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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 BRANCH BUSINESS ISSUE Meet Branch BUSINESS Editor & Publisher ALSO IN THIS ISSUE NOVEMBER 2017 VOLUME 12 ISSUE 11 Kaitlin Morrison In Branch Product Sales NICK BROWN Branch Strategies MEREDITH DEEN do Harland Clarke is proud to be the exclusive sponsor of International Credit Union Day TABLE OF CONTENTS NOVEMBER 2017 VOLUME 12 ISSUETAB 11 THE ONLY ALL-DIGITAL ALL-BUSINESS RESOURCE FOR CREDIT UNIONS What does a High Quality monthly magazine. Website with 72 back issues 700 articles available On Demand subscription get RANC THE B IN H BUS RAIN ESS T SUE ING IS VOLUM JUNE 2014 6 9.95 E 9 ISSUE 75 RESOURCE FOR CREDIT UNIONS THE ONLY ALL-DIGITAL ALL-BUSINESS THE MOBILE BANKING ISSUE 4 APRIL 2017 VOLUME 12 ISSUE Making Noise with a Silent Ad Campaign EVA LAMERE ALSO IN THIS ISSUE thE E-Comm ERCE ISSUE lending tools for a New generation of homeowner eMortgages by Keith Kelly may 2014 volUmE 9 ISSUE 5 9.95 Defining Accurate Base Pay Compensation and Its Importance for the CEO JERRY P. NELSON All The CU g) (CU Trainin Stars cy) Paul Nunn Hollis (CFO Curren liance Update) Emily More rson-Kapke (Comp Ande Jennifer (CU Mobile Mortgage) Keith Kelly s (CU CEO) James Collin (Lending Solutions) son Rex John k (CU Content) Laura Enoc Dios (CU Outreach) Miriam De by Roy W. Urrico Credit Unions Keepin g Up With Banks for Mobile Banking Services Products Per House hold What Does it Mean to Your Staff by Jack Kelly 7 8 13 17 22 25 UP FRONT Meet Kaitlin Morrison the Future of CU BUSINESS and MORE Tim O Hara IN BRANCH PRODUCT SALES Nick Brown 28 DATA ANALYTICS s Collins by Jame Way The Best nches Bra to Build ock is to Kn wn Them Do Understanding the Benefits & Problems with Data Lakes Brewster Knowlton CU TRAINING Are Data Lakes a Better Way to Analyze Member Data by Laura Enock Nunn Jennifer Hollis Paul Emily Mor from left Rex Johnson Top row James Collins Miriam De Dios Middle row Laura Enock Bottom row Anderson -Kapke Keith Kelly ing The Chang siness Bu Face of Lending 3 Misconceptions Hurting Your Member Interview BRANCH STRATEGIES 31 34 37 A Table for Three or Four for Goal Setting Kenneth C. Bator TRUST CRISIS Delivering on the credit union promise of personalized service Meredith Deen CFO CURRENCY Branch by Branch In the Wake of the Trust Crisis Can Branches Make the Difference in Helping Credit Unions Capitalize on a Unique Opportunity to Grow Joe Salesky LENDING SOLUTIONS Lorrie Wohlfeil Pillars of High -Performing Financial Institutions BRANCH BUSINESS Kaitlin Morrison COMPLIANCE Cullen Coxe and Stacey Wilkerson Due Diligence is Key to Lending Success Enabling Credit Union Competitiveness CO-OP s Shared Branch Network Is Your Credit Union Ready for May 2018 4 Steps to EDD Compliance Cindy Hagan do 5 C R E D I T U N I O N B U S I N E S S N O V E M B E R 2 0 1 7 C U B U S I N E S S . C O M ABOUT US THE ONLY ALL-DIGITAL ALL-BUSINESS RESOURCE FOR CREDIT UNIONS PUBLISHING TEAM Tim O Hara Publisher tim Kaitlin Morrison Editorial Director kaitlin Ashok Kumar Associate Publisher ashok Patti Manzone Designer UP FRONT Tim O Hara IN BRANCH PRODUCT SALES Nick Brown BRANCH STRATEGIES Meredith Deen CFO CURRENCY Cullen Coxe & Stacey Wilkerson BRANCH BUSINESS Kaitlin Morrison COMPLIANCE Cindy Hagan DATA ANALYTICS Brewster Knowlton CU TRAINING Kenneth C. Bator TRUST CRISIS Joe Salesky T H E O N LY A L L - D I G I TA L A L L - B U S I N E S S R E S O U R C E F O R C R E D I T U N I O N S THE BRANCH BUSINESS ISSUE Meet Branch BUSINESS Editor & Publisher ALSO IN THIS ISSUE NOVEMBER 2017 VOLUME 12 ISSUE 11 Kaitlin Morrison In Branch Product Sales NICK BROWN Branch Strategies MEREDITH DEEN 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 6 C R E D I T U N I O N B U S I N E S S N O V E M B E R 2 0 1 7 C U B U S I N E S S . C O M UP FRO NT BY TIM O HARA TAB I Meet Kaitlin Morrison the Future of CU BUSINESS and MORE n this month s Up Front column I m delighted to report right up front that the future is in very good hands here at CU BUSINESS Inc. with the addition of our new editorial director Kaitlin Morrison pictured here. Kaitlin is a first-class journalist who will oversee content in CU BUSINESS from this day forward. She will also take command of our new digital monthly Branch BUSINESS from its inaugural issue launch in January. She is now busily preparing a sample issue which will be available in a few weeks. I have had the pleasure of working with Kaitlin for the past two years as she composed some terrific early articles which we called Branch BUSINESS. Mostly due to her strong writing style the column was an instant hit with our 4 000 branch readers and was followed closely by Branch Strategies written by CUB All-Star expert Meredith Deen director products and services for FMSI and Nick Brown principal of Nick Brown Consulting who writes the always educational In-Branch Product Sales column. These three articles (and more) were so popular that we settled on Branch BUSINESS as our second monthly digital trade publication. And we are already planning a third stand-alone banking trade monthly later in 2018. Kaitlin will be plenty busy with that project too. I am looking forward to sharing the work with her and also the benefits that come with it as she is also a company shareholder And here is a small taste of what you our readers can look forward to from Kaitlin Morrison We need to build communities that are architecturally-designed around the needs of today s credit unions. She wrote. We ll encourage strong reader engagement by providing useful information and networking opportunities that help people in their retail banking careers. If we can accomplish that then we ll have a real value proposition for you our readership. This requires building the right channels offering great information and packaging it with appealing design. This is a big part of my goal with our publications. Stay tuned for some worthwhile and exciting information from Kaitlin in CU BUSINESS and also Branch BUSINESS . Thanks for reading Tim 7 C R E D I T U N II O N U N O N B U S II N E S S B U S N E S S N O V E M B E R N O V E M B E R 2 0 1 7 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 3 Misconceptions Hurting Your Member Interview I The member interview is crucial to a credit union s relationship with its members and therefore ultimately its success. That s what makes the widespread misunderstandings about this interview process so detrimental. CUB sets the record straight with the truth behind all the misconceptions swirling around the member interview. n last month s article I shared with you the SURPASS Sales Process. This process involves seven steps to sales success that can be applied in the branch over the phone and online. Giving your members a consistent sales experience is so important not only because it brands each experience but also because it ensures your members are getting the very best service possible. If you read the article you already know that your credit union has a sales culture whether it was built intentionally or not. There is no escaping it the credit union is a sales organization first and always. You sell products and services direct to consumers. Often though the selling that is taking place sounds a lot like this. Employee So what brought you in today Member I need to open a checking account. Employee Great what kind of checking account are you looking for Member Well I don t want any fees and I need a debit card. Employee Absolutely we have a great free checking account here at the credit union I can get set up for you. Are you already a member Member No. Employee No problem let s get started opening your new account and that free checking. I just need... 8 C R E D I T U N I O N B U S I N E S S N O V E M B E R 2 0 1 7 C U B U S I N E S S . C O M If you thought order taker you would be absolutely right. This is what is often referred to as a reactive sales approach. The employee asks only those questions necessary to learn what the member thinks he or she needs then moves forward processing the request. As an order taker in a reactive sales approach the employee misses an opportunity to add value to the member relationship by expanding it through crossselling and deepening it through upselling. The example script I shared above is actually one of the steps in the SURPASS Sales Process although not done well at all. It is the step where we ask questions to understand our members needs wants and dreams. You are likely already familiar with this step. It s often called the member interview. 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 IN-BRANCH PRODUCT SALES Misconception 1 The member knows what he or she needs and will ask for it when it is needed. Often employees believe that the member is the one who knows what he or she actually needs. If the member needs it he or she will ask for it specifically. This mindset places the member in a situation where he or she must be the expert and advocate on his or her own behalf for financial success. Approaching the member relationship with this misconception is like being the vending machine for financial products and services. The member takes a look at what is offered and the credit union simply Misconception 2 The member will be offended if I dispenses that member s selection. The Truth The credit union in conjunction with its sell to him or her. There is a fear of rejection that keeps many people employees is the member s financial advocate. We do live in the information age and our members from selling. The fear is that they will be too pushy or do have access to a vast amount of information but that they will need to use hard sales tactics to be effective does not make them experts. The credit union and the and meet sales quotas. employee on its behalf is the advocate for members to help them sort through the products and services available to find customized options and solutions for their needs. The member interview is possibly the most critical step in expanding and deepening the member relationship. Where it is not being done effectively credit unions will experience slow growth within their current membership and see low PPH ratios. Where done correctly though credit unions experience greater loyalty from their members higher satisfaction and net promotor scores and greater value in their member relationships. Growth expands from within and new members will onboard much faster to a primary financial relationship. When the member interview is so critical why is it not being done more consistently and effectively Here are some misconceptions I have observed while training and coaching credit union sales teams along with the truths behind them. The real reason members do not ask for products and services they truly need is because they Don t know your credit union offers such products and services. Don t understand how such products and services can benefit them. Don t know such products and services even exist. Know such products and services exist but it never crosses their mind that they need them. A few years ago I worked with a credit union client to improve its new mortgage originations through proactive outbound sales calls. The credit union was working to achieve a goal of capturing 10 percent of its members mortgage business. At the time it was at 4 percent. We then employed a lead source which identified members who had just started working with a competitor to get a mortgage and called them to offer a competitive quote. Initially the credit union was confused as to why more members didn t come to it when they were in need of a mortgage. The CU had great programs enjoyed strong member satisfaction scores and was competitive on its turnaround times. However after the first week of calling the credit union understood why. A consistent member response when employees would ask if they could give a competitive quote was We didn t know the credit union offered mortgage loans. The Truth Members expect their credit union to sell to them. I haven t ever come across a great salesperson in the credit union industry who must be pushy or deceptive in order to sell. And after nearly two decades 10 C R E D I T U N I O N B U S I N E S S N O V E M B E R 2 0 1 7 C U B U S I N E S S . C O M IN-BRANCH PRODUCT SALES of selling and coaching sales in the CU industry I have very rarely had a member complain or get offended when sold a product or service. Actually based on consistent member feedback the opposite is actually true. During my time with one credit union it underwent a sales culture change to be more proactive in its sales approach. To support the change and show how members felt about what the credit union was asking employees to do the CU hired a camera crew and interviewer to visit local branches and ask members specific questions about their member expectations. During these interviews one of the questions asked was If you found out that the credit union had a product or service which could have saved you time or money or helped you make more money but didn t tell you would you be upset The response was consistently Yes. There were even a few members who went so far as to say they would likely close their account and go to another institution that would value their membership more. The truth is members don t just appreciate being sold to in the proactive credit union way. It is one of the reasons they stay with your institution. Misconception 3 I can t find anything more to sell to my members. This is generally a phrase I hear from the teller line and call center. Often CSRs are helping the same members over and over again. The members have been sold the typical products and either have them already or have mentioned they no longer want them. Operating under this misconceptions assumes that if a member didn t want a product three years ago he or she still doesn t want it. Also it assumes that if a member doesn t want bill pay he or she is also not interested in a credit card Christmas Club savings or investment services. The Truth In most situations there is always something more you can do for your members. Too often employees get stuck thinking inside the box. C R E D I T U N I O N B U S I N E S S This is a rather clich phrase but it truly has application here. We need to help our employees think outside the box or maybe as a first step expand the box. Member interviews are successful on the teller line and in the call center when employees stop focusing on the product and its features and start looking for how that product will benefit the member. I recently coached some branch tellers who shared this misconception with me. I took this as a challenge and while shadowing these tellers I was determined to sell a few products. One of the first members who came in was a woman with a few grandkids in tow. After some small talk about her grandkids I asked Do you have a savings account for your grandkids by chance She said yes. I asked a few more questions and found out the accounts were at another institution. The credit union had a great children s savings program that would earn a higher rate which she didn t know about. So I shared that 11 N O V E M B E R 2 0 1 7 C U B U S I N E S S . C O M IN-BRANCH PRODUCT SALES her grandkids would be earning a higher rate with our product. We were able to get her over to an account rep and she ultimately brought 5 000 in deposits over to the credit union. In Conclusion The member interview is a critical step in servicing all of our members needs. The member interview can be something that takes a few minutes to accomplish at the loan officer desk or just a matter of a few questions at the teller line or over the phone. Asking simple questions to learn more and to offer the member an opportunity to share more is the way in which we connect and serve. Yes the purpose of the member interview is to sell. Selling for the purpose of serving this is what leads to value. Value for the member. Value for the credit union. And value for the employee. 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 801-8605807 or nick Ask about his credit union specific workshops and online sales training featured at 12 C R E D I T U N I O N B U S I N E S S N O V E M B E R 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 Branch by Branch Delivering on the credit union promise of personalized service What does personalized service mean to your credit union s modernday members Times have changed in that regard with members expecting more of you than ever. Learn some tips for keeping your CU members in the forefront and for anticipating what they need before they have to ask for it. redit unions have built their collective brand promise on providing personalized member service. But putting members first looks a lot different now than it did back in past decades when tellers could greet by name all the people who walked through the front door. Members today expect more than a familiar face from their financial services providers. They require a wider range of products and services a full array of delivery channel options and account access whenever and wherever they want it. At the same time they continue to appreciate good old-fashioned personal service. This is especially true of consumers who have specifically chosen to remain with or move their business to a financial institution that claims to be different from its competitors. If a credit union promises to put members first the frontline service it provides should clearly demonstrate that commitment. How can credit unions deliver on the expectations of members to provide this combination of modernday banking and individualized attention to their financial needs Several timeless aspects of one-to-one personal service combined with technological tools for branch management can help zero in on the types of transactions and guidance members are seeking. That 13 C R E D I T U N I O N B U S I N E S S N O V E M B E R 2 0 1 7 C U B U S I N E S S . C O M C way the financial professionals staffing each branch can anticipate and deliver on those needs. Each member is different and so is each branch. Branches tend to reflect the character of their surroundings and in general the types of members who choose those locations. A branch in a neighborhood populated primarily with families with young children serves different needs than a branch with a prime spot in a business park. And neither serves the same type BRANCH STRATEGIES of members as the office within walking distance of residential developments that cater to active seniors. A demographic survey can sketch in the outlines of the types of services where a branch can expect to be in demand in its market area. Using data from the core processing system and lobby tracker software can supply more detailed information about members requests for service. As a result frontline employees can be trained and scheduled to be on hand and fully prepared to deliver the services members expect when they walk through the door. There s nothing like being greeted by name. Members want to be treated like people not account numbers. Lobby tracking software invites members to sign in and state their business. Access to this information upfront facilitates queuing and gives financial professionals the information they need to greet members promptly and personally. No one wants to stand in line too long. And on the flipside overscheduling staff results in employees standing around idly when branch usage is low. This drives up costs for credit unions and their members. By monitoring branch traffic credit unions can more effectively schedule full- and part-time employees to be on hand during periods of peak demand. The 2017 FMSI Teller Line Study which analyzed patterns in more than 16 million branch transactions at banks and credit unions across the country found that mornings are generally less busy than lunch hours and afternoons. Credit unions can combine core processing data with information from lobby tracker software to conduct individual branch analyses of types and volumes of transactions. In so doing they can better align scheduling with members banking habits. Busy people enjoy this welcome I ve got everything ready for you. For the most part the technology supports discussed thus far to improve branch service delivery operate in the background but one new automated tool is designed to connect directly with 14 C R E D I T U N I O N B U S I N E S S members. Appointment scheduling software appeals to busy people ensuring that their time spent in the branch will be quick and productive. No waiting when they arrive and any preparation such as having the right forms and documents lined up is completed in advance. Appointment apps also supply useful data for branch managers to track what types of transactions and guidance members are seeking. Service delivery is not just about service. A key aspect of the members-first promise is that credit unions exist to provide value to their member-owners not profits to shareholders. That return to members is conveyed in the best possible loan and deposit rates and with low or no fees. Staff scheduling software can help credit unions reduce idle time among branch employees and can identify blocks of time where secondary duties such as outbound sales calls can be assigned with the aim of enhancing revenue production. The teller line study quantifies the impact of smarter scheduling and other strategies to improve branch efficiency on teller productivity and labor costs. According to that analysis tellers working for FMSI s top 10 clients based on productivity measurements handled an average 20.3 transactions per hour compared to the 15.6 average for all credit unions included in the study. Labor costs per transaction for top performers averaged 94 cents compared to 1.16 for all credit unions. Understanding members and their banking preferences--what brings them to a branch and when N O V E M B E R 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 BRANCH STRATEGIES and where they prefer to conduct these transactions-- can help credit unions personalize member interactions reduce wait time and schedule staff more efficiently. While technology has upped the ante on how members define high-quality service it can also help deliver on those expectations branch by branch. 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 16 C R E D I T U N I O N B U S I N E S S N O V E M B E R 2 0 1 7 C U B U S I N E S S . C O M CFO C U RRENCY BY CULLEN COXE AND STACEY WILKERSON Pillars of High -Performing Financial Institutions What lies at the foundation of your credit union s success The answer to that question isn t always easy to gauge. Our currency experts have identified six pillars that underpin optimal CU performance. Learn what these pillars are and how they can transform your credit union into a high-performing financial institution. mproving performance is a common goal that all financial institutions share. Achieving optimal performance even accurately measuring success can be challenging. Therefore it s important to identify understand and manage the foundational elements of what makes a financial institution successful. ALM First has identified six pillars of highperforming financial institutions capital pricing funding management risk and profit. Viewed simply these pillars can also be thought of as levers. Financial institutions regularly evaluate these levers to optimize profitability in the balance sheet where decisions involve pushing down or pulling back combinations of various levers. High-performing institutions are persistently seeking opportunities for excess basis points by identifying and capitalizing on new opportunities. As the credit union industry adopts risk based capital (RBC) financial institutions are faced with balancing regulatory dual-capital mandates. As a result efficient allocation of capital is a vital part of capital management because it relates to the overall balance sheet. Although a financial institution s allowance for loan loss and provisions held on the balance sheet must 17 C R E D I T U N II O N U N O N B U S II N E S S B U S N E S S N O V E M B E R N O V E M B E R 2 0 1 7 2 0 1 7 C U B U S I N E S S . C O M I be adequate to cover expected losses caused by normal operating conditions capital must also be available to absorb any additional expected or unexpected losses. Capital is essential to reduce systemic risk and to protect depositors as well as federal or private insurance funds. But if capital is so important shouldn t all financial institutions strive to hold large amounts on their balance sheets Of course regulators would prefer institutions to hold large amounts of capital. That s because doing so moves the put-option of the credit union farther away from affecting the deposit insurance funds. In reality it just transfers some of the risk from the insurance fund to the owners of the capital. On the flipside shareholders members expect their institutions to hold less capital CFO CURRENCY so they can leverage profitability holding excess capital can be expensive if it isn t deployed in a timely efficient manner. An institution holding excess capital must take on incremental risk to earn higher profits. All else equal this is necessary to generate the same return on equity (ROE). As a metric ROE (net income divided by equity) measures how effectively the institution utilizes the invested capital. What is the optimal capital position for a financial institution In reality the risk on the balance sheet will determine the optimal capital position. For example if an institution has higher levels of risk it will need to hold more capital whereas the opposite is true if the institution is on the lower end of the risk spectrum. Looking at various scenarios involving an example financial institution is helpful in evaluating the impact of maximizing ROE on net worth ratio and risk-based capital (RBC). For the first scenario let s assume loan demand slows resulting in a balance sheet allocation shift from loans into the investment portfolio. In such a situation there would be no change in net worth. However RBC will be higher while ROE will be lower. In another scenario let s assume the sample institution leverages the balance sheet to fund mortgage loan growth. The net worth ratio and RBC will fall but ROE will be higher assuming the mortgages were originated at higher rates than the borrowing cost. Financial institutions generally use a combination of these ideas to maximize profitability. Capitalization targets can be an effective way to maximize capital levels. These targets are a function of risk tolerances and desired performance. The exhibit below shows a capitalization target example. 18 C R E D I T U N I O N B U S I N E S S N O V E M B E R 2 0 1 7 C U B U S I N E S S . C O M CFO CURRENCY Pricing is another critical component in building a robust balance sheet. Successful pricing implementation for both lending and investing maximizes value since there is a finite capacity to add assets. Moreover a quantitative ROE approach removes emotion from the decision-making process. Following is an example of different loans and their corresponding marginal ROE rankings. For a variety of reasons some institutions may not be active in certain loan sectors. However for those institutions it is imperative not to overcompensate by adding loans that may not be profitable. For example as shown in the graph above the value of indirect auto loans is significantly lower due to high dealer fees and market competition. If an asset cannot be appropriately priced for the associated risks and costs its role on the balance sheet should be critically evaluated. Another defining characteristic of high-performing institutions is the ability to explore alternatives that reduce the cost of funding to the lowest level possible. Traditional balance sheet funding comes from core deposits time deposits brokered deposits and borrowings. Exploring alternative opportunities like dollar rolls has played an important role in reducing funding costs. In fact for some dollar roll collateral and coupons the implied financing rate has been negative. This tendency essentially means financial institutions 19 C R E D I T U N I O N B U S I N E S S had the ability to borrow funds at a negative rate which helped reduce the overall cost of funding. Having an efficient management team is another significant factor in high-performing institutions. These teams are open to new ideas and have a willingness to learn about new opportunities. Using critical evaluation to analyze actual and expected performance drives the decision-making process. These teams also use quantitative approaches such as the ROE model mentioned above to eliminate emotion from decision making. In addition it s important to have management teams who are able to disseminate the best ideas downstream in a relatively short period of time. An additional key aspect for successful leadership is remembering that risk should not be avoided but rather managed. It would be difficult for any institution to maintain profitability without some degree of risk because there are many types of risk credit liquidity N O V E M B E R 2 0 1 7 C U B U S I N E S S . C O M CFO CURRENCY interest rate optionality and idiosyncratic. An imperative question to address would be Is the institution avoiding one risk while subconsciously adding another Each of these risks must be evaluated depending on the asset as can be seen in the following chart. Overall it is important to ensure the institution is being compensated for risk. Utilizing these pillars strategically and effectively has the potential to directly impact overall profits. Profits build capital establish reserves and provide value to the institution. Financial institutions maintain viability by generating value for stakeholders. Net income takes into account both above- and below-the-line items. In conclusion it s imperative that institutions not only identify and understand each lever of a highperforming institution but are also able to discern which levers should be used together. Maximizing performance is accomplished by evaluating all levers on the balance sheet and knowing when to shift into high gear or pull back. TURN ON YOUR CFO and CEO 4 CFO withTEAMBUILDER. CURRENCY 20 C R E D I T U N I O N B U S I N E S S N O V E M B E R 2 0 1 7 C U B U S I N E S S . C O M teambuilder buy CFO CURRENCY Cullen Coxe is a Senior Director Advisory Services for ALM First Financial Advisors LLC. Stacey Wilkerson is a Senior Director Advisory Services for ALM First Financial Advisors LLC. 21 C R E D I T U N I O N B U S I N E S S N O V E M B E R 2 0 1 7 C U B U S I N E S S . C O M BRA NC H BUSI NES S BY KAITLIN MORRISON CO-OP s Shared Branch Network Enabling Credit Union Competitiveness B We re in an interesting moment for credit unions. Branches and mobile banking are currently core of most important financial consumer experiences but credit union members are asking for more. uilding strong community relationships was always a credit union advantage. Shared branching is one way credit unions can leverage this relational distinctive to stay competitive and meaningful. Branches are still a brilliant and necessary part of the credit union commitment to serving members financial needs. Shared branching supports this commitment by offering better experiences helping credit unions stay open for more members and protecting continuity of service. Credit unions have access to a substantial network too that actually dwarfs many of the national bank networks. As of 2017 CO-OP Financial Services Shared Branch Network is the second largest branch network in the United States with over 5 600 brickand-mortar branches and 1 800 credit union members. Self-serve terminals branches and ATMs connect credit union members in all 50 states providing access to financial services almost anywhere consumers live work and travel. In total around half of all credit union members in the US are connected to this network. That s a lot of branches and plenty of touchpoints for credit unions looking to reach and expand to new audiences. Where User Experience Starts Truthfully consumers aren t dumping the branch experience en-masse for mobile banking. They want both. For credit unions marketplace competition itself has changed--it s no longer credit union-versus-credit union. The competitive terrain has shifted. With more opportunities than ever before to connect with their finances financial consumers are no longer tied-down to one platform or even one institution. Peer-to-peer payments and lending mobile banking and alternative payment platforms such as PayPal are all options that today s financial consumers relish. It s led some observers to believe that branches are irrelevant. There s plenty of active speculation about the impact generational changes too. Mobile banking is popular. 49 percent of Millennials 31 percent 22 2 0 1 7 C U B U S I N E S S . C O M C R E D I T U N I O N B U S I N E S S N O V E M B E R BRANCH BUSINESS of Generation X and 16 percent of Boomers use it according to a JD Power report published this year. Interestingly though the same study found that 71 percent of Millennials do visit branches. On average these consumers are visiting their local branch 11 times per year--for Boomers it s 14 times. Younger consumers still value what traditional brick-and-mortar branches have to offer. It turns out that a defining preference for many of today s credit union members is user experience (UX). Relationships matter and physical branches allow credit unions to cement these connections with their members. Becoming that Primary Institution Together with smart tech shared branching allows credit unions to provide for their members more of the high-quality user experiences that many consumers are desperate for. The CO-OP Shared Branch network helps credit unions compete in today s challenging financial marketplace. By sharing their technological leadership they guide credit unions and provide compelling strategies and tools that these institutions can use to meet their members needs. Kathy Heriger-Snider Senior Vice President of Debit Shared Branch Management at CO-OP Financial Services believes this environment is creating new opportunities for credit unions. While there s been plenty of concern among credit unions about competing successfully in this mobile banking era Heriger-Snider sees this as a chance for credit unions to highlight their distinctive advantages and value to consumers. Everybody is seeking to become that primary financial institution for the member and shared branching allows credit unions to do just that she said. It really is incredible but any member can walk into any credit union in the network and we have the ability to really retrieve the entire relationship through the shared branch network. For credit unions wanting to stay competitive offering more ways to connect members with their accounts is a means of building engagement. Heriger-Snider sees digital tools apps and mobile banking as supports and enhancements of the branch experience rather than symbols of the branch s irrelevance. With these changes though it s tempting to invest digitally and step away from physical branches. That s a mistake says Heriger-Snider. Consumers haven t given up on branches. If anything the physical branch is now more crucial than before--as consumers travel use new payment technologies and engage in more online purchasing members are looking to convenient relationally-aware branches for the financial services they need. Local-to-National Reach Credit unions have always been very local communitydriven institutions. Many credit union organizations are smaller with a few regional branches or even a single branch location. They re very close to and tuned-in with their members and the needs of their communities. Over time some small credit unions grew into large networks rivaling regional banks in size and revenue. These institutions knew that their members needed more. Alone no credit union could provide a national network of branches where members could conduct 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 23 C R E D I T U N I O N B U S I N E S S N O V E M B E R 2 0 1 7 BRANCH BUSINESS transactions interact with a live teller and seek access to financial products. This is why shared branching is brilliant. Credit unions can scale across the country (and around the world) while preserving the fundamental relationship that s essential to great user experience. Compliance and Preparedness The Credit Union Distinction The concept of shared branching is a distinction that credit unions should market to their members says Bill Raker President and CEO of Firefly Credit Union in Burnsville Minnesota. With longtime personal involvement in the shared branching movement Raker has observed the difference having access to additional branches can make for credit unions. Through a series of different mergers and acquisitions Firefly grew and added both branches and members from other institutions. At some point it made sense to his credit union and its membership to use a shared branching strategy. It did not fit for us to continue operating some of those physical branches he noted. With shared branching Firefly could continue to offer service in the same communities. We retained a large percentage of those credit union members. We also have a lot of other members using the shared branch network--at one point I saw that we had more than 3 500 transactions occur across 35 different states. Firefly can have physical locations everywhere their members travel because they re connected to the CO-OP Shared Branch Network. Shared branching s relevance goes beyond travel. Both Heriger-Snider and Raker agree that shared branching is also a key disaster preparedness strategy for credit unions. Emphasizing this year s devastating hurricanes as just one example they note that continuing to offer support for members during disasters is a central part of credit unions commitment to their communities. Credit unions that were part of a shared branching network were able to refer their members to branches that were unaffected by the storms and available to provide the same financial services. Shared branching is a security blanket and a backup plan Raker noted. Federal regulators have also commented on the smart strategy of having shared branching as part of a backup plan credit unions have for how they manage their own responses during disasters. Shared Branching s Moment This may very well be shared branching s moment to unveil the potential of credit unions to more consumers than ever. Credit unions have untapped markets and many new opportunities to offer more to their members. I think the technology that exists in the shared branching network has yet to realize its full potential Raker added. He says that there s potential growth and service expansion that shared branching and its technology can really highlight within the financial marketplace. As Heriger-Snider claims Wells Fargo is only ahead of us by about 500 locations. There s so many choices out there but our strategy is to be the enabler of technology for credit unions. With this solution consumers stay connected to the credit union. Credit unions can in fact use both physical branches and mobile banking to stay competitive. And shared branching successfully empowers this strategy--making this also a new moment for credit unions. 24 C R E D I T U N I O N B U S I N E S S N O V E M B E R 2 0 1 7 C U B U S I N E S S . C O M COMP LIA NC E BY CINDY HAGAN Is Your Credit Union Ready for May 2018 4 Steps to EDD Compliance The deadline for compliance with enhanced due diligence looms. Is your credit union ready to meet the requirements Keep reading for a rundown of the four key steps along with some professional recommendations your CU should be following in preparation of its due diligence process. eginning May 11 2018 all covered financial institutions must comply with the Financial Crimes Enforcement Network s (FinCEN s) final rule for enhanced due diligence (EDD) requirements under the Bank Secrecy Act. The regulation became effective July 11 2016 but institutions were given 22 months to institute procedures to provide the necessary identification verification and monitoring. A strong Bank Secrecy Act Anti-Money Laundering (BSA AML) compliance program includes member due-diligence policies that are comprehensive. It encompasses procedures for all members and special processes for those who present a higher risk for money laundering and terrorist financing. The EDD process is meant to help predict the types of transactions a member is likely to have and to pinpoint those that may be suspicious. B Getting started Member-related due diligence begins with understanding who your members are along with the intended purpose and types of accounts and services they plan to use. At Sollievo we have identified four key steps that are necessary for a due-diligence process 25 C R E D I T U N II O N U N O N B U S II N E S S B U S N E S S 1. Ensure proof and verification of a member s identity. Credit unions must verify enough information to form a reasonable belief that they know a member s identity. Procedures should specify which documents to use for identification and when to use them when to use non-documentary methods and when to use a combination of the two approaches. Because fake documents are easily available Sollievo recommends that our clients processes call for a review of more than a single document. Researching unfamiliar documents to verify validity Institutions must be able to reasonably 2 0 1 7 2 0 1 7 C U B U S I N E S S . C O M N O V E M B E R N O V E M B E R COMPLIANCE TAB assure a member s identity e.g. if s he provides a driver s license from another state check it out online since most states websites exhibit an example of their licenses. Birth certificates also vary from state to state and require extra checking. If the member uses a U.S. passport check the expiration date. If s he isn t a U.S. citizen require a passport and visa noting expiration dates on both. Regardless of the documents used your credit union should retain copies. A notable exception is if a member uses a military ID which is illegal to photocopy. Instead note address date of birth and taxpayer ID number. Using non-documentary methods Credit unions aren t required to use non-documentary methods but if such methods are used the procedure must state which of them will be used and when. Examples include contacting a member verifying information the member provides with a consumer reporting agency researching a public database checking references with other financial institutions or obtaining a financial statement. (e.g. a CEO CFO COO managing member general partner president vice president treasurer). Your credit union also may ask to see a driver s license or other identifying document for each beneficial owner listed on the form. The person opening the account must also provide his her name and title as well as the legal address of the entity. While the rule doesn t require a credit union to validate the information collected on this form Sollievo recommends to our clients that the information presented be documented and validated. 3. Understand the nature and purpose of member relationships. After a member s identity has been verified ask additional questions to determine the risk level and establish expectations about the types of transactions that will be made. For example o Is the account for an individual or a business o Is the member retired a child or a working adult o Is the business seasonal o How will deposits be made and will there be transfers from foreign banks o What types of credit union products services will the business use Members may fall in the high-risk category because of their location types of products services they use or type of business owned. For example a member might be involved in flea market activities or another cashbased business that brings large cash deposits. While 2. Identify and verify beneficial owners of legal entity members. This represents the enhanced portion of the new rule. Legal entities include a corporation a limited liability company or any other type of organization created by filing with the state s secretary of state or other public office including an entity formed under the laws of a foreign jurisdiction. FinCEN requires institutions to complete a form (obtained from the agency s website) that provides the name address date of birth and Social Security number (or passport number for non-U.S. citizens) for each person who owns 25 percent or more equity interest in the legal entity. This requirement also extends to anyone with significant management responsibility 26 C R E D I T U N I O N B U S I N E S S N O V E M B E R 2 0 1 7 C U B U S I N E S S . C O M COMPLIANCE TAB the member may be in a high-risk category it doesn t mean s he is high risk. It just means your credit union must perform extra due diligence to document steps taken in an effort to assess the activity and why it isn t a risk concern. 4. Monitor activity update member information and report suspicious activity. Set up monitoring procedures and compare actual account activity to expected activity. Consider these steps Flag changes in activity and contact the member to see if anything such as employment has changed. If so such a change should be documented to ensure effective monitoring. Don t ignore red flags even though you know the member. Note information received from outside sources like newspaper reports of a member s arrest. Analyze wire transfers or ACH activities that vary from the norm to protect not only the credit union but also members. Watch for behavior that may point toward money laundering such as transactions in round dollar amounts or those that seem to be structured to not trigger the reporting threshold. Creating an effective policy Under the EDD an effective BSA AML policy will set clear specific staff duties including who is responsible for reviewing or approving changes to a member s risk or rating profile. It also will include procedures to maintain current member information and will provide guidance for documenting due diligence. This includes steps taken to resolve issues regarding insufficient or inaccurate information. While the EDD deadline isn t until next year examiners may soon be asking questions about how your credit union plans to be compliant. They will expect to see how the verification process for high-risk members is conducted and documented. They also will review monitoring procedures as well as actions taken when a red flag is raised. Is your credit union ready to answer these questions Cindy Hagan is a senior consultant in the Compliance Services group for Sollievo. The company a whollyowned subsidiary of Vizo Financial Corporate Credit Union offers an array of risk management products and services to provide compliance relief for credit unions. She may be contacted at (855) 605-5664 or seniorconsultant Perform a link analysis to uncover hidden relationships between accounts and monitor inter-account activity. Also identify common beneficiaries and payers among otherwise unconnected accounts e.g. track when one account frequently receives checks from other accounts. Pay attention to employees who perform unusual transactions against members accounts or who perform abnormal checks and balances. 27 C R E D I T U N I O N B U S I N E S S N O V E M B E R 2 0 1 7 C U B U S I N E S S . C O M DATA A NA LYT I C S BY BREWSTER KNOWLTON Are Data Lakes a Better Way to Analyze Member Data Understanding the Benefits & Problems with Data Lakes What sets a data lake apart from a data warehouse And why might one be a better data analytics game changer for your credit union over another A data expert gives it to CUB readers straight regarding both the upsides to and the drawbacks of data lakes. A s more credit unions seek to up their competitive game through data and analytics the debate between data warehouses and data lakes continues. While solution providers and analysts line up on both sides of the discussion understanding the advantages and drawbacks of a data lake can help your credit union determine if it s truly the best fit for your needs. To clear any confusion let s recap the main distinctions between a data warehouse and a data lake from our previous article. Both serve as data repositories however the data warehouse integrates primarily structured data from multiple data sources into a centralized single source of truth. That information is then made available to run complex queries fast and efficiently. The data lake on the other hand offers credit unions the ability to store vast amounts of raw and unstructured data in its native form until it is ready for use. At that time it is then transformed for analytics reporting and visualization. Boosts Competitive Advantage As a tool the data lake is helping to redefine the way credit unions analyze heaps of unstructured data for business decisionmaking. With the tremendous increase in competition the need to analyze and utilize member data from all sources will be crucial. The data lake facilitates quick decision-making advanced predictive analytics and agile data-backed determinations. The Data Lake Upsides 28 C R E D I T U N I O N B U S I N E S S N O V E M B E R 2 0 1 7 C U B U S I N E S S . C O M DATA ANALYTICS TAB Converges Data Sources Data lakes can help resolve the nagging problem of accessibility and data integration. Credit unions can start to pull together massive volumes of data from various sources for analytical purposes or for undetermined future use storage. Rather than having dozens of independently managed collections of data these sources can be combined into the unmanaged data lake. governance. Data lakes focus on storing disparate data but they do not focus on how or why data is governed defined and secured. Experts agree that data lakes are a target for hackers. The still-emerging status of the technology and security capabilities could put the credit union at risk and pose compliance problems. Skews Results Since the data stored in a data lake is unstructured and has potential data quality issues Delivers Fast Results Data lakes provide a platform the credit union runs the risk of the analytics being to transform mountains of information for business misinterpreted inaccurate or imprecise. benefits in near real time. The data extracted from the data lake can be queried for information and analysis Creates Data Graveyards The reality for many credit unions is that data lakes are becoming data retention and further decision-making. Reduces Expense A data lake built in a public or ponds. It is quite possible that the credit union may hybrid cloud environment can help reduce some of the discover that it is simply storing heaps of raw data and cost required to store raw data. Additionally the data is unable to make use of that data for problem-solving lake can potentially help cut costs through server and and business growth. Data lakes require solid cleaning and archiving practices. Without implementing a data license reduction. analytics roadmap for how to use the data and a solid business intelligence strategy the data lake can quickly The Data Lake Drawbacks become an expensive repository. Lacks Compatibility The capability of a data lake to store data in such a way that it is constantly retrievable Consumes Time Since data lakes hold mountains of and queried must be built in to the data lake through unstructured data they can potentially squander the unique metadata tags. Without these tags the data lake valuable time of the data scientist if most of his or her quickly dissolves into what many have dubbed the data initial efforts are spent preparing and cleaning the data swamp. before any analysis can even begin. Requires Expertise Data lakes are only as good as the person fishing in them. Someone with extensive skills must be tasked with ingesting the data cleansing it analyzing it and acting upon it. A data lake at this point in its maturity is best suited for the trained data scientists. To effectively transform the raw data into useful information requires expertise that many credit unions do not have in-house today. Hinders Security By its definition a data lake accepts any data from any source without oversight or 29 C R E D I T U N I O N B U S I N E S S Know Your End Goal Credit unions should enter any new technology investment armed with questions and answers. In today s fiercely competitive financial environment where every single scrap of data matters it s important to stay abreast of all the data analytics tools available. However we caution our readers to do their homework before diving in. Credit unions should be careful of jumping right into data lakes and of using them as the main integration source for analytics. While the vision for data lakes has been focused on making large 2 0 1 7 C U B U S I N E S S . C O M N O V E M B E R DATA TAB ANALYTICS amounts of data available quickly the credit union needs to first strategically assess its current and future business goals consider the pros and cons of the data lake and then determine the best tool for the job. Are you looking for more tips and helpful advice on data management At the Knowlton Group we believe that the best data and analytics program starts with a great strategy and a clearly defined roadmap and implementation plan. Our personalized approach to each engagement ensures that the specific needs and goals of your financial institution are captured for maximum results. Contact us today to get started. Brewster Knowlton is the founder and principal consultant at The Knowlton Group. He is also a leading expert in providing data solutions and strategies for credit unions. 30 C R E D I T U N I O N B U S I N E S S N O V E M B E R 2 0 1 7 C U B U S I N E S S . C O M CU TRA INING BY KENNETH C. BATOR MBA A Table for Three or Four for Goal Setting W How many goals should your credit union have juggling in the air at a strategic planning session The magic number seems to be either three or four. CUB s training expert makes a compelling case for both digits sharing insights gleaned from his personal experience to back it up. hat is the optimum number Phil Collins sang about One More Night. In the original Point Break film Gary Busey s character demanded Utah get me two A sitcom from the late 1970s and early 1980s claimed that Three s Company. And every avid Notre Dame football fan will tell you about The Four Horsemen who made up the team s backfield in 1924. But what is the optimum number of goals to set for the credit union during that ubiquitous strategic planning retreat I encourage my clients to set the table for either three or four big-picture goals. Allow me to explain. It seems as though in many cases in life three is the magic number. Three outs away from winning the game. A three-egg omelet for breakfast to start the day. Third time s a charm. Three may be the prime number for goals as well. A number of years ago I attended a seminar on mentoring and management. The facilitator stated that when working with subordinates on their goals for the coming year having three objectives was the optimum number. She explained studies that theorized that the human mind seems to work best handling three tasks at once and would be at peak focus at that capacity. She even suggested that multitasking only two responsibilities at one time was actually boring for such an advanced mechanism as the human brain. 31 C R E D I T U N II O N U N O N B U S II N E S S B U S N E S S While that concept has obviously stuck with me for nearly two decades my attempt to find the research that substantiates what I will call the Theory of Three has thus far been unsuccessful. The closest piece of information I have found was a study by Stanford referenced in the 2009 article Multitasking a Barrier to Leading Sustainable Innovation The article suggests. The optimum number is two projects per person. However the author also advises that two is a good benchmark and the actual number obviously varies by role. Furthermore the author concludes with the implication that four or more projects hurts my brain to even think about not three or more. That allows me to extrapolate that three may be the healthy stretch for most professionals. N O V E M B E R N O V E M B E R 2 0 1 7 2 0 1 7 C U B U S I N E S S . C O M CU TRAINING While I don t have any scientific evidence to support the Theory of Three I do have personal experience that lends credence to the concept. The best example comes from my public speaking experience. I find that when I am at my best and truly in the zone if you will while speaking in front of a group my mind is simultaneously handling three tasks 1. I am actively thinking about what I am saying as I am saying it to make sure I stay on point with the subject at hand. 2. I am evaluating the reaction and engagement level of my audience. 3. Based upon my evaluation I am thinking ahead to my next step to either maintain or improve that level of engagement. Therefore based on my personal experience results that I have witnessed and that seminar that left such an impression I regularly advise my clients to determine three goals for the coming year. I agree with the aforementioned article that many organizations spread resources way too thin by undertaking a ridiculous number of projects. One of my first strategic planning clients nearly 15 years ago yes I m dating myself shared with me a list of 20 separate organizational goals from the prior year. When I asked the executive team how many of those 20 objectives they had achieved the question was met with a moment of silence and a rather sheepish response from the CEO Well it s hard to say we really achieved any of them. If you haven t already laid out your strategy for next year I encourage you to focus on developing three critical goals that if achieved will lead your credit union to success. As I have quipped before I d rather see three goals written on a napkin that will actually be executed than several pages of detail that will be forgotten and collecting dust in a binder well before Valentine s Day. While a trilogy seems to create the desired focus and motivation for a team some of my addicted-toaccomplishment clients have difficulty narrowing 32 C R E D I T U N I O N B U S I N E S S their objectives to only three. There is almost always an exception to every rule or theory. This begs the question Is there room for four As I often do during strategic planning despite my passion for the focus of three goals I will allow for a fourth one. This concession comes partially from my realization that an ambitious group that wants to incorporate eight to ten objectives into their strategy may have difficulty in whittling combining and condensing the number down to well less than half. Don t get me wrong. I love overachievers but I feel that one of my most important jobs as a facilitator is creating focus. So what I will normally advise during goal setting is something to the effect of let s add a fourth goal only if we truly feel it is critical to our strategy. A number of groups will just add that fourth goal arbitrarily which will illicit an in-depth discussion. N O V E M B E R 2 0 1 7 C U B U S I N E S S . C O M CU TRAINING Nevertheless I witnessed the best example of this exception almost a decade ago. The executive team of a credit union first chose their top three goals but then used the fourth as a control function. Objectives one two and three were typical of what you would expect from a financial institution 1. Increase members by x% before 12 31. 2. Increase product penetration by y% before 12 31. 3. Increase loan growth by z% before 12 31. The fourth goal was a perfect example of that one critical factor. The following is a paraphrase of the verbiage of that objective Net income will exceed amount by 12 31. The success of any or all of the previous three goals will be subordinated to the achievement of our fourth goal. The executive committee realized that the credit union could be successful at exceeding each of their first three goals and could do so in a manner that might quickly put them out of business. That fourth objective served as a constant reminder that true success meant profitability for the benefit of all stakeholders members employees the community etc. to the members. If we operate at a loss it becomes difficult to help anyone. Regardless of what music you listen to what films or TV shows you watch or what football team you cheer for I encourage you to set a table for three or four goals as you build your strategy for next year. And for those who ask How do we align only three or four credit union goals with the objectives we need our employees and each department to achieve That s where org-chart goal setting comes into play ... but more on that in about four weeks. Ken Bator is the author of The Formula for Business Success B C S and 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 and featured in his latest book. To have BTC assist your credit union in creating a differentiating and engaging experience contact Ken directly at 714-681-2821 or kbator Learn more about BTC s training and strategic planning sessions at or profile kenbator . This control objective can prove to be an important guide for virtually any credit union. At times when I suggest a profitability goal I will have a board member remind me that his or her institution is not-for-profit. To that reminder I always agree but mention that the credit union is also not-for-loss. If a profit is made there are plenty of ways to give it back 33 C R E D I T U N I O N B U S I N E S S N O V E M B E R 2 0 1 7 C U B U S I N E S S . C O M TRU S T C RI S I S BY JOE SALESKY In the Wake of the Trust Crisis Can Branches Make the Difference in Helping Credit Unions Capitalize on a Unique Opportunity to Grow J How strongly built is your credit union s foundation of trust The key to your CU s success lies strongly in the personal connections you make with community members and a community presence gives you a leg up in the value department. Discover the three areas of focus that will increase your trustworthiness. ust when we thought the issues might subside the Equifax leak yet again caused consumers to question who they can trust. Interestingly at the same time we see Amazon a trusted digital brand becoming a quality-first grocery in hundreds of stores. In this time of uncertainty the personal connection consumers have with brands that are active in their communities may be one of the secret ingredients for success built on trust. Several banks are struggling to attract new business and grow revenue. Are branch closures and team reductions fueling this decline Counter to the trend in the large retail banks credit unions have added significant asset growth with more than a billion dollars in assets added at most of the top 30 institutions. Many admit there could be much more growth if they had the right tools to support it. It has been proven that ad-spends have a 5X response rate in communities where banks and credit unions have branches. Is community presence the key to trust and growth Credit unions can certainly compete with megabanks when things get personal. 34 C R E D I T U N I O N B U S I N E S S N O V E M B E R 2 0 1 7 C U B U S I N E S S . C O M Using a proactive and strategic approach credit unions can transform the member experience and claim more than their fair share. Strike While the Iron Is Hot But How Buck the trend re-evaluate the potential of creating profitable branches like Apple and create opportunities for knowledgeable team members to work collaboratively with members. Seventy-eight percent of U.S. consumers expect to visit their local branch TRUST CRISIS TAB as much or more frequently in the next five years according to a recent report by Accenture. The number of overall interactions in digital has been climbing but the value of in-person interactions has not fallen. Organizing operations to track and grow in-person engagement and to fuel its value with knowledgeable team members continues to differentiate the world s most valuable brands. The key for credit unions is to strike while the iron is hot and realize that brick-and-mortar locations are valuable. Focusing on transforming the branch can allow CUs to reinvent themselves to better meet the needs of members. It can also enable them to differentiate themselves from megabanks and become the collaborative and transparent resource members desire. follow-up. For many credit unions over 40 percent of referrals fall through the cracks. A single system across departments is needed to avoid these missed opportunities. 2. Unify. It is imperative that credit unions invest in making the branch experience frictionless and by that I mean making the branch staff s and members lives easier. Create an environment that is collaborative engaging and transparent and ensure that members experiences are consistent across all channels faceto-face interactions and digital. By automating internal processes you can avoid members being put on hold for unnecessarily long amounts of time or waiting for simple tasks to be completed. Fixing the friction can also allow associates the ability to spend more time growing their knowledge of the member and the products you offer. And ultimately it can fuel them to better serve members over time. 3. Transform. At the highest level credit unions should aim to transform from transactional centers to sales and advisory centers. In order to truly transform current business processes need to be investigated. Financial institutions adding new technology should assess end-to-end issues within the branch that need improvement. Every detail of the branch experience should be reviewed and planned to ensure a powerful human touch is blended tightly with savvy application of technology to facilitate completing the task efficiently. With modern technology credit unions can not only keep branches but also transform them into engines of growth and engagement. Relationship innovation in all channels can build member trust and value delivered by human capital that can clearly differentiate the services of the institution. Branch Next Credit unions need to be ahead of the curve with relationship innovation fueling their growth. Modern CRM systems need to do more than track leads and referrals. They must provide the robotic automation and work simplification across back-end systems that enable growth with quality business and collaborative member engagement. At the same time they must simplify the on-boarding of new team members who build financial knowledge more than systems expertise. Here are three areas of focus for credit union executives as they examine and improve their member management solutions 1. Organize. Surprisingly many credit unions do not have an effective way to track leads and referrals. Spreadsheets and sticky-notes are far too common and do not ensure good follow-up and service. By organizing prospective members contact information into one platform you can both measure your marketing effectiveness and begin to foster relationships through strategic engagement. It is essential that discussions and referrals are captured and managed for reliable 35 C R E D I T U N I O N B U S I N E S S N O V E M B E R 2 0 1 7 C U B U S I N E S S . C O M TAB TRUST CRISIS Joe Salesky serves as CEO of CRMNEXT the largest global provider of CRM in financial services where he is responsible for the company s entry into the U.S. market. A seasoned expert in software and financial services Joe has spent more than 25 years developing and delivering disruptive technology- enabled solutions. He holds 21 patents on technologies currently used by both consumers and large enterprises including mobile banking and the original patent for web-conferencing. A luminary in his space Joe has deployed missioncritical systems at more than half of the Fortune 500 companies and is a respected speaker at industry and media events. He has been quoted in leading national international and industry publications and has led his companies to achieving numerous prestigious awards. CRMNEXT is the leading global CRM solution provider in financial services. A Gartner Magic Quadrant company CRMNEXT picks up where traditional CRMs leave off. It eliminates the artificial barriers between human and digital channels automating processes to enable world-class omnichannel customer interactions from a single unified platform pioneering support for both advanced digital banking and a new universal banker approach to customer service and sales. With more than one million bankers and one billion customers globally CRMNEXT effectively recalibrates banks potential to grow engagement quality profitability service and innovation. For more information visit or follow them on Twitter CRMNext or LinkedIn and Facebook. 36 C R E D I T U N I O N B U S I N E S S N O V E M B E R 2 0 1 7 C U B U S I N E S S . C O M L ENDING SOLU TIO NS BY LORRIE WOHLFEIL I Due Diligence is Key to Lending Success n early 2015 we were approached by a longtime client of ours about helping them audit their loans. Loan auditing was not a service that we were currently offering at the time but it matched up well with our core competencies so we decided to take it on. Turns out many of our clients did not have an accountability program in place so in May 2015 we officially started offering what we now call our Smart Loan Audit service. We ve worked with many credit unions on loan audits over the past year and we wanted to share some of our key findings with the readers of CU Business this month. What We Track First off when it comes to auto lending it s important to be able to track the origin of the loan (i.e. by dealer by loan officer etc) so you can identify where your problem areas are. With that in mind here are some of the key things we track Turnaround times Turnaround from application date to decision Turnaround from decision to funding Time between trade Secured debt ratio Unsecured debt ratio Negative equity Mortgage to income ratios Amount of add-ons Certain dealers are notorious for charging too much on products placing the credit union in an at-risk situation while they make all the money Do we have a maximum amount for back-end products Do more of our at-risk loans come from certain dealers Do we have loan officers that are too risk adverse Do we have loan officers that take too much risk by not developing the application Gaps in employment with no explanation Employment both current and previous have limited time How you measure your loan officers performance is very important to your employees and management. If you are not taking a look at the full picture you may be rewarding the wrong individuals while rebuking those that are providing your credit union with the best return. Check out the following example Loan Officer 1 Conservative Loan Officer 2 Aggressive Always looking for solutions .25% .10% 50% 200 000 per month 4.5% Delinquencies Charge offs Approval Ratio with no conditions Loan Volume Yes we can attitude Loan Yield Loves coming up with solutio Net Yield after charge offs Net Income after charge offs assuming 1 000 000 per month at 7.25% 2.25% 1.75% 90% 1 000 000 per month 9% What Can We Learn 1 2 3 4 Delinquencies Charge offs Approval Ratio with no conditions Loan Volume always looking at negative first Loan Yield Loves A and A (high scores) Net Yield after charge offs Net Income after charge offs assuming 200 000 per month at 4. 5 6 7 4.4% 8 800 per month or 105 000 per year 7.25% 72 500 per month or 870 000 per year 37 C R E D I T U N I O N B U S I N E S S N O V E M B E R 2 0 1 7 C U B U S I N E S S . C O M LENDING SOLUTIONS TAB What are management and the Board of Directors focused on If you only track delinquencies and charge-offs the result would look like this Loan Officer 1 Our Hero 1 2 Delinquencies Charge offs .25% .10% Loan Officer 2 Our Risk Taker Delinquencies Charge offs 2.25% 1.75% Would someone please escort loan officer 2 out of the building and give loan officer 1 a raise and promotion for being such a great underwriter . What should they focus on and what does all this tell us There is a huge price to pay for being conservative. You escorted the wrong loan officer out the door. You praised the wrong loan officer. You encouraged the other loan officers to tighten up and focus on A and A paper You have marketing going after the wrong members. You insured the examiners will love you and tell the Board of Directors how proud they are of you even though you will make substantially less money. Your shareholders will continue to get little or nothing on their return and will ultimately start investing somewhere else. Scenarios like the one above are ones we ve seen play out many many times during our years of working with credit unions and they are the type of things credit unions can uncover by utilizing a third-party to conduct their loan audits. After more than a year of conducting these audits it s become clear that it is a service that is greatly needed in the credit union industry. We have even heard from a few of our clients that their examiners are very impressed when they hear that they have a third party auditing their loans. 38 C R E D I T U N I O N B U S I N E S S N O V E M B E R 2 0 1 7 C U B U S I N E S S . C O M LENDING SOLUTIONS TAB Does your credit union have a program in place to audit your loans If not I strongly encourage you to implement one in the near future. I think you ll find the benefits far outweigh the costs and you ll be making your examiners happy too. Lorrie began her career at LSCI in August of 1995. As a business analyst Lorrie is primarily in charge of the Portfolio Analysis program an external audit dedicated to helping credit unions make stronger loan decisions and seek sales opportunities. Lorrie also works hand in hand with our on-site consultants and has also attended numerous Rex Johnson s University of Lending and specialty schools. Before starting the Portfolio Analysis program Lorrie designed the highly successful training program in place at Lending Solutions Inc. (LSI) and personally trained many of the loan underwriters at LSI. Lorrie also spent 4 years as an on-site consultant for LSI. During that time she not only educated credit unions on lending but also trained their staff to make superior lending decisions. Lorrie graduated from the University of Kansas with a degree in Business Communications. 39 C R E D I T U N I O N B U S I N E S S N O V E M B E R 2 0 1 7 C U B U S I N E S S . C O M A cold-pressed dilemma. A hot date for dinner. Every transaction has a story. Sometimes small decisions have the biggest impact. That s why PSCU offers a robust suite of card programs that address your members needs at every step of their day. As the nation s leading CUSO we provide feature-rich Visa and Mastercard programs that attract members and help you earn their loyalty. Life doesn t stop. Neither do we. That s our story of service. credit 844.367.7728