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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 CUSOS ISSUE CREDIT UNION MONEY BALL BY MIKE HIGGINS JULY 2017 VOLUME 12 ISSUE 7 ABOUT US THE ONLY ALL-DIGITAL ALL-BUSINESS RESOURCE FOR CREDIT UNIONS PUBLISHING TEAM Tim O Hara Editor & Publisher tim Patti Manzone Designer UP FRONT Tim O Hara IN BRANCH PRODUCT SALES Nick Brown AT C LEVEL Marc A. Bringman TECHNOLOGY UPDATE Ivan Seselj BRANCH STRATEGIES Meredith Deen EXECUTIVE COMPENSATION Koker Nelson Gregoire Higgins CU ADVERTISING Jody Fisher STRATEGIC PLANNING Eric Gagliano CU TECHNOLOGY Ben Morales COMPLIANCE UPDATE Cindy Williams CFO CURRENCY Stacey Wilkerson 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 register. TEAMBUILDER https the-teambuilder SALES AND ADVERTISING Tim O Hara Publisher tim 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 2 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 7 C U B U S I N E S S . C O M Ashok Kumar Associate Publisher ashok THE O NLY A LL- DIG ITA L A LL- BU SINESS RESO U RCE F O R CREDIT U NIO NS THE CUSOS ISSUE CREDIT UNION MONEY BALL BY MIKE HIGGINS JULY 2017 VOLUME 12 ISSUE 7 TABLE OF CONTENTS JULY 2017 VOLUME 12 ISSUE 7 TAB THE ONLY ALL-DIGITAL ALL-BUSINESS RESOURCE FOR CREDIT UNIONS What does a 75 subscription buy High Quality monthly magazine. Website with 72 back issues 700 articles available On Demand 6 8 12 16 18 20 UP FRONT Executive Comp-Think Money Ball Tim O Hara IN BRANCH PRODUCT SALES 23 26 32 36 38 CU ADVERTISING Making Dreams Come True Jody Fisher The Story of a Credit Union a Soup Kitchen and a Commercial STRATEGIC PLANNING Eric Gagliano Expanding and Deepening Member Relationships through Cross-selling and Upselling Nick Brown AT C LEVEL Planning for your Strategic Planning Session CU TECHNOLOGY The Company Killers Marc A. Bringman TECHNOLOGY UPDATE Ivan Seselj What Makes Millennial Employees Tick BRANCH STRATEGIES QCash Financial Provider of Small-Dollar Lending technology Ben Morales COMPLIANCE UPDATE Technology Feature Plan the Work Work the Plan Meredith Deen Garbage In Garbage Out Cindy Williams How Technology Can Help Credit Unions Improve the Onboarding Process EXECUTIVE COMPENSATION Credit Union Examiners Insist on Data Validation Audits CFO CURRENCY Stacey Wilkerson Executive Compensation Let s Talk Member Impact Allocating Your Credit Union s Capital Clinton Koker Koker Nelson Gregoire & Co Jerry Nelson Koker Nelson Gregoire & Co John Gregoire Koker Nelson Gregoire & Co Mike Higgins Mike Higgins Associates 5 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 7 C U B U S I N E S S . C O M UP FRO NT BY TIM O HARA T Executive Comp Think Money Ball hink Money Ball ... for credit unions. For years credit unions have measured success using a balanced set of indicators. Return on assets (ROA) capital to assets (net worth) asset growth and operating expenses to average assets have been the sweet spot of performance indicators. The goals and compensation drivers for many CEOs are based on these metrics. In this edition of CU Business Magazine we will unveil an alternative set of performance metrics against which CEOs should be measured and compensated. They won t violate the fundamentals of sound business and financial management but will rely on quantifiable metrics found in every call report. However we will provide a new memberfocused perspective for your consideration. You won t want to miss the article on page 20. The partners of KNG along with Mike Higgins will provide information that should become must read in all credit union board rooms. Building off Higgins Filene research papers Improving Peer Group Analysis for Credit Unions and Credit Union Strategic Growth and Budgeting it will provide the key indicators of Member Value found by a unique assessment of performance. They call it a great look forward by looking back. The premise in looking back is based on the why behind this incredible concept called credit unions. When founded all credit union charter members had a vision. It is unlikely that their vision was Someday we will be a CAMEL 1 and have 15 percent capital. It was based on providing for the financial needs of their friends and peers and doing it in a financially prudent manner. We all think you ll be impressed with this Money Ball concept. Thanks for reading Tim 6 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 7 C U B U S I N E S S . C O M IN BRA NC H PRODU C T S A L E S BY NICK BROWN Expanding and Deepening Member Relationships through Cross-selling and Upselling I If you think the difference between cross-selling and upselling is merely a matter of semantics you could very well be undermining your full sales potential. Learn how to apply the extremely successful fast food approach to cross-sales and upsells to witness major results in the credit union industry. f you can t tell the difference between a cross-sell and an upsell you aren t alone. For many salespeople it can be confusing. Many might even ask Why does it even matter as long as I talk to the member about the products and make a few sales The answer is because to be successful at both cross-selling and upselling you need to understand the difference and how to effectively approach each sales situation. When learning about cross-selling and upselling we often think of the fast food industry and rightly so. They do it extremely well. A combination of the two is a major factor that has made the fast food industry so successful. Well that and the addictive nature of empty carbs and trans fat of course. But ask yourself When have you been in a fast food restaurant and not heard something like Would you like to supersize that or Would you like fries with that The approach works so well that we spend the extra 2 and ask for the fries ourselves the next time we go in. Why Because we are satisfied with the product we received and how those fries made us feel. So how can we capture those same results in the credit union industry and serve our members needs better How can we ask for those cross-sells and up8 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 7 C U B U S I N E S S . C O M sells that will increase both our members loyalty and the value we provide to them It starts by first understanding your products and services. Your credit union essentially offers two categories of products and service. I know what you are thinking We offer a lot more than two.... We have savings and checking and loans and online servicer and so much more. Yes if this is what you thought you d be right but all of these products and services can be listed in two categories Core and Ancillary. Let me explain a little more. TURN ON YOUR TRAINERS 4 CU withTEAMBUILDER. TRAINING teambuilder buy IN BRANCH PRODUCT SALES Core vs. Ancillary Products and Services So why is it important to first recognize these two product and service categories and then understand the difference It s because they serve two completely different roles for both your membership and your credit union. Core products and services are those you traditionally think of when asked to name what your credit union offers. These are the Standalone products your members can open when they establish membership. They are the core of your business and the foundations for which much of your credit union s revenue is generated. Products and services that are categorized as core would be savings accounts checking accounts credit cards auto loans mortgage loans and so forth. Basically if your member can have the product without the need for any other product it should be considered a core product or service. Core products and services expand member relationships. They empower the credit union to serve more of its membership s financial needs wants and 9 C R E D I T U N I O N B U S I N E S S dreams. The more core products and services your member has with your credit union the greater the share of wallet your credit union owns. In the quest to establish the coveted primary financial relationship with your members core products and services are the key. Ancillary products and services on the other hand are those which complement the core products and services. In fact your members cannot open an ancillary product without a core. They are Dependent but are typically the catalyst that drives activity and profitability for your credit union. They make the core work and you could say give them life. Products and services categorized as Ancillary would be online and mobile services debit cards checks GAP payment protection overdraft protection and automatic payment just to name a few. Ancillary products and services complement the core products and deepen the member relationship. In fact the word core suggests that without the associated ancillary products and services the core product J U L Y 2 0 1 7 C U B U S I N E S S . C O M IN BRANCH PRODUCT SALES For your credit union to be consistent and effective at expanding the member relationship capturing a greater share of your members wallet and pursuing primary financial relationships with each member you must train and coach employees to cross-sell. Upselling is empty and nothing more than a shell. For example how effective and profitable is it for a member to have a checking account without a debit card online services overdraft protection checks and direct deposit With an understanding of these two product categories let s now look at how they are sold. Cross-selling When credit union employees offer members additional core products and services they are cross-selling. This sales process actually takes a greater amount of salesmanship and strategy on the part of your sales team to be consistent and successful. Credit unions that are successful at capturing more cross-sells do a few things very well. They train and coach their employees to 1. Ask great questions. Great questions asked at the right time in the sales process uncover information and insights into the member s financial needs goals and motivation for buying decisions. 2. See the opportunity as it is uncovered and associate the product s features and benefits to the specific advantages that doing business with your credit union would give to the member. 3. Focus on capturing small commitments from the member to move him or her from one step in the sales process to the next rather than prematurely asking for the business. 10 C R E D I T U N I O N B U S I N E S S Cross-selling alone is rather fruitless. As already discussed cross-selling solo will produce a high penetration of core products and services but none of the ancillaries that drive adoption continued usage and revenue for your credit union. When a product has been crosssold it is now time to upsell ancillary products and services. Upselling always entails the sale of ancillary products and services. It s like being asked at the fast food restaurant if you d like to supersize that value meal. Your employees should also be asking if they can supersize that auto loan with GAP warranty and payment protection and if they can package that checking account with three levels of overdraft protection. Credit unions that do an excellent job at upselling train and coach their employees to 1. Know all of the ancillary products and services their credit union offers and which cores they are associated with. 2. Quickly assess the core products and services the member has or is opening and identify which ancillary products and services need to be sold. 3. Engage a member in a quick sales discussion to align the features and benefits of the ancillary J U L Y 2 0 1 7 C U B U S I N E S S . C O M IN BRANCH PRODUCT SALES product and to help the member see the advantage of adding that product to his or her account. To drive product penetration and deepen the relationship with your members teach employees the process of upselling ancillary products and services. Credit union sales is not something that just falls into place for most salespeople. It isn t just offering the products and services the member is asking for and mentioning a few others. Rather it is a strategic approach that encompasses the process of cross-selling and upselling. Used hand in hand this approach drives product penetration by expanding the member relationship to capture the full share of wallet through cross-selling. It then deepens that relationship with the products and services that drive adoption and profitability through upselling. Nick Brown Consulting established and founded by Nick Brown in 2015 is a credit union specific sales training group dedicated to bringing a proactive sales approach to every credit union. Nick Brown Consulting accomplishes this aim by providing sales consulting and training to enhance branch sales outbound sales and lending center sales. With an emphasis on lending and cross-sales Nick s goal is empowering credit unions to add value in the life of every member in every interaction. Engage Nick Brown directly at 801-860-5807 or nick Ask about his credit union specific workshops and online sales training featured at www.nickbrownconsulting. com. 11 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 7 C U B U S I N E S S . C O M AT C LEVEL BY MARC A. BRINGMAN The Company Killers H When an ousted CEO is invited back to address the corporate decline since his departure he poses a straight-to-the-point challenge to his attentive audience. Enjoining them to help him slay the company killers that have brought the company down he introduces a new way of thinking extends a promise of commitment and redefines the concept of teamwork in the process. ector approached the podium with mixed emotions. He had made the trip many times before but that was four years ago before he had retired from the top job in the same company he was about to address. As he drew near the platform he recalled past days when he had stood on the same stage and bragged about the company and its employees. They had enjoyed success for many years until a squabble with several new board members had resulted in Hector s ouster. Leaving the company hadn t bothered him all that much but watching the new board members form a coalition management team that made one mistake after another filled him with sorrow. Saddest of all was one increasingly obvious fact The new team didn t seem to learn from its mistakes. The company s decline had become apparent two years after Hector s departure and by the end of year three the struggling company had begun implementing routine cost cutting and downsizing measures. By year four the newly transformed lean machine had proven itself to be a big loser. That s when the board panicked. The result The newly re-organized board had approached Hector to return for a short period to right the ship. Hector had agreed not because he wanted to but because he simply could not stand the idea of his baby failing. He also didn t like the bad reputation that today s CEOs had earned in part but didn t deserve in general. 12 C R E D I T U N I O N B U S I N E S S The excited applause interrupted his thoughts and he looked out into the audience through his thin-rimmed glasses. Nestled among many new faces several familiar mugs smiled back at him. He returned the smiles and waved to the entire team. At the podium he stood silently and continued smiling at the assembled group. The applause quickly died down. And he began speaking. I suppose you re expecting a miracle aren t you Laughter ripped through the crowd. Well you re not going to get one from me. Know why he asked rhetorically. He paused for several seconds while staring at the group. His brown eyes turned black with anger. We ve lost our soul my friends. We ve abandoned what made us successful J U L Y 2 0 1 7 C U B U S I N E S S . C O M AT C LEVEL TAB and have fallen prey to what I call company killers. Again he paused this time for effect. It was clear he had the group s attention. Hector wasn t sure why. Perhaps it was his delivery or perhaps simple desperation but whatever the case he liked the result. I ll tell you what I m going to do I m going to remove the company killers. A few people applauded most didn t understand the point. Since I can t go it alone I invite you to join me in slaying these dragons. But to do that my friends you have to know what these things are. He paused and looked several audience members directly in the eyes before continuing From now on anytime you see these things immediately excise them from our company. That is our assignment your assignment and if you do this I promise you that we will be successful once again. Fail however Hector looked directly at several folks and nothing will dig us out of this hole nothing You see folks this is a self-inflicted wound and only the people in this room can heal it. Remember this Our products are sound our tactics are not. into his mouth and unfocused his eyes. Silence filled the room as he considered his words. Then he slowly withdrew his glasses from his lips and grabbed the podium with one hand while dangling the glasses over the front corner. He began again. Where is your team When I asked this question two days ago I was told that the company was a team. No such thing. I suggest we define that term before we try to create any more for them. We ll have to do this because we will have to be better than the sum of our parts. Hector glared at the group locking eyes one at a time with four different people. What kind of recognition programs do you have Are you recognizing accomplishment or are you rewarding the last person who did you a favor Communicate Goals Now let me ask you this Where are your goals Do you have a set of company goals How about personal goals If you don t have goals how on earth do you know where you re going How will you tell when you get there Some team members giggled nervously. Hector met them with a stern look. The absence of goals will kill our company your team and yes you too. Hector didn t realize he was tapping emphasis with his index finger but when he stopped it served well to signal the next point. For a moment his face and voice softened. The process has already begun. I am communicating and we will communicate through this entire process and beyond. We must understand each other. Communication is the foundation of respect. I sense we are afraid to talk to smile to even look at each other. Therefore whatever respect we have is brittle. And nothing of substance can be built on a brittle foundation. So we will talk and we will understand. We will rebuild that foundation so we can return joy to the workplace and most importantly we will once again enjoy the benefits of common respect. Commitment To succeed my friends we and yes that includes senior leadership need commitment. All of us need to be involved and no one will escape the problem. Here Hector stopped looked at one of the top managers and asked Are you committed Again he paused. He removed his glasses. As if by force of habit he placed the top of the glasses temple 13 C R E D I T U N I O N B U S II N E S S B U S N E S S Always fall forward You will participate in this process. It will be a partnership. We will define our tasks assess the risk set our milestones and achieve our goals. If we blow it we ll find out why and fix it. When we fail by the four winds we will fall forward On our faces perhaps but forward. Hector dropped his glasses on the podium walked to the center of the stage and looked at the crowd. J J UU LLYY 22 00 11 77 C U B U S I N E S S . C O M AT C LEVEL Always fall forward he whispered to a silent audience. Always move forward but not without direction and the support mechanisms in place. We will not force things from top down. Instead we will visibly support our efforts practice what we preach design roles and set reasonable milestones being careful not to overwhelm the people doing the work. Dream Here s the catch my friends I m putting all of you in the boat with me and perhaps then you won t be poking any more holes in the bottom. Hector stopped looked at the black ceiling took a deep breath and then placed an unfocused gaze on the crowd. At that instant he seemed very sad. His face showed pain as though he was recalling some painful experience from his past. He began again I look around and I see no dreams. Don t believe me Look around yourself. See any dreams I don t. In a company that dreams you see the evidence of those dreams everywhere small groups excitedly discussing new ideas problems and products. You see pride of ownership pride of workmanship and pride of association. Again he locked eyes with another audience member. You see he said now pointing a tan index finger to the side of his head. When you are aware in here you know where you are and what you are doing. Imagine everyone in this company making the right decision at the right time. Well it s possible. Hector reached under the podium for a bottle of water. He cracked the top and swallowed twice. As he put the bottle back he continued. There s an old story about a man watching three stone masons each one chipping on identical stones. Each appeared to be in different stages of development but carving the exact same figure. He asked the first stonecutter What are you doing I m chipping a stone sir the mason replied. Then he turned to the second sculptor. And what are you doing my man 14 C R E D I T U N I O N B U S I N E S S I m sculpting a gargoyle the second stonecutter answered with a glib grin. Finally he turned and tapped the shoulder of the last man who was hard at work and hadn t noticed the conversations. Pray tell my friend what work are you doing The third mason stood up and pointed to his creation. I m building a cathedral. Is it not beautiful he asked expecting the man to be able to see his small statue perched high atop one of the grand cathedral s spires. If we too can see the cathedral we can build a future Hector remonstrated his audience. He moved the glasses to the other hand and placed them on the podium. He peered into the depth of the audience. You can do this. You can do this because I m telling you that you can. I ll bet until now you haven t been told you can do it. We have the ability the means and the time to do this. Believe me Hector didn t wait for an answer. Probably not we ve broken your trust. He paused. I will not entertain you by asking you to trust me but I will ask you to do one thing Watch and observe. Let the deeds win your trust. Then follow. Then lead. I ll see you Monday and we ll begin. At that he just walked away across the stage spinning his spectacles in his right hand. The applause started late but by the time he exited the auditorium the entire group was standing and screaming accolades. Hector was glad to hear the sounds of approval but he wondered if the applause was the determined noise of commitment or the desperate clap of hope. Success he knew depended on the former. Marc A. Bringman was the editor of Credit Union BUSINESS and the author of Swapping Lies Deception in the Workplace. J U L Y 2 0 1 7 C U B U S I N E S S . C O M THEY SAY... GOOD THING. We make it great. Cummins Allison self-service coin counters can transform the way your branch manages coin. Customers enjoy a quiet convenient and easy-to-use coin-redemption experience while you see tangible bottom-line benefits. With multiple machine choices and hands-free coin-management programs your staff can spend more time interacting with customers. Increase branch traffic enhance customer loyalty and improve teller line efficiencies. It s a small change that can make a big difference. Simple yet effective branch automation technologies from Cummins Allison build branch traffic and allow your staff to focus on what matters most more meaningful engagement with customers. CHANGE is a MAKE A CHANGE AT traffic TEC HNO LO G Y UPDATE BY IVAN SESELJ What Makes Millennial Employees Tick M Is your credit union so focused on Millennials proverbial negative qualities that you are incapable of speaking this generation of employees language To attract and retain Millennials within your CU s workforce and the energy and enthusiasm that comes with them you must cater to their mindset. These approaches can help. their next job. Millennials reluctance to remain in one job long term (or even on one career path) coupled with their seeming disinterest in a career in the financial service space may explain why almost half of bank and credit union CEOs report that they are unable to find talent with the right skills. The PwC report indicates that one in four financial service executives has cancelled or delayed key strategic initiatives simply because they didn t have the right talent on hand to do the job. As the current workforce ages and Millennials play an increasingly important role in the workplace it is going to become critical for credit union executives to better understand what makes Millennials tick. Doing so will enable them to attract Millennials not simply as members but also as prospective employees. To do that effectively I believe credit unions need to focus on better understanding and then leveraging Millennials so-called negative qualities about which more senior workers often complain their illennials are more than just a trending buzzword. Their influence on modernday economics is becoming more and more evident and credit unions are no exception. In a recent article on the topic Kevin Flanagan director of content at TimeTrade says Millennials are fast becoming the power players of 21st Century consumers. Many related articles focus on Millennials becoming credit union members the incredible buying power they represent why they favor credit unions over the big banks and how to effectively market to them to attract their interest. There is another aspect of the Millennial market that credit unions need to consider their importance as a labor force. A recent report by PwC shows that Millennials the 54 million adult Americans between 18 and 34 who make up a third of the U.S. workforce see the financial service industry (including credit unions) as little more than a stepping stone to other career options. Only one in 10 Millennials who currently works in the financial service sector says that they plan to stay in their jobs long-term. The average for all other industries is nearly double that. The report also indicates that Millennials are not at all shy about changing jobs. In fact it s more or less a given that they will. Nearly half (42 percent) said that they are always open to job offers from other companies while three in 10 are actively looking for 16 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 7 C U B U S I N E S S . C O M TECHNOLOGY UPDATE constant focus on salary and career advancement their refusal to do more menial jobs or comply with authority their constant questioning with regard to how specific jobs are done. Let s start with that last point. Senior executives often find themselves frustrated with Millennials because these younger employees ask too many questions challenge accepted processes and refuse to simply accept that s the way things are done around here. All of these complaints are a reflection of the fact that Millennials want to work with you not for you. They want to have a say in what s happening on the job. The challenge for credit union executives is to figure out how to capture the energy and enthusiasm that Millennials exhibit and channel it effectively in order to transform processes. If they succeed credit unions could turn to Millennials not just as a readily available workforce but as a great source of constant innovation and improvement as well. Another example is found in the contrast between Millennial communication preferences and the way in which credit unions typically communicate with their employees. Millennials want their voice to be heard and expect the opportunity to give feedback and suggest improvements. While some credit unions are beginning to change their communication tactics many continue to rely on very old-school mechanisms procedure manuals signage posted around the branch or mass emails to convey important information to their employees. None of these approaches will work with Millennials. Millennial employees want to click through six options not read six chapters of a procedure manual. They want to check out an app watch a 30-second video text and then react with emojis not with a lengthy memo or increasingly even emails. Credit unions that recognize and embrace these approaches will undoubtedly have a significantly better chance of attracting engaging and ultimately retaining Millennial employees. Credit unions must also recognize that Millennials want to grow constantly. They won t stand for a job C R E D I T U N I O N B U S I N E S S that doesn t provide them with new challenges and new opportunities. They re also not interested in a position that doesn t play to their individual strengths and interests. As a result leadership teams must be open to giving employees increasing responsibilities that they will consider meaningful and that will contribute not only to the credit union s success but to their own personal growth. Finally credit unions must recognize the importance technology plays in the lives of Millennials. For the most part these individuals grew up using technology. As a result they expect to use it on the job. For the credit union that means investing in technology that will enable Millennial employees to work more efficiently reducing the time it takes to do basic tasks such as filling out reimbursement forms or attending in-person training sessions. At the same time investing in technology sends a message to techsavvy Millennials that you understand their needs and expectations and are empowering them to work in the way that they prefer. By enabling Millennials to participate in driving business improvements and innovation credit unions will not only make Millennial employees more productive. They will also establish a relationship that builds a level of loyalty that significantly improves employee growth retention and overall business performance. Ivan Seselj is CEO of Promapp Solutions an industryleading provider of cloud-based process management (BPM) software for creating and storing business processes online. You can contact him at ivan.seselj or follow him at Ivanseselj. You can visit Promapp at 17 J U L Y 2 0 1 7 C U B U S I N E S S . C O M BRA NC H ST RATEG I ES BY MEREDITH DEEN Plan the Work Work the Plan How Technology Can Help Credit Unions Improve the Onboarding Process G The overwhelming benefits of onboarding for a credit union make the task a poor candidate for the backburner. Yet that s typically where it ends up among employees myriad other responsibilities. Keep reading for tips on how to overcome this missed opportunity by giving onboarding fuller attention. enerally speaking credit union employees today operate with the best intentions and strive to do their best for accountholders and in turn the credit union itself. This mindset extends to above and beyond tasks or those extra efforts that are not always possible during busy times in an employee s regular shift. Yet when these tasks are done and done well the credit union reaps significant benefits such as increased engagement retention and revenues. Onboarding is a perfect example. Most credit unions realize that new account onboarding is one of the most effective ways to create a positive member experience foster long-term loyalty and differentiate their institution. Yet like so many other strategies that we all know will pay off if we only had time onboarding often gets relegated to a secondary task for employees to do when if they have free time. More specifically many credit unions and other financial institutions ask employees to help onboarding (or various other accountholder services) whenever they re not busy. Yet this type of policy is simply too vague and doesn t do enough to hold employees accountable. If the old saying what gets measured gets managed is true onboarding usually falls into the opposite categories. Despite employees good intentions onboarding simply doesn t get the full attention that it should resulting in a huge missed opportunity for the credit union. 18 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 7 C U B U S I N E S S . C O M Why focus on onboarding It s clear that onboarding is still extremely important as evidenced by research showing that 59.6 percent of financial institutions (banks and credit unions) indicated that onboarding programs will be a more important strategy in the coming year.1 When done well onboarding successfully overcomes many common challenges most credit unions face. It also provides a number of significant benefits It creates a positive accountholder experience Onboarding helps to get new accountholders more engaged with the financial relationship early on which helps them feel more valued and appreciated. TURN ON YOUR BRANCH SUPERVISORS & MANAGERS withTEAMBUILDER. 4 BRANCH BUSINESS teambuilder buy 1 The Financial Brand State of Marketing in Retail Banking February 2014 BRANCH STRATEGIES It promotes long-term loyalty and reduces attrition Engaging with accountholders as early in the process as possible is critical to increasing loyalty. Research shows that when credit unions implement an onboarding initiative attrition levels drop by one-third down to just 9.5 percent.2 It provides higher-quality interactions Millennials and other heavy digital users (of financial services products) still prefer to visit a credit union for advice on financial products or services. In turn these higher-quality interactions are more likely to lead to additional product sales and cross-selling opportunities.3 It increases share of wallet Each accountholder owns many different financial products but chances are only a few of them are with just one institution. Onboarding properly increases the likelihood of developing stronger relationships leading to more effective cross-selling efforts. It improves the value of the relationship When considered in total these benefits give credit unions everything they need to retain accountholders increase revenues and truly maximize the value of each opportunity. supervisors create best-fit schedules to make sure they are staffed to provide ideal service during these busy times. Conversely employee scheduling technology lets credit unions anticipate and plan for slower times or downtime. It even enables supervisors to create schedules that let employees know when they should focus on onboarding activities. By making onboarding a real responsibility and by clearly communicating this expectation to employees as part of their schedules technology helps ensure these higher-value initiatives are actually done. Turn nice to do into done It s safe to say most credit unions are aware of onboarding and the many benefits it can provide. Yet many either don t have a disciplined approach to onboarding or rely on a system where employees are encouraged but not required to onboard accountholders during slower times. Now employee scheduling solutions can help credit unions overcome these challenges and make onboarding part of a regular ongoing process. And when they do credit unions are poised to reap the related benefits better accountholder experiences improved retention and increased value of these relationships. Meredith Deen is Director Products and Services for FMSI A. Kronos Company which provides financial institutions with business intelligence and performance management systems for efficient branch staff scheduling and lobby management. She can be reached at meredithdeen Schedule for success Clearly the benefits of onboarding are well documented and compelling. Yet many credit unions still struggle with how they can actually make onboarding and other valuable account services part of a daily weekly process. This is especially true if these initiatives are not currently employees responsibility or if employees are already busy in their existing role. One way to accomplish this objective is with employee scheduling technology. These powerful solutions start by giving credit unions the ability to forecast actual demand in terms of accountholder traffic teller lines or other important metrics. This capability helps 2 3 Harland Clarke Marketing Services The Three D s of Onboarding Success 2013 FMSI Millennials Relationship with the Branch 19 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 7 C U B U S I N E S S . C O M EXEC U TI VE COMP ENS ATI ON BY CLINTON KOKER JERRY NELSON JOHN GREGOIRE MIKE HIGGINS Executive Compensation Let s Talk Member Impact W Is it time for a shift in the way your credit union executives are being rewarded Read on for a discussion of some new benchmarks for determining incentive and merit increases. You might be surprised by how far they deviate from the traditional net worth and ROA mindset. hy if your credit union has adequate net worth to meet its strategic objectives and maintain reasonable reserves do you need more Truth is you don t. The additional money added to net worth (capital) comes from profits (ROA). Profits come from members. So in effect adding excess net worth is taking economic value away from members. What does this have to do with executive compensation Lots. Credit unions are chartered to improve the economic wellbeing of their members. Or stated in another way to provide economic value to their member owners. Yet most formal incentive and merit increase programs reward executives for incremental increases in ROA and net worth. Before you dismiss this article please understand that the financial stability of a credit union is clearly critical to the credit union s ability to provide valuable and vital financial services to its members. We therefore do not ignore the value of financial profitability and net worth in a reward system. We are simply suggesting a change in the way executives are rewarded. If net worth is adequate and that is critical why not reward executives for being resourceful and for providing members with greater economic value. Let that be the basis of the incentive and merit increase in addition to financial measures like ROA and net worth. Created by Mike Higgins of Mike Higgins Associates 20 C R E D I T U N I O N B U S I N E S S JMU AL Y Y 22 00 11 77 C U B U S I N E S S . C O M The pyramid below loosely based on Maslow s Hierarchy of Needs theory is a reflection of a program we believe balances the need for financial soundness with member value and employee rewards. As with Maslow s pyramid you must satisfy the lowest level before you can effectively operate at the next level.1 In this model executive rewards are based on maintaining adequate net worth first and foremost. Once that is satisfied the measure of performance should be how efficiently the credit union utilizes its member-subsidized resources to create economic value for its participants. So the first step in changing the compensation paradigm which is primarily focused on financial results is to recognize that more ROA is actually taking economic value from members. That is not to say ROA is not important it is. In fact it is critical. However 1 EXECUTIVE COMPENSATION TAB it is imperative that credit unions create only enough ROA to meet their strategic objectives and maintain a safety margin with sufficient net worth. Any more is a takeaway from members. Creating member value is the second tier of the rewards pyramid. At its core are measures that tell you how efficiently executives are utilizing member resources to produce member value. The chart below details the member value component.2 A key difference in using this approach is that the peer group is established on the concept of member spend (Productivity). The peer group is based on non-interest expense not assets. So for relatively the same amount of money spent how much have the executives produced (Product Mix) and at what price to the member (Pricing). The end result is that profit taken should be only what is necessary to meet the credit union s strategic needs. Any more should be used to reward employees and to Do Good things for the members and the credit union community (the top two segments of the pyramid). Oh by the way as of the end of the first quarter 2017 average capital for all credit unions in the United States was 10.7 percent and 10.6 percent for credit 2 Created by Mike Higgins of Mike Higgins Associates 21 C R E D I T U N I O N B U S II N E S S B U S N E S S unions over 100 million in assets. Stated another way the average credit union has just over 150 percent of the regulatory minimum. There are 575 credit unions with capital of 20 percent or better almost three times the regulatory minimum This is a pretty obvious sign that many credit unions should move up the hierarchal pyramid and start focusing on economic value for members. As an interesting sidebar to the net worth and ROA combination that many credit unions use in their reward plans the higher the net worth targets the greater the ROA that is required to reach them. In order to reach those targets the credit union has to reach for earnings which means that boards are incenting behaviors that may actually increase risk instead of increasing safety and soundness. To round out the compensation equation it is important to look at live market data and not salary surveys which can be inflated. For that we recommend TruComp990. TruComp990 is a new compensation data source that is unique in that it documents actual earnings by job by credit union as reported to the IRS on the 990 form. TruComp990 software ( makes it possible to develop compensation data from peer groups of credit unions that are comparable in size and location. Using this report you can easily see what peer group credit unions have actually paid in salary incentive deferred compensation and other income and you can determine how your credit union s compensation compares. The combination of live market data with reward plans that have a dual emphasis on financial sustainability and member value creates a win-win situation for the board executives and the membership at large. In addition it creates a solution to the issue of executive compensation that is defensible to members regulators and the general public. The leadership of J J UU LLYY 22 00 11 77 C U B U S I N E S S . C O M EXECUTIVE COMPENSATION your credit unions will be armed with the right facts and proper focus so that your decisions become logical and easy to make. 22 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 7 C U B U S I N E S S . C O M CU ADVERTI S I NG BY JODY FISHER Making Dreams Come True The Story of a Credit Union a Soup Kitchen and a Commercial I In this Q&A session see how a TV ad campaign quickly turned into a real-life scenario for one credit union. The charitable collaboration that resulted from this coincidence offers practical insight into how all credit unions can put their mission of serving their communities into genuine action. Hempstead soup kitchen and had contacted them to see if the commercial could be set in the facility. In the process of filming it was discovered that the stove at The INN was truly on its last legs just like in the commercial. Motivated by the pressing need and its own mission to give back to the local community Ocean Financial donated a new 1 300-pound eightburner stove to The INN in a celebratory event in midJune. We sat down with Joseph Garay CEO of Ocean Financial Federal Credit Union and Jean Kelly executive director of The INN to discover more about this remarkable story of coincidence and generosity. Q How did this donation come about Joe Garay CEO Ocean Financial This started as a location to shoot a commercial about donating a stove to a soup kitchen but we found out there was a need for one in real life. But we didn t just donate the stove. We looked into the organization that we were going to support and saw the work that they do every day and were inspired. It became such an easy decision to make to donate the stove for a good cause. f Ocean Financial Federal Credit Union (OFFCU) hadn t decided to shoot a TV commercial as part of its recent rebranding program no one would have known that a local soup kitchen was in need of a new stove to continue to serve hot meals to hundreds of needy people every day. As a local Catholic credit union headquartered in Oceanside NY on the south shore of Long Island Ocean Financial s DNA has long been steeped in community involvement. CEO Joe Garay is a selfdescribed George Bailey type straight out of the 1946 movie It s a Wonderful Life. His father founded the credit union in 1969 and Joe came of age learning the business and now is at the helm of its 316 million in assets. In embarking on a recent rebranding campaign Garay hired Austin & Williams a Long Island-based ad firm which created a fictitious commercial concept about giving back to the community. One of the commercials featured a soup kitchen volunteer who when the invented soup kitchen s stove gave out went to OFFCU for a loan to donate a new one. The actress who played the volunteer in the commercial Donna Martini had actually volunteered at The Interfaith Nutrition Network (The INN) the 23 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 7 C U B U S I N E S S . C O M CU TABADVERTISING Q How many people does The INN serve on a daily basis Jean Kelly Executive Director The INN On a daily basis right now between two and three hundred guests will come here and eat their main meal of the day. Sometimes it may be their only meal so we always have bag lunches in addition to the main meal. It has to be a hot nutritious meal and this stove is going to make it possible. Q What was your initial reaction to the need for a new stove Garay It was pretty remarkable. We see this donation as a metaphor for how we live our mission of supporting our local community. We use the phrase Spread the Love with what we do at Ocean Financial because we try to help our members with financial guidance that has real impact on their life. The INN does the same thing spreading the love with food they serve to their guests. The hundreds of people a day that this stove is going to help feed just gives you a warm feeling in your heart. Q It s actually quite the coincidence as well. Kelly It s all about people and connecting the dots. It started with the actress who was in the commercial remembering that she had volunteered here and knowing that they needed a location for the shoot. So she called Dorian (Stern director of development for The INN) to ask if they could use our kitchen. Dorian asked if we could make that happen and I said yes as long as it didn t interfere with us serving the daily meal. They shot the commercial and even made a 24 C R E D I T U N I O N B U S II N E S S B U S N E S S contribution to use the space. So we thought it was over and done that was it. And then they came back and said they wanted to replace our old stove to help us continue our work. It was a huge expense for them and filled a critical need for us. Q What about the similarities in the mission Garay They re (The INN) into feeding we re into finances. We help people every day the best we can. We have great financial products loans and savings accounts things that help our members with what they want to achieve. What makes Ocean Financial different as a Catholic organization is how we go about living our mission and what we believe we are called to do and that s help people where we see a need. That s not so much about giving someone a loan but it s in the way you give someone a loan even the way you decline someone for a loan with the respect and dignity every human being deserves. The INN respects human dignity too and they certainly spread the love by helping people in need. Q What does this say about the generosity of a credit union and its members Kelly When we got the news we would be getting this donated stove it revived our spirits. To do this work every day you have to tap into a lot of hope. This shows us the miracle of how generous Long Islanders and in particular Ocean Financial Federal Credit Union can be. For them to use this opportunity to help us by taking a commercial and turning it into something that s going to have such a lasting impact is life changing for us. J J UU LLYY 22 00 11 77 C U B U S I N E S S . C O M CU ADVERTISING Jody Fisher is VP of Public Relations at Austin & Williams creating innovative and impactful publicity programs that expand his clients public presence ability to tap new audiences and aligns their messaging programs with their business goals to achieve success. He is an award winning publicist who has worked with a variety of clients including NewsCorporation Friends of the High Line the Intrepid Sea Air & Space Museum and Larry Silverstein at the World Trade Center. 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 25 U N I O N B U S I N E S S J U L Y 2 0 1 7 6 15 16 4 53 PM C R E D I T C U B U S I N E S S . C O M ST RATEG I C PL ANNING BY ERIC GAGLIANO Planning for Your Strategic Planning Session B There s no time like the present to start strategically planning for your credit union s strategic planning session. After all it will be here sooner than you think. These pre-session questions tips techniques and insights will help prepare your CU for an annual planning season that goes off without a hitch. Pre-Planning Session Thoughts What were the three to five most important initiatives you undertook this year For each initiative ask your team What were the results How do the results compare to the goal What would you do differently What part of each project would you NEVER change Should you continue the efforts next year o What if it means you can do one FEWER new idea Would you dedicate more or less resources to the project if you continue o Budget o People and training o Time elieve it or not it s almost planning season The offsite hotel is booked and the golf reservations are made. You know how you ll entertain your board members and they are looking forward to a weekend together. Now it s time to begin the REAL pre-work to your planning session. Before You Plan for Next Year Look Back. Often in planning we want to jump in and start throwing around new ideas but the fact is that resources are limited. Before you start adding new initiatives consider what s working now. Sometimes your best plan is to do more of what you re already doing today ... but better. Don t look back you re not going that way. Mary Engelbreit Nice quote but I prefer... The only time you should ever look back is to see how far you ve come. Author unknown Before you get too far into planning for next year I d like for you to look back. TURN ON YOUR BRANCH SUPERVISORS & MANAGERS withTEAMBUILDER. 4 BRANCH BUSINESS C U B U S I N E S S . C O M teambuilder buy 26 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 7 STRATEGIC PLANNING TAB Before You Plan for Next Year Ask Who Are You Can you tell a story like this about your members Doing This For You need to As credit unions everything we do is built around our The days of being all things to all people are over. Your margins shrank years ago and have little promise of members ... EVERYTHING coming back any time soon. Your marketing budget is The Super-Duper credit union member is family limited. You need loans NOW and your 65 -year-old focused. She is a married woman with a good job but members simply aren t borrowing the way you need (combined with her husband s income) making just them to. enough to support her family s comfortable lifestyle. So you need to focus You need to determine who She has one or two young children and a husband who in your market(s) you are attracting now and who you likely earns a little more than she does. They live in WANT to attract. You need to understand your best a two-bedroom home in a middle-class neighborhood members ... and what makes them the best. Then you with lots of swing sets and have been there for five to must learn everything you can about them. 10 years. Retirement seems like a pipedream. Though When you can tell a story about your best member they invest a little through their employers long-term where she lives where she works what she does for saving is not the focus. They are more concerned with fun what drives her her fears what worries her meeting monthly bills while still squirreling away some then you can start making strategic decisions on your savings for their children s future college tuition the product suite pricing branching tech investments majority of which will ultimately be financed through website and marketing message. student loans. Her time is divided between maintaining a career The Data Approach to Your Strategic Planning she is proud of raising children she loves dearly There is no more important time to collect and analyze supporting her kids activities volunteering for data than when you are preparing for your annual community groups exercising three to four times per planning session. week and nurturing a relationship with her husband family and friends when she can find time. When it You Need to Analyze Your Institution. Where is your income coming from comes to her friends she has traded in phone and face What is your loan portfolio mix to-face time for Facebook status updates. From what loan products are you seeing the Because her husband is busy earning more or most growth because she s more responsible she oversees most of the family finances. While she is technologically savvy You Also Need to Look Beyond Your Call Report. she received her first email account with her first real Imagine the difference in the level of discourse if you job about 20 years ago. That said she writes more your management team and your board all understand checks than she probably should. But she is beginning how you are trending compared to key local competition to see the efficiency of online banking and starting to in trust it more. She s certainly not an early adopter of Asset growth technology but she LOVES her iPhone. The more Loans Assets she can do on her phone while on the move the better Loans Deposits her life will be. Loan balance growth (overall and specific to Though she and her husband each buy cars every each product) three to four years they do not lease. They want the Average loan balance (overall and specific to look and amenities of a BMW or Mercedes without the each product) hefty monthly payments. 27 C R E D I T U N I O N B U S II N E S S B U S N E S S J J UU LLYY 22 00 11 77 C U B U S I N E S S . C O M STRATEGIC PLANNING TAB Loan penetration (by product) Yield on loans Delinquency Net charge-offs Average loans Net interest margin Checking account growth Average checking balance Deposit market share (compared to the number of branches in the market) Customer growth The number of customers filing for bankruptcy Customers per employee Net income per employee Revenue per employee Core earnings ratio Efficiency ratio ROA PRIOR to the planning session and discuss What are the most important stats that stand out Why do you feel you are ahead or behind When you begin your planning session by looking at empirical data about yourself your market and your competition you provide the tools for more intelligent conversation. You ensure that everyone in the room has facts which tends to limit the amount of sidetracked one-off opinions that too often eat up planning time. Marketing s Vital Role in Strategic Planning As we just discussed it is vital early in the planning session to get everyone on the same page. When it comes to strategic planning there are many vital and wonderful voices in the room. Finance It s all about making more than you spend right HR The staff drive the success of any company. IT Technology is the glue that holds our back office and member delivery together. Legal Ever-changing regulations make compliance a louder and louder voice. Operations Day-to-day branch delivery accounts for an enormous amount of our management time and our bottom-line success. Together these voices form an exquisite chorus rising and falling in harmony. But what voice should facilitate the planning Certainly you can share all this information about YOUR credit union. But looking at yourself alone allows you to know only if you re trending up or down. When you compare yourself with your key competitors you have a completely different context. Now you know if your specific trends are comparable to the market. Yes you may experience growth in a key area. And that growth may be better than last year ... but are your competitors doing even better Yes you may be experiencing a decline in another area ... but is something happening to make everyone experience the same decline and are you actually faring better than the competition What if you could look at this same information compared to other banks and credit unions of your size nationwide Are credit unions and banks experiencing different trends Would it matter to your planning Are you ahead or behind other institutions in your asset range Why What about the person who is responsible for Market trends Competitive intelligence Member data mining Your brand image These are also the folks who are inherently wired to Focus on ROI (Finance) Improve internal communications (HR) Understand the data in the core manage your website and gauge the experience of your online and mobile banking (IT) 28 J J UU LLYY 22 00 11 77 C U B U S I N E S S . C O M Our Recommendation Gather information a few weeks before your planning session. Share all the data with your management team C R E D I T U N I O N B U S II N E S S B U S N E S S STRATEGIC PLANNING TAB Keep up with regulatory changes and compliance (Legal) Work hand in hand every day with front-line delivery (Operations) Everyone in the planning session from the board chair to the CEO s administrative assistant knows the numbers. Each month at every board meeting they focus on loan-to-deposit ratio delinquency ratio ROA capital balance growth etc. If this is the only focus of strategic planning then you ll essentially have a glorified board or management meeting. Your strategic planning meeting is a chance to look at and consider new information--information that is critical to strategic thinking and to setting the course for both the next 12 months and the next five years. By focusing on this information early in the meeting you can level-set the thinking of everyone in the room and help them make smarter more strategic decisions based on internal and external data. What is the focus messaging of local competitors How does your service compare to the key competition What are the strengths and weaknesses of the bad guys What is your key differentiation How do the key competitors numbers look (How do they compare with yours ) -- Checking penetration -- Customer growth -- Loan and deposit growth -- What are their key loan products -- What are the trends Has anyone ramped up advertising or essentially disappeared Map your locations vs. your key competitors. -- Are there opportunity gaps MEMBERS & PROSPECTS THE MARKET Where are you in market share o Are there any major changes Are there any major changes in the market (new or departed employers for example) What are the trends How are people banking (mobile text inbranch ATM) Do they bank locally What is most important in making purchase decisions (price convenience expertise technology) What s happening economically What about demographically Who has the greatest share of mind (You can recruit a few employees and make random local calls for a few nights asking people simply to Name the first three financial institutions that come to mind. ) 29 Map your existing members and then compare that map to the branch map above. -- NOW are there opportunity gaps What does your very best member look like (Consider balances product mix how they use you.) -- Where can you find people in your market who look like that TURN ON YOUR MARKETERS MATTERS THE COMPETITION withTEAMBUILDER. 4 MARKETING teambuilder buy C R E D I T U N I O N B U S II N E S S B U S N E S S J J UU LLYY 22 00 11 77 C U B U S I N E S S . C O M STRATEGIC PLANNING TAB -- Map THEM and compare. -- What life stages are they in Do they refer you Are they electronic or in-person bankers What services do they use most What fees are most common Are they loyal The Science Behind a Strategic Plan When the planning session is complete it s time to roll up the sleeves and create the marketing plan. E MC2 Marketing Communications (Internal & External) Involves Everyone Most of us are familiar with the basics of creating an annual plan Identify the three to four objectives that will have the greatest impact on your credit union s success. Focus your strategies to no more than three per objective. Identify the tactics that best help drive your business toward meeting each objective. -- Think organizationally internal process and external communications. Whittle down to only the three to four tactics that are likely to have the greatest impact for each strategy. It is the NEXT three steps that most people seem to need help with. You now have no more than 27 tactics. Prioritize them based on importance of objective achieved and likely impact. As you plan your year phase each tactic in one by one with enough time to measure impact. BRAND What is your true brand How consistent is it Do you live it at EVERY member interaction Does your brand still align with your most valuable members and prospects Can your staff clearly define your brand Without a strong reliance on your marketing team you may end up making decisions based on the one-off subjective experiences of the handful of people in your room. I just saw the XYZ bank building. It s so big that they must be taking all of our business. Why target Millennials I don t think that they have good paying jobs yet. As long as our staff addresses members by name we don t need to train them on the touchy-feely stuff. Your marketing team comprises your market competition customer and brand experts And these are the factors that lead to the results numbers everyone focuses on each month. So these are the factors that should lead off your planning session. 30 C R E D I T U N I O N B U S II N E S S B U S N E S S Measure Measure Measure This is particularly important to your marketing plan. Most think of the arts and crafts side of marketing. But when done correctly marketing is a science. And J J UU LLYY 22 00 11 77 C U B U S I N E S S . C O M STRATEGIC PLANNING as with any good science it should follow the six steps of the scientific method that we all learned in school 1. Ask a question. 2. Do background research. 3. Construct a hypothesis. 4. Test your hypothesis by doing an experiment. 5. Analyze your data and draw a conclusion. 6. Communicate your results. Your planning should follow the same steps. How do we achieve this objective Research Study current performance historic trends competitive messaging perception success. Construct your tactical hypothesis. Implement your tactic. Measure results. Continue tweak or increase eliminate your tactic as necessary. It is this scientific method that leads me to recommend small changes one at a time if possible. If we want to fully understand what is working and what is not we need to eliminate as many variables as possible. If our objective is to increase direct auto loans we may simultaneously 1) implement an employee incentive 2) provide a gas card per new auto loan 3) communicate the message in new media We may indeed increase loans this way but what worked Could we have similar results without the employee incentive Could we drive new business without giving away the gas cards What do we repeat or eliminate Today s plan should impact not only tomorrow s results but also next month s next year s and everything moving forward. Use your plan as an opportunity to learn scientifically and reproduce positive results. 31 C R E D I T U N I O N B U S I N E S S Eric Gagliano aka Pit Bull is a brainstorming junkie. It s kind of like cerebral jazz if you ask me says Eric. He loves to connect the dots between strategy audience wants and client benefit to find the most effective message. We ve had Eric examined and he is in fact part pit bull which explains his passionate involvement in an area Pit Bull rescue program and the tenacity he brings to each MarketMatch project. Always one to zig where others zag Eric took his wife s last name when they were married in Italy. He s a 50s guy trapped in a Gen X body whose favorite food is coffee ice cream which might explain why he s an avid runner but it doesn t explain the two naked races he s run. J U L Y 2 0 1 7 C U B U S I N E S S . C O M CU TEC HNO LO G Y BY BEN MORALES Technology Feature QCash Financial Provider of Small-Dollar Lending Technology Is your credit union losing business to traditional payday lenders Small-dollar loans could very well be a missed opportunity for your CU. See how the implementation of such a product has benefited several credit unions and their members and discover how it can become a sustainable revenue stream. reported and they often do not qualify for traditional banking products such as credit cards or personal loans. These consumers are frequently forced to turn to unconventional sources for their needs because they are not eligible for traditional banking products. Payday lenders have often appealed to underbanked consumers because of the speed with which the loans are originated and because few applicants are declined. However traditional payday loan offerings frequently create a cycle of debt that weakens consumers financial stability instead of offering solutions that improve consumers long-term financial health enough to reduce or eliminate their dependence on these loans. Q Cash Financial was originally a smalldollar loan product created for Washington State Employees Credit Union (WSECU) in response to tellers noticing that members were asking for money orders to pay off payday loans. After observing this pattern the tellers approached the credit union s president and CEO Kevin Foster-Keddie who began developing a product that would more effectively meet members needs. Using relationship-based lending practices and analyzing members deposit and withdrawal habits the credit union was able to build an automated smalldollar loan product that cost members much less than traditional payday loans and created a sustainable revenue stream for WSECU. The original QCash loan product was launched in 2004 and has since grown into a separate CUSO offering its technology to other community financial institutions as a white label solution. 2. More than a Payday Loan Alternative 1. The Mission Throughout its development QCash Financial has made its corporate mission to reach underbanked consumers. According to the FDIC almost 20 percent of Americans fall into this category by having either a very brief credit history or no history that can be 32 C R E D I T U N I O N B U S I N E S S While small-dollar loan programs are traditionally seen as better alternatives to traditional payday loans these programs can also serve as a means to help consumers avoid overdraft charges. Recently Pew Charitable Trusts published an issue brief titled Consumers Need Protection from Excessive Overdraft Costs which discusses a number of the issues related to the high costs of overdraft charges and key findings on how to reduce or eliminate the need for these charges. One of Pew Charitable Trusts recommendations based on the organization s findings was to encourage financial J U L Y 2 0 1 7 C U B U S I N E S S . C O M CU TECHNOLOGY TAB What does a 75 subscription buy High Quality monthly magazine. Website with 72 back issues 700 articles available On Demand institutions to offer access to small-dollar credit as a method of avoiding these charges. Affordable smalldollar lending programs could easily help consumers regain financial stability without facing expensive overdraft charges for insufficient funds. 3. The Process When members apply for QCash Financial s loans they can do so either through mobile and online banking channels or in person at the branch. QCash Financial has an interactive demo on its website that shows how easy the four-step process can be. 1. The first step is to log in to an online banking channel to apply for a QCash loan by clicking on a button under apply. 2. The second step is to confirm that the member is not an active military member. 3. The next step is to either accept a pre-approved loan amount or enter in a desired amount review the loan maturity and repayment due date and then submit. 4. The final step is to accept the loan terms which are clearly stated by laying out the amount financed APR finance charges and total payments and by restating the loan maturity date. At this point if the member hits accept the funding will be deposited in his or her account. The total process from application start to funding takes less than 60 seconds and about six clicks. The platform is able to automatically generate a loan amount that would be within the member s means to repay because QCash Financial s algorithm reviews 33 C R E D I T U N I O N B U S II N E S S B U S N E S S members transaction histories. There are a few cases in which a member might be declined for a loan. Some of these instances include when members apply for a loan amount that is too great for them to repay based on their deposit and withdrawal behavior. QCash Financial s algorithm also rejects applicants who have outstanding QCash loans or have applied too many times in recent history. In those cases the members are redirected to discuss their financial needs with credit union staff who can explore other options with them. 4. Post-Launch Growth Since QCash Financial s public launch it has grown in popularity within the credit union community. Currently four credit unions are actively using the platform to originate loans for members and this number continues to grow. In 2015 QCash Financial entered into a pilot partnership with Filene as part of the organization s Impact Programs. Filene has conducted extensive research on QCash Financial s mission to reach underbanked consumers and has selected QCash Financial as a member of its pilot program because of the two organizations aligning goals financial empowerment through providing accessible financial services and reaching minority households. 5. WSECU QCash Financial is a CUSO that is wholly owned by WSECU the credit union that developed the lending technology in 2004 in response to its members needs. In 2016 WSECU used its QCash loan product to J J UU LLYY 22 00 11 77 C U B U S I N E S S . C O M CU TECHNOLOGY originate 34 907 loans amounting in 28 088 413 loan dollars funded. WSECU has observed the QCash product grow in popularity among its members and it has continued to create a steady revenue stream for the credit union while helping members achieve financial stability. WSECU offers two loan types QCash and QCash Plus. The QCash loan offers members loan amounts between 50 and 700 with low fees a 60-day repayment timeline and no application fee. QCash Plus is a larger loan type that enables members to borrow amounts between 701 and 4 000 with a longer repayment term low fees and a 25 loan application processing charge. QCash uses an old-fashioned credit union idea making a loan based on our relationship with our member and updates it with the best technology making the transaction very low effort for members and they love it said Kevin Foster-Keddie president and CEO of WSECU. 7. Gesa Credit Union 6. San Antonio Credit Union In April 2016 San Antonio Credit Union signed with QCash Financial to offer its members a small-dollar loan product. San Antonio Credit Union wanted to offer its underbanked members a better alternative to payday loans. Prior to offering its small-dollar lending service many of the credit union s members were frequent borrowers from several payday lenders that were within easy walking distance of the credit union. Since San Antonio Credit Union saw a need for its community to have access to a product that provides instant liquidity it began working with QCash Financial. The experience brought forward with the team from QCash Financial was evident [from] day one on our implementation for QCash. They brought leadership extensive knowledge of small-dollar lending and years of software delivery technology expertise said Adele Glenn emerging channels innovation architect San Antonio Credit Union. 34 C R E D I T U N I O N B U S I N E S S In the summer of 2016 Gesa Credit Union in the state of Washington rolled out its small-dollar lending program named FastCash powered by QCash Financial s technology. Gesa researched its members lending needs and discovered that many of them were turning to more expensive alternatives for their shortterm and small-dollar lending needs. The QCash solution provides an opportunity to offer members a more cost-effective solution in an expeditious manner. At the end of 2016 Gesa Credit Union had used the QCash platform to originate 1 157 loans amounting to 1 126 591 loan dollars funded in the first six months of its small-dollar lending program. A significant number of our members have been extremely grateful to be able to rely on us to provide them with a low-cost alternative to payday lending said Don Miller CEO of Gesa Credit Union. Our FastCash small-dollar lending program powered by QCash Financial has created a service that offers members instant liquidity and creates a sustainable revenue stream for our credit union. 8. USALLIANCE Financial USALLIANCE Financial based in New York acquired a smaller credit union in 2015 that had been offering small-dollar loans to its members. Around 75 percent of the acquired credit union s members were classified as low-income and made frequent use of the CU s small-dollar lending program. After the acquisition USALLIANCE Financial saw the need to continue offering these member services but decided to conduct research to see which technology offered a best-ofbreed solution. In late 2016 it began offering smalldollar loans to all of its members through the support of QCash Financial s technology. Since offering its new small-dollar lending product powered by QCash Financial to all of its members USALLIANCE Financial has had high- middle- and low-income J U L Y 2 0 1 7 C U B U S I N E S S . C O M CU TECHNOLOGY members take advantage of the lending product which is branded as MyLife Ready Cash program. QCash was a natural fit for our product line especially given our commitment to providing our members of modest means [with] the products needed to help them achieve financial stability. At USALLIANCE we strive to help our members not only live life fully but achieve their personal aspirations. We believe this product will help do just that said Kris VanBeek president and CEO of USALLIANCE Financial. While the credit union industry is uncertain what the regulatory environment might look like in the next few years members across the nation have demonstrated the need for access to small-dollar loans. Several credit unions have shown that offering these loans at a much lower cost than traditional payday loan products can be beneficial for both members and the credit union. While payday lenders are still active and are the primary source of small-dollar loans consumers need access to a better alternative that promotes financial well-being rather than creating a cycle of debt. Ben Morales is the CEO of QCash Financial. QCash Financial is a CUSO providing automated cloud-based omni-channel small-dollar lending technology that enables financial institutions to provide short-term loans quickly to the people they serve. QCash Financial a wholly owned subsidiary of WSECU in Olympia Wash. started as a short-term loan solution for the credit union s members in 2004. For more information about QCash visit its website at 35 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 7 C U B U S I N E S S . C O M COMP LIA NC E UPDATE BY CINDY WILLIAMS Garbage In Garbage Out Credit Union Examiners Insist on Data Validation Audits The increasing integration of technology into credit unions compliance efforts is opening CUs to greater scrutiny by examiners. What exactly are they looking for CUB s compliance expert breaks it all down to make IT-centric questioning during exams less stressful and intimidating for your staff. f you rely on software to comply with Bank Secrecy Act Anti Money Laundering or Office of Foreign Assets Control regulations BSA AML examiners are likely to want a peek under the hood of your technology. This demand could challenge credit union staff who are not accustomed to answering IT-centric questions during exams. Credit unions use a large and growing number of tech solutions such as Verifin or Bankers Toolbox to apply risk scores to members and to monitor transactions for suspicious activity. Tirelessly scanning transactions for volume and velocity unusual wire activity even red flags like common addresses between members this highly sophisticated technology doesn t miss much. However the accuracy and effectiveness of these solutions and the outcomes they produce are paramount to a financial institution s compliance with regulations. That is why examiners are increasingly asking to see evidence of data validation audits and or regular software reviews. are integrating technology into their compliance effort. Much of the BSA AML OFAC software available to credit unions today is more than a decade old. At one time it was deployed by only the largest banks and credit unions. Over time however the technology has trickled down to more community-based financial institutions many of which have a good three to five years of experience with the technology under their belts long enough to have become proficient with its use. Although the use of technology often greatly improves on the manual process of reviewing reports from the core processor or internal employees it also dictates attention to the systems and software computing the data. I TURN ON YOUR COMPLIANCE OFFICER withTEAMBUILDER. Why Now Examiner attention to these practices has been around for many years in the big-bank world but it is beginning to pick up steam among credit union examiners as well. This is because more of the credit unions they examine 36 C R E D I T U N I O N B U S I N E S S 4 COMPLIANCE UPDATE teambuilder buy J U L Y 2 0 1 7 C U B U S I N E S S . C O M COMPLIANCE UPDATE What Do Examiners Want to See Examiners are interested in how the software calculates the output. However they are just as interested if not more so in how data is put into the tools. In other words how does the capturing of data impact the technology s output Further are policies and procedures in place to govern a consistent timely and sound collection of input of and response to the data A common circumstance uncovered by a software review is faulty integration. For instance a credit union s BSA software may not be bringing all transactions over from the core system setting staff up to miss unusual activity. Another frequent issue is reliance on default settings. It can be tempting for credit union staff particularly employees not used to or comfortable with technology integration to simply use pre-coded settings instead of customizing them to their member base products or activity. Training is another area examiners will be interested in. How has your credit union ensured the individuals using maintaining and upgrading the software are aware of the cooperative s evolving needs You will want to be able to demonstrate staff participation in frequent and comprehensive software training activities. Along those same lines examiners may also want to see that your credit union has reviewed access to the systems and the data files they contain. Especially in this era of heightened awareness around cybersecurity and internal threats who is reviewing alerts who is responding to them and who has the rights to delete or ignore them will be under scrutiny. As in nearly every aspect of banking the introduction of technology to the compliance effort is warranted and welcomed. I have seen many circumstances in which software identified issues human policies and procedures would not likely have found. At the same time technology is not a magic bullet for protecting the cooperative or its members. Examiners know this and want to see that your team understands it as well. With the right partner and a good set of policies and procedures your credit union will have no problem meeting this exam requirement. Cindy Williams is vice president of regulatory compliance for PolicyWorks. She will be speaking on the topic of data validation reviews at the upcoming CUNA NASCUS BSA Certification Conference scheduled for November 12 15 2017 in Las Vegas. Are We on Our Own Credit unions are given leeway in the execution of data validation audits and software reviews. They are allowed to perform these activities on their own or partner with a third-party resource. Many find the latter to be the most effective approach because the outside perspective tends to more closely match that of an examiner. 37 C R E D I T U N I O N B U S I N E S S J U L Y 2 0 1 7 C U B U S I N E S S . C O M CFO C U RRENCY BY STACEY WILKERSON Allocating Your Credit Union s Capital L What is the most efficient way to utilize your credit union s capital CUB s Currency expert examines the question from a mathematical perspective to get to its root. Read on to uncover the heart of thorough capital management with a breakdown of how to optimize capital in your CU. excess capital must take on incremental risk to increase earnings all else equal to generate the same return on equity. Regulatory capital requirements were established to safeguard the stability of the financial system and ensure that institutions don t engage in excess leverage which could cause an ultimate insolvency. Currently all financial institutions including credit unions operate under a dual capital mandate regulatory capital limits and risk-based capital (RBC). The BASEL Committee implemented minimum tier capital and leverage ratio limits. Tier 1 is the core capital such as retained earnings and shareholder common stock. Tier 2 includes loan loss reserves subordinated debt and general provisions. Before NCUA adopted risk-based capital requirements the financial industry basically had ike all financial institutions credit unions are faced with balancing regulatory dual capital mandates therefore allocating capital efficiently is at the heart of thorough capital management. Even though allowance for loan losses and provisions held on a credit union s balance sheet should adequately cover expected losses caused by normal operating conditions capital is available to absorb any additional expected or unexpected losses. Capital also promotes member and regulatory confidence that the credit union can survive. In addition it provides benefits to its members by assuring the strength to engage in new product service initiatives. Overall capital is essential to reduce systemic risk and protect members as well as the NCUSIF and Excess Share Insurance Fund (in applicable states). If capital is so important why don t institutions hold large amounts of capital on their balance sheets It might be fair to say regulators would like credit unions to hold heavy amounts of capital because doing so moves their put option farther away from impacting the deposit insurance funds. It merely transfers some of the risk from the government to credit union owners. Members on the other hand want their credit unions to hold less capital to leverage profitability. In the end holding excess capital can be expensive if not deployed timely and efficiently. A credit union holding 38 C R E D I T U N I O N B U S I N E S S TURN ON YOUR LENDING DEPARTMENT withTEAMBUILDER. 4 LENDING SOLUTIONS C U B U S I N E S S . C O M teambuilder buy J U L Y 2 0 1 7 TAB CURRENCY CFO two similar entities banks and credit unions which were governed using different regulatory capital requirements. Ultimately this scenario created a pushand-pull situation between them. The regulatory environment is migrating closer together with the adoption of NCUA s RBC. Exhibit 1 below shows current risk-based capital and regulatory capital limits for credit unions. Risk-based capital uses risk weightings an approach which requires more capital to be reserved against riskier assets. Common risk weightings are 0 20 50 75 100 and 150 percent. For example a 0 percent risk weighting would be assigned to cash or U.S. Treasuries while 150 percent weighting would be assigned to a higher-risk commercial real estate loan. In Exhibit 2 four assets are listed with assigned risk weightings. For an institution that is adequately capitalized at 8 percent the capital allocation is calculated by multiplying 8 percent by the assigned risk weighting. If an institution s strategy is 50 million of asset growth then the last column shows how many dollars of capital would be required for each individual asset to be added to the balance sheet. 40 C R E D I T U N I O N B U S II N E S S B U S N E S S Capital management involves targeting a level of capital and allocating it efficiently using the dual mandate requirements. One mathematical method of optimizing capital is to maximize marginal return on equity (ROE). If the ROE exceeds the established optimal level of capital then the asset is positively contributing to capital. Let s break down the ROE calculation into the following ROE [ (S x L) F ] x (1 T) S Assets net spread represents the risk adjusted spread after adjusting the gross yield for various components such as liquidity spread options cost credit spread and duration cost. L Leverage multiplier is 1 required capital F Funding benefit of equity is commonly assumed to be a duration matched swap rate. This is added back into the equation since a portion of the assets is funded with equity. The funding cost of equity is zero. T Tax rate is not applicable to credit unions. Exhibit 3 below applies the ROE formula using Basel III standards for an institution with a desired capital level of 8 percent (adequately capitalized). Two fixed-rate mortgage loans with similar characteristics (Loans 1 and 2) are compared. Note for credit unions regulated by NCUA the risk weighting used in the example would be slightly different and there would be no tax rate applied. Assume the offering rate on these loans is the same at 3.65 percent even though the second loan has a slightly higher risk weighting. Using the formula reviewed earlier the ROE on these loans would be 10.91 percent and 6.50 percent respectively. It s important to note that the ROE of 6.50 percent on the second loan falls short of our desired capital level of 8 percent therefore the economic value added on this loan would be negative (6.50% 8.00% 1.50%). A few conclusions can be drawn from this simple example. While several factors are used in loan pricing ROE calculations can assist to some degree. The offer rate of 3.65 percent on the second loan is too low given the current risk profile and weighting. Therefore the offering rate on the second loan shown in the last 22 00 11 77 C U B U S I N E S S . C O M J J UU LLYY CFO CURRENCY TAB to allocate capital. ROE can assist in rank-ordering various assets to evaluate the options that exceed the desired level of capital. The most efficient way to utilize capital consists of combining the various loans with the highest ROE to maximize economic value added to capital. Stacey Wilkerson is Sr. Director Advisory Services for ALM First Financial Advisors. She is primarily responsible for collaborating with IMG and the client s management team to customize and implement actionable and effective ALM and investment strategies to maximize client performance. column in Exhibit 3 would need to be offered 10 basis points higher to exceed our desired capital level of 8 percent. Capital management starts with establishing a desired level of capital and then determining how With 20 billion of investments under management ALM First is an SEC-registered investment advisor acting as an unbiased third party offering commission-free fee-based services to over 200 financial institutions across the country. Services include Asset Liability Management Investment Advisory Merger Valuations Hedging with Derivatives Loan Profitability Analysis ALM Validations Investment Portfolio Analysis MSR Valuations Training and Education and more... 800-752-4628 41 C R E D I T U N I O N B U S II N E S S B U S N E S S J J UU LLYY 22 00 11 77 C U B U S I N E S S . 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