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T H E ON LY A LL-DIGITA L ALL-B USINESS R ESOUR CE FOR CR ED IT UNIONS THE BUSINESS LENDING ISSUE OCTOBER 2016 VOLUME 11 ISSUE 10 MEMBER BUSINESS LENDING 5 Keys to Balancing CORINNE KALSKY CEO VELOCITY Growth and Risk in Your Business Loan Portfolio Help Small and Medium Sized Businesses SCOTT MCCLYMONDS 5 Ways CUs Can PAYMENTS Rewards More Rewarding BILL PRITCHARD 5 Ways to Make Your Empower Your Credit Union with Enhanced Member Service Empowered C-Level Employees and Create Miracles In Your Community 500 PER YEAR WITH A 20% INTRODUCT ORY DISCOUNT Don t let this valuable offer pass you by. Jump on the CU BUSINESS Express to help your credit union GROW for your members employees and community. 1. Each member gets CU Business monthly eMagazines. 2. Individual articles are emailed to each member by job title. 3. Bonus New members also receive last 12 articles CFO Currency Lending Solutions Marketing Matters Branch BUSINESS etc...) 4. Each member has full access to CUB website and its 65 issue library. Sign Up Your Entire Crew for Team Builder Click Here To Register Your Crew A U G U S T 2 0THE 6 1 ONLY ALL-DIGITAL ALL-BUSINESSSRESOURCE FOR .CREDIT M C U B U I N E S S C O UNIONS ABOUT US THE ONLY ALL-DIGITAL ALL-BUSINESS RESOURCE FOR CREDIT UNIONS PUBLISHING TEAM Tim O Hara Editor & Publisher tim cubusiness.com Patti Manzone Designer UP FRONT Tim O Hara CU TRAINING Kenneth C. Bator TAB Michael Adebisi BRANCH BUSINESS Meredith Deen CFO CURRENCY Emily Hollis BRANCH BUSINESS Norm Patrick & Vladimir Jovanovic CEO VELOCITY Scott McClymonds MEMBER BUSINESS LENDING Corinne Kalsky MARKETING MATTERS Eva LaMere PAYMENTS Bill Pritchard BUSINESS TRENDS Dwayne Spradlin LENDING SOLUTIONS Bill Hulstrand SUBSCRIPTIONS Credit Union BUSINESS is published monthly (12 issues per year) by CU Business Magazine Inc. A one-year Digital membership is 75 yr An online membership form is available at www.cubusiness.com register. TEAMBUILDER https creditunionbusiness.com the-teambuilder 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 C R E D I T U N I O N B U S I N E S S O C T O B E R 2 0 1 6 C U B U S I N E S S . C O M Ashok Kumar Associate Publisher ashok cubusiness.com THE O NLY A LL- DIG ITA L A LL- BU SINESS RESO U RCE F O R CREDIT U NIO NS THE BUSINESS LENDING ISSUE OCTOBER 2016 VOLUME 11 ISSUE 10 MEMBER BUSINESS LENDING 5 Keys to Balancing CORINNE KALSKY CEO VELOCITY Growth and Risk in Your Business Loan Portfolio Ways CUs Can Help Small and Medium Sized Businesses SCOTT MCCLYMONDS 5 5 PAYMENTS Ways to Make Your Rewards More Rewarding BILL PRITCHARD TABLE OF CONTENTS OCTOBER 2016 VOLUME 11 ISSUE 10 TAB THE ONLY ALL-DIGITAL ALL-BUSINESS RESOURCE FOR CREDIT UNIONS 4 6 10 16 19 22 26 UP FRONT All Aboard the TEAM BUILDER Express Tim O Hara CU TRAINING 31 35 38 40 46 MEMBER BUSINESS LENDING 5 Keys to Balancing Growth and Risk in Your Business Loan Portfolio Corinne Kalsky MARKETING MATTERS Eva LaMere Hiring for Culture It Takes Some IMAZination Kenneth C. Bator FINTECH Dynamic Inbound Call Tracking an Essential Tool with the Growth of Mobile PAYMENTS Michael Adebisi berizing Credit Unions BRANCH BUSINESS 5 Ways to Make your Rewards More Rewarding Bill Prichard BUSINESS TRENDS Investments in Branches Also Lead to Sales Service Improvements Meredith Deen CFO CURRENCY The Four Pillars of a Successful Rewards Program Dwayne Spradlin LENDING SOLUTIONS Do Credit Unions Really Need Independent Validations Emily Hollis DEBIT CARDS Lender Due Diligence Bill Hulstrand Unintended Impact of Debit Card Interchange and Overdraft Fee Regulation Norm Patrick & Vladimir Jovanovic CEO VELOCITY Why the Interview Is Critically Important Where Do We Stand Now 5 Ways CUs Can Help Small and Medium Sized Businesses Scott McClymonds 3 C R E D I T U N I O N B U S I N E S S O C T O B E R 2 0 1 6 C U B U S I N E S S . C O M UP FRO NT BY TIM O HARA All Aboard the TEAM BUILDER Express We began building CU Business magazine over a dozen years ago with the intention of creating a steady stream of wonderful BUSINESS editorial content around a simple premise To provide information for each member of the management staff to help credit unions grow and prosper. From the very beginning I held a vision of a management meeting held around a busy conference table - peopled by the leaders of each department of the credit union. Working together they make it possible for the credit union to provide the best service to its members. The information was gathered and dispensed to help individual employees build their careers and also their families. Through good times and bad the magazine has forged very close ties with some of the industry s leading experts many of whom are our authors. This vision continues to improve year after year with our new group subscription program - The Team Builder. Please sign up you and your fellow executives including branch managers and exec assistants today. . The cost is probably less than taking them all to dinner just 400 per year with an introductory 20% discount. And 10% is forwarded to The Children s Miracle Network to help kids in your community Please join today 4 C R E D I T U N I O N B U S I N E S S O C T O B E R 2 0 1 6 C U B U S I N E S S . C O M cuso A community joined together for a common purpose. PSCU In what ways does collaboration benefit a credit union Can it expand reach and outpace the competition Provide greater services and prevent newer risks At PSCU we know that credit unions are stronger when they stick together. And we re proud to be a 30-year leader in credit union connectedness. When you join PSCU you re joining the ranks of more than 800 credit unions nationwide that leverage the power of our cooperative. A W AR DED BY NAC US O pscu.com 844.367.7728 CU TRA INING BY KENNETH C. BATOR MBA Hiring for Culture It Takes Some IMAZination H When hiring new staff does your credit union exude an environment of pure imagination and fun If not you might want to take a cue from Mazuma Credit Union. Its commitment to exposing the core of who it is as an organization is taking the drudgery out of the hiring process. iring is tough today. At least it seems more difficult. Or is it really Maybe if we truly know who we are as an organization and use the right tools available to us to attract talent it isn t as much of a chore as we executive embracing it to search for new talent. After I read the post and noticed that it was written in a fun and well-branded way (instead of the usual boring we-all-have-a-stick-firmly-planted-up-our-rectums-atthis-business tone that I see from most hiring ads) I thought This is a guy I need to talk to. The first question I asked Brandon was about that ad and why he chose to post it via LinkedIn Pulse. His response was refreshing to say the least. LinkedIn is a business platform for networking. So why wouldn t you post the ad on LinkedIn Brandon continued In fact all of the candidates we have had (for the Chief Culture Officer position) and we have [had] some pretty darn good ones have come from LinkedIn. I joked with him about his reference in the ad to the movie Willy Wonka and the Chocolate Factory the thought. That is exactly what Mazuma Credit Union is doing. Mazuma is not just another credit union. It s a Kansas City institution. I m not talking about only a financial institution but a staple in the KC metro area like the Chiefs or great barbecue. According to the CU s website Mazuma even bleeds barbecue ribs. I m not sure if that sounds tasty or painful to me but it definitely speaks to the passion Mazuma has to serving the Kansas City community. I had the pleasure of speaking with the CEO Brandon Michaels about that passion recently. The first exposure I had to Mazuma Credit Union was a post by Brandon that I Brandon Michaels CEO Mazuma CU happened to come across on LinkedIn. That posting was a want-ad for a Chief Culture Officer. In a world where some credit union CEOs shun all social media as if it were the Zika virus here s an 6 C R E D I T U N I O N B U S I N E S S TURN ON YOUR TRAINERS 4 CU withTEAMBUILDER. TRAINING C U B U S I N E S S . C O M www.cubusiness.com teambuilder buy 2 0 1 6 O C T O B E R CU TRAINING Gene Wilder version of course mentioning how my parents would put the film on for me when it was on TV. This was possibly to keep me occupied as a child instead of being a general annoyance as I probably often was. Given Gene Wilder s recent passing I m probably even more sentimental about the movie. Nevertheless I found the Willy Wonka reference in the post and throughout the Mazuma website to be both unusual and rousing. This was particularly true of the video on the site singing about pure IMAZination a play on the primary song from the movie. For us we wanted to create something that represented our brand in a very fun and innovative way Brandon commented. We could have picked a bunch of different movies but this one is that uplifting film of pure imagination. Then we came up with pure IMAZination since we re Mazuma and we call ourselves Mazumans. It just took off from there ... and we created our own style of what that Willy Wonka movie was about and it just worked really well. I asked how the IMAZination concept translated into the day-to-day culture at Mazuma. We focused on the positive and fun because we wanted to attract the type of team member that was OK with having fun at work Brandon answered. Hiring for culture we ask those types of questions. What do you do for fun And What do you believe fun is at work and how does that translate to your job It s about having fun 7 C R E D I T U N I O N B U S I N E S S while you work. More than anything that video and how we did it and what it has done to attract talent has made it OK for our team to have fun at work. Not just fun during holiday parties but literally while you work there s no reason you can t have fun. If you re in a back office area there s no reason you can t be playing music and joking around. The video solidified that it s [all] OK. As we delved further into the brand and culture of Mazuma Credit Union Brandon elaborated on the process. We really started from scratch. We started from the core tenet of who we are and what we want to represent. What are your core values and what does that represent about the business strategy What s most impactful is you have to start from the basics and you can t just strap something in and expect it to work. You have to understand why you re doing it. I went back to the hiring ad that originally intrigued me to learn more about the unique brand culture and strategy alignment what I call the B C S Formula for Mazuma. In particular I noticed that in the job description for Chief Culture Officer it states that the position holder is required to work with the Vice President of Growth and Brand. I joked that as a branding expert it upsets me that most credit unions larger than Mazuma don t have a position like that. Brandon responded I firmly believe that all marketing is your internal brand flipped outward. I believe that wholeheartedly. So how could you have marketing in one corner of the room and have someone who is in charge of your culture in another part of the room They have to be intrinsically linked. 2 0 1 6 C U B U S I N E S S . C O M O C T O B E R CU TRAINING The intrinsic link among brand culture and strategy at Mazuma has created not only a positive employee environment but also positive results. It has increased the speed of our execution because we are in alignment and everyone has a seat at the table added Brandon. There are no missteps with communication. We have increased the agility of the organization. We certainly increased our openness to change. Our conversation then steered back to core values one of the five key organization drivers I discuss religiously. It began with Brandon reiterating a perspective that I firmly believe in which is Your culture and brand have to be based off what you stand for. He went on to elaborate It all ties back to what we are as an institution and what our core purpose is. Our core values are positive fun teamwork learning growth creativity and innovation. Everything we do our branding the way our logo looks our radio ads our TV ads our Facebook posts our job descriptions EVERYTHING ties back in some way shape or form to how we behave and how we live as an institution. I next asked what sets Mazuma s brand and culture apart from other financial institutions. Brandon s response was intriguing to say the least. We have high expectations of ourselves. We haven t arrived and will never arrive. What sets us apart is our openness to change and our agility and [our] being cool with that. We re willing to fail. It s OK to fail. Learn from it and let s move on. We then talked about accountability in a fun culture. Seventy-four percent of our performance evaluation is tied to how well [we] live our culture. So we re putting the money where our mouth is. Brandon shares an example as it pertains to one of Mazuma s core values. There are four specific behaviors we expect out of people that tie back to our teamwork core value. We concluded our conversation by circling back to the initial post that drew me to Mazuma Credit Union the ad for Chief Culture Officer on LinkedIn. How can you post a position for Chief Culture Officer in standard jargon when that isn t the culture Brandon 8 C R E D I T U N I O N B U S I N E S S followed this rhetorical question with I tried to write the ad in a way that truly exuded who we are. Everything you do has to tie back to your culture everything from your job postings to your onboarding process. If it doesn t then you re really missing the mark on what s important. So if your credit union has truly gone through the process of peeling back the onion to the very core to discover who you really are as an organization then maybe hiring isn t that hard. Maybe it s just one more step in living your culture every day. It sure looks like Mazuma Credit Union has taken those steps and is reaping the benefits from doing so. Ken Bator is the author of The Formula for Business Success B C S and is the founder of Bator Training & Consulting Inc. (BTC). Ken helps credit unions create environments where employees actually want to come to work and members want to keep coming back. BTC accomplishes this aim through a combination of branding culture building and strategic planning. This is the unique B C S Formula created by Bator that is featured in his latest book. Contact Ken directly at 714-681-2821 or kbator btcinc.net. Ask about the corporation s new service the B C S Audit And learn more about BTC s presentation topics at www.btcinc.net. O C T O B E R 2 0 1 6 C U B U S I N E S S . C O M FINTEC H MICHAEL ADEBISI DIRECTOR NEWTIME CONSULTING Uberizing Credit Unions W What does the new-age ride service Uber have to do with credit unions A lot it turns out when it comes to the adoption of financial technology. Will your CU be a victim of or a participant in the fintech wave of the future These strategies will make adopting such technology less of a regulatory headache. hat is more important to people than their money Their time. The former is hopefully replenish-able. The latter is not. Ever. Credit union members are no different from traditional bank customers in that respect. Members love their credit unions but still they need to have access to financial services quickly and securely. While credit union members are loyal they are not insulated from the realities that technology offers the rest of the world. Fintech-assisted financial institutions offer consumers easy access to their money their balances investments and more. Additionally consumers can use all the financial analysis they want for a fraction of what people used to pay in a fraction of the time it used to take. What s at stake is that consumers have the ability to not only act but act instantly on this information whether it is for car or student loans home loans insurance investments IRAs HSAs CDs or anything else financial organizations including credit unions currently provide. The disintermediation that fintech brings to financial services parallels Uber in the disruption of the taxi industry credit unions and their members are susceptible and can be either victims or participants. The Boom in Global Fintech Investment (PDF). Accenture. 2014. Retrieved December 9 2014. http www.americanbanker.com bankthink fintech-firms-hurt-bylack-of-regulatory-clarity-1090220-1.html Fintech (sometimes written FinTech) refers to new applications processes products or business models in the financial services industry. While fintech officially started in the 1990s the global recession forced the movement into a temporary retreat. But as the economy recovered global investment in financial technology increased and has risen more than twelvefold from 930 million in 2008 to greater than 12 billion in 2014.1 There are two main obstacles that deter credit unions from partnering with fintech providers. They are regulatory constraints and data security issues. Regulatory constraints According to American Banker 2 none less than the U.S. Government Accountability Office (GAO) itself released this report Financial Regulation Complex and Fragmented Structure Could Be Streamlined to Improve Effectiveness. 3 The problem in a nutshell even the GAO understands the benefits fintech brings to the Obstacles and Challenges 1 2 3 http www.gao.gov products GAO-16-175 C R E D I T U N I O N 10 B U S I N E S S O C T O B E R 2 0 1 6 C U B U S I N E S S . C O M 250 000 Credit Union Employees 92 Million Members 100 Million Miracles Since 1996 Credit Unions for Kids has raised more than 100 million for Children s Miracle Network Hospitals giving hope and healing to kids in your local community. YOUR FUNDRAISING DOLLARS IN ACTION MILLION 10 2 1 iMRI machine and surgical suite 1 Cardiac X-ray machine 1 Ultrasound machine 1 Bone marrow transplant 1 Fully-equipped Giraffe OmiBed incubator MILLION THOUSAND 270 THOUSAND 250 THOUSAND 100 FINTECH TAB financial services industry and embraces the innovations such technology provides. The regulatory overlay however can cripple its implementation with as much destruction as the 2008 worldwide recession did after the inception of the first fintechs. Even the regulators recognize the need to nurture the new technology so much so that Comptroller Thomas Curry of the Office of the Comptroller of the Currency (OCC) is seeking ways to encourage responsible innovation to assure survival. It s easy to understand that credit unions and fintech providers face regulatory angst as they search for ways to work separately and then hopefully together. Data security challenges Data security breaches are ever more newsworthy than regulatory problems but the publicity feeds mercilessly (and rightfully) into the resistance to adopt fintech solutions. Data breaches continue to challenge banks and credit unions as well as large and small governments and many others. To address the issue CUs with up to 50 million in assets (and of course the larger credit unions) are being counseled by the National Credit Union Administration (NCUA) to more proactively protect their data and their members from internal and external cybersecurity threats. Fintech firms can themselves be targets of hackers.4 The challenges are valid the problem ubiquitous. Credit Union Survival Analysts at Callahan & Associates have identified a link between technology adoption and growth at credit unions with less than 50 million in total assets. According to Sam Taft director of industry analysis at Callahan and Associates When it comes to financial transactions consumers want enhanced services that are easy to use. Tech-savvy credit unions are identified as credit unions that offer mobile banking remote deposit capture online new member application online loan application and online share account application as of the first quarter of 2016. Not only do credit unions with strong technology offerings grow assets loans shares and members at a faster pace but they are also more efficient than their peers (with less than 50 million in assets). Indeed their efficiency ratio comes in at 88.71 percent compared to 89.41 percent at credit unions with a less robust technology stack. Credit unions in that asset class with a strong technology offering have an average member relationship of 10 576 and are experiencing positive member growth annually. Compare that to an average member relationship of 9 708 and annual member growth of 1.0 percent at similarly sized credit unions that offer less technology to their members. Tech-enhanced credit unions are also projected to grow at a faster rate across the next five years. 4 https centricdigital.com blog fintech is-your-data-safe-fintech-security-challenges-and-solutions 12 C R E D I T U N I O N U N B U S II N E S S B U S N E S S OOCCTTOOBBEERR 22 00 11 66 C U B U S I N E S S . C O M FINTECH TAB In relation to general fintech adoption statistics show that credit unions with a higher technological IQ exhibit some growth yet all members of CUs may not be ready to accept cutting-edge technology. Faced with regulation ambiguity member uncertainty and data security challenges the credit unions that are still on the fence will encounter some hard decisions. Are they ready for the battle Overcoming the resistance will require accepting that while there is regulatory confusion a CU s competitors--banks other credit unions and online agencies--are tolerating it. As a comparison complexity plagues the U.S. tax code which in 2014 had risen to 74 608.5 pages. However accountants are still interpreting tax code and Americans are still filing and paying their taxes. Complexity and lack of clarity surround most industries these days. Acceptance of this fact may mean the difference between survival and ruin. 5 Since fintech regulatory perfection is improbable in the relevant future CUs may need to decide what criteria would be acceptable for them to be able to move forward with a fintech provider. What level of risk is tolerable What uncertainty can the CU management and their credit union s underlying vision statement accept on behalf of their members In the interim while CU management is engaged in researching the benefits and the risks their members may leave and the credit union suffers. Risk is spread among fewer remaining loyalists loan terms are less favorable compared to regular banks and other lenders and the credit union s advantages disappear causing a precipitous exodus and ensuing demise. That is a drastic scenario of course but would a taxicab driver in NYC ever have dreamed he would be facing Uber For credit unions then it is necessary to seriously consider a fintech future sooner rather than later. http www.washingtonexaminer.com look-at-how-many-pages-are-in-the-federal-tax-code article 2563032 13 C R E D I T U N I O N U N B U S II N E S S B U S N E S S OOCCTTOOBBEERR 22 00 11 66 C U B U S I N E S S . C O M FINTECH TAB Five Steps To Adopting Fintech 1. Change management s mindset. Even in the face of regulatory uncertainty and other risks there are greater downsides in doing nothing. 2. Educate CU members. Tell members that the credit union is moving toward fintech and why. It s better to be transparent from the beginning to avoid a member leaving just before management makes the decision. By being informed of the impending change members will appreciate that they can enjoy similar technological advances being applied to their financial services as they have in other industries while still being associated Members Are Different with their favorite credit union. 3. Choose the right fintech partner vendor. By Credit union members are different than commercial researching and finding fintechs with similar bank customers by virtue of the operative word missions and values and by ensuring that the member instead of customer. A credit union chosen software company has the credit union s member belongs. For credit union management this membership at heart the CU will be able to enjoy distinction is an advantage. CU members possess the benefits of lower costs. More competitively loyalty and trust yet this is a disadvantage as well. A CU priced offerings to its members will thus be management team may fall into the trap of allowing the enabled while margins will be maintained that luxury of deeper analysis and a longer decision-making curve when choosing a fintech provider vendor from make the CU viable. among the plethora of companies clamoring for such 4. Implement an orderly plan. Once the concept business. Management may also see that the obstacles is supported vendors vetted and regulatory of regulation and data security are more important to compliance assured notify CU members. A them as they struggle to choose which will be the best planned process that incorporates research and provider for their members. Loyalty slices both ways. adoption will make the transition easier and Delaying the decision to adopt fintech is dangerous. members will know they re still in the right place. The competition from commercial bricks-and-mortar banks and online financial institutions insurance companies and financial services providers could 14 C R E D I T U N I O N U N B U S II N E S S B U S N E S S OOCCTTOOBBEERR 22 00 11 66 C U B U S I N E S S . C O M 5. Set up a permanent fintech department. By starting funding and staffing a permanent department or section to support the use of and to leverage the advantages of fintech solutions CUs will ensure the services are properly promoted and used. A robust marketing team needs to communicate the costs savings offered by this partnership which may be in the form of comparisons to auto loan rates and or CD rates that should still compare favorably to commercial banks. FINTECH lure members from the credit union. On the flipside making the wrong choice in a fintech provider partner could backfire. Although facing a degree of execution risk CUs may fare better by adopting fintech even if they re not totally ready to do so. Efficiencies using software created by smart people with uncanny knowledge of how things work has disrupted industries and has undermined our faith in the status quo. Although the fintech revolution had a false start that was sidelined by the 2008 global recession it has returned to the financial arena with the same hatchet-wielding innovation as Steve Jobs carrying an iPhone. Credit unions are similar to Apple. Apple had loyal ardent followers but soon enough the competition woke up and Apple lost market share. Credit unions have memberships with a substantial edge over the Apple loyalty groups but they still must protect themselves by remaining profitable for their members. They do that by giving their members the best services at the lowest costs with the least risk. Fintechs can accomplish that. By approaching the vetting process intelligently credit unions will find a healthy fintech partnership. If they delay too long they may lose their members trust and then their business and eventually they may go the way of Yellow Cabs and hotels that did not see Uber and Airbnb coming in their rearview mirrors. Michael Adebisi holds a Master s degree from the University of London (Queen Mary College) and is Director of NEWTIME Consulting. With 15 years experience in investment banking financial services and consulting he has provided CRM data integrity and technology services to banks and corporations in the international marketplace. For further information please contact mike newtimeconsult.com. Loan Originator training You ve got this. Do you still need to satisfy your training requirements Look no further than the comfort of your own office. A new NMLSapproved self-study course is specifically designed for credit unions and meets the continuing education requirements of Reg Z. Enroll today at www.cuna.org MLO Check it off your to-do list Enroll today at www.cuna.org MLO OFFERED BY INSTRUCTED BY C R E D I T The services provided by PolicyWorks should not be construed as legal services legal advice or in any way establishing an attorney-client relationship. 15 Making compliance easy for you. 866.518.0209 POLICYWORKSLLC.COM O C T O B E R 2 0 1 6 C U B U S I N E S S . C O M U N I O N B U S I N E S S BRA NC H BUSI NES S BY MEREDITH DEEN PRESIDENT FMSI Investments in Branches Also Lead to Sales Service Improvements B How much is your credit union putting into its physical branch infrastructure Making branches a priority in this day and age of mobile banking is paying off for CUs across the country. Learn how several credit unions have improved their customer service and thereby boosted sales by prioritizing the branch experience. pouring all of its resources into mobile banking many credit unions and banks have decided that their branch networks are a valuable tool in the quest to improve customer service which in turn boosts sales. In other words it s simply a mistake to neglect the branch said W. Michael Scott chairman and chief executive of FMSI a software-as-a-service solutions provider out of Alpharetta Georgia. Our unique solutions for measuring and forecasting transaction volumes regularly reveal areas for better service more sales and increased productivity Scott said. One credit union had plans to tackle a specific problem eliminating negative or undesirable experiences that customers had in the branch with employees. The 564 million in assets East Texas Professional Credit Union in Longview implemented an electronic member tracking system which also generated detailed reports on employee performance. Tracking members on a sheet of paper has its limitations especially in a crowded lobby said Scot Haines East Texas Professional s senior vice president of operations. Occasionally a member would get lost in the shuffle and end up waiting much longer than they needed to. East Texas Professional CU used lobby tracking software to increase sales by more than 16 percent 16 C R E D I T U N I O N B U S I N E S S O C T O B E R 2 0 1 6 C U B U S I N E S S . C O M rightStar Credit Union has directed a spotlight on the importance of investing in branches. The 430 million in assets credit union operates seven retail offices in the Sunshine State all located in affluent areas north of Miami and none more than a few miles from the Atlantic Ocean. BrightStar has made it easy for its 53 000 members to visit a branch. It maintains extended evening hours by staying open until 7 00 p.m. on Fridays and keeps open-lobby hours on Saturdays. Those extra hours when BrightStar is open for business has made it crucial for management to maximize the impact of its on-the-floor employees. To that end BrightStar turned to a suite of workforce optimization solutions. We found exactly what we were looking for when we sought out a software solution that would help us with our branch staff scheduling said Dennis Leiva BrightStar s vice president of operations. The suite of products will help BrightStar automate our staffing process [and] ensure we are not short staffed anywhere in our branch network at any given time while minimizing excess staffing levels. BrightStar is just one financial institution that continues to place a high priority on making investments in its physical branch infrastructure. Rather than BRANCH BUSINESS TAB since the end of 2012. It s not a coincidence that the sales spike was accompanied by a drop in the time it took for employees to assist members of more than five minutes. Another critical measurement for financial institutions is how many employees to assign to branches at specific times of the day and on certain days of the week. BrightStar in one specific example wanted to assign a float employee for two of its geographic regions. This floater would be available to work at the branch within his or her region on the day that had the highest levels of branch traffic. With varying degrees of traffic at each unique retail environment it can be difficult for schedulers to determine the precise number of staff to adequately cover the fluctuating demand especially when unscheduled absences occur said Meredith Deen FMSI s president. Financial institutions use staff schedulers to create afloat employee system which helps them be more efficient in constructing weekly work schedules. The float employee management solution combined with the accurate forecast-driven transaction information from the system will help us achieve our goal of an 80 percent reduction in excess labor cost Leiva said. TURN ON YOUR BRANCH SUPERVISORS & MANAGERS withTEAMBUILDER. Another way to help reduce labor costs is by allowing customers to handle many transactions themselves. Self-directed technology features like smart ATMs interactive video tellers and software that lets customers schedule appointments with employees all help financial institutions achieve that goal. Branches can be redesigned to install more tablets and interactive video monitors. The presence of such devices empowers customers to conduct routine business. That frees up branch employees to make sales connections. Another Florida credit union recently undertook a project with that exact goal. The 1.4 billion in assets Community First CU in Jacksonville planned a series of upgrades for its 18 branches including teller pods and cash recyclers as well as video conferencing centers that let customers interact with the institution s experts on mortgages business loans and eventually wealth management. The transformational project also included retraining tellers and member service representatives as universal associates. In just five months Community First s branch in the Riverside neighborhood generated 1 million in deposits and began service to about 200 members. The credit union s executives are convinced the retooled upgraded branches are essential to its strategy. We have to help our members understand that the real power in going to branches is the face-to-face interactions said Jimmy Lovelace vice president of branches at Community First. 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. Meredith Deen is president of Alpharetta Ga.-based 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. 18 22 00 11 66 C U B U S I N E S S . C O M 4 BRANCH BUSINESS www.cubusiness.com teambuilder buy C R E D I T U N I O N U N B U S II N E S S B U S N E S S OOCCTTOOBBEERR CFO CURRENC Y BY EMILY HOLLIS CFA CHIEF EXECUTIVE OFFICER ALM FIRST FINANCIAL ADVISORS LLC Do Credit Unions Really Need Independent Validations M Are there any benefits to be gained for your credit union from thirdparty validations or are they just another regulatory hassle Read on to find out why such objective reviews really are of vital importance when it comes to gauging the validity of your ALM model and your CU s true financial position. any U.S. financial institutions were faced with some uncomfortable facts about their fiscal health after the market meltdown and resulting financial crisis. They simply had too much debt with too little capital and liquidity making it impossible to survive. Since then financial regulators and accounting boards have raised their requirements for balance sheet analysis and reporting as well as capital stress testing. On top of that when FASB s CECL standard takes effect four years from now institutions will have to recognize future losses and track economic trends to ensure their reserves for loan losses are adequate. Most credit unions managed through the crisis fairly well so many question why they must follow these more intense requirements especially thirdparty validations. We re often asked Are validations really necessary Are they merely another regulatory inheritance from the financial crisis or do they offer benefits to our credit union Benefiting From Validations The fact is validations are vitally important because they provide management and the board with the true picture of the credit union s financial position. In turn they can determine whether their goals and strategy are appropriate. 19 C R E D I T U N I O N B U S I N E S S We all know the financial industry is in the risk-taking business with institutions compensated for their ability to evaluate and price risky products. And given the motivation to take significant short- and long-term risks validation is the best method to project not only the impact of such risk but also how well the ALM model is performing. Validation confirms that model inputs result in outputs that are in line with market expectation for value risk and projected earnings. An effective ALM model should factor in appropriate assumptions. Independent validations evaluate the soundness of assumptions leading to these benefits 2 0 1 6 C U B U S I N E S S . C O M O C T O B E R CFO TAB CURRENCY Confidence that the balance sheet is properly valued An experienced ALM firm is wellversed in industry best practices. It uses accepted procedures and sophisticated technology to validate the appropriateness of assumptions and to ensure the balance sheet is valued correctly. This is important because differing assumptions can lead to wide variances with poorly produced results. Poor decisions and ineffective oversight and management are often the byproducts. More effective supervision and management A third-party ALM validation shows that a firm s management is overseeing its risk profile. Regularly scheduled validations give the board and management a better understanding of risk factors while enabling them to identify potential threats to the organization s safety and soundness. Reassurance for regulators An objective thirdparty review helps ensure that risk models are reliable and credible and that procedures are appropriate. Regulators want to know that the review is conducted independently and without bias. Evaluating ALM Models As mentioned an effective ALM model relies on the assumptions factored into it and that requires ensuring that those assumptions are as accurate as possible and that they are not biased to improve results. Larger institutions with more complex balance sheets (generally those with more than 100 million in assets) should opt for validations consistent with the level and intricacy of risk being managed. However thorough validations can be somewhat expensive so they usually aren t needed for smaller financial institutions or for fairly straightforward balance sheets. This is especially true for institutions that have shortduration assets and high levels of capital. For maximum effectiveness financial institutions should recognize how various types of risk affect other types. ALM First Financial Advisors recommends viewing the balance sheet analysis from a holistic perspective following these suggestions 1. Include these key steps in the validation - Engageanoutsidereviewtoensurethemodel is logical and conceptually sound. - Assessthemodelinrelationtoothermodels. - Evaluatemodelpredictionsincontrastto subsequent real-world events. 2. Appraise existing ALCO reporting procedures. Answer these questions Are model results clearly presented so the board and management can make good decisions Are they considered a valuable source of powerful information or just a regulatory exercise to please the examiners To be effective the information must be appropriately analyzed and interpreted for the board and management s use. 3. Conduct a policy review. There are different types of risk inherent in various aspects of the balance sheet. This makes it imperative that the credit union s policies are appropriate and up to 20 TURN ON YOUR CFO and CEO 4 CFO withTEAMBUILDER. CURRENCY www.cubusiness.com teambuilder buy C R E D I T U N I O N B U S I N E S S O C T O B E R 2 0 1 6 C U B U S I N E S S . C O M CFO CURRENCY CURRENCY CFO CFO CURRENCY CFO CURRENCY are calculated figures not assumptions. The have significant implication on the ALM conclusion. The of time. Credit will need to be assumptions used should be changed government bond inputs allow the user to model cash flows with an end maturitybenchmark if budget surpluses dry up thein progressive intervals reviewed and authorized and date for ALM investment concentration risk and market. the output should be recalculated to determine the impact and They have already become the standard for pricing and decay rates that are similar to amortizations. this can take weeks. fixed and discount rates allow for the present of a different assumption. Dividend assets liquidity and contingent funding. valuemany corporate bonds. if you are uncertain as to calculations (premiums) in each modeled interest rate scenario. Knowing where swap rates and spreads are will allow the many requirements of Unbiased objective model validations are an important effective duration calculations can then mathematically bebetter hedging and investment execution. When investors need Conclusion applying and using derivatives facet of a robust ALM program one that helps the compared to that of the institution s assets. in this case effectiveto gauge credit risk and market be viewed as aswap curve is Non-maturing deposits can sentiment the franchise value consider board and management appreciate their risk position. becoming the more important curve to analyze.engaging an external duration is calculated by merely backing into the pricebetter change or benefits generated from loyalty of the membership when A thorough understanding of a risk will lead to service provider to help you formula. For example effective oversight and a brighter deposits are retained when dividend rates are low decisions more if the liability present value is 100 in theEmily Hollis CFA is a partner with ALM the steps. in a higher through First Financial base 101 forthe up 100 basis point scenario and 99 in the down market environment. And vice versa A financial derivatives future in the credit union. Properly used institution Advisors LLC. 100 basis point scenario the effective duration is one percent that offers a non-maturity dividend rate higher than market can offset interest rate risk (i.e. (101-99) 200). to attract hot money will decrease the economic withinofthe that is inherent value its liabilities. it is imperative to model these accounts for a more 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 Analysis submitted when all requirements are grows derivatives can interestcreditrisk. to compete more and final application is The regulator strongly suggests sensitivity analyses as a means effectively. completed including dealer contracts. to quantify the effects of Emily Hollis CFA is changing assumptions. sensitivity Emily Mor Hollis CFA is a partner with ALM First Financial setting up a line at a President CEO of ALM First a dealer is similar to becoming Advisors LLC. analyses are essential because the core share evaluation may Emily Hollis CFA is a partner with ALM First Financial member of the FHLB--it canFinancial Advisors LLC deal be laborious and takes a good 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. 21 www.cubusiness.com C R E D I T U N I O N B U S I N E S S November 2014 O C T O B E R 2 0 1 6 Credit Union BUSINESS C U B U S I N E S S . C O M 15 DEBIT C A RDS BY NORM PATRICK & VLADIMIR JOVANOVIC Unintended Impact of Debit Card Interchange and Overdraft Fee Regulation Where Do We Stand Now Are recent changes in interchange and overdraft regulatory oversight negatively impacting your credit union s non-interest income This set of recommendations will help your CU respond to such changes in proactive ways that will help not only mitigate the downward pressure on but also safeguard one of your most important revenue streams. id you know that revenue from debit card interchange and overdraft fees often accounts for over 50 percent of a given credit union s total non-interest income Heading south for many credit unions of all sizes debit interchange has been suffering due to regulatory changes implemented in 2011 that impacted interchange rates and networking routing practices. It s imperative for credit unions to fully understand what is happening and why across the regulatory landscape. Armed with such understanding they must then work closely with their processing and networking partners to determine steps to grow revenue and reduce operating expenses so as to offset the regulatory risk. The Consumer Financial Protection Bureau is also looking to further regulate overdraft practices beyond the changes to courtesy pay practices that were implemented in 2010. Regulatory risk continues to persist relative to both of these two important income streams. Here is a look at how we ve arrived at the place we are today and some recommendations for how credit unions can respond to protect their non-interest income. D The Story So Far Debit Interchange As directed by Congress through the Durbin Amendment the Federal Reserve Board (FRB) introduced Regulation II in October 2011 with the intention of adding competition and fairness to debit interchange fees and transaction routing. Institutions with total assets of 10 billion and above had their debit 22 C R E D I T U N I O N B U S I N E S S O C T O B E R 2 0 1 6 C U B U S I N E S S . C O M DEBIT CARDS card interchange revenue capped and had to accept a blended interchange yield drop of over 52 percent. The FRB also included provisions that protected small issuers those with assets of less than 10 billion by excluding them from the interchange rate provisions. Nothing in the final rules however explicitly requires the networks to maintain favorable interchange rates for institutions under the 10 billion in assets threshold. Payment networks had to become more creative in balancing merchant and issuer expectations and profitability. As we are observing today these dynamics are producing an impact that the FRB was trying to avoid negative financial influence for the small issuers who are exempt. All PIN networks with POS capability have introduced the PINless transaction set and most are equipped to introduce signature-based transaction routing options similar to what has been offered by Visa and MasterCard for several decades. The PINless routing schemes are already negatively impacting debit interchange revenues. This trend will only continue to accelerate as competition heats up for each consumer payment transaction. Post Regulation II implementation we have observed notable interchange compression on unregulated issuers. About 18 months after the implementation the blended debit interchange rate was down 13 percent compared to pre-Regulation II levels. Competition for volume in the network arena continues to put downward pressure on debit interchange yields with observed reductions of about five to eight percent when compared year over year. We expect this trend to continue into the foreseeable future and as payment 23 C R E D I T U N I O N B U S I N E S S O C T O B E R 2 0 1 6 C U B U S I N E S S . C O M DEBIT CARDS technology and network strategies continue to evolve they may provoke acceleration. PAVD (PIN Authenticated Visa Debit) As a result of the Durbin Amendment effectively banning network exclusivity and in some cases requiring financial institutions to add another network Visa witnessed reduced PIN POS transaction volumes over its Interlink network. In response Visa decided to leverage an already existing network capability which was primarily used for international transactions to route a PIN transaction over Visa s signature network and introduce that capability to all Visa U.S. merchants. At the same time Visa restructured merchant pricing and introduced the Fixed Acquirer Network Fee (FANF) which incents chain merchants to send more transactions to Visa in order to reduce switch costs incurred by the merchants. This strategy fueled Visa s transaction volume growth to almost pre-Durbin levels and beyond pulling volume from other PIN networks. Network strategies like VISA PAVD VISA FANF and MasterCard s Maestro network requirement continue to evolve with PINless and dual message transactions routed over traditional single message networks. This has only further eroded debit interchange yields for unregulated issuers. PINless In an effort to respond to Visa PAVD and MasterCard Maestro routing requirements other PIN networks introduced the ability to submit low-dollar-value transactions without PIN information. On purchases of less than 50 merchants can choose to obtain just an approval and not require the PIN to be entered and authenticated. PINless was introduced last year in an effort to compete with No Signature Required ( NSR ) transactions from Visa and MasterCard. The merchant rollout was very successful and as a result PIN networks decided to expand the PINless transaction set beyond just Quick Service Restaurants ( QSRs ) to most traditional point-of-sale and e-commerce merchants. 24 C R E D I T U N I O N B U S I N E S S Signature Debit Transaction over PIN Networks Some PIN networks have started routing signature debit transaction sets (dual message) over their network. This essentially means that a merchant who traditionally has the ability to route debit transactions to VISA or MasterCard will have another option when evaluating its cost-based routing options for a signature debit transaction. Participation and support for this transaction set is mandated to all issuers and acquirers. Overdraft Fee Income Nearly concurrent with the regulations that have impacted debit interchange revenue some significant regulatory movement has also taken place in terms of overdraft fee income. Regulation E was modified in 2010 requiring that all financial institutions secure an accountholder opt-in in order to charge an overdraft fee for onetime debit card and ATM courtesy pay transactions. Since the change to Regulation E and courtesy pay transactions the CFPB has been evaluating overdraft practices more holistically encompassing not only debit card and ATM transactions but also checks ACH and other transactions that debit funds from a deposit account. It is widely expected that the CFPB will publish an initial rule for comment sometime in 2016. The CFPB commissioned the Pew Charitable Trust to handle the research aspects of its regulatory review. To date a great deal of the Pew research (such as consumer surveys) has involved customers of large banks and not necessarily members of credit unions. Pew has made three key recommendations for consideration by the CFPB 1. Disclosure Provide consumers with clear comprehensive and uniform pricing information for all available overdraft options. 2. Fees Make overdraft penalty fees reasonable and proportional to the bank s cost in covering the overdraft. 2 0 1 6 C U B U S I N E S S . C O M O C T O B E R DEBIT CARDS TAB 3. Posting Order Prohibit the process of reordering transactions to maximize fees and post deposits and withdrawals in a fully disclosed objective and neutral manner. on this organic growth from cardholder adoption. However we are nearing the top of that growth curve. Optimizing Debit Portfolio Performance With respect to protecting debit interchange income credit unions can consider several measures to mitigate the downward pressure on this revenue source. Observation Issuers need to work to capitalize on current consumer usage trends and the technology influencing where and how they are using their debit cards. Small ticket transactions are on the rise as consumers get more comfortable with using their debit cards instead of cash for small purchases like those at coffee shops and movie theaters. At the same time many networks are expanding the rules around small tickets to include more merchant categories. They are also raising the limit under which a purchase amount requires no cardholder verification thereby offering a speedy checkout and greater convenience. Recommendation Reach out to your cardholders making them aware that they can use their card for these types of purchases. In so doing you can bring in incremental transactions thus driving more revenue. Observation Debit card usage has definitely been on the rise in past years and issuers were able to capitalize Recommendation Take another look at your penetration activation and usage metrics to make sure you are at least on par with the industry. It is possible to outgrow the reduction in interchange from current volume by finding ways to introduce incremental usage. A strong debit card rewards offer one that is backed by relevant merchant-funded rewards will incent your members to use your debit card more often keeping your card top of wallet. Norm Patrick is director of debit consulting for PSCU s Advisors Plus. With over 200 years of combined financial services experience and proprietary analytics Advisors Plus consults on marketing growth campaigns credit cards debit & checking and contact center & operations optimization. Vladimir Jovanovic leads the debit prepaid and ATM product management at PSCU with responsibility for the strategic direction of the company s payment products and services. With over 15 years of payment industry experience Jovanovic is a proven payment strategy leader focused on providing product and services that position PSCU for success. 25 C R E D I T U N I O N U N B U S II N E S S B U S N E S S OOCCTTOOBBEERR 22 00 11 66 C U B U S I N E S S . C O M CEO V ELO C ITY BY SCOTT MCCLYMONDS 5 Ways CUs Can Help Small and Medium-Sized Businesses T Is your credit union capitalizing on the dissatisfaction small and medium-sized businesses tend to display toward banks Seizing such an opportunity and focusing on this often overlooked segment could pay off big time for your CU. These five ways of thinking will help your CU skyrocket its SMB profits and better serve its community oday I m going to break away from my discussion of management systems and focus on a topic I think is of paramount importance to credit unions. That is small and medium-sized businesses (SMBs). Besides being a small business owner myself I know many other small business owners and generally speaking they are largely underserved by and unhappy with their banks. The benefits forward-thinking credit unions can bring to them are valuable and the opportunity for credit unions to help is immense. I feel so strongly about this that I told the crowd of board members and senior managers at the credit union conference I spoke at today that the number one opportunity for credit unions to impact their TURN ON YOUR C-LEVEL 4 CEO withTEAMBUILDER. DEPARTMENT HEADS VELOCITY 26 U N I O N B U S I N E S S www.cubusiness.com teambuilder buy C R E D I T communities is by increasing their focus on SMBs. When you consider that small business job creation directly contributes to the health and wellbeing of your community and its residents developing expertise to help SMBs grow and prosper seems like a natural fit for the credit union mission. Most small business owners I know particularly those early in their entrepreneurial career fall well within the federal government s charter of serving Americans of modest means. From my experience as both a banker and smallbusiness owner I can personally vouch for the fact that SMBs are one of the most overlooked and underserved segments in the banking world. There are three primary reasons for this costly omission 2 0 1 6 C U B U S I N E S S . C O M O C T O B E R CEO VELOCITY TAB Fragmented small business service delivery across the bank or credit union The complex nature of these businesses and their owners and The lack of experience bank or credit union senior management have with small business owners. As a frequent attendee of the ABA Small Business Banking Conference I can see an increasing amount of attention being paid to this segment but it appears to be from the largest banks in the country as well as alternative lenders. To stay competitive more credit unions need to avail themselves of the new technology and practices available to serve SMBs. But let s not just talk about staying competitive. Who wants to stop there We need to be talking about winning prospering in this economy by adding enormous value to our SMB clients. In the increasingly competitive world of financial services credit unions can truly differentiate themselves from their local and national competitors by developing strength in serving SMBs. We can do much better but it starts with our mindsets. In this piece I am going to share with you five ways to generate higher profits with SMBs and the first one is the most important because it deals with the mindset shift. Here s a simple diagram to show you where we re going Let s go through each one 1. You Are in the SMB Client Success Business. This is different from the traditional product vendor approach most financial institutions (FIs) have used for decades. Any FI can sell treasury management but very few have the mindset of helping their clients prosper and grow their businesses. This shift in mindset will dramatically improve your profits. Take it from me as someone who has owned multiple businesses the life of an SMB owner can be very lonely. SMB owners need community but sometimes it can be hard to find. We go to local networking groups like BNI and others but what better place than a community or regional credit union to learn and grow from other clients through workshops guest speakers and innovation groups How else can you help your SMB clients succeed By helping them gain new business Listen you re not there just to lend them money or take their deposits. You have a wide network of important contacts who can either become their clients or refer them business. You should be referring them business as well. Any way you can use your network to help them build their customer base is going to earn you their loyalty. In turn it will greatly help when a competitor tries to woo them away from you. 2. Think Beyond Financial Products. I know you get paid to sell financial products but if you re really going to be in the SMB client success business you ve got to take a comprehensive look at all the services such businesses need and find ways to be part of that action. 27 C R E D I T U N I O N B U S I N E S S O C T O B E R 2 0 1 6 C U B U S I N E S S . C O M CEO VELOCITY Here s a brief look at the types of services SMB owners need Accounting Legal Human Resources Sales Training Website Development and Maintenance Marketing Services Product Development Strategy Development Personal Skills Development Leadership Development IT Consulting and Management Data Management and Analysis issues. There are numerous tools available like Hoovers that can help you achieve this level of industry expertise. If you really want to surprise and impress an SMB owner develop teams of people who can help the owner maximize the sale of his her business minimize his her tax impact and grow his her wealth subsequent to the sale. Millions of Baby Boomers are now or soon will be selling their businesses or passing them on to their heirs. They need exit strategies that will fund their retirement while making sure the business they ve worked so hard to create continues successfully. If achieving this level of expertise seems daunting to you understand that it is happening in the industry already. Bigger banks have been creating specialized business banker positions for years and applicants go through extensive training to certify their expertise. Is it an investment Certainly but consider the alternative of mediocrity. How much will that earn you 4. Be Easy to Do Business With. SMB owners have no patience with hassles and that s how they view you if you re not easy to 28 C R E D I T U N I O N B U S I N E S S O C T O B E R 2 0 1 6 C U B U S I N E S S . C O M This list leaves most SMB owners like myself gasping for breath as we seek best practice providers one by one or try to do these functions ourselves. Why shouldn t we have the opportunity to purchase these services from our FIs and trust that they have vetted the best providers for us On the other hand why wouldn t my financial services provider want to gain the brand strength that comes from partnering with these providers not to mention the additional fee income from revenue sharing Perhaps you are cringing right now as you consider the regulatory and liability implications in these types of deals but I have news for you. These arrangements are being made all the time. You have the CUSO option so put it to good use. 3. Develop Knowledgeable SMB Employees. Most SMB owners want financial service professionals who understand their business and industry who can proactively get them to the right products and who can quickly solve problems. Beyond that SMB owners are pleasantly surprised when their bankers demonstrate familiarity with recent industry and marketplace trends and can point them to best practice experts who can help them with operational legal or tax CEO VELOCITY TAB deal with. Here s a quick and dirty list of what an SMB expects to be able to do with you Open manage and link all their accounts online or via mobile. Fill out loan applications via online or mobile have them pre-filled out and receive loan documents via e-sign and PDF. Get well-informed answers easily and quickly through phone email or social media. Have a go-to number where they can get knowledgeable help immediately. Be able to contact you through any channel and have your employees immediately know the extent of their relationship and specifics about their business. Go to them instead of making them come to you. 5. Let Your Data Guide Your Strategy. In a November 2014 American Banker article a study revealed the reticence of many bank CEOs to make customer analytics a key component of their strategy. As someone who speaks with credit unions on the topic of analytics all over the nation let me assure you that this reluctance to pursue analytics will spell disaster for those who persist. On the other hand credit union CEOs who make member analytics a competitive advantage for their organizations will realize incredible gains in profitability customer loyalty and employee engagement. Sco tt McClymonds an d CEO Velocity help credit unions acquire and retain profitab le mem bers. Using mem ber portfolio management and other advanced strategies CEO Velocity helps you imp rove profits while better servin g the needs of your members and communities. Do you need 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 need 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 need to more effectively reach you r market Email scottm ceo velocity.com to request a free paper on how to find an d close earni ngs gaps in your credit union. I have worked with hundreds of clients on strategic marketing programs over the last 20 years and Scott McClymonds is at the top of the list. I would highly recommend Scott as a resource to anyone looking to improve their performance. - Tim Keith Partner and Chief Strategist Infusion Marketing Group 29 C R E D I T U N I O N U N B U S II N E S S B U S N E S S OOCCTTOOBBEERR 22 00 11 66 C U B U S I N E S S . C O M CEO TAB VELOCITY Here are some keys Understand the traits and characteristics of your high-profit SMBs. Understand not just their industries sales size and number of employees but also how their business is doing how other businesses in their industry are performing the age and ambitions of the owners and their likelihood to buy various financial products. Know which are growing and at what pace. Ask them the tough strategic questions relating to their industry and their company specifically. Refer business to them and in turn ask for referrals from them. Not all high-profit SMBs are equally loyal or visible. Find the invisible ones the forgotten ones and start building relationships with them. Identify the ones that are profitable but underbanked and find ways to serve them with more of your product line. Leverage your understanding of your highprofit SMB members to find businesses in your database with similar characteristics. Use your marketing to build relationships and sales with them and move them into the top member group. Now that you know what to do here are my challenge questions to you 1. How much attention are you paying to the important SMB market What data do you have to validate your answer 2. If you are focused on such businesses are you a product vendor or are you in the business of making them successful Once again validate your answer with facts. 3. Will you really consider providing non-bank products to your SMB clients through third parties or do you view such a notion as some crazy idea Give reasons for your answer. 4. Are your people truly knowledgeable about SMBs What would your SMB members say What are you doing to develop their skills and keep them sharp 5. Are you using your database for more than just CRM purposes Is your analytics team providing your front-line business bankers with the information they need to become more effective Scott McClymonds of CEO Velocity coaching and consulting specializes in helping credit unions acquire and retain profitable members. His focus on leadership systems and analytics helps credit unions stay competitive and relevant while building profitability and brand strength. He can be reached at 479.263.0774 or scottm ceovelocity.com. Challenge Questions These five simple steps will not only make you more profitable but even more importantly they will strengthen your brand and position in your markets. That way you can compete against the money center banks and help strengthen the economies in the communities you serve. 30 C R E D I T U N I O N U N B U S II N E S S B U S N E S S OOCCTTOOBBEERR 22 00 11 66 C U B U S I N E S S . C O M MEMBER BU SI N E S S L ENDING BY CORINNE KALSKY VICE PRESIDENT CREDIT UNIONS NCINO INC 5 Keys to Balancing Growth and Risk in Your Business Loan Portfolio W The current economic climate is ripe with growth opportunities for credit unions but with that opportunity comes greater risk as well. In this respect not all growth paths are equal. These five strategies will help your CU expand its business services program without leaving behind a risky sour taste. ith the economy continuing its long slow recovery from the financial crisis many credit unions now seek growth in their member business lending programs. Like a doublescoop ice cream cone the future of credit union business lending looks tasty indeed. Small businesses in the United States continue to be underserved by the big banks and recent regulatory changes will allow credit unions to compete more effectively for these lucrative relationships. But with expansion comes new and heightened risks. Credit union executives should approach growth in this market with their eyes wide open before taking their licks. Another common path for growth is to go deeper with your current member relationships. Some ways to deepen relationships include reaching out to current personal members who do their business banking elsewhere or educating your current business members on other services your credit union already offers. For instance a member may have taken out a business vehicle loan a year ago but that is the only product she currently has. Ask the business owner some qualifying questions such as Does she have any commercial or investment real estate holdings Does the business need a working capital line of credit or a credit card for discretionary expenses Where does the business maintain its primary operating checking account A third approach is to offer new products and services. Many credit unions get started in business lending by offering only a few isolated services Growth Comes in Several Flavors Today credit unions can approach growth in business lending in several ways. One strategy is to broaden the market by targeting areas already served by the credit union as a whole entering completely new geographic markets where the credit union has no existing branch presence or seeking new industry segments within the institution s existing branch footprint. Regardless targeting a new market takes planning. A good way to start is to commission a third-party market survey to better understand the current competitive landscape within your target market. 31 C R E D I T U N I O N B U S I N E S S O C T O B E R 2 0 1 6 C U B U S I N E S S . C O M MEMBER BUSINESS LENDING TAB commercial mortgages for instance. Long-term success is often predicated on broadening this suite of products to capture a larger share of business relationships. Consider offering additional loan types such as fixedrate vehicle and equipment loans working capital lines of credit and credit cards for short-term financing needs. On the deposit side an operating checking account is absolutely critical to securing a PFI (primary financial institution) relationship. Additional services such as merchant services payroll services and treasury management will also allow you to move up the business size continuum and serve a larger swath of firms within your market. Interest rate risk The Federal Reserve has kept interest rates at historically low levels for years. But the Fed increased rates for the first time since 2008 earlier this year and it s expected to continue on this path as economic conditions continue to improve. The National Credit Union Administration (NCUA) has stated that interest rate risk is the most significant risk the industry faces right now. As rates have risen above record lows many credit unions unrealized gains have swung to unrealized losses. The rise in rates places pressure on credit unions balance sheets particularly with regard to longterm low-rate assets in the investment and loan categories. In the commercial loan category be aware of your interest rate reset dates and the concentration of long-term fixed rate assets you maintain in your portfolio. Risks Increase with Portfolio Growth No matter what approach to expansion you pursue it is important to be aware of the increased risks that accompany rapid growth. These risks include The 1 Solution for Member Business Lending ncino.com 32 C R E D I T U N I O N U N B U S II N E S S B U S N E S S OOCCTTOOBBEERR 22 00 11 66 C U B U S I N E S S . C O M MEMBER BUSINESS LENDING Credit risk As you move aggressively into new markets be wary of unfamiliar industries and economic conditions. If your lending team doesn t fully understand the market the opportunity for taking on less-than-desirable deals will substantially increase. This goes double for participation loans located outside your home market area. As credit unions begin to process a higher volume of loans it becomes deceptively easy to cut corners in underwriting and loan monitoring standards. Concentration risk NCUA defines concentration risk as any single exposure or group of exposures with the potential to produce losses large enough (relative to capital total assets or overall risk level) to threaten a financial institution s health or ability to maintain its core operations. The agency has placed renewed pressure on credit unions to monitor their concentration risk in recent years both within the business loan portfolio and across the entire balance sheet. pay close attention to how portfolios may become skewed toward certain industries loan types terms or geographic concentrations. Good portfolio monitoring and tracking of trends with the help of technology can help mitigate such risks. Compliance Credit unions are subject to greater scrutiny from NCUA and state regulators as lending volumes increase. Upon release of NCUA s recent final MBL rule the agency has moved away from its prior prescriptive guidelines toward a more open-ended principles-based approach. With this change in philosophy NCUA has indicated that business lending examinations will be less boilerplate and more intensely focused than past engagements. NCUA s main goal with the new regulation is for credit unions to use prudent lending standards says Derek Ezovski President of ORMS LLC a financial services risk management firm. The agency is hiring people from the banking side to help with exams including former FDIC staff which indicates they will be taking a more diligent approach to the examination process than in the past. 5 Keys to Managing Risk While Enjoying Your As loan volumes ramp up credit unions must Desserts Cybersecurity Another byproduct of highvolume lending is that often the technology and processes that worked adequately while processing a few hundred thousand dollars in new loan volume per month start to break down at several million dollars in monthly production volume. Higher production often leads to sloppy protection of member and credit union data opening the institution up to enormous financial and reputational risks. Ensure that your technology and data protection protocols are keeping up with your organization s needs. 33 U N I O N B U S I N E S S These risks are significant and they may seem daunting. However with some advance planning they don t need to sour your sweets. Here are five areas to focus on as your credit union seeks to expand its business services program 1. Diversify your portfolio. Growth is a wonderful goal but when concentrated in a single area it can result in undue risk. Think of your personal retirement plan most investment advisors caution against putting all your eggs in a single basket whether stocks or high-yield bonds. The same advice holds true for a business loan portfolio. If it consists primarily of commercial real estate in a single business district you are asking for trouble come the next economic downturn. It is better to reduce concentrations and diversify by geographic area industry and loan types. C R E D I T O C T O B E R 2 0 1 6 C U B U S I N E S S . C O M MEMBER BUSINESS LENDING 2. Develop strong processes and procedures. During the beginning stages it is easy enough to get by with manual processes and simple operating procedures. But as you start adding volume you will need to shore up those processes to avoid missteps declining service levels and compliance blunders. The best time to revise your written procedures is before you enter a heavy growth stage. 3. Hire and train the right people. Building a team of experts is a smart approach to growth. Leading business services programs feature a wide range of specialized skills including credit underwriting loan decisioning business development compliance and administration. But be forewarned these skills are in high demand and it can be difficult for smaller or rural institutions to find and afford high-quality commercial lending professionals in their area. Another option is to develop experts from within the organization through a long-term commitment to training and development of talent. 4. Partner with third parties. Fortunately developing an internal team of experts is not the only option available to credit unions pursuing growth. There are a number of outside organizations including credit union service organizations (CUSOs) consultants and other firms that specialize in helping financial institutions develop strong well-balanced and compliant business services programs. These organizations can help with many aspects from crafting customized lending policies and procedures to assisting with ongoing loan operations such as credit underwriting annual portfolio reviews appraisal reviews and environmental due diligence. The value in bringing in third-party experts to help with your business lending program is that it helps a credit union consider more deals even if you don t have expertise on staff Ezovski says. It expands the pool of projects you can work on and allows you to get more deals done. Let the experts 34 C R E D I T U N I O N B U S I N E S S handle the tasks your internal team will probably never become experts in themselves. 5. Leverage technology. Perhaps the biggest challenge in expanding a business lending program is handling the exponential growth in data that comes along with it. As new deals come on the books they have to be monitored new financials need to be gathered every year and annual reviews must be completed. Yet new cloud-based technology solutions exist today that weren t around 10 or even five years ago. These platforms allow for streamlined end-toend loan processing and secure access for lending staff members and even regulators. Through clear customizable dashboards operational managers senior executives and directors are able to view the portfolio metrics they need for their level of responsibility. All of the ingredients are in place for credit unions to achieve outstanding growth in business services. But growth also injects new risks into the recipe. With some planning and foresight your credit union can take the next step and enjoy the taste of success. 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. 2 0 1 6 C U B U S I N E S S . C O M O C T O B E R MA RK ETI NG MATTERS BY EVE LAMERE Dynamic Inbound Call Tracking An Essential Tool with the Growth of Mobile What if your credit union had a way not only to determine where its inbound call leads were originating from but also to analyze their behavior as they convert into actual sales Dynamic call tracking provides such invaluable insight. See how it can give your CU a competitive edge over the competition. data on inbound callers. This tracking feature helps credit unions optimize their marketing plans by sourcing where leads originate and how they behave as they progress through the conversion funnel. M obile technology has changed the way consumers research products and services. Today s consumers have access to information 24 7 on their smartphones. This constant availability transforms their shopping behavior into a series of micro-moments where they search in smaller doses whenever and wherever they like. Such a dynamic affects all large purchase decisions including those for financial services. Prospective members of credit unions also collect information online repeatedly before taking action. And while the research phase of their journey happens online once they do decide to take action engagement typically begins with a phone call. According to the Center for Media Research in 2015 digital channels drove 92 percent of calls to businesses. That s up from 84 percent in 2014 a reflection of the importance of phone calls in the path to conversion. With smartphone click-to-call technology making an immediate connection so simple it s no wonder calls are becoming the preferred contact method and the predominant generator of leads. That s why many marketers are using a new technology called dynamic call tracking to collect and analyze How Dynamic Call Tracking Works Dynamic call tracking relies on dynamic number insertion which serves a unique telephone number to each website visitor depending on how s he got to the website. Telephone numbers correspond and change based on the specific marketing tactics (such as paid search organic search social media display streaming video mobile and more). TURN ON YOUR MARKETERS MATTERS withTEAMBUILDER. 4 MARKETING www.cubusiness.com teambuilder buy 35 C R E D I T U N I O N B U S I N E S S O C T O B E R 2 0 1 6 C U B U S I N E S S . C O M TAB MARKETING MATTERS In addition to the caller source dynamic call tracking provides a caller s name location if s he is a firsttime caller and even what page s he visited. This information can also be delivered through a whisper message an audible cue for the representative that the caller can t hear. Because information is provided in real time credit union employees answering inbound calls have an excellent tool at hand to improve their sales efforts and drive conversions by anticipating the reason for the call. Therefore they are able to seamlessly discuss benefits or present an informed offer. The tool also records and stores calls so that credit unions and their marketing partners can review them. In so doing they can identify the quality of the lead and whether or not a call led to a sale. This insight gives marketers a better grasp of true conversion performance for each marketing tactic. As a result credit unions are able to optimize their plans and drive acquisition costs down. Implications for Offline Marketing Call tracking technology works for offline advertising too. Unique phone numbers can be generated quickly and cost effectively for use across print OOH and broadcast communications. By placing a unique phone number within different messaging and mediums credit unions can assess the entire spectrum of their marketing plans to determine the most effective mix. Beyond its ability to track inbound leads call tracking AWARENESS ACQUISITION ASSET GROWTH IDEAS THAT INSPIRE ACTION MARKET SHARE We re the financial marketing experts who can help your credit union stand out from the pack attract new members and deepen relationships with existing ones. What defines success for your brand ADVERTISING BRANDING DIGITAL 877 . 730 . 2210 AUSTIN-WILLIAMS.COM AUS493_AW_PR_1675x1203_4C_v4.indd 1 6 15 16 4 53 PM 36 C R E D I T U N I O N U N B U S II N E S S B U S N E S S OOCCTTOOBBEERR 22 00 11 66 C U B U S I N E S S . C O M MARKETING MATTERS TAB can evaluate the content of the call itself. It does this by searching for keywords that are spoken by the caller or representative so credit unions are able to segment leads by product or service area or flag those that indicate a customer service issue. Call tracking technology can also identify the sentiment expressed in the call like an angry tone or frustration which flags the call for further review. Both of these features can be used in training and evaluation of call center agents. A Tool for Competitive Advantage With significant investments in digital marketing driven predominantly by the growth of mobile businesses need to take steps to better measure the impact of their marketing spend. By using dynamic call tracking to analyze and optimize tactical efforts credit unions will have greater knowledge and competitive advantage. In sales knowledge truly is power and lead intelligence that is automatically provided with each call is certainly a powerful tool. 37 C R E D I T U N I O N U N B U S II N E S S B U S N E S S Eva LaMere is president of Austin & Williams an outcomes-driven financial marketing agency headquartered in Hauppauge Long Island N.Y. that provides clients with branding advertising and digital marketing ideas that inspire action. For more information visit austin-williams.com. OOCCTTOOBBEERR 22 00 11 66 C U B U S I N E S S . C O M PAYMENTS BY BILL PRICHARD 5 Ways to Make Your Rewards More Rewarding I Is your credit union s rewards program really providing your members with the experience they desire These five recommendations for upgrading your program will help you give your customers more of what they want. And none of them will break the bank or the CU as the case may be. f you haven t updated your rewards program in a few years (or more) you probably aren t giving or getting the kind of rewards you re hoping for. The recently released 2016 Bond Loyalty Report which surveyed more than 19 000 U.S. and Canadian consumers reveals that people have specific ideas about the rewards experience they want. And they aren t necessarily getting it from the companies they patronize. Although the average consumer belongs to 13.4 rewards programs s he is likely to be active in only 6.7. Andrew Gates CEO of Azigo one of the loyalty solutions providers behind Member Rewards by COOP has some suggestions for credit unions based on some opportunities contained in this year s Bond report. Here are five recommendations to focus on to make your rewards program more rewarding. phones whether that s through a standalone app or an integrated API in your mobile banking app. Worried about the cost We just made our site responsive so that when a credit union links to or adds a rewards button to their app the rewards site functions seamlessly on a mobile device said Gates. We don t charge you anything to do that and the mobile app provider you use won t charge as much as they would to integrate a full API. In other words explore your options. Even if features like in-store redemption aren t in your current lineup they should be in your plans. Paying with points when you re at a merchant location or receiving push notifications for special deals or merchant offers is a focus for CO-OP going into 2017 said Gates. 1. Mobilize. According to Bond 57 percent of members want to engage with rewards programs via their mobile devices. Another 70 percent find the idea of redeeming accumulated rewards instantly in store appealing with 43 percent indicating they d be willing to pay a premium to do so. You have to consider where your customers are interacting today said Gates. They have to have full access to your rewards program through their 38 C R E D I T U N I O N B U S I N E S S O C T O B E R 2 0 1 6 C U B U S I N E S S . C O M PAYMENTS 2. Promote. Bond says that 49 percent of members don t know whether their rewards program has an app. This is the tip of the iceberg. Members also may assume you don t have a debit rewards program or rewards with merchants they already love or relationship rewards for using more than one product. The more you ve improved your program the more urgent it is to let members know. 3. Engage. Members won t love your rewards program if they don t use your rewards program. For some increasing usage means a shift in perspective. Nine out of 10 financial institutions will look at the ROI on their rewards programs by looking at hard ROI instead of the soft ROI of member engagement and happiness with the program said Gates. They think that if only 25 percent of points get redeemed that s a win. That s not a win that s a loss. Need proof According to the Bond report members who redeem are 2.5 times more satisfied than members who don t. By contrast nonredeemers are 2.3 times more likely to defect. All told about one-fifth of any program s members have never made a redemption. with you and surprise them with a reward. No surprise though the Bond report divulges that program satisfaction is 2.7 times higher among members whose program representatives make them feel special and recognized. Personal interaction ups the ante and helps cement the connection between rewards and loyalty. 4. Recognize. In an interesting twist encouraging members to reward themselves by issuing automatic redemptions may actually backfire. Bill Prichard is senior While it sounds great to have 100 percent manager public redemption when you do it without having relations and corporate the member participate or take an active role it communications for COdoesn t have the desired effect said Gates. OP Financial Services Instead consider ways to encourage individual (www.co-opfs.org) a members to redeem. For example said Gates Rancho Cucamonga what if during an interaction with them you asked California-based provider whether they were aware they had a substantial of financial technology number of unredeemed points And even better solutions to credit unions. what if you could offer them a 10 20 or 50 Prichard can be reached at bill.prichard co-opfs.org Amazon gift card right on the spot That s a way and (800) 782-9042 ext. 3450. to recognize them personally for doing business 39 C R E D I T U N I O N B U S I N E S S O C T O B E R 2 0 1 6 C U B U S I N E S S . C O M 5. Personalize. Recognizing your members individual behavior and preferences is a great opportunity to offer person-to-person interaction. But that s just one facet of offering a personalized rewards program. Using data to uncover member behavior and preferences then looking for ways to promote the program elements and rewards your individual members might like best is a sure way to boost awareness participation engagement and satisfaction. In fact Bond reports that satisfaction is eight times higher for programs with high levels of personalization. Upgrading your rewards program requires both effort and resources. But it doesn t have to be costly. Structured properly even a generous rewards program doesn t have to be a loss leader said Gates. Depending on the robustness of your merchant-funded program it can be low cost or even revenue generating. BUSI NES S TRENDS BY DWAYNE SPRADLIN BUZZ POINTS CEO The Four Pillars of a Successful Rewards Program When it comes to loyalty programs is your credit union in the minority of those that are actively used or the majority of those that are not If your CU falls into the latter category you may be investing a lot of time and money without much payoff. These four guidelines will help turn your rewards program around. ccording to the 2015 Colloquy Customer Loyalty Census 1 the average American household maintains memberships in 29 loyalty programs. However the average American household is active in only 12 of those 29 programs. Businesses managing those 17 inactive programs lose time and money to keep them running but every program should be increasing customer loyalty and generating revenue. In fact successful rewards programs can drive increased purchasing behavior since current customers spend 33 percent more than new customers on average.2 Banking rewards are no different. Eighty-eight percent of consumers deem rewards availability to be a top priority when choosing a financial institution 3 and nearly two-thirds of customers are willing to A increase wallet share to participate in a banking rewards program.4 At the same time fewer than one in five customers reports receiving rewards for their debit transactions 5 and fewer than half of all financial institutions currently offer debit rewards programs.6 As major financial institutions have curtailed their debit rewards offerings in recent years 7 the time is ripe for credit unions to seize the opportunity by building a loyalty program that stands out. More organizations are offering banking rewards than ever before from fintech startups to core providers and everyone in between. But when selecting partners credit union leaders need to evaluate solutions that align with their service-oriented traditions and bring value to members and stakeholders throughout their communities. Credit unions can use this guide to ensure their loyalty programs remain profitable while rewarding their members and the broader communities they serve. Maximizing the Customer Experience Despite new technology and non-traditional banks challenging existing banking models credit unions have always held onto one unique advantage superior customer service. Before implementing any rewards program CUs should evaluate and identify solutions that put the member first. Credit unions understand 40 C R E D I T U N I O N B U S I N E S S O C T O B E R 2 0 1 6 C U B U S I N E S S . C O M BUSINESS TRENDS TAB their members and communities more intimately than larger institutions so their loyalty programs should match the personalized service and knowledge offered in-branch. Today s consumers crave instant gratification so friction-free experiences that are unencumbered by challenging or hidden requirements are essential. To reduce friction Make it easy for users to access and track their rewards progress from any device. Ensure points are accrued quickly or in realtime so users aren t waiting to receive and or use rewards. Eliminate fine print conditions exclusions and exceptions that frustrate and confuse users. information with users about additional ways to save. Because rewards platforms track and analyze consumer purchases and behavior the same platforms can leverage that data to deliver discounts or special offers at relevant merchant locations. This delivery leads to increased usage for credit unions and revenue for merchants. Gamification can further enhance the member experience. Beyond instantly gratifying members these consumer-centric game concepts can increase program adoption for credit unions. To generate valuable and enjoyable experiences credit unions shouldn t send consumers down the proverbial rabbit hole. Game odds should be in users favor and success must be attainable. Discounts to big-box chain retailers are commonplace. Rewards that aren t tailored by location behavior or preference frequently fail to foster loyalty. That is because they don t offer unique or meaningful value to members. In addition to tracking purchasing behavior rewards platforms can help credit unions use that data to identify their most profitable members. In turn they can suggest customized product or service rewards that are aligned with members interests. Leveraging this data enables credit unions to offer more targeted rewards leading to more loyal member relationships. Offering these custom local rewards at communityrun businesses makes it easy for consumers to support their local communities. Credit unions are primed to 41 Providing Rewards Consumers Crave Without these features consumers will abandon the program and credit unions will find their program languishing. Additionally an effective loyalty program can become a trusted resource that offers more than just rewards points. Modern consumers have the power to consult a myriad of sources before making purchasing decisions but they d prefer their information and options to be consolidated whenever possible. Today more than half of all consumers expect their financial institutions to locate discounts for them 8 and consumers would rather receive discount notifications than financial advice from their financial institution.9 To provide value beyond the typical loyalty offerings rewards programs can proactively share C R E D I T U N I O N U N B U S II N E S S B U S N E S S OOCCTTOOBBEERR 22 00 11 66 C U B U S I N E S S . C O M BUSINESS TRENDS TAB capitalize on the Bank local buy local movement which consumers fully support. Indeed 78 percent of consumers believe it s important to bank locally.10 Perhaps more importantly a rewards program that provides extra rewards for shopping locally can bolster both consumer and merchant involvement in a community. Credit unions can use this involvement to open dialogues with local merchants who could become business banking members. Non-monetary rewards can also satisfy members while yielding significant benefits for credit unions. For instance drawing on their unique understanding of community values credit unions can allow members to convert rewards into charitable donations or other philanthropic endeavors. Adding these personal touches empowers members builds goodwill within the community and boosts platform adoption and engagement. Credit unions can also institute rewards to encourage specific behaviors in support of different business units. Offering rewards for receiving e-statements can save credit unions resources and increasing rewards for activating other credit union products or services (like applying for an auto loan) can support and incentivize cross-sell efforts to engaged members. When members receive discounts for everyday banking behaviors or new behaviors that support credit unions everyone wins. As a corollary credit unions should avoid member disqualifications non-redemptions and expiration dates that creep into the fine print and frustrate members down the line. Airlines and travel organizations are some of the worst offenders in this regard implementing blackout dates and requiring tens of thousands of points to purchase itineraries. In the end the value of the rewards available should align with the level of engagement and investment required to acquire them. Credit unions can encourage redemption and reap rewards program benefits by selecting solutions that don t rely on breakage to be profitable. Unfortunately some programs bank on this breakage where consumers accumulate but do not redeem rewards to demonstrate profit. Such behavior cheats customers and risks tarnishing the brand by lowering customer service standards and creating a disappointing experience. In lieu of breakage-reliant options credit unions should seek out rewards programs that take on the program s point liability. Many next-generation rewards solutions keep point liability on their books creating a win-win situation in which credit unions can incentivize redemption and members can benefit from the rewards they earn. Marketing to Your Advantage Making Your Rewards Accessible The most successful rewards programs actively encourage more redemption. To that effect credit unions should make it easy to redeem rewards on their platform instantly. Consumers are gravitating toward brands that satisfy their needs as quickly as possible. Brands that provide digital notifications about redeemable rewards as soon as customers enter their locations have seen and will continue to see greater success and engagement than those that offer customers delayed rewards redemption. 42 C R E D I T U N I O N U N B U S II N E S S B U S N E S S Members want and expect to be contacted by their loyalty programs with relevant value-adds. The most successful rewards programs require real-time customized omni-channel engagement marketing techniques to generate member interest and activity. For instance reward notifications activated by geographic or time-sensitive cues can remind and present members with offers they desire at the point of need. This timely delivery differentiates such reward structures from other traditional programs. Credit unions often face difficulty in allocating the resources necessary to support a dedicated marketing or member engagement team that is capable of OOCCTTOOBBEERR 22 00 11 66 C U B U S I N E S S . C O M THEY SAY... TIME is We give you more of both. Cummins Allison branch automation technologies have helped thousands of FIs become more efficient. Our reliable cash coin check and ATM solutions move low-value deposit and cash handling transactions away from your tellers reducing operating costs and improving staff performance. Your branches are more productive and profitable and your customers get a better experience. Simple yet effective branch automation technologies from Cummins Allison add to your bottom line and allow your staff to focus on what matters most more meaningful engagement with customers. MONEY. cumminsallison.com automation GET MORE AT BUSINESS TRENDS executing engaging strategies. Whether or not they rely on an internal team or an external solutions provider for execution credit unions implementing rewards programs need to fully support the program with integrated marketing and member engagement strategies. In surveying other rewards solutions 80 percent of highly effective loyalty programs maintain dedicated teams.11 Therefore credit unions shouldn t cut corners or limit internal support to operate their programs. Without that support the rewards program isn t worth the investment. 1 U.S. Customer Loyalty Program Memberships Top 3 Billion For First Time 2015 COLLOQUY Census Shows. (2015 February 9). Retrieved April 19 2016 from https www.colloquy.com latestnews 2015-colloquy-loyalty-census 6 Rules for Building a Customer-First Company. (2015 March 25). Retrieved April 19 2016 from http www.inc.com youngentrepreneur-council 6-rules-for-buildin g-a-customer-firstcompany.html Chaudhuri S. (2014 August 8). Consumers Say More Rewards Is Their Top Demand from Banks. Retrieved April 19 2016 from http www.wsj.com articles consumers-say-more-rewards-is-their-topdemand-from-banks-1407522160 Global consumer banking survey 2014 Winning through customer experience. (n.d.). Retrieved April 19 2016 from http www.ey.com GL en Industries Financial-Services Banking---Capital-Markets Global-consumer-banking-survey-2014 Consumer payment preferences Debit spotlight. (2013 February 1). Retrieved April 19 2016 from https www.pulsenetwork.com pulse documents index serveDoc.html doc Oliver_Wyman_Consumer_ Payment_Preferences_V2_07-17-2013 Debit Cards Continue to Show Resilience after Turbulent Year. (2014 June 24). Retrieved April 19 2016 from https www.pulsenetwork. com pulse documents index serveDoc. html doc DIS_ News_ Release_FINAL_6-19-14 Orem T. (2016 January 22). Credit Unions Revive Debit Rewards. Retrieved April 19 2016 from http www.cutimes.com 2016 01 22 credit-unions-re- vive-debit-rewards slreturn 1460739226 North America Consumer Digital Banking Survey 2015. (n.d.). Retrieved April 19 2016 from https www.accenture.com us-en insight-consumer-banking-survey.aspx IBID. 2 3 4 With consumer demand for rewards on the rise and with banks and merchants themselves managing loyalty programs credit unions can t afford to go without rewards offerings. Among other benefits rewards programs increase member transaction volume and give CUs the power to leverage data to better understand and market to their existing member base. Given that it s roughly five to 10 times more expensive for businesses to acquire a new customer (when compared to selling to an existing one) 12 a welldesigned rewards program that prioritizes the member experience can be an essential part of any credit union s business plan. Dwayne Spradlin serves as CEO of Buzz Points which drives revenue and retention through localized rewards programs and data-driven marketing solutions for credit unions. He holds an MBA from the University of Chicago as well as a BA in Applied Mathematics. Making Rewards Work for You 5 6 7 8 9 10 Consumer Banking Research 2015. (n.d.). Retrieved April 19 2016 from https www.kasasa.com home consumer-banking-research. html 11 Successful Loyalty Through Analytics. (2015 August 1). Retrieved April 19 2016 from http www.sas.com en_us offers 14q3 nextgeneration-loyalty-programs.html 12 7 Customer Loyalty Programs That Actually Add Value. (2015 July 1). Retrieved April 19 2016 from http blog.hubspot.com blog tabid 6307 bid 31990 7-Customer-Loyalty-Programs-ThatActually-Add-Value.aspx 44 C R E D I T U N I O N B U S I N E S S O C T O B E R 2 0 1 6 C U B U S I N E S S . C O M L ENDING SOLU TIO NS BY HULSTRAND Lender Due Diligence Why the Interview Is Critically Important How smart are your credit union s lending practices If your CU isn t digging below the surface on its loan applications you could end up with defaults on your hands. This close examination of a credit report and score illustrates why the applicant interview is such an integral part of the loan approval process. Application Basics 27 years old Income 4 900 month ( 58 800 annual) Applying for 33 900 for a 2014 Nissan Frontier NADA Retail 26 000 so LTV is 130 percent 613 credit score O ne of the services consumer lending advisor Lending Solutions Consulting Inc. offers credit unions is Smart Loan Audit. What LSCI does is look at a percentage of a credit union s loan portfolio (usually 10 percent) and audit the application and underwriting processes. We use a traffic light approach to evaluate each loan explains Bill Hultstrand. Green means good to go yellow means use caution and red means stop you should not have made this loan . For this month s Lending Solutions article Credit Union BUSINESS continues a series begun last month and shares a recent example of a loan LCSI audited for one of its clients. This particular application looked pretty good to the corporation on the surface but when LCSI dug deeper it found some glaring warning signs. Other Factors The loan payment is double and the loan amount is triple his previous loan. His unsecured debt is at 31.7 percent. Financed 130 percent LTV Took on a lot of negative equity Credit Report and Score Codes Below are portions of the member s credit report with sensitive data redacted. Take special note of the score codes. 45 C R E D I T U N I O N B U S I N E S S O C T O B E R 2 0 1 6 C U B U S I N E S S . C O M LENDING SOLUTIONS As you may probably know the credit score is followed by four score codes that indicate how the member can improve his credit score. The first code carries the most weight and has the biggest impact on the credit score. It is important to understand the meaning of the score codes to determine the overall direction of the score. In this particular case the codes were 10 14 30 and 13. 10 indicates that the proportion of balances to credit limits is too high on bank revolving or other revolving accounts. 14 indicates the length of time accounts have been established. 30 reflects that the time since the most recent account opening is too short. 13 reflects that the time since delinquency is too recent or unknown. In LCSI s experience when you see Code 10 in that first spot it s usually a sign that things are heading in the wrong direction. Especially when you combine that notation with the next two codes which indicate that this member s debt is accumulating in a rather short amount of time. When you look at the whole picture it s pretty clear that the member s score is trending down and his risk for future default is trending up. Let s take a look further down in the credit report. You ll notice that the member has a high level of unsecured debt and it continues to escalate. It s also worth noting that his new loan request is triple that of his previous auto loan which was with another credit union. These are substantial increases to his monthly obligations without any major increase to his income. HYLS Model As part of LCSI s overall analysis the corporation always runs these loans through its proprietary HYLS (High Yield Lending Strategy) model. The automated online guide works by capturing a more intimate and in-depth snapshot of the Credit Union to Member relationship which is not shown in a traditional credit 46 C R E D I T U N I O N B U S I N E S S score. By simply asking a series of questions about a member s finances HYLS has been proven to more accurately reflect that individual s ability to repay. By design the guide is easy to use and provides instant feedback on loans. As a result it allows lenders to build more loans with greater confidence. Although HYLS doesn t definitively tell you whether to make the loan or not it does provide the following benefits Requires lenders to get the facts with an in-depth interview and thorough application. Helps identify missed warning signs and shows positive factors on which lenders can build a loan further. When LCSI ran this particular application through O C T O B E R 2 0 1 6 C U B U S I N E S S . C O M LENDING SOLUTIONS TAB HYLS it indicated a very high amount of negative factor points compared to positive points. HYLS certainly shows that there is a great deal of evidence the applicant s score is trending down. Here is the redacted HYLS screenshot for this application HYLS indicates that this applicant is likely headed toward financial trouble. In particular it shows that he is living on inflated income and his debt level continues to escalate. is escalating what the member s future plans are and what his capacity is for repayment. The credit report will only tell you so much. It s up to the loan officer to find out the rest of the story. Bill Hultstrand has worked in the credit union industry for 20 years. As director of business development for Lending Solutions Consulting he specializes in helping credit unions to enhance their marketing efforts both internally and externally to reach more of the underserved. He holds degrees in business administration and marketing from Judson University 47 Conclusion In its audit LCSI gave this loan a yellow light to use extreme caution for the following reasons Escalating debt High loan-to-value and lots of negative equity Score trending down This is the type of application where the interview is critically important. If you re going to make the loan your loan officer needs to dig deep and really get to know the member s situation. Find out why the debt C R E D I T U N I O N U N B U S II N E S S B U S N E S S OOCCTTOOBBEERR 22 00 11 66 C U B U S I N E S S . C O M Don t let this valuable offer pass you by. Jump on the CU BUSINESS Express to help your credit union GROW for your members employees and community. 1. Each member gets CU Business monthly eMagazines. 2. Individual articles are emailed to each member by job title. 3. Bonus New members also receive last 12 articles CFO Currency Lending Solutions Marketing Matters Branch BUSINESS etc...) 4. Each member has full access to CUB website and its 65 issue library. Sign Up Your Entire Crew for Team Builder Click Here To Register Your Crew A U G U S T 2 0THE 6 1 ONLY ALL-DIGITAL ALL-BUSINESSSRESOURCE FOR .CREDIT M C U B U I N E S S C O UNIONS