do the necessary spadework to dig it up weigh it well and find the best ways to realize its value. The results should prove well worth the effort. Take Steps Credit unions looking to make the most of their data should consider taking a few basic steps. First of all they need to figure out exactly what types of data their core banking systems can provide and whether they can easily access that data. Second they should decide exactly what they would like to accomplish with the effort. Goals might include increasing non-interest income driving loan or ancillary product profitability boosting member engagement and stickiness or perhaps growing the member base. Next they need to find and allocate the resources to do the needed research and analysis. This effort might involve recruiting or training skilled personnel and acquiring specialized software. Some credit unions might be reluctant to do the work in house or feel they lack the expertise those CUs may wish to contract out the data mining and analytical tasks to a third-party provider. Most important however is actually consulting the final analysis when making business and marketing decisions. For some credit unions looking at this kind of data may not come naturally when devising strategy but if they have the information and have gone to the trouble to analyze it it shouldn t go to waste. If a n Spradlin r a in i dri r n and r ni n r l ali d r ard pr ra and da a dri n ar in l i n r r di ni n ld an r i a a ll a a a a i ce ni r i in ppli d 19 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 AAUUGGUUSST T 22 00 11 66 C U B U S I N E S S . C O M L ENDING SOLU TIO NS BY LORRIE WOHLFEIL Due Diligence is Key to Lending Success T In early 2015 we were approached by a long-time client of ours about helping them audit their loans. Loan auditing was not a service that we were currently offering at the time but it matched up well with our core competencies so we decided to take it on. Unsecured debt ratio Negative equity Mortgage to income ratios Amount of add-ons Certain dealers are notorious for charging too much on products placing the credit union in an at-risk situation while they make all the money urns out many of our clients did not have an accountability program in place so in May 2015 we officially started offering what we now call our Smart Loan Audit service. We ve worked with many credit unions on loan audits over the past year and we wanted to share some of our key findings with the readers of CU Business this month. What We Track First off when it comes to auto lending it s important to be able to track the origin of the loan (i.e. by dealer by loan officer etc) so you can identify where your problem areas are. With that in mind here are some of the key things we track Turnaround times Turnaround from application date to decision Turnaround from decision to funding Time between trade Secured debt ratio What Can We Learn Do we have a maximum amount for back-end products Do more of our at-risk loans come from certain dealers Do we have loan officers that are too risk adverse Do we have loan officers that take too much risk by not developing the application Gaps in employment with no explanation Employment both current and previous have limited time 20 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 6 C U B U S I N E S S . C O M LENDING SOLUTIONS How you you measure your loan officers performance iis very important to your employees and management. If If How measure your loan officers performance s very important to your employees and management. How you measure your loan officers performance is be rewarding the wrong individuals while rebuking you are not naking a look at at the full icture yyou may be rrewarding the rong individuals while hile rebuking those you are t ot taking a look the full p picture ou may be ewarding the w wrong individuals w rebuking those very important to your employees and management. If those that are providing your credit union with the best that that providing your credit union wwith he best return. return. out the outollowing example are are providing your credit union ith tthe best eturn. CCheck out the f the following example heck Check following example you are not taking a look at the full picture you may Loan Officer 2 2 Loan Officer Aggressive Aggressive Always looking for solutions Always looking for solutions Delinquencies 2.25% Delinquencies 2.25% Charge offs 1.75% Charge offs 1.75% Approval Ratio Approval with no Ratio 90% with no 90% conditions conditions Loan Volume Yes 1 000 000 per we can attitude es Loan Volume Y month 1 000 000 per Loan Yield Loves coming up with Loan Yield Loves solutions coming up with Net Yield after solutions charge offs Net Yield a Net Income fter charge offs after charge offs Net Income assuming 1 000 000 per ffs after charge o month at 7.25% assuming Loan fficer 1 Loan OOfficer 1 Conservative Conservative What are management and the Board of Directors focused on loan officer 2 out of the Would someone please escort If you only track delinquencies and charge-offs the building ook like this result would look like this If you only track delinquencies and charge-offs the result would land give loan officer 1 a raise and promotion Loan Officer 1 Loan O a great for being suchfficer 2 underwriter . Our Hero Delinquencies .25% Charge oLoan Officer 1 .10% ffs Our Risk Taker Delinquencies 2.25% Charge offs Loan Officer 2 1.75% What are Management and the Board of Directors If you o on Focusednly track delinquencies and charge-offs the result would look like this What are management and the Board of Directors focused on 1. 2. Delinquencies Charge offs 2. 3. Charge offs Ratio Approval 3. Approval Ratio with no with no conditions 4. conditions Loan Volume always looking 4. Loan Volume at negative first always looking at 5. negative ield Loves Loan Y first A and A 5. Loan Yield L(high oves scores) A and A (high 6. Net Yield after scores) offs charge 6. 7. Net Yield after Net Income charge offs offs after charge 7. Net Income assuming 200 000 per after charge offs month assuming at 4.4% 200 000 per month at 4.4% 1. Delinquencies .25% .10% .10% 50% 50% .25% 200 000 per month 200 000 per month 4.5% we can attitude month 9% 9% 7.25% 4.5% 4.4% 105 000 per year 4.4% 8 800 per month or 8 800 p per 105 000 er year month or 7.25% 72 500 per month or 72 500 p 870 000 per er year or month 1 000 000 per month at 7.25% 870 000 per year Our Hero Our Risk Taker Delinquencies .25% Delinquencies 2.25% Would someone please escort loan officer 2 out of the building and give loan officer 1 a raise and Charge offs .10% Charge offs 1.75% promotion for being such a great underwriter . Would someone please escort loan officer 2 out of the building and give loan officer 1 a raise and 1. or being huge p great ay for being conservative. promotion fThere is a such a rice to punderwriter . 2. You escorted the wrong loan officer out the door. 3. You p they focus o oan officer. What should raised the wrong ln and what does all this tell us 21 C E D I T U N I O N B o I N S S A U G U S 1. R There is a huge price tU Spay fEor being conservative. 2. You escorted the wrong loan officer out the door. T 2 0 1 6 What should they focus on and what does all this tell us C U B U S I N E S S . C O M LENDING SOLUTIONS What should they focus on and what does all this Does your credit union have a program in place to audit your loans If not I strongly encourage you to tell us 1. There is a huge price to pay for being conservative. 2. You escorted the wrong loan officer out the door. 3. You praised the wrong loan officer. 4. You encouraged the other loan officers to tighten up and focus on A and A paper 5. You have marketing going after the wrong members. 6. You insured the examiners will love you and tell the Board of Directors how proud they are of you even though you will make substantially less money. 7. Your shareholders will continue to get little or nothing on their return and will ultimately start investing somewhere else. Scenarios like the one above are ones we ve seen play out many many times during our years of working with credit unions and they are the type of things credit unions can uncover by utilizing a third-party to conduct their loan audits. After more than a year of conducting these audits it s become clear that it is a service that is greatly needed in the credit union industry. We have even heard from a few of our clients that their examiners are very impressed when they hear that they have a third party auditing their loans. implement one in the near future. I think you ll find the benefits far outweigh the costs and you ll be making your examiners happy too. TURN ON YOUR LENDING DEPARTMENT withTEAMBUILDER. Lorrie began her career at LSCI in August of 1995. As a business analyst Lorrie is primarily in charge of the Portfolio Analysis program an external audit dedicated to helping credit unions make stronger loan decisions and seek sales opportunities. Lorrie also works hand in hand with our on-site consultants and has also attended numerous Rex Johnson s University of Lending and specialty schools. Before starting the Portfolio Analysis program Lorrie designed the highly successful training program in place at Lending Solutions Inc. (LSI) and personally trained many of the loan underwriters at LSI. Lorrie also spent 4 years as an on-site consultant for LSI. During that time she not only educated credit unions on lending but also trained their staff to make superior lending decisions. Lorrie graduated from the University of Kansas with a degree in Business Communications. 4 LENDING SOLUTIONS 22 U N I O N B U S I N E S S A U G U S T 2 0 1 6 C U B U S I N E S S . C O M www.cubusiness.com teambuilder buy C R E D I T CFO CURRENC Y BY EMILY HOLLIS Tips to Enhance Your ALM Process C Does it sometimes feel as a credit union CFO that you carry the weight of the regulatory world on your shoulders Assessing your CU s analytics and financial reporting processes is key to extracting yourself from some of this burden. And that assessment should begin with a review of your ALM practices. Conduct stress tests on scenarios that are probabilities not just possibilities. Focusing time and effort to perform complicated modeling tests based on every potential scenario can add confusion to decision-making. Instead decide which events are most likely to occur and run tests that model them. Understand the difference between the fair value and income reports. Net interest income simulations are easy to understand and are very useful for setting strategies and simulating income volatility. The fair value reports are used to assess outlier risks and asset and liability effective duration mismatches that when out of balance can be harmful in volatile rate environments. an you believe it s been nearly eight years since the financial crisis officially started For most financial institution CFOs it must seem like much longer. In the wake of the burst mortgage bubble in 2007 and the 2008 fall of Lehman Brothers banks and credit unions have seen their regulatory burden increase dramatically with the lion s share of the load falling on their CFOs shoulders. Not only must they manage their institutions financial reporting treasury functions financial forecasting and modeling but they also must balance risk and reward in a regulatory climate that seems to become more complicated and onerous every year. Given the complexities of today s asset liability management process CFOs should regularly assess whether their institutions analytics and financial reporting processes are appropriate to inform strategic decisions as well as to determine their level of risk vs. liquidity and capital adequacy. By appraising current processes and additional options you can ensure the best outcomes and a healthy future for your institution. Consider outsourcing some ALM functions. With all that the CFO and his her staff have on their plates it can be challenging to find the time to focus on both the detail and the big picture. To help navigate today s complex financial environment a growing number of institutions are turning to experienced outside asset-liability advisors both for expert guidance and to outsource specialized functions like investment and balance-sheet advisory ALM strategy profitability analysis and portfolio review. Engaging a qualified firm to help manage his her financial institution s risk profile and to perform highlevel analytics can complement the CFO s work. In the process it can free up time to focus more on business strategy and the organization s needs over a longer horizon. Some of the benefits of ALM outsourcing include the following 23 2 0 1 6 C U B U S I N E S S . C O M Review your ALM practices Use appropriate ALM software. The right software can ensure your ability to conduct modeling that meets your credit union s needs. The basics are to analyze various scenarios to produce required regulatory and in-depth liquidity forecasts. However financial institutions with more complex balance sheets might need more sophisticated modeling. More specifically for more accurate and insightful results they may require stochastic modeling of embedded options and loan-level analytics. C R E D I T U N I O N B U S I N E S S A U G U S T CFO TAB CURRENCY CFO CURRENCY CURRENCY CFO CFO CURRENCY are calculated figures not assumptions. The have significant implication on the ALM conclusion. The of time. Credit will need to be assumptions used should be changed government bond inputs allow the user to model cash flows with an end maturitybenchmark if budget surpluses dry up thein progressive intervals They have already become reviewed and authorized and can augment pricing Expert unbiased guidance Because and the output should be recalculated to determine the impact and decay rates that are similar to amortizations. fee-based market. skilled professionals who the standard foryour inthis can take respond to weeks. ALM advisory firms don t receive commissions of a house capabilities. They can also different assumption. Dividend and discount rates allow for the present valuemany corporate bonds. If you are concern as unexpected needs such as a regulatory uncertainor to clients are assured of independent impartial calculations (premiums) in each modeled interest rate scenario. Knowing where swap rates and spreads are will allow the many requirements the departure of a staff member. A quality advisor of advice. A third-party perspective is especially Effective beneficial calculations can assumptions offeringbebetter hedging and investment execution. When investors need duration for validating then mathematically Conclusion abreast of regulatory changes and key also stays and market sentiment the swap curve is applying and using derivatives compared to that of the institution s assets. In this case effectiveto gauge credit risk Non-maturingdevelopments providing a clients with franchise value market deposits can be viewed asengaging an external comfort to boards of directors. consider becoming the more important curve to analyze. duration is calculated by merely backing into the price change or benefits generated of mind. additional peace from loyalty of the membership when service provider to help you Market access A quality advisory firm will Modifying current practices and engaging ALM formula. haveexample if focus on the capital markets with For a strong the liability present value is 100 in the deposits are retained when dividend rates are low in a higher through Emily Hollis CFA is a partner with ALM the steps. your experts allows And to versa A First Financial base 101 in the up 100 basis pointhow they and 99 in the down market environment. you vice dive deeper intoderivatives financial institution deep understanding of scenario work. Through Advisors LLC. Properly used on balance sheet. And with attention focused thannew 100 basis point scenario firm effective duration connections market networking the the will possess key is one percent that offers a non-maturity dividend rate higher insights can offset interest rate risk and a longer horizon that often result (i.e. (101-99) 200). in better value on trades executed. to attract hot money will decrease the economic withinofthe that is inherent value its your institution s performance liabilities. It is imperative to thrive.these accounts for a more Sophisticated tools and technology Using an will model competencies to meet the final requirements. The second part credit union industry today. This is vital because as competition accurate depiction of allow rate unions Sensitivity Analysisreduces your institution s costs for grows derivatives can interestcreditrisk. to compete more advisory firm and final application is submitted when all requirements are software data systems and other infrastructure The regulator strongly suggests sensitivity analyses as a means effectively. Emily Hollis FCA is a partner completed including dealer economies of scale that come contracts. a benefit from the changing assumptions. Sensitivity Emily Mor Hollis CFA withpartner with ALM First Financial is a ALM First Financial to quantify the effects of Setting up a line large dealer is similar to becoming a fromessential a at a clientele. share evaluation may Advisors LLC. having because the core Advisors LLC. analyses are member of the FHLB--it can be laborious and takes a good deal Emily Hollis CFA is a partner with ALM First Financial Deep pool of talent ALM advisory firms are 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. highly specialized so they engage experienced 24 www.cubusiness.com 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 November 2014 AAUUGGUUSST T 22 00 11 66 Credit Union BUSINESS C U B U S I N E S S . C O M 15 BRA NC H BUSI NES S BY MEREDITH DEEN Universal Associates Model Produces Gains and Challenges I What are the plusses and minuses of implementing and optimizing a universal associates model in staffing CU branches Although the perks are many a few trials do exist. Read on to discover the benefits and challenges one credit union is facing one year after deploying such a model. n its first year of implementing the universal associates model in staffing branches Community First Credit Union of Florida is already reaping benefits. In the process however the CU is uncovering a few challenges in optimizing this approach as well. On the plus side training frontline staff to deliveron a full range of member service needs dovetails nicely with the design and technology transformations planned for the credit union s 18 branches. In addition scheduling is becoming much more efficient. Even in these early stages the universal associates model has enhanced retention and widened the hiring field says Jimmy Lovelace VP Branches for the 1.3 billion credit union (www.communityfirstfl.org). With 302 employees Community First serves 112 000 members. Community First did work through a learning curve before settling on the best approach for retraining existing branch staff as universal associates. And the credit union continues to study how best to evaluate member service and sales performance. The decision to implement this model grew out of the work of the Member Experience Committee which includes representatives from across the organization. More specifically it arose out of response to member feedback calling for quicker assist times and wider service availability in all branches. We were looking for a solution that matched up with the data on declining branch traffic and what members were saying in terms of changing service preferences and the universal staffing model seemed to make the most sense Lovelace says. The first step in that direction involved training tellers as universal associates but issues associated with upgrading skillsets finding candidates willing to make the leap and arriving at an appropriate pay and benefits structure were complicated he notes. What we did find is that if you cross-train member service reps in teller functions you get more lift and a better service experience for members. Training MSRs to handle teller transactions has made scheduling for peak times more efficient. 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 25 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 6 TAB BRANCH BUSINESS And counter to the experience that other financial institutions have reported Community First has seen a boost in production rather than a decline. The assumption is that when you combine two previously distinct functions into one job you get half the production on both sides. But we combat that [tendency] by giving universal associates a share of the branch goal as if they were sales associates Lovelace explains. At a branch with four employees the shared branch goal for sales is divided by four so that everybody has a piece of the loan volume goal and everybody has a piece of the membership goal. Transforming Branch Design In addition to its new staffing model Community First has begun to reimagine branch layout and technology. That begins with its two newest facilities featuring more open designs that replace the traditional bandit barrier. Teller pods and cash recyclers create an atmosphere that is less transactional and more interactional Lovelace says. The new branches also feature DBSI s Expert Nearby video-conferencing centers which are equipped with scanners digital finger pads and other technology so members can remotely consult on demand with mortgage and business loan officers and in the future investment advisors. The real traction for the branch redesign and universal associates model is in combination Lovelace suggests. The promise is that when members come through the door any associate can help them with whatever they need. That is more conducive of the branch of the future and of the type of interactions we want our members to have with our staff. For us the journey toward universal associates has accelerated our branch transformation he adds. Now with two branches operating fully with universal associates we re able to transform our existing branches much more efficiently. Other advantages Community First has seen in deploying universal associates include More responsive and flexible scheduling The credit union relies on staff scheduling and lobby tracker software to monitor teller assist time transition time idle time and project staffing needs based on those metrics. It does so to make sure we have the right people in the right places at the right times Lovelace says. As we move to more of a retail model we may see shifts from 10 00 to 2 00 and someone coming in just for two hours a day so we can be more responsive to member preferences. We could have a branch staffed with one teller one MSR and a universal associate who splits her day with another location. More efficient staffing If we had tried to open our new Riverside branch under the traditional staffing model we probably would have needed to hire an additional two FTEs in addition to the four FTEs we have today Lovelace notes. More effective career paths As universal associates employees have opportunities to continually enhance their skills by taking on diverse and increasingly complex member service interactions. Retraining as universal associates was a natural path for senior tellers who had been coaching less experienced colleagues. That was especially so with the reduction in staffing at smaller branches that eliminated the need for a senior teller position. Higher retention Early evidence shows that universal associates are more likely to stay with the credit union than tellers and member service reps Lovelace says. That helps us meet our corporate goal of 80 percent retention across the board. Higher engagement and less idle time The combination of more efficient scheduling and a wider range of duties has reduced idle time. We don t look at it from the perspective of These are people who are just standing around Lovelace notes. We look at it from their perspective These are people who would prefer to be doing 26 22 00 11 66 C U B U S I N E S S . C O M 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 AAUUGGUUSST T BRANCH BUSINESS TAB something with their time. They re much more engaged when we give them something to do. A bigger hiring pool A good universal associate is someone who deals very well with people ... [and] with change and has come from some sort of production or retail environment Lovelace says. Our best talent is coming from places like Publix Chick-fil-A or big-box retailers and electronic stores. It absolutely changes the range of where you can look for new employees. Quicker onboarding of new staff Community First previously scheduled four to six weeks for new employee training. But with the universal staffing model new hires get two weeks of training as tellers using new branch technology and then spend a few weeks on the job before returning for another two weeks to hone their skills as universal associates. At the end of each of those training periods they have new levels of proficiency which allows the branch to operate more efficiently he says. the brand especially among prospective members who choose their financial providers based on brick-andmortar proximity even if they never enter the branch. We have to help our members understand that the real power in going to branches is the face-to-face interactions Lovelace says. That s the journey we re on at Community First looking for ways to leverage the technology so we augment the personal experience without replacing it. Gaining Buy-In An ongoing challenge in implementing the universal associates model has been identifying and addressing employee concerns. There s a natural fear about Is my job going away That s one of the biggest hurdles we re working on Lovelace notes. We emphasize that we re repurposing jobs in closer alignment with member needs. We haven t lost a single associate in this shift to the universal model and branch transformation though it may impact how we hire in the future. Identifying the key metrics to assess job performance is another work in progress. The scorecard for a universal associate evaluates an equal blend of sales service and operations. It does so through transaction data new accounts and account balances assist times operational errors and the development of a transactional survey to gather voice of the member feedback on service quality. Under its new staffing model Community First has moved away from measuring teller referrals since Doing Much More with Less With declining transaction volume Community First has become more targeted in identifying high-potential branch locations. There the credit union can position its facilities as community hubs and even offer meeting rooms equipped for plug-and-play presentation devices. We re trying to find ways to get people to come to branches for the right reasons and the universal associates model provides added flexibility in the size of the branches we can build and the types of communities we can serve Lovelace says. We can do more in a branch with fewer staff so we can leverage where we go with our branches more strategically. For example in its first five months the Riverside branch built a deposit base of 1 million serving almost 200 members. Branches in high-visibility locations also offer a billboard effect to help build 27 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 AAUUGGUUSST T 22 00 11 66 C U B U S I N E S S . C O M TAB BRANCH BUSINESS universal associates are expected to sign on members for new accounts and loans rather than passing them on to someone else. The branch management team is still working through how best to measure and reward frontline staff for productive member interactions. The question that s out there is What s the true cost of interaction Lovelace points out. If we frame this up from a marketing perspective we as an industry spend 140 to 240 attracting a new business checking account. How does that translate to what the cost per interaction value is Universal associates cost a little more but add value in new accounts opened. Current models don t factor that in. But once we ve identified those key performance indicators the branch performance solutions we re using will allow us to configure the data according to the metrics we ve identified he adds. That s what you want in a good tool something you can adapt to your needs especially when you re dealing with something as transformational as universal associates. Meredith Deen is president of Alpharetta Ga.-based Financial Management Solutions Inc. (FMSI) which provides financial institutions with business intelligence and performance management systems for efficient branch staff scheduling and lobby management. She can be reached at meredithd fmsi.com. 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 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 AAUUGGUUSST T 22 00 11 66 CEO V ELO C ITY BY SCOTT MCCLYMONDS The Six Guiding Forces of Credit Union Growth and Success Part 2 Continuing the leadership systems focus he began last month Credit Union BUSINESS s CEO expert completes the series of forces that guide your credit union to growth and success. In this issue he concentrates on well-rounded leadership leadership development and leveraging low operating expenses to your CU s innovation and investment advantage. without hesitation he identified learning to choose the right people as his most important lesson. Similarly great credit union CEOs very quickly mention the critical nature of surrounding themselves with the right people. They then discuss the filters they use to select leaders. Some key filters include people skills conceptual thinking and functional expertise. Regarding people skills CEOs look for people who are both team players and drivers. Those two capabilities don t always go hand in hand. Often when we hear the term drivers we might think of people T he last few months we have been focused on leadership systems used by high-performing credit union CEOs. You can t really feel or touch leadership systems but everyone in your credit union knows whether or not they exist. They re what make your credit union either thrive or languish in mediocrity. John Maxwell says that everything rises and falls on leadership and the best leaders have great leadership systems. Specifically last month our attention was on a system called The Six Guiding Forces of Credit Union Growth and Success. We explored the first three which are Strategic Alignment Velocity and Communication. This month we ll dissect Guiding Forces 4 6 which are Selecting Well-Rounded Leaders Leadership Development and Using Low Operating Expenses to Fuel Innovation and Investment. Guiding Force 4 Choosing Well-Rounded Leaders Builds the Present and the Future A few weeks ago I spoke with a community bank CEO whose organization has grown from nothing to over 1 billion in assets in 18 years. When I asked him to name his greatest lessons along that journey 29 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 6 C U B U S I N E S S . C O M TAB VELOCITY CEO who are talented pushy aggressive and perhaps just a little obnoxious and individualistic. However these ideas are more stereotypical than fact-based. You want leaders who are aggressive but also sensitive to the needs of their teams and individual teammates. Just because they are drivers doesn t mean they have all the answers or take all the credit. A driver can very easily move his or her team forward while letting the spotlight shine on the performance of his or her team. Conceptual thinking is another attribute to seek in leaders. Leaders should be able to envision three to five years down the road and create that vision. Functional expertise is the most common attribute companies look for in their leaders but exceptional CEOs consider it only one of three desirable characteristics. We want leaders in our mortgage lending operations and IT areas to have a good grasp of the functions they lead and to be growing in their expertise. The world is moving too fast to not be Commentary According to Gallup s Study on the American Workforce the number one action you can take to improve the performance of your organization and the buy-in of your employees is to hire great managers. However the Gallup study goes on to state that companies hire the wrong candidates 82 percent of the time. Why is that Perhaps it s because far too often companies overemphasize functional expertise in their leadership selections instead of also ensuring that those candidates have strong people and conceptual thinking skills. Business schools and universities place tremendous emphasis on acquiring technical competency but almost none on people or conceptual thinking skills. The top ranked business school I attended had this same emphasis. In addition as we advance in our ca30 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 reers our functional accomplishments rather than our other skills tend to get us promotions. High-performing credit union CEOs choose leaders differently than most companies do and that s why they are able to distinguish themselves. Leadership Selection Exercises 1. What criteria do you use to select leaders in your organization 2. As you consider your leadership selection criteria are you satisfied or do you need to add criteria around aspects such as people skills or conceptual thinking 3. How do you evaluate leadership performance Is it solely around current year bottom-line op- AAUUGGUUSST T 22 00 11 66 C U B U S I N E S S . C O M CEO VELOCITY TAB erational performance or do you also evaluate based on non-financial achievements such as team development or innovation 4. Who are the conceptual thinkers in your organization Do your responses encourage or frustrate them Are you leveraging their ideas to build a better company 5. What do you do to elicit employee feedback on the people skills of their leaders Guiding Force 5 How Leadership Development Fuels Strategic Momentum In Guiding Force 4 we saw the filters high-performing CEOs use to choose their leaders. Additionally great CEOs also know the value of leadership development so their institutions can continue to innovate and grow all the while holding fast to their core identity and strategy. If communication is the glue that enables strategic alignment leadership development is the fuel that keeps strong credit unions aligned and moving in the desired direction. In other words this is what provides momentum or as I like to say velocity. One of the traits of excellent leadership development is that it addresses different needs at different levels. Generals don t have the same development needs as lieutenants so their training is different. Nevertheless neither is ignored and both are expected to continue elevating their performance. As leaders develop not only their skills but also their understanding of a credit union s identity and strategy the organization gains speed as I stated in Guiding Force 1 last month. When leaders gain skills and wisdom and they apply those newly acquired traits within a tightly aligned strategic framework like The 8 Pillars of Strategic Alignment the organization cannot help but move increasingly faster in the strategic direction of those pillars. It is important to point out that at the VP level and above leaders should receive training as a team as well as individual coaching to meet their own unique needs. This training approach shows tremendous wisdom because it helps each leader apply the corporate philosophy while simultaneously identifying and maximizing his or her own strengths and applying them to his or her unique situations. 31 C R E D I T U N II O N U N O N B U S II N E S S B U S N E S S AAUUGGUUSST T 22 00 11 66 C U B U S I N E S S . C O M TAB VELOCITY CEO High-Performance Leadership Development Model Benefits of Structured Leadership Development 1. Continued communication of identity strategy desired member experience throughout company 3. Creation of job descriptions and performance metrics based on strategy 5. Inter-departmental communication and collaboration focused on same strategic initiatives 7. Maximization of individual leaders unique strengths for career-pathing and retention 2. Employee retention engagement clarity around expectations 4. Continuity of culture and value while driving the organization forward 6. Innovation risk taking investing decision making within one strategic framework 8. Organizational focus on providing great member experiences within consistent strategic context and identity To build a better company you need better leaders but it isn t good enough to just get them in the door. You ve got to develop them. If you neglect their development you run the risk of them leaving or worse yet of them staying and either stagnating or leading you where you don t want to go. Great credit union CEOs realize they are in the people development business. Not only is such 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 AAUUGGUUSST T 22 00 11 66 C U B U S I N E S S . C O M Commentary A retired Marine colonel once told me that the average American businessperson becomes a manager at the age of 32 and receives his or her first leadership training 10 years later. In the Marines however officers are given their leadership training before they receive their commissions and such training is ongoing throughout their careers. CEO VELOCITY TAB development the ethical thing to do it s also profitable. Is that your business too How A Low Overhead Approach Drives the Innovation Cycle Leadership Development Exercises 1. Describe your leadership development strategy. What is its objective how is it executed who is included and what are its results 2. Do you believe leadership development is a profit strategy or an unnecessary waste of time and money 3. What are the key cultural attributes you want your leaders to develop 4. What are the key skills you want your leaders to have 5. Does your leadership development strategy consider the unique needs of leaders even those at the same organizational level 6. Does your leadership development strategy consider the developmental needs of leaders at various levels of the organization As you drive down average costs per employee and increase average profits per member you can reinvest those additional profits in talent technology and understanding member needs. These investments fuel innovation that leads to enhanced member experiences. Of course such enhanced member experiences lead to more members as well as increased sales. Acquiring those new members and sales drives down costs per employee increases profits per member and so on. It is easy to see how this ultimately leads to momentum and growth as credit unions reinvest capital toward very focused objectives all of which are in alignment with their core identity and strategy. The chart below depicts just a few of the benefits that accrue to organizations that invest in the talent and technology needed to more deeply understand member needs. This is a critical piece of the innovation cycle that leads to growth and scale while maintaining low operating expenses. Guiding Force 6 Low Overhead Digital Strategy Creates Cash for Investment Innovation and Scaling Leading credit unions are racing to use technology to create great digital experiences for their members across the globe. Creating a digital credit union not only enables an outstanding member experience but also keeps overhead costs per employee relatively low. It minimizes customer and account acquisition costs as well. These reduced expenses allow for the achievement of higher profitability per member. Low operating expenses create not only profits in thepresent but just as importantly velocity and momentum for the future by providing funds for innovation. The more low overhead innovation succeeds today the more it will succeed in the future thanks to its compounding effect. The following diagram explains this concept. 33 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 AAUUGGUUSST T 22 00 11 66 C U B U S I N E S S . C O M TAB VELOCITY CEO Benefits of More Deeply Understanding Member Needs 1. Create a more personal customized member experience. 3. Understand buying behaviors triggers and trends. 5. Profile member profitability and corresponding attributes. 7. Better manage asset liability mix based on member behavior. 2. Design new products and services aimed across the board and at specific segments. 4. Know how to cost-effectively acquire and retain members. 6. Test effectiveness of marketing campaigns. 8. Hire train invest and execute around deep knowledge of member needs. reduce operating expenses with the least amount of adverse impact on members and employees 4. How much money do you invest in people and technology Is it enough How do you know 5. What results and innovations have you seen from your investments Which ones have had the biggest impacts 6. How can you migrate more of your members to a digital relationship What value will they need from you to accomplish that aim 7. What strategic partnerships do you need to form with FinTech companies Commentary Leading CEOs realize the new financial services model isn t just in the future it s the present. Companies like Amazon and Zappos are already producing high-value digital experiences for customers without physical retail outlets and forward-thinking financial institutions are taking this approach as well. Members are demanding it and competition is making it a necessity. If you have an extensive branch network does this mean you should sell those branch assets and go completely digital No it s not saying that at all. However it is incumbent upon you to optimize your branch network and that might mean selling some of your branch assets and investing in your members digital experience. The key takeaway is finding ways to lower average costs per employee while maximizing member profitability. That allows for the disciplined reinvestment in profits around a tightly focused strategy and those investments are vital to building scales and momentum. Now It s Your Turn In our exploration of leadership systems we have examined The 6 Guiding Forces of Credit Union Growth and Success. Those guiding forces 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 34 Investment Innovation and Scaling Exercises 1. What is your average operating expense per employee 2. What is your average profitability per member 3. What would be the most responsible way to 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 AAUUGGUUSST T 22 00 11 66 C U B U S I N E S S . C O M CEO VELOCITY TAB 5. Leadership Development Fuels Strategic Momentum 6. Low Operating Expenses Enable Investment and Innovation Within the context of your credit union s identity and brand promise I encourage you and your team to thoughtfully evaluate your CU in light of The 6 Guiding Forces. I guarantee you will identify meaningful areas of improvement that will lead to increased growth profitability member attraction and retention and employee performance. With a few tweaks here and there who knows how much more you and your team might be capable of 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 Credit Union 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 35 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 AAUUGGUUSST T 22 00 11 66 C U B U S I N E S S . C O M TEC HNIC A LLY SPEA K I NG BY KENNETH SOLE 6at tack [tak] NOUN An aggressive and violent action against a person or place de fense [dfens dfens] NOUN The action of defending from or resisting attack Cyber Security is unequivocally the leading concern of each and every type of business entity that presently exists to include public and private corporations financial institutions and even state and federal agencies... Phishing Denial of Service (DOS or DDOS) Trojan and Ransomware or by the group or organization that generates the malady such as Carbanak Anonymous or Legion of Doom and even by the name of the specific software such as Hummer Keysnatch Goznym or Netspy. These attackers are in some cases sponsored by organizations and even governments that have vast resources to support such efforts. So what can the Credit Union do to protect itself from harm In the pages that follow I will offer some basic strategies for defending against such attacks and detail the diligence that needs to be accomplished if the credit union expects to even have a modicum of success protecting itself against these formidable enemies. N one of these have been totally insulated from attacks and many have suffered major security breaches thus compromising customer non-public information as well as detailed financial and account data. Not a single day passes without some mention in the news related to another data breach. Even the current presidential race has recently fallen victim to unwarranted disclosure of sensitive information that is being utilized to gain a strategic advantage. Make no mistake about it. We are engaged in a Cyber War with very powerful enemies who wish to do us harm and pillage our private information and financial resources Cyber-attacks originate from a myriad of sources and are identified by either the strategy itself such as 37 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 6 C U B U S I N E S S . C O M TECHNICALLY SPEAKING TAB In the early days the settlers circled the wagons when they found themselves under attack while crossing the plains. The defensive strategy was sound as long as the outer perimeter held fast but once a breach occurred usually all was lost. Today financial institutions must employ a much more complex defensive strategy in order to thwart the attackers or at the very least dissuade them from preying upon what presents itself as an easy target. Today s Cyberdefense must be multi-faceted and layered to afford any real protection against these predators. Recently a colleague of mine referred to this type of strategy as the Kevlar approach. For those of you that are unfamiliar with this material Kevlar is a virtually impenetrable fabric that derives its strength from employing multiple layers of material. It is utilized in the manufacture of bullet proof vests among other similar applications. A single layer in itself is not very effective but the same material manufactured in a multi-layer configuration offers an extremely high degree of protection and impenetrability. In applying the Kevlar strategy to Cyber-Security for your financial institution the organization should employ security measures at multiple access levels in 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 a similarly structured layered approach. This strategy needs to be applied at all points of entry to develop the desired protection. The first line of defense to be employed would and should in fact be Perimeter Security. Most often this is accomplished in concert with the institution s data communications provider and should include traffic monitoring and intrusion detection. Reporting of anomalies (unusually high traffic) and attacks is warranted and should be provided as a standard service by the communications provider. All entry points along the perimeter need to be covered to include data lines Internet connections VPN access points etc. Without getting too deep technically within this forum firewalls must be employed and DMZ s must be established by the networking group. In computer security a DMZ or demilitarized zone (sometimes referred to as a perimeter network) is a physical or logical subnetwork that contains and exposes an organization s external-facing services to a larger and untrusted network (usually the Internet). Network Domains should also be identified and designated as Trusted or otherwise. A Trust is the relationship between two or more domains. AAUUGGUUSST T 22 00 11 66 C U B U S I N E S S . C O M TECHNICALLY SPEAKING TAB Once inside the perimeter the next level of security to be employed would be the internal Network Security that is within the Windows operating system. There are multiple areas that must be addressed but the primary area of concern relates to the parameters within Active Directory which manages many different aspects of the computer network such as access rights permissible hours of operation and the like. One of the first areas that the regulators are going to request access to when I.T. audits are performed will be the Active Directory parameters. This aspect of security definition is not a once and done effort. It is something that must be constantly maintained reviewed and signed off on a regular basis. This is the area where new employees are granted access and the place in the system where when employees leave access must be immediately terminated. The third level of security that must be addressed is Application Security. This level of security can apply to multiple levels within many different areas of application processing but the most critical aspect of this applies to the Core Processing Security definitions. Here the security is applicable to all end-user access permissions regarding the application user rights and administrative privileges. In some cases the rights granted may only permit inquiry access at its basic level. In other cases the users rights may expand the permissions to include the ability to perform account type maintenance and monetary transactions. I recommend that application security be defined in standard templates that align with job descriptions and do not reflect individualized custom access rights. These templates and employee assignments must reviewed and validated on a quarterly basis at a minimum not only by the I.T. function but by end-user management as well. All security reviews should be documented for audit purposes. Any maintenance that is accomplished within applications should be documented through a Change Control process and should follow Best Practices. We will discuss Change Control as well 39 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 as other recommended Information Technology Audit best practices in a future column. Finally and perhaps the most critical of the security preventative measures is End User Education. Credit Unions and Banks alike should develop comprehensive training programs for users of applications and technology. Senior officers should not be exempted from this training. When and where possible these educational and training programs should be extended to customers as well. More than once I have seen financial institutions penetrated through a customer channel or via a customer s carelessness within their own organization or personal connection. Basic sound Email practices alone can greatly reduce the organization s exposure. Monitoring of your In Box absolutely identifying the source of Emails and not opening attachments from unfamiliar and suspicious sources can go a long way in preventing fraud. Mandating the structure and utilization of strong passwords is also a must. Paswords should be configures so as not to be vulnerable to dictionary attacks (standard words). Passwords should also be held subject to change at least every 90 days. Policing and monitoring of Social Media is another deterrent method. There are a number of software tools and service providers that will monitor all aspects of your organization s web-site Facebook page etc. to determine malpractice and attempts to deceive users TURN ON YOUR TECH STAFF withTEAMBUILDER. 4 TECHNICALLY SPEAKING www.cubusiness.com teambuilder buy 22 00 11 66 C U B U S I N E S S . C O M AAUUGGUUSST T TECHNICALLY SPEAKING TAB and customers. Anyplace that you can identify that is touched electronically (outside of your organization) other service providers external agencies and external corporate relationships are candidates for hackers and attempts to defraud. Diligence is key on all levels. Finally and in a general sense the credit union needs to employ the appropriate expertise to monitor and safeguard information and systems. Don t rely on in-house resources if the staff does not possess the high level expertise that it takes to do this job properly. Such exercises as Penetration Tests Social Engineering reviews and Systems Audit tools must be properly employed on a regularly scheduled basis by subject matter experts to provide adequate coverage and protection. It may be costly but the expenditure will be well worth it if it prevents just one major breach. If each credit union will perform a self-assessment of only those areas covered in this column then the organization will be better informed as to its level of security and better protected from a security breach. 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. Applications - Operations - Infrastructure CALL US TODAY TO TAKE ADVANTAGE OF OUR FREE SITUATIONAL ANALYSIS THE ONLY PRODUCT WE SELL ARE RESULTS Celebrating 28 years of quality services and solutions.... 40 C R E D I T U N II O N U N O N B U S II N E S S B U S N E S S AAUUGGUUSST T 22 00 11 66 C U B U S I N E S S . C O M CREDIT DEBIT CARDS BY RENDER DAHIYA The Fintech behind Credit and Debit Using Technology to Drive Revenue in Today s Dynamic Market T The old way of doing debit and credit cards no longer applies for credit unions given the current innovative competitive and fluctuating environment they re facing. Is your CU leveraging the latest technology to capitalize on today s market factors Learn how to do so to connect with your customers on a one-to-one level. materials there is very little that is less expensive than it was even five years ago. Just consider EMV cards which cost as much as 10 to 20 times more to produce than a mag stripe card. What does this mean in practical terms Let s say your organization issues 50 000 cards per year and you use a traditional method to produce manage and securely store those cards. That transition to EMV just cost your organization an extra 105 000 in production fees alone. This is a sunk cost to your business for cards that may or may not ever be issued. What s more those cards will now sit in a warehouse as costly and perishable inventory. But by switching from traditional production to an on-demand model credit unions can produce cards only as needed. In the process they can spread the he financial services industry is in a state of flux Fintech and other startups are creating new forms of competition disruption and even collaboration regulatory changes are an ever-present factor (the Consumer Financial Protection Bureau will turn five this summer) and U.S. financial institutions have recently invested a great deal in the transition to EMV-enabled cards (at a total estimated cost of more than 6 billion). With these factors at play credit unions and banks are under intense pressure to offer competitive products and drive profitability. Financial institutions are re-evaluating their entire product line to identify winners and losers based on the cost of doing business market demand and opportunity for growth loyalty and account volume. So how do traditional offerings like credit and debit card accounts fit in Depending on the approach they can be part of the problem or part of the solution for credit unions and banks. The Cost of Doing Business Let s face it costs have gone up. Whether you are talking about overhead costs such as labor and real estate or product-specific costs like marketing and 41 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 6 C U B U S I N E S S . C O M TECHNICALLY SPEAKING TAB cost of the EMV transition over time thereby saving on hefty storage and inventory costs. They can also completely eliminate the risk of card spoilage and destruction cost which can have a hugely negative impact on their bottom line. Of course digital payment solutions have sunk costs too (think mobile app development) but the enormous upfront production costs of printed cards leave no room for tweaks or a version 2.0 like a digital operation does. A positive consequence of this heavy investment in EMV should come from the liability shift itself. As long as card issuers put EMV-enabled cards in customers hands retailers are now responsible for the fraud at the point of sale. And while that savings could be very meaningful to financial institutions don t forget card not present fraud is just waiting in the wings to take off. And we know this cost will be a whopper thanks in part to those digital payment solutions I just mentioned. Internet Retailer reported that mobile commerceaccounted for nearly 30 percent of all U.S. e-commerce sales in 2015 and that figure is growing rapidly. Most of those transactions use a card-based payment method which is a big part of the reason CNP fraudulent payments are expected to more than double to 6.4 billion by 2018. In other words the increase in CNP fraud will outweigh the reduction in point of sale fraud placing the cost of fraud squarely back on issuers shoulders. At the same time it will drive an increase in the number of replacement cards that must be reissued each year. This sounds like a compelling case to run screaming from any kind of card-based product but organizations know that there s more than enough market opportunity to stay in the game as long as you are playing with a modern-day game plan. Market Opportunity and Market Uncertainty Demand for Cards Remains Strong 2016 is the third year in a row that many have proclaimed to be the year of mobile payments but the numbers simply do not back that proclamation up. One adoption survey reports that as of late 2015 more than 83.4 percent of those who could use Apple Pay haven t even tried it. To be clear no one is saying that mobile doesn t play a major role in how we buy and sell things just look at that mobile transactions number I mentioned above. But just about every single Fintech payments solution on the market leverages some kind of existing account and card setup. At the same time Americans are using debit cardsmore than ever. The number of debit card payments grew more than 450 percent between 2000 and 2012 to 47 billion and a new debit card is issued in the United States every five seconds. In addition the preference for cards over cash is up seven percent in just two years with Millennials leading the way according to a recent study. Indeed more than 60 percent of Millennials prefer to use debit or credit even for small purchases. TURN ON YOUR TECH STAFF withTEAMBUILDER. 4 TECHNICALLY SPEAKING www.cubusiness.com teambuilder buy 42 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 AAUUGGUUSST T 22 00 11 66 C U B U S I N E S S . C O M TECHNICALLY SPEAKING Market Segmentation and Niches the New Opportunity But with all of this opportunity comes even more competition and extraordinarily dynamic market demand. Different generations income and education levels and lifestyles all dictate different payments needs and card issuers must be able to respond to those needs to succeed. This means the decades-old method of blasting out card offers to anyone in your database or blindly issuing cards to every accountholder is no longer applicable (not to mention cost-prohibitive at 3 or 4 per card). And if we can learn anything from Fintech companies it s that payments go well beyond the transaction. They are part of an experience and they can represent a status or a lifestyle. Innovative financial institutions are leveraging the latest technology to capitalize on these market factors. They are customizing card terms and rewards offering custom card designs including everything from personalized photos to popular brands or themes and even cards like you ve never seen before. Vertically oriented cards with unique designs and the more secure flat card are also being offered. Flat cards have no embossing which better protects consumers from point of sale fraud because numbers can t be easily traced or copied. On-demand cards also open up a whole new world for collaborative partnerships including cobranded cards which give credit unions and banks an opportunity to deepen relationships with both cardholders and businesses. By integrating variable data with on-demand card production credit unions and banks can finally capitalize on existing data assets aka big data to dynamically incorporate customers preferences credit history geography or spending habits into individual cards carriers and packaging. In so doing they create true targeted and personalized campaigns that connect with customers at a one-to-one level. 43 C R E D I T U N I O N B U S I N E S S Companies like Marqeta are leveraging this Fintech solution to better serve customers by delivering EMVenabled cards in real time as much as 10 times faster than traditional methods allow. They are also putting personalized cards in customers hands in as few as 48 hours. Market Uncertainty No market is ever static and the payments market is fluctuating at an unprecedented pace. There are two main reasons the aforementioned Fintech competition and federal regulation. A decade ago no one was referring to upstart financial service providers as Fintechs and the CFPB didn t even exist five years ago. Today innovation is everywhere and consumers have demonstrated that they won t hesitate to stray from a traditional bank or credit union to try new offerings. In times of uncertainty business leaders want as much flexibility as possible. Financial institutions are learning that they cannot afford to be locked into rigid operating methods long lead times and costly product development cycles. Leveraging an on-demand credit and debit card strategy helps credit unions and banks integrate Fintech into a product roadmap and be better prepared to compete in this dynamic market. Render Dahiya is CEO of Arroweye Solutions the only patented on-demand provider of credit debit prepaid and gift cards. Media relations From Heidi Weinstein heidi fletchergroupllc.com A U G U S T 2 0 1 6 C U B U S I N E S S . C O M PAYMENTS BY BILL PRICHARD Here s How to Fight Account Takeover Fraud Is your credit union prepared for the sophisticated new ways in which today s fraudsters are taking over accounts Constant vigilance and surveillance are critical to detecting and preventing such fraud from transpiring. These strategies will help your CU minimize the losses it incurs from fraudulent activity. A ccount takeover fraud which occurs when a criminal gains unauthorized access to an account via identity theft is growing by leap and bounds. According to a March 2016 Javelin Strategy & Research report Mitigating Application Fraud from Synthetic Identities fraudsters stole the identities in one way or another of some 1.5 million consumers last year up from 700 000 in 2014. Javelin reports that last year seven million individuals reported having their Social Security numbers breached within the prior 12 months 63 percent more than in 2014. CreditCards.com Account Takeover Fraud Rising. The story indirectly quoting Patrick Reemts vice president of credit risk solutions at ID Analytics in San Diego Calif. continues As the United States catches up to the rest of the world in implementing EMV criminals will turn to new techniques such as card-notpresent theft and account takeover. Also fueling the growth is greater access to credit an abundance of information faster electronic communications and intense competition among financial institutions. All of this in combination is making it easier than ever for criminals to steal identities and falsify information. Similar to how a virulent virus can overcome a A Boost for Fraudsters Much of this harvested data is directly applicable to account takeover and can even assist fraudsters in answering dynamic challenge questions such as the name of a favorite pet. To evade detection the perpetrator often reroutes communication about the account keeping the victim in the dark so the thievery can continue longer. Affected accounts can include credit cards checking and savings accounts brokerage accounts and store loyalty rewards accounts. Part of the reason for the increase in account takeover is the increasing adoption of EMV technology which makes it more difficult for fraudsters to clone physical credit cards reports an April 2016 story on 44 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 6 C U B U S I N E S S . C O M TURN ON YOUR LENDING DEPARTMENT withTEAMBUILDER. 4 LENDING SOLUTIONS www.cubusiness.com teambuilder buy PAYMENTS vaccine hackers are constantly finding new ways to penetrate security systems as the old methods become ineffective. For credit unions then constant vigilance and surveillance are key to detecting and preventing account takeover fraud. Reviewing and Evaluating Internal Controls Fighting this type of fraud begins with a thorough review and evaluation of a credit union s own internal controls. A sampling but not an exhaustive list of important steps in maintaining top-notch internal controls includes Conduct periodic surprise audits and annual reviews of procedures. Provide for the physical security of all checks including cashier checks branch checks and deposited checks. Provide for the temporary physical security of electronically deposited checks including storage in a secure facility along with secured shredding. Ensure appropriate security is in place over signature plates cards and software. Require an additional review process for all checks over a specified amount. Remove individuals from financial institution transaction authority immediately upon resignation or termination. Ensure that controls exist for the storage and destruction of all documents that contain account and other related information. Determine that appropriate controls are present if employees access financial and banking systems from remote sites. On an annual basis request a legal review of all changes in laws regarding liability as it relates to fraudulent transactions. 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 46 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 6 C U B U S I N E S S . C O M PAYMENTS TAB Best Practices for Preventing Fraud Losses Some best practices for fighting account takeover and other forms of fraud include Strengthen verification procedures for new accounts. This should include the incorporation of more information into the decision process especially for high-dollar unsecured transactions breaking away from conventional thinking (traditional credit scoring and underwriting procedures do not identify fraudulent applications) digging deeper to verify identify beyond using Social Security numbers or other single pieces of data and looking for and assessing the fraud potential of inconsistency among all data available not just in address and credit bureau information. (Does the phone number go with the address Do the age and Social Security number match ) Strengthen verification procedures for existing accounts in online or call center transactions. Positive verification calls for comparing information provided by the consumer with a trusted third-party source such as a consumer reporting agency. Use credit report data to verify name address phone number Social Security number date of birth and driver s license number. This includes both logical verification (using commercially available analysis tools to determine the consistency of information from various sources) and negative verification (checking information provided by the consumer against databases of known fraud bad checks and government lists). Strengthen the notification process to the consumer for changes made to the consumer s existing accounts. Any changes made to a member s account need to be verified with the member. This verification can be accomplished by sending a confirmation email to the original email provided by the consumer sending a follow-up letter to the original address of the consumer and placing a phone call to the original phone number on file. Establish limits on withdrawal frequency and amounts to minimize a member s exposure to skimming and card theft. Fighting fraud requires a true partnership among credit unions core processors and payment services providers. By following the steps outlined above you put in place key safeguards that will help protect your credit union and your members in this atmosphere of enhanced technology and criminality. Bill Prichard is senior manager public relations and corporate communications for COOP Financial Services a Rancho Cucamonga Calif.-based provider of financial technology to credit unions (www. co-opfs.org). Prichard can be reached at (800) 782-9042 ext. 3450 or bill. prichard co-opfs.org. 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 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 AAUUGGUUSST T 22 00 11 66 MEMBER BU SI N E S S L ENDING BY CORINNE KALSKY 5 Things to Consider Before Offering Third-Party Services U Is it time for your credit union to up the ante on its suite of product offerings If so you may find yourself facing the in-house vs. thirdparty decision. Support from an outside partner makes sense on many levels. Should your CU decide to go that route these best practices will help you get the most out of a third-party partnership. As a credit union you have a choice among thirdparty relationships. You can select from a multitude of traditional for-profit vendors or you can join with a Credit Union Service Organization (CUSO) a nonprofit structure that is available only to you. Judging by the doubling of credit union investment in CUSOs over the past decade (Fig. 1) the concept has been embraced enthusiastically by the credit union movement. Reportedly over 900 CUSOs have registered with the National Credit Union Administration (NCUA) in accordance with the agency s new data registry pon entering the lucrative business lending arena credit unions often choose to first offer a simplified suite of services a few loan options a basic checking account and online access. This limited portfolio is typicaly enough to get started but as your program grows you will need to consider adding to your product offerings. Today s sophisticated small businesses demand a wide range of financial services including treasury management remote deposit capture sweep checking accounts credit card processing and payroll services. At that point you will face a crossroads should you try to develop additional products and services in house or should you consider partnering with a third party In many cases it makes sense to team up with an experienced third party that has expertise in a particular product line as well as the resources and scale to offer such services competitively and efficiently. 48 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 6 C U B U S I N E S S . C O M MEMBER BUSINESS LENDING requirements. This abundance leaves credit unions with a number of options within the industry to help with their operational technology and member service needs. One of the unique aspects of CUSOs is that they must maintain at least a 51 percent credit union customer base. This means their boards and management typically have a deep understanding of the credit union movement and its much-touted collaborative memberfocused philosophy. One difference between a CUSO and a vendor is that the CUSO has user owners says Guy Messick partner at Messick & Lauer PC. Messick also serves as general counsel for NACUSO the National Association of Credit Union Service Organizations. You can be assured that as an owner user you re going to have problems solved a lot more efficiently and quickly than they may be solved if it s just a contractual obligation. Even if the credit union is a non-owner client of a CUSO if there are owner credit unions that are also clients there is incentive by the owners to solve issues for all clients. No matter what approach you take there are several decision points to consider before offering a new product or service with the support of a third party. Here are five best practices to follow before you dive in 1. Consider your target market s needs. Not every business member has the same financial requirements. For instance a real estate investor may have very little need for day-to49 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 AAUUGGUUSST T day cash management services or credit card processing whereas for a retail shop owner merchant services are absolutely critical. A time-strapped solopreneur with a home office and no employees will not require payroll processing but remote or mobile check deposit services would help increase her productivity. Before deciding to offer a new service take some time to analyze the demographic makeup and account usage of your current business relationships. What industries are most prevalent What is the average account balance Do these businesses employ large staffs What are their annual revenues How much cash is transacted through the accounts Next consider your ideal business relationship and how you wish your portfolio looked. This vision is your target market. Perhaps you would like to see more medical practitioners. 22 00 11 66 C U B U S I N E S S . C O M MEMBER BUSINESS LENDING TAB In this case it might make sense to develop a package of services to appeal to doctors and their unique financial needs. 2. Will the service help grow long-term relationships Once you decide on the types of business relationships you want in your portfolio it is time to figure out which services are most compelling to this audience. Have you lost potential members because you don t currently offer the right product service mix An online or email survey of your current member base may be a prudent next step. One method to help decide which services to offer next is a product market matrix (Fig 2). On the vertical (Y) axis list the industries or professions you serve such as doctors accountants retailers manufacturers and investment property owners. On the horizontal (X) axis list all of your current products and services plus others that you are considering adding. These may include commercial mortgages lines of credit credit cards remote deposit capture business checking and merchant services. Then place an X at the intersection of every business type that uses or may use that service. When you are done you will be able to view very quickly which services are important to the largest number of target industries. This insight will help inform your priorities for product development with all other factors (cost resources length of product development timeline potential profitability) being equal. 3. Will the service enhance profitability Another important consideration in deciding which product to offer next is the potential impact on the credit union s bottom line. Your members may be begging for a particular service such as a sweep account but if it is a loss leader and will not significantly grow long-term relationships you should think twice before deciding to invest significant time and resources into product development. Take the time to run a pro-forma profitability analysis to estimate when the new service will break even. Upfront and overhead costs are often lower when offering referral-based services such as credit card processing through a third-party vendor. But revenue sharing in the form of referral fees or share of ongoing interchange income for such services is typically miniscule. 50 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 AAUUGGUUSST T 22 00 11 66 C U B U S I N E S S . C O M MEMBER BUSINESS LENDING TURN ON YOUR MARKETERS MATTERS withTEAMBUILDER. 4 MARKETING www.cubusiness.com teambuilder buy 4. Can you offer the service in house Once you decide which services to develop the next key decision is whether you will build these products in house or sign on with a third party. Keep in mind that developing a new product or service offering typically takes a dedicated project team many months of planning and implementation and it will pull resources from across your organization. 5. Do your due diligence Whether you choose to offer a new service through a vendor or a CUSO full due diligence is an absolute must. In many cases particularly for vendors that are considered critical to your operation this diligence includes conducting a complete risk assessment upfront. A risk assessment will typically cover a range of items including the vendor s financial soundness compliance with applicable laws and regulations and the thoughtful employment of business continuity plans and procedures. You will also want to ask for several customer references and then actually make the calls. Another critical consideration at this stage is how well the service will integrate with your technology platform. Will you be able to track service adoption rates Will the service integrate cleanly with your core system allowing you to capture usage patterns and growth in relationship balances This is where a cloud-based bank operating system adds huge value. Today s systems offer the ability to view the entire member relationship not just loan and deposit balances but also related services and transaction usage patterns. Cloud technology offers major advantages during the sales process too allowing business development officers the opportunity to view current relationships and potential service gaps while speaking directly with prospects in the field. 51 C R E D I T U N I O N B U S I N E S S It s often a good idea to ask the vendor who no longer uses their services and why Messick says. You want to know where the issues are to understand why a client stays with a vendor who doesn t stay and why they left. Messick emphasizes the importance of approaching every new vendor relationship whether with a CUSO or a more traditional service provider with a full understanding of the risks involved. These include reputational risk particularly if the service is visible to the members. Financial risk may come into play based on the respective obligations the credit union and vendor are assuming. Then there are legal and contractual risks to consider as well such as ensuring that appropriate warranties and indemnifications are in place. Make sure there are sufficient service level agreements so that the expectations of the credit union are clear ... [that] there are consequences if the service does not meet the agreed service levels or is down for a period of time Messick adds. The decision to offer a new service through a third-party vendor should not be intimidating. It does however demand a systematic approach toward understanding your membership s needs assessing the financial implications and conducting due diligence on any prospective vendor or CUSO. The payoff will 2 0 1 6 C U B U S I N E S S . C O M A U G U S T MEMBER BUSINESS LENDING come through the addition of tangible value to your credit union s suite of business service offerings resulting in long-term loyal relationships with your business members. Corinne Kalsky is regional vice president of credit unions for nCino the worldwide leader in cloud banking. Through its flagship operating system nCino leverages the power of Salesforce.com to provide credit unions and other financial institutions with superior transparency and clarity into their existing loan production pipelines portfolios and operating efficiencies across all business lines resulting in increased profitability productivity gains and regulatory compliance. For more information visit www.ncino.com or connect with the company on LinkedIn and Twitter nCino The 1 Solution for Member Business Lending ncino.com 52 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 6 C U B U S I N E S S . C O M IT CHA LLENG E S BY PAUL LAPORTE The Top 3 IT Challenges for Credit Unions in 2016 Is your credit union s limited information technology budget putting a strain on business Undoubtedly your IT team faces challenges and when it does those challenges likely fall into one of three categories. Credit Union BUSINESS takes a look at this trio of IT trials and attempts to make them less burdensome for your CU. Solving the IT Budget Conundrum U.S. credit unions serve 100 million members or almost half (43.7 percent) of the active banking population. Despite this large customer base they are substantially smaller than traditional banks as measured by average assets under management (15-1 assets). This difference in total managed assets translates into smaller operating budgets. In particular information technology budgets often are much smaller than those of big banks. The difference in IT spending creates a unique set of challenges for credit unions necessitating creativity as well as acute clarity of purpose and priorities for solving those challenges. Key 2016 IT challenges for credit unions can be classified into three categories security and compliance performance management and management of expectations and activities related to the cloud. Strengthening Internal Security and Compliance For any financial institution security and compliance continue to rank at the top of not just IT but all corporate priorities. For the purposes of this article we ll set aside the topics of traditional external security firewalls virus and malware detection and intrusion detection and prevention. Instead we ll examine the less protected areas especially for credit unions insider threats. Insider threats can be broken into two sections deliberate and inadvertent threats. The largest target of insider threats is sensitive content such as member personally identifiable information (PII) that is related to the credit union and employee PII. This sensitive content needs to be protected from accidental access disclosure and theft. Accomplishing this protection requires sensitive content identification and detection blocking and remediation as appropriate and permissions management. It also necessitates the ability to learn your unique environment and needs to better conform to your credit union s profile. The first step in protecting critical content from insider threats is understanding what needs protecting and from whom. It is not enough to state all PII information or all social security numbers and credit card information. While those pieces of data certainly count as sensitive content it is more appropriate to 53 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 6 C U B U S I N E S S . C O M TECHNICALLY SPEAKING TAB classify content according to several attributes. Start by asking these questions - Is the information clearly identified as PII - Is the content located in a customer or employee database - Is content proprietary to the business - Would someone be able to capitalize on the information or cause harm to the organization if the information was acquired Asking these questions in a systematic content inventory or analysis will help to earmark specific content sensitive databases or repositories SharePoint sites and more that contain sensitive data. This is more of a manual process but some tools and technology can provide aid especially in automating the discovery of targeted information. Once you know what content you have and whether it is sensitive or not you can leverage IT solutions to detect sensitive content while at rest or in motion. Sensitive content at rest can be protected with permissions management and access control to keep unauthorized users away from the data. Data loss prevention (DLP) and content governance solutions can alert you to unauthorized data access attempts and other unusual behavior like attempting to download uncharacteristically large amounts of information while also educating users that something they are attempting to do is not allowed. Often these tools are based on a rules engine that allows you to establish rules based on accepted standards and your analysis. Once rules are established detection is automatic and ongoing maintenance is straightforward. The rules can flag new content as it is added and periodically scan the system to find content that may have escaped previous notice. Many of these same tools include the capabilities to block and remediate user action when users attempt to access sensitive or unauthorized content. For example if someone in human resources attempts to access sensitive employee data it may be allowed. However 54 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 attempting to forward that information to someone who is unauthorized or sending the information to a home email address can be prevented flagged and escalated for management follow-up All of the previous activities are fairly standard in sensitive content management tools and they catch many of the accidental and malicious attempts to expose or steal sensitive content. However insider threats remain a challenge. Governance and permissions management tools are only as good as the efforts a company invests. What is needed to close the loop is a solution that constantly adapts to the changes in the environment. Machine learning technologies have made rapid strides in the past few years to close the vulnerability gap. Machine learning-based DLP solutions can learn the nuances of your organization and effectively adapt to organizational changes. In so doing they can give you a higher level of protection against security breaches and loss of PII. Sensitive Content Manager from Metalogix is a good example of machine learning DLP applied to a collaboration environment such as SharePoint. For SharePoint environments Sensitive Content Manager automates the process for IT while remaining vigilant to changes and new threats. Enhancing Performance Management While security concerns continue to dominate the conversation daily management of collaboration platforms content and applications is a frequently deferred topic. Performance management encompasses daily operational excellence and service delivery storage and archive management and business continuity including backup and recovery. Whereas security concerns usually trigger additional budget that when used effectively allows credit unions a chance to defend against threats performance management receives no budget to adequately manage growing complex environments. This is due to a lack of executive understanding of the critical nature of these core systems a perception of AAUUGGUUSST T 22 00 11 66 C U B U S I N E S S . C O M TECHNICALLY SPEAKING that is why we hired you ... and the fact that there are many out-of-the-box solutions such as for backup DLP archive and content storage. The out-of-thebox challenge is probably to most vexing scenario for IT professionals. IT administrators may inherit capabilities that effectively check the box as far as having a solution. The challenge for IT is realizing when the available tools are insufficient to meet the need. A good example is with backup and recovery. A SharePoint administrator may use an enterprise backup solution the institution previously purchased. While the product creates a backup that backup may not be usable for most recovery scenarios. Taking a step back backup products historically are used for disaster recovery not operational recovery. While recovering from a flooded data center is critical it ignores the daily disasters that affect organizations departments or even individuals who lose or corrupt important files. During a largescale disaster everyone is affected so everyone is focused on getting business back to normal. Daily disasters require operational recovery getting the small number of affected people back to work without disrupting the others. This situation is far trickier than a large-scale disaster because you are in effect changing the tires on the car while it is being driven. Realizing that existing or inherited solutions may not be adequate and then justifying those solutions in a budget-restricted environment is not for the faint of heart. For example doing a granular recovery recovering targeted items or groups of content without impacting other people and causing them to 55 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 6 C U B U S I N E S S . C O M TECHNICALLY SPEAKING lose their recent work can be critical. Let s say you have a group of loan officers working with clients at several branches and IT is centrally located in the region. If one facility has a batch of loans that gets encrypted due to ransomware you want to recover known good copies of those loans without overwriting newer loans from other branches. Other areas of performance management such as storage management deal with similar issues. The outof-the-box storage solution does not always offer the best long-term benefit from a performance or cost of ownership perspective. For the largest collaboration platform SharePoint this tendency is most pronounced. SharePoint stores data and content in SQL databases which run on SAN hardware. SAN is the most expensive kind of storage but not needed for most content use profiles. SQL licenses are very expensive ways to store content and are not ideal for large unstructured content which is highly prevalent and growing in most organizations. In this scenario continuing to use the out-of-the-box storage management solution will rack up large annual maintenance costs and new license costs as your content environment grows. Investigating and adding alternative methods such as file share and remote BLOB storage can deliver better performance to employees while simultaneously saving large ongoing costs. It may be a challenge to convince management and the finance team but diligently documenting the benefits and ROI in a business case can result in lower costs and better performance management in the end. With such extreme budget pressure on credit union IT departments developing a solid business case can help secure the necessary budget to implement the right tools. That way you can deliver performance excellence and a great user experience. To Cloud or Not to Cloud There is no greater hype in business today than the cloud a mythical place where all a company s problems go away and profit grows on trees. Decisions to move to the cloud though influenced by IT frequently originate in the C-suite or finance department. While the cloud makes sense in many cases there are a myriad of unexpected challenges almost all of which fall on IT service delivery changes result in reliance on service providers well-established business processes are upended and expectations must change. One example involves backup retention policies. Financial service firms frequently have a sevenyear backup policy due to compliance requirements. However if you move your SharePoint operation to the cloud Microsoft provides only 14 days of backup not sufficient for even the lightest requirements. This scenario creates a perplexing challenge. How do you adjust your backup expectations while continuing to adhere to regulatory compliance requirements Another example is user expectation. Moving to the cloud often involves moving key content outside the employee s main environment and network. Frequently that content is large enough that new latency is introduced when accessing content. As a result users become irritated and a change in behavior such as moving some content back to a local computer or shifting to an enterprise file sync and share tool like Box or Google occurs. The challenges are numerous and the definitive playbook has not been written as to how to manage moving to the cloud. Such trials remind us that there 56 TURN ON YOUR COMPLIANCE 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 A U G U S T 2 0 1 6 C U B U S I N E S S . C O M TECHNICALLY SPEAKING TAB are many unexpected things that result from moving to the cloud. Though it is done with growing frequency there are an equal number of frustrated IT departments trying to live with the decision. Nevertheless there is a required cultural shift and business changes that must accompany the move to the cloud. Understanding the key issues and preparing business cases are critical steps to advancing capabilities that deal with these sizable challenges. Paul LaPorte is an expert in security business continuity and disaster recovery (DR). He is director of products at Metalogix and coauthor of SharePoint RBS for Dummies 2013 edition. Prior to Metalogix he served as global manager for SaaS solutions at Proofpoint a publicly traded email and data security company as principle strategist for Continuity Research and as a senior executive at Evergreen Assurance a pioneer in real-time DR for mission critical applications. He holds a B.S. degree in Aerospace Engineering from MIT and an MBA from Georgetown University. Looking Ahead to 2016 The year ahead is filled will the potential for gamechanging initiatives for credit unions. Mergers and acquisitions continue to alter the landscape. Managed assets rose 49 percent despite a decrease in the overall numbers of credit unions due to M&A. And the siren song of the cloud will create massive waves of change. These changes will mostly be felt in IT departments. In preparation it is time for IT to investigate key challenges around security performance and cloud impact. To adequately deliver on the findings of those investigations IT will have to implement new solutions and business processes taking care to secure the almighty budget to accomplish these changes. 57 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 AAUUGGUUSST T 22 00 11 66 C U B U S I N E S S . C O M CALL CENTERS BY ART COOMBS Security Ranks as Top Focus When Investing in Call Center Technology W In their quest to provide top-notch customer service to their credit union clients call center agents are trained to respond to human emotion. This empathy however can open the door to fraud. New technology exists that eliminates human emotion from the call center equation thereby preventing breaches. ithin a call center there are three different avenues where breach of consumer information can occur. First someone inside the call center can intentionally share or sell sensitive information. Second someone inside a call center can inadvertently write down sensitive information on paper and then throw that piece of paper away without the intent of compromising information. Yet in the act of tossing out the document he or she leaves a door open for a breach. And finally someone outside the call center can use social engineering to extract information from a call center agent and then use that information elsewhere to access accounts steal money or assume an identity. This article will focus on the latter of these three means and how the call center can close the gaps in its security and strengthen procedures. Both large and regional credit unions know that in their quest to commit fraud fraudsters now turn to call centers to garner sensitive information. Because cyber security is becoming stronger call centers have become an easier channel for fraudsters to extract information. Layer on the fact that call center representatives are trained to provide excellent service and solutions and it doesn t take much for fraudsters to create a story and emotionally convince an agent to help them. A recent article in AmericanBanker magazine stated that last year one in every 2 900 calls coming into bank and credit union call centers was fraudulent. This year that figure is around one in 700. That s an alarming rate of growth. In the same article according to a study in 2014 2015 the magazine stated that the average amount of fraud exposure caused by these hackers was 7.6 million. After years of working in a call center environment we know that fraudsters will continually adapt and find ways to break through our systems. To stay ahead of the curve call centers have to be constantly improving their systems. For example tapping into new technologies that require an agent to follow protocol will eliminate the ability for human emotion to take over. One example of this technology is SecureCall one of several products offered by KomBea. When a 58 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 6 C U B U S I N E S S . C O M CALL CENTERS fraudster uses emotion to extract information from an agent who wants to provide customer service that agent might be tempted to bend the rules. SecureCall stops this protocol breaking from happening. For example customer information is not accessible until the caller enters required information on his or her phone keypad thereby opening the customer record. The agent cannot skip this step because he or she doesn t have the necessary information. And while this keying-in may seem cumbersome for the customer it actually improves customer satisfaction. The only individuals who are truly inconvenienced are the fraudsters. Think of it like the difference between a fingerprint and a password only the real customer has the fingerprint which in this case is a piece of data that only a true customer would know or have and that can unlock their record. This extra security measure stops the fraudsters from phishing for details or information by playing off emotion. That is because the agent has no access to the information unless the customer unlocks it for him or her. ART COOMBS PRESIDENT & CEO of KomBea. Art has over 25 years experience with a number of global firms and their call BPO centers worldwide. Before heading up KomBea Art served as the EVP Business Development Strategic Initiatives for ICICI OneSource (now FirstSource) one of India s largest BPO Contact Center outsourcers. Previously Art was CEO and founder of Echopass Corporation which built the world s premier contact center hosting environment. KomBea Corporation located in Salt Lake City Utah has been helping call centers become more compliant secure and efficient for over 12 years. More information is available at www.KomBea.com. 59 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 6 C U B U S I N E S S . C O M MO BILE BANK ING BY DEIDRE DAVIS Mobile Banking With MSU Federal Credit Union W Mobile technology is making banking through the Internet and smart devices as common and easy as ordering a pizza online. And developments in such tech is growing at lightning speed. See what advancements are facilitating on-the-go account access for one credit union. They just might provide inspiration for your CU. ith advances in technology and increasingly hectic schedules Internet-enabled or smart phones are essential resources for many of us. Whether a college student a working professional or a retiree it is likely you have considered using or are currently a user of mobile banking. If you can order a pizza pay your electricity bill and check your home security system all from your phone you should certainly be able to manage your finances there as well. The Federal Reserve Board conducts annual surveys to examine trends in the use of mobile banking and how mobile financial services affect an individual s interaction with his or her financial institution. In the report conducted in 2015 surveys found that 43 percent of mobile phone owners who also had accounts at financial institutions had used mobile banking in the past year. That number had risen from 39 percent in 2014 and is likely to continue to increase. With what we know about societal trends and with backing from statistics such as those released in the Federal Reserve s report we understand the importance of mobile banking to our credit union members. Here at Michigan State University Federal Credit Union (MSUFCU) it is our mission to provide superior service as well as exceptional products and services for all our members. We offer an extensive 60 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 6 C U B U S I N E S S . C O M range of services through our mobile app which provides convenient account access to members no matter where they are located. We are here to serve members meet their financial needs and help them achieve not only financial security but also their dreams. That assistance includes offering convenient on-the-go access to their accounts. We created our mobile app in 2012 for both iOS and Android devices and have continuously enhanced this service. More than just having a mobile app we also sought to design the app in a manner that would make it easy to use and that would provide all the features our members need to effectively manage their finances. Below are a few of our latest developments in mobile technology and on-the-go account access MoveMoneyTM At one point or another we all may have experienced the immediate panic induced when we realize we forgot to pay our credit card or electricity bill. MoveMoneyTM makes it easy to schedule payments among other things providing peace of mind with a simple process all through our mobile app. Just as the name implies our MoveMoneyTM feature allows members to transfer funds from one account to another. This capability includes transfers from savings to checking accounts checking accounts to credit cards loans and other merchants to pay bills MOBILE BANKING TAB and even accounts with us to accounts held at different financial institutions. Wherever your money needs to go we can make it happen. And we can help you do all of these transfers from your mobile device. There is no need to contact us or visit one of our branch locations either which allows you to save time and gas money. Plus MoveMoneyTM is easy and accessible everywhere you go. Quick Balance We realize that sometimes it can be inconvenient to open an app and log into your account. Because of that inconvenience we created our Quick Balance feature Quick Balance allows you to check your account balances without logging into your MSUFCU account. You enroll specific accounts to receive Quick Balances. From there swipe a stopwatch icon on the front page of our mobile app. This is also the page where you may choose to log into your account by typing in your password or using Touch ID. Related to Quick Balance you can also enroll in our eAlerts and push notifications to receive balances as well as details about transactions occurring within your accounts. eAlerts available in both text and email formats can send a text message each morning with your daily balances as well as alerts any time money is deposited or withdrawn from your account. While balances and transaction information are available using these quick and easy methods you will still need to log into your account to complete transactions. This login requirement maintains the security of your accounts and personal information. you take out a loan with us your credit score is a factor we consider when determining your interest rate. Specifically a higher credit score earns you a lower interest rate and lowers the total cost of a loan. Because credit scores are significant in the lending process we want our members to have access to this information as easily as possible. On a quarterly basis we gather data from Experian (a credit reporting agency) and display it through members secure online and mobile accounts. The data includes members scores and details on what has affected their scores as well as ways they can improve. Beyond education knowledge of one s credit score also increases fraud awareness and prevention. If you are consistently aware of your credit score you can better gauge if an unauthorized person has obtained your personal information and is using it to his or her economic advantage. Credit scores may lower when new loans are opened or a late payment is received. If you know that you did not open a new loan and have made all of your payments on time a lower score could be a red flag and should entice you to research possible causes behind the change. While Move Money Quick Balance and FICO Open Access are helpful features they are only some of the capabilities members have through their mobile banking access at MSUFCU. Other features include easy access to the credit union s interest and dividend rates loan calculators and an eMessage Center to contact the CU at one s convenience. Free Access to FICO Scores Another incredible feature of our mobile app is FICO Open Access which provides you with insight into your credit scores and histories without affecting your scores. Many financial institutions the credit union included use risk-based pricing to determine interest rates on loans and credit cards. This means that when 61 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 AAUUGGUUSST T 22 00 11 66 C U B U S I N E S S . 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