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T H E ON LY A LL-DIGITA L ALL-B USINESS R ESOUR CE FOR CR ED IT UNIONS Introducing FOR CREDIT UNIONS THE ONLY ALL-DIGITAL ALL-BUSINESS RESOURCE THE BUSINESS ISSUE DECEMBER 2017 VOLUME 12 ISSUE 12 T H E P AY M E N T S I S S U E MASTERS OF INNOVATION INTRODUCING JANUARY 2017 VOLUME 12 ISSUE 1 CLINTON KOKER CU Business s Newest Editorial All Stars KNG & Company Inc. JERRY P. NELSON JOHN GREGOIRE BANKING BUSINESS NETWORK ALSO IN THIS ISSUE Top 10 Payments Trends to Watch in 2018 CHUCK FAGEN Harland Clarke is proud to be the exclusive sponsor of International Credit Union Day TABLE OF CONTENTS TAB DECEMBER 2017 VOLUME 12 ISSUE 12 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 18 20 24 27 UP FRONT Introducing Banking Business Network Tim O Hara IN BRANCH PRODUCT SALES Nick Brown 30 33 37 41 GOVERNANCE s Collins by Jame Way The Best nches Bra to Build ock is to Kn wn Them Do Strong Board CEO Relationships Keys to Credit Union Success 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 John Gregoire Sadly Your Employees Are Likely Unselling Members CU TRAINING LENDING SOLUTIONS Bill Hultstrand What to Do When the Credit Score Sends a Mixed Message ATM SECURITY Mike Ruth Org-Chart Goal Setting Kenneth C. Bator RECRUITING Protecting the ATM-It s a Matter of Security PAYMENTS Recruiting Top Talent for Your Compliance and Secondary Marketing Departments Adam Consiglio BRANCH STRATEGIES Chad Davis Top 10 Payments Trends to Watch in 2018 Chuck Fagen The Future Is Now for Branch Technology MARKETING MATTERS Eric Gagliano What Beer or Wine Does Your Credit Union Marketing Bring to the Party CFO CURRENCY Alec Hollis There s Big Money in Pre-Funding Employee Benefits 5 C R E D I T U N I O N B U S I N E S S D E C 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 Editor & Publisher tim Patti Manzone Designer UP FRONT Tim O Hara IN BRANCH PRODUCT SALES Nick Brown CU TRAINING Kenneth C. Bator RECRUITING Adam Consiglio BRANCH STRATEGIES Chad Davis MARKETING MATTERS Eric Gagliano CFO CURRENCY Alec Hollis GOVERNANCE John Gregoire LENDING SOLUTIONS Bill Hultstrand ATM SECURITY Mike Ruth PAYMENTS Chuck Fagen 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 D E C E M B E R 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 ALL -DI GI TA L ALL -BUSI NESS RESO URCE FO R CREDI T U NI O NS Introducing FOR CREDIT UNIONS THE ONLY ALL-DIGITAL ALL-BUSINESS RESOURCE THE BUSINESS ISSUE DECEMBER 2017 VOLUME 12 ISSUE 12 T H E P AY M E N T S I S S U E MASTERS OF INNOVATION INTRODUCING JANUARY 2017 VOLUME 12 ISSUE 1 CLINTON KOKER CU Business s Newest Editorial All Stars KNG & Company Inc. BranchBUSINESS BANKS AND CREDIT UNION BRANCHES THE ONLY ALL-BUSINESS RESOURCE FOR JERRY P. NELSON Branch by Branch Delivering on the Credit Union Promise of Personalized Service MEREDITH DEEN ALSO IN THIS ISSUE DECEMBER 2017 VOLUME 12 ISSUE 12 JOHN GREGOIRE Are You a Great Manager of People HOLLY HERMAN Motivated Workplaces KAITLIN MORRISON Two Branch Managers Offer for Ideas for the New Year BANKING BUSINESS NETWORK ALSO IN THIS ISSUE Top 10 Payments Trends to Watch in 2018 CHUCK FAGEN UP FRO NT BY TIM O HARA TAB I Banking BUSINESS Network and Branch BUSINESS eMagazine have never been more proud of my career choice than I am today. In just a moment I m about to introduce you to our new corporate structure and name Banking BUSINESS Network and to our new monthly digital trade publication called Branch BUSINESS. I remember planning for CU BUSINESS magazine 14 years ago with the same level of excitement I m feeling today. I was sitting at my desk planning a new information source that would help credit union executives run their businesses when the title Credit Union BUSINESS (all caps) popped into my head. Viola That was it And helping credit union executives run their BUSINESS is what we ve been doing successfully since that day. CU BUSINESS concentrates on what goes on under the hood at the CU Lending Marketing Technology Compliance Finance Training Collections and Branching each goes into the mix. And a successful mix of these results in a successful credit union. So now that we ve helped the c-level executives plan their work and work their plan how can we help the retail side of the equation In the branch each and every credit union financial product is actually sold. These are the troops who will certainly appreciate a helping hand on better ways to get the job done Well wouldn t you know that shortly after we added branch articles to our editorial mix I noticed an influx of branch managers and branch supervisors buying paid subscriptions to CU BUSINESS and many more of them signing on to our website www. 7 C R E D I T U N I O N B U S I N E S S D E C E M B E R Introducing THE ONLY ALL-DIGITAL ALL-BUSINESS RESOURCE FOR CREDIT UNIONS T H E P AY M E N T S I S S U E MASTERS OF INNOVATION INTRODUCING JANUARY 2017 VOLUME 12 ISSUE 1 CLINTON KOKER CU Business s Newest Editorial All Stars KNG & Company Inc. JERRY P. NELSON JOHN GREGOIRE BANKING BUSINESS NETWORK to read about branch success and how to attain it. We started commissioning important articles on branch technology and branch sales strategies and two years later we have a new stand-alone branch digital magazine ready to become the second leg of our BUSINESS network. Soon we ll be adding a third and fourth product to our mix. Branch BUSINESS also allows our Team BUILDER subscription program to cover much more ground than ever before too. Here s how the Team BUILDER works In return for a modest investment of just 500 per year per credit union we will sign up each member of the C-Level team to receive CU BUSINESS plus individual monthly e-Newsletters covering just their job responsibilities. As an example a Lending Solutions e-Newsletter might contain five or more articles each month on how to successfully lend (and also collect). This is sent to all of our Lending Members. Same thing with CFO Currency for our finance department members. And now we ll add Branch BUSINESS to the equation so every Team BUILDER credit union can have the expanded HQ Branch employees plugged into great information from the new Banking BUSINESS Network But to celebrate the Branch BUSINESS launch we ll roll back the cost of Team BUILDER by 20% to only 400 per year. We will double the number of participants and lower the cost by 20%. I hope you ll sign up your Team today Thank you for reading. Tim 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 Sadly Your Employees Are Likely Unselling Members F Are your credit union s staff members playing the role of order taker rather than taking advantage of member interactions and selling products and services Such inertia may be seriously hampering your CU s financial growth. Read on for some insight on how to shift your employees mindset into that of active salespeople. or many credit unions the struggle to get employees to reach out to members and sell is real. Often when speaking to credit union leadership they are frustrated because their staff won t take the time to engage their members beyond what they specifically ask for. Such staff members are stuck in an order taker mentality. Years ago I had the opportunity to sit with an employee and coach him on sales. Of course this is something I have done numerous times but this particular experience stands out to me. I had been invited by the branch manager to come in and provide an outside perspective on sales with her branch team because they were struggling. Before coming out I asked her to share what was happening and what she thought needed to change. She said that she continually encouraged her employees at the teller line and new account loan desk to offer products and services the member needed and from her observations they were doing this. However even though employees consistently followed her nudging sales results were low even lower than other branches that according to her were not focused on sales. It was clear that the sales process was the issue. As I sat to coach this employee I wanted to specifically see how her organization conducted a sales discussion how it uncovered needs how it aligned benefits introduced the product and created engagement and commitment 8 C R E D I T U N I O N B U S I N E S S in the member. I had scheduled an hour to just sit and listen as my client helped members. I call this shadowing because I simply sit and observe. I don t say a word unless asked. This isn t the time to coach but rather to learn. It is something I do every time I work with an employee one on one to help him or her achieve sales success because it gives critical insight when it is time to coach. While shadowing the first member to come in to the organization needed an auto loan to buy a car from a friend. The member had everything with her and was ready to finance that day. With instructions to do what he normally does the employee went through the process of starting an application getting an initial approval quoting a loan amount and a payment. Then 2 0 1 7 C U B U S I N E S S . C O M D E C E M B E R 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 it came time to sell the member GAP warranty and payment protection products. His first question went something like this Sally our credit union offers GAP insurance in case you know you total your car. It s only . You wouldn t want that... Would you My eyes shot over to the member to see her response. Her forehead scrunched as if thinking then she said No I don t think that s something I need. After I was finished shadowing this employee we had an opportunity to discuss what took place. I asked him if this was how he always sold by asking if the member wouldn t rather than would want the product and how successful he felt such a strategy was. He said it was pretty close to the way he did it and he felt it got results. I then asked where he learned this approach. He said this is what he was told to do. I wasn t shocked by this approach I had seen it before and have since. In fact early in my role of branch sales I was guilty of using it myself. It s called the Unsell. There are different forms of this approach Mr. Member I have a few products I am required to talk to you about... Ms. Member here is some information on our checking accounts. If you are interested give me a call... Mrs. Member we do offer overdraft protection for your checking account but you know it s whatever you d like to do... If you ve heard these game plays at your credit union you have employees who are Unselling your members. It s easy to see this type of strategy isn t effective. It limits sales to members who either already know about the products and have decided they want them or are quick minded and able to understand the benefits for themselves. Why do employees use this approach Let me share a few reasons this situation might be happening. 1 Poor Sales Training Often employees are taught to sell this way. Sales training is generally not formalized and often is left up to the supervisor or a co-worker employees are sent to shadow. The only formal sales training that is given is usually product knowledge where the employee takes a few courses online that teach him about the products and services the credit union offers and shows their features and benefits. With this form of training the employee simply repeats what he has heard from others or is instructed to tell the member about the product s feature. The employee sees that this is acceptable from his leaders. Maybe they have experienced a little success and they are satisfied with that. Rather than trying to improve or make selling more exciting and rewarding they simply continue to do what has always been done. Also at the root of a lot of this is fear. Because the employee has not been properly trained she has experienced a lot of what she perceives as rejection. Rejection for anyone hurts and therefore we try to protect ourselves from being rejected. The employee who approaches sales in the manner illustrated above is simply trying to shield herself from disappointment and rejection. By not becoming emotionally invested in the sales process she accomplishes this self-protection. When employees do receive formal sales training that teaches how the sales process works they often light up and begin to see the possibilities. They see what they have been doing wrong and are eager to try something new. Generally we find that they are frustrated with the approach they have been taking and are craving something that actually works. With basic sales training results often begin to change for the better which ignites the employee s intrinsic motivation to be great at selling. 2 No Accountability We often think of accountability in a negative way but it really shouldn t be viewed as such. Accountability is simply the way to form behaviors and help employees 10 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 D E C E M B E R IN BRANCH PRODUCT SALES see what is truly important in their job function. Your employees will perform in the areas they are held accountable to. In the experience I shared earlier this branch manager was expecting employees to discuss additional products and services with members. She held them accountable by coaching them on the importance of offering all the products. She likely made selling a point in team meetings and asked about it in her oneon-ones with employees. She wasn t holding them accountable for actual sales production though. As a result the employee I shadowed did exactly what he was accountable for talking to the member about GAP. He didn t sell the protection but in his mind that wasn t necessary. Oftentimes credit unions don t appropriately hold employees accountable to sales production because they feel there is a conflict of interest in doing so. They are a service first rather than a sales first organization and specific quotas would cause employees to sell at the expense of the member. There is truth to this line of thinking but only when the quotas are tied to the product rather than to the member experience. When employees are given clear sales expectations and are held accountable to sales success we see things change. The expectation is to benefit the member through financial advocacy to understand the member s true needs to align the right products and services to fill those needs and to help the member commit to a solution and close. When all of this is the expectation it is easy to hold the employee accountable. It is here where sales begin to thrive. 3 Hired for the Wrong Skillset A problem I encounter when providing sales training and coaching to credit unions is they often have employees in sales roles who have the wrong skillsets and values. If you have ever read the book StrengthsFinder 2.0 by Tom Rath you learned that each of us has a unique set of strengths or rather talents. Some of these talents 11 C R E D I T U N I O N B U S I N E S S we were born with while others we developed based on environment and opportunities presented to us. You also know that each of us also has weaknesses. The premise of the book and the movement it has started is to illustrate that those people who are allowed to focus on and develop their strengths those individuals who have responsibilities that complement their strengths are happier and much more successful. This takeaway directly applies to sales. When credit unions hire someone into a sales position they are often looking for the wrong strengths. Can you relate with any of these scenarios Because the auditing department continues to harp on accuracy and loan errors we hire loan officers who are skilled at details and analytics. Because the branch is extremely busy we hire tellers who are process oriented and can generate a lot of work in a short period of time. Because the manager may have some leadership weaknesses we hire individuals with the complementary skills to offset their shortcomings. The credit union sits back and enjoys great audits high transaction volumes and employees who lead themselves. But then it wonders why getting its employees to sell is such a fight struggle and constant challenge 2 0 1 7 C U B U S I N E S S . C O M D E C E M B E R IN BRANCH PRODUCT SALES Hiring individuals with the right sales skillsets solves most of the headache. No longer does leadership have to constantly remind employees to sell. It no longer becomes a struggle to reach goals and expectations. As a result leadership focus can switch from sales motivator and babysitter to sales leader and visionary. Of course as the credit union tackles and overcomes Unselling and replaces it with training accountability and employees who are equipped to sell new challenges will inevitably arise. First off audits will get worse. Let s face it true salespeople are not strong on paperwork and details. Second you may see transaction volumes fall a bit as employees engage members in deeper conversations. And possibly third your underwriting team is going to need a few more FTEs. Luckily the credit union will have the revenue to invest in technology new processes and employees so the sales team can focus on what the members really care about gaining exceptional value from their credit union. 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 D E C 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 Org-Chart Goal Setting Employees who understand how they fit into your credit union s grand scheme are more engaged employees but how do you convey that understanding to them Turns out the old organizational chart isn t so old school after all. With a few modern twists it can be just the tool to get the message across loud and clear. A picture says a thousand words. I m not sure who coined that phrase but he or she was on target. That s probably why some of my past clients have emphasized visuals when presenting to their board members. They just love charts and graphs or some reasonable facsimile thereof is usually what I m told. Well it s not just credit union volunteers who love visuals. Almost all of us do. This of course includes our employees. Odds are that even the most engaged staff member isn t going to read the 18page summary of the strategic plan. Heck you would be lucky if more than half of the team read the annual report. And Mr. or Ms. Executive do you really think any of the employees were actually tuned into your 30-minute rah rah speech for more than a minute or two during that team-building program you held on Columbus Day Many experts including myself state that every employee needs to understand how his or her work aligns with the achievement of the organization s goals. But how do you communicate that message clearly when half the team is thinking about all the work they need to get done from yesterday and the other half is running a C R E D I T U N I O N B U S I N E S S replay of the latest Game of Thrones episode in their heads By using a very old tool in a new way. That tool being the organizational chart. Let s create an example from a completely fictitious credit union. We ll call them Ubiquitous Community Federal Credit Union or UCFCU for short. The CU has one location in a city of 237 000 people. UCFCU serves all those who live work worship or go to school in the entire county and employs 14 fabulous people. Here s its org-chart. 13 2 0 1 7 C U B U S I N E S S . C O M D E C E M B E R CU TRAINING The four-person executive team just got back from the strategic planning retreat held in Enlightened Springs. While there the team members developed these primary goals for the credit union To increase loans by 15 percent To increase product penetration from 2.2 to 2.8 per member To increase income by 25 percent I always advocate getting the entire team involved in the strategic planning process both before and after the retreat. So let s assume the executive team obtained considerable staff input that led to the goals above. Upon return from said retreat each VP met with his or her group of experts. Those meetings weren t simply to arbitrarily report the credit union s goals. Rather they were to strategize on how each individual can contribute to the achievement of each objective. Each team of course discusses how its focus can lead to exceeding each of the goals but for example purposes let s look at the possible progression of one goal for each team. The business development team determines the following objectives will lead to at least 15 percent growth in loans. Harry and Nicole figure given payoffs and other factors related to their community that as loan specialists they need to produce a combined 500 000 in new loans per month in order to exceed a 15 percent increase for the year. The entire team discusses a few key aspects to the lending process that makes UCFCU the best choice for the majority of individuals in its target market. Elise decides that portions of the website can be enhanced to communicate a Your Lender of Choice theme that can be leveraged via social media and email marketing. Brenda realizes that there may be specific events in the community where she can represent UCFCU as the area s Lender of Choice. So the individual goals and the organizational chart might look like this Marketing Manager to develop and implement Your Lender of Choice marketing communication by January 31 to include web pages social media and email marketing Business Development Specialist to determine and attend a minimum of 12 events throughout the year that are optimum in promoting UCFCU as the Lender of Choice within the community Loan Specialists to average a minimum of 250 000 each in new loans per month The operations team members determined that in order to properly increase product penetration they would have to ascertain the cross-section of the top three most popular products among CU members that are also among the most profitable for the credit union. It doesn t make much sense to increase the average to three products per member while not making the income goal. So Brittany offers to work with Finance to define the optimum three products. The MSRs agree to 14 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 D E C E M B E R CU TRAINING always promote those particular products during their member conversations when appropriate. Therefore the individual goals and the org-chart might look like this to clearly illustrate how every single position directly contributes to the achievement of goals. VP Operations to work with the Finance Department to determine by January 31 the three optimum products to promote face to face with CU members MSRs to include by February 14 the top three products as viable solutions in the CU s member consultative process Similar to operations the finance team reasons that increasing income and product penetration go hand in hand. More specifically gaining a new member and having him do nothing with UCFCU but deposit 25 in a share account is not conducive to achieving any of the business goals. Mike and Bruce surmise that employing an automated member onboarding system would help support business development. So the individual goals and the org-chart might look like this Accounting Manager to research viable onboarding programs and suggest by January 31 three based upon price and value VP Finance to work with the VP Business Development to choose by April 30 one of the top three automated onboarding programs for implementation Using the organizational chart as a tool and foundation to not only provide structure but also depict alignment allows for a visual adaptation. It s one way 15 C R E D I T U N I O N B U S I N E S S D E C E M B E R 2 0 1 7 C U B U S I N E S S . C O M Now of course I realize that this example is rather basic in demonstrating the process of org-chart goalsetting. The end product depicted above would have many more sub-objectives and probably several dotted lines. The example also doesn t take into account other positions especially for larger credit unions. For instance building upon the same example the executive assistant might have a goal to compile a monthly dashboard report on the progress of all goals. An IT manager might have an objective of integrating the onboarding system software by March 31. And an HR manager might have a goal to hire a loan documentation specialist by February 28 to allow the TURN ON YOUR TRAINERS 4 CU withTEAMBUILDER. TRAINING teambuilder buy CU TRAINING loan specialists to concentrate solely on direct member activities. However in my experience regardless of the size of the organization using the org-chart as a visual goalsetting tool greatly increases the understanding of alignment and flow throughout the whole team. Speaking of the whole team in a perfect world the entire group of employees would meet for this post-strategic-planning session process. I realize that may not be possible for all credit unions due to hours of operation and the practicality of getting everyone together for multiple hours. It would however help to break down silos within the organization. I encourage at the very least if teams do meet separately to determine goals that a visual of the entire goal org-chart with references to all sub-objectives is made available and visible for the entire employee base. That is a picture of alignment that is worth more than a million words in any strategic planning binder. 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 www.speakermatch. com profile kenbator . 16 C R E D I T U N I O N B U S I N E S S D E C 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 REC RU I TING BY ADAM CONSIGLIO Recruiting Top Talent for Your Compliance and Secondary Marketing Departments T Only with the right talent can a credit union increase its returns and remain competitive. But how does your CU recruit top-tier team members when their services are in such demand everywhere but in particular in the sought-after compliance realm unions to create numerous policies and procedures to ensure compliance and to document adequate internal controls. The qualifications and competencies required for compliance employees can be challenging for credit unions seeking to make new hires. Critical skills for a chief compliance officer include a comprehensive understanding of current laws regulations and rules along with the ability to stay fully informed of any pending regulatory changes and how they will impact the credit union industry. Compliance officers must also be able to develop administer and monitor policies and procedures that ensure compliance with laws regulations and rules as well as identify and resolve deficiencies in the area of compliance throughout the organization. he credit union system in the United States continues to experience steady growth in members and assets. According to the National Credit Union Association as of March 31 2015 there were 6 206 credit unions serving 99 969 794 consumers and member businesses. Together these credit unions hold in excess of 1.1 trillion in assets. As credit unions continue to look for ways to increase returns and be competitive while effectively managing operating costs and remaining compliant hiring the right talent and doing so efficiently is critical. This article briefly touches upon two specific areas of operations compliance and secondary marketing. Compliance Today s credit unions are confronted with the increasingly daunting task of providing robust and convenient access to member services in the most secure way possible. Each year the effort to manage complex systems intensifies as credit unions struggle with the burden of compliance and the need to strengthen the integrity of their infrastructure. It seems as though new regulations and changes to existing rules and regulations occur almost daily requiring credit 18 C R E D I T U N I O N B U S I N E S S D E C E M B E R 2 0 1 7 C U B U S I N E S S . C O M RECRUITING TAB As the implementation of rules generated by laws such as the Dodd-Frank Act among others continues to reshape the regulatory landscape credit unions need to employ competent professionals that can assess risk and insulate themselves from falling out of line with regulatory requirements. This has led to strong competition for compliance professionals who are also highly sought after by the banking industry. Conclusion Secondary Markets Ideally credit unions fund loans with member deposits. However demand for funding that exceeds their capacity to hold mortgages in their portfolio along with being able to offer competitive mortgage products and pricing requires involvement in the secondary market for mortgages. The mortgage volume any individual credit union is funding and what that CU s plans are for future growth can help determine to what degree a secondary marketing or capital markets department should be staffed. Just as there are many different ways in which a secondary marketing department can be structured from entities that run a simple secondary desk handling transactions on a flow basis to robust capital market departments that have complex hedging strategies and a variety of delivery options available there is also a wide spectrum of talent to pull from. A key component to staffing in this area is to ensure that the experience and abilities of the candidate are truly in line with the employer s current platform and any anticipated evolution thereof. A solid secondary marketing or capital markets manager has the ability to dramatically impact the bottom line of a mortgage department and the capability to source key individuals is critical to achieving the best returns possible. The demand for talent in the area of compliance is extremely strong and finding a right fit for your secondary marketing department can be challenging as well. That being said there are extremely talented individuals in each of these fields doing their jobs every day. They aren t typically looking for a new job but they are open to exploring new opportunities. The challenge for hiring managers is finding this hidden talent. Using a professional recruitment firm to fill key positions with top talent can shorten the search time speed up the hiring process and in the long run save money. Adam Consiglio is a Managing Member of ConsiglioMattei Executive Search Group LLC an affiliate of executive recruitment franchise organization MRINetwork. He has over 30 years of experience in various aspects of banking and mortgage lending and his search practice is focused on the mortgage and banking industries in the areas of compliance secondary capital markets and production. To learn more about Consiglio-Mattei Executive Search Group visit TURN ON YOUR CFO and CEO 4 CFO withTEAMBUILDER. CURRENCY C U B U S I N E S S . C O M teambuilder buy 19 C R E D I T U N I O N B U S I N E S S D E C E M B E R 2 0 1 7 BRA NC H ST RATEG I ES BY CHAD DAVIS The Future Is Now for Branch Technology T How can your credit union provide members with more of what they want in the New Year Discover what automated systems are available to your CU that can elevate customer satisfaction at the branch. By leveraging these technology tools you can give your CU a competitive edge in 2018. and free up frontline staff for higher-quality sales and service conversations with customers. Behind the scenes and center stage in branch lobbies these forms of automation support a third aspect of customer service. They enhance sales to increase revenue production in tandem with improving efficiency to reduce costs all with the aim of holding the line on rates and fees. he dawn of a new year is often a time for peering into what the future may bring in the form of both innovations that pose opportunities to improve financial services delivery and challenges from fintech startups looking to usurp the place of banks and credit unions atop the industry. Many financial institutions may be looking past technology that is already available to 1) improve their frontline service and 2) maintain the competitive edge offered by their familiar convenient branch networks which newcomers to the market cannot claim. Lobby tracking and staff scheduling software systems provide the information managers need to efficiently deploy employees where and when they are needed. They also reduce wait time the leading factor for many customers in evaluating branch service. Appointment scheduling apps are another tool both busy customers and managers appreciate. They help ensure that the right financial professionals are available at the right time when account holders want to talk about their personal finances. Customer-facing technology such as kiosks and video tellers streamline processing of routine transactions and cash recyclers reduce the potential for errors in cash handling. In combination these automated systems offer highly visible time savers 20 C R E D I T U N I O N B U S I N E S S What They Want When They Want It No matter how stylish and welcoming your branch lobby is few customers are content to spend time waiting for service. To consistently minimize wait time staff scheduling software captures branch traffic 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 2 0 1 7 D E C E M B E R BRANCH STRATEGIES TAB data over time so financial institutions can more accurately forecast and match staffing with peak and down times. In addition lobby tracking systems provide detailed data about the types of transactions customers are requesting and the amount of time spent on each interaction. Applying this information to scheduling and staff training can result in measurable service improvements as the results of FMSI s 2016 Retail Branch Lobby Study show. Through proactive efforts to enhance service delivery including coaching and smarter staff scheduling top-performing banks and credit unions average wait times of 2 minutes 36 seconds compared to the overall average of 7 minutes 6 seconds. Managers with Interra Credit Union based in Goshen Indiana report that using lobby tracking software has allowed them to better track and measure both the member experience and employee performance across 16 branches. The system which begins collecting data as members sign in when they enter a branch lobby helps us improve member service by better predicting our busy times and [helping us] schedule our staff accordingly says Candace Gleason Interra s main office manager. It also helps 21 C R E D I T U N I O N B U S I N E S S us clear the lines and lobby quicker which makes the member experience that much smoother. Interra branch manager Chris Roelandts appreciates the extensive reporting capabilities of his credit union s lobby tracking solution managers can track service metrics in real time and respond quickly if wait time exceeds standards for example. He also values its capabilities to support member service. The software offers a checklist of steps employees should follow and provides information members need to complete transactions consistently and completely. Retail Is Detail Managers of branch operations aim to maintain a careful balance between holding the line on staffing costs and deploying the most appropriate staffing to respond to account holders requests for service on a timely basis. The more granular the data available the better managers can measure the efficiency of service delivered at the branch and employee level. They can then compare results to customer service metrics including wait time survey and other feedback on accuracy courtesy and professionalism of service interactions. The more detailed the reporting available D E C E M B E R 2 0 1 7 C U B U S I N E S S . C O M TAB BRANCH STRATEGIES through those systems the more clearly managers can share results with employees and executives to identify direct and chart continual improvements in service. To put it more succinctly in the words of an executive at a bank currently testing lobby tracking software in three branches retail is detail. Transactions per hour per employee is a key measure of productivity for this bank. But customers don t care about transaction rates they care about how long they have to wait for service Roelandts notes. Through lobby tracking data that quantifies wait time and assist times for basic transactions and more involved interactions such as opening new accounts We re trying to marry productivity with the optimal customer experience. And this software helps us get to know individual staff members better. Before we didn t know who was doing what. With this detailed data on hand branch managers can increase productivity by converting down time into assignments for sales-related activities such as outbound calling. They can also enhance smart staffing and right-size frontline staffing through attrition. The ability to quantify assist times for specific types of transactions such as opening a checking account also provides key information in calculating and monitoring product and branch profitability. TURN ON YOUR BRANCH SUPERVISORS & MANAGERS withTEAMBUILDER. 4 BRANCH BUSINESS teambuilder buy them a positive branch experience says Kathryn Dame vice president of branch administration at the Massachusetts-based Jeanne D Arc Credit Union. With this appointment technology we can virtually eliminate long wait times. Self-service kiosks and video tellers also put account holders in charge of quickly and easily handling simple transactions with staff support when necessary. These tools along with cash recyclers represent the next steps in incorporating robotics into financial services delivery a much-touted future trend as industry observers put together their Coming in 2017 lists. Also on those lists are big data applications to learn customer preferences across channels including branches and to deliver service on customers terms. Lobby tracking software can be a prime contributor to those applications pinpointing trends in the types of transactions services and conversations customers want to have in person. Depending on how your financial institution deploys technology today branches will not be left behind by digital transformation. Rather they will be bound more tightly into the full-service offerings banks and credit unions rely on to maintain their share of the market. Automated services and software available today can help financial institutions improve service and sales levels in the branch while managing and minimizing labor expenses. With rising competition over the past few years and challenging profit expectations many 22 2 0 1 7 C U B U S I N E S S . C O M Putting Customers In Charge An example of technology that combines consumers affinity for all things mobile with a desire for personalized guidance on managing their personal finances is the branch appointment app. Account holders can schedule appointments at their convenience at the branch of their choice and be assured that a financial professional trained to handle their specific request will be on hand to assist them when they arrive. This service is a favorite of branch managers as well because they can better schedule their staff and quantify requests for service. We value our members time and strive to give C R E D I T U N I O N B U S I N E S S D E C E M B E R BRANCH STRATEGIES financial institutions are turning to innovative and more effective approaches. Such strategies include introducing appointment apps managing staffing with the aid of sophisticated software and deploying do-ityourself equipment to streamline routine transactions. The combination of high-tech and high-touch service can help banks and credit unions maintain their branch networks as a vital competitive advantage in an everevolving business sector. Mobile and online channels get plenty of attention these days and lots of competition from fintech but frontline customer interactions continue to define banks and credit unions as the full-service financial providers. The host of technology tools we ve discussed here can improve person-to-person service and maintain that edge. Chad Davis is senior industry marketing manager Financial Services Practice Group Kronos which is a leading provider of workforce management and human capital management cloud solutions. Kronos s industry-centric workforce applications are purposebuilt for financial institutions of all sizes. Chad can be reached at chad.davis 23 C R E D I T U N I O N B U S I N E S S D E C E M B E R 2 0 1 7 C U B U S I N E S S . C O M MA RK ETI NG MATTERS BY ERIC GAGLIANO What Beer or Wine Does Your Credit Union Marketing Bring to the Party What can credit unions and the craft beer and fine wine industries possibly have in common As it turns out a lot in particular a sense of camaraderie rather than bad blood with the competition. Keep reading for key insight into how the craft brewing mindset can fuel your CU s growth. Beer Brings People Together When life s wandering road brought me from a traditional ad agency to be marketing VP at a credit union I wasn t quite ready for the culture shock. I met other CU marketers who shared competitive information How did that checking campaign go What group is getting the most car loans for you Have you done anything that works for home equity My mind was blown. These people all working in the same industry in the same damn town were sharing vital information. In the ad agency world this was treason I would have my tongue ripped out by the root and my lips sewn together if I had shared this kind of intel. I now understand it s what makes credit unions special. There are similar stories in the craft beer world. The following is a direct excerpt from a September 2015 article Don t Beat Em Join Em Why Brewing Together Works Better in the Craft Beer Industry written by Corie Brown. When Adam Avery of Avery Brewing Co. in Boulder Colo. and Vinnie Cilurzo owner of Russian River Brewing Co. in Santa Rosa Calif. discovered they both produced a beer called Salvation they joined forces to create one they called Collaboration Not Litigation Ale. Such joint craft beers are common. Collaboration Not Litigation It is perfect And This Is Why It s Important to Your Credit Union. In 2014 craft beer accounted for 11 percent of sales volume and 19.4 percent of dollars in the beer market. That same year it grew by 22 percent taking a giant chunk from big brands like Budweiser. 24 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 D E C E M B E R MARKETING MATTERS Credit unions face a similar market share battle. Right now the largest 100 banking institutions account for 74.8 percent of the nation s total banking assets. Community banks have 18.2 percent and credit unions have only 7 percent. With craft beer it is the cooperation that fuels the growth not the other way around. And credit unions need to do a better job of following craft brewers lead. The article details that Scale discounts and uniformity are the hallmarks of successful big brands. As smaller nimbler more personal alternatives we can all do better. We have a common enemy folks Those of us in the bottom 10 percent of market share need to stop nibbling off each other s pies and start carving from the top 100 banks. If a little info and resource sharing is what it takes so be it. Let s focus the fight. Credit unions seem to have the jump on cooperation but it certainly is not across the board. My company recently helped to rename Central Florida Postal Credit Union. With the CU s reliance on postal workers its community charter and its dedication and reputation for service the obvious new name choice was Priority Credit Union. It links to Priority Mail and it promises a level of member service. We performed our due diligence and found one Priority Credit Union a 9 million institution in Russellville Arkansas that s it. We also noted that there were three Priority One Credit Unions. One was in Florida but 208 miles away a three-hour drive from any footprint overlap. And being only 81 million in assets we saw little chance of Priority One migrating three hours north to cause brand confusion. But sure enough soon after launching the brand a letter came from an attorney. The CU and its legal counsel didn t seem concerned about the other TWO Priority One s in California and Texas with identical names just us. So much for Collaboration Not Litigation Market Your Credit Union Like a Fine Wine As of June 2017 more than 3 500 new wine products had hit the shelves in the last year. There are roughly 25 000 items in the category. That is a TON of choices While there are more than 10 000 varieties of wine grapes do any of us really know anything about wine aside from Chardonnay Pinot Merlot Cabernet Zinfandel and Sauvignon Blanc I mean aren t they all just fermented grape juice Now consider this ... There are roughly 6 800 banks and 6 000 credit unions in the United States. That is a TON of choices I mean aren t they all just places that take money from one person to lend it out to another Aren t they all just free checking mobile banking ATMs and loans Imagine if we lined up 100 credit unions and banks all on one street and you had only a 3.5 X 4 label to make or break your success. Fourteen square inches to tell your entire story and differentiate yourself from everyone else. For most credit union marketing budgets that s exactly how we feel. According to the August 2017 article How Package Design Attracts Today s Wine Consumer only 29 percent of consumers know which brand of wine they intend to buy before they enter a store. The rest decide while they stare at the labels. Is banking really much different We have our Barefoot Gallo Sutter Home and Beringer-like brands in Bank of America Wells Fargo Chase and Citi. The go-to brands that most everyone knows. While they are far from the best choices on the wall you re reasonably sure of what you re going to get when you uncork the bottle. Doesn t that make credit unions the local craft wine of the industry The higher-quality lesser-known alternative to the nasty big-name box wines 25 C R E D I T U N I O N B U S I N E S S D E C E M B E R 2 0 1 7 C U B U S I N E S S . C O M MARKETING MATTERS Don t Let Your CEO Design Your Label Among wine distributors the label is everything. But wine makers have the same creative issues that credit unions have. From the May 2016 article titled Should CEOs Be Creative Directors According to a recent Nielsen survey of consumer packaged goods (CPG) professionals 53% say that that the opinion of senior executives is one of the sources given the most emphasis when making design decisions. Even more troubling Often senior stakeholders arrive late to the process with different opinions which results in longer timelines. Moreover to achieve consensus clients will often make unfortunate design compromises by arbitrarily combining elements from different designs. More than three in five agency professionals agree that this tendency to create Frankensteins is pervasive and problematic. In fact 63% of agency professionals feel that the base design they present to clients is often better than the final version that addresses all their refinements. In the end the design process often turns out to be longer more frustrating and more expensive than anticipated only to yield sub-par results. So your homework is to go to your local wine store. (It s OK to do it on credit union time. I ll send a note.) Review the selection and determine what stands out to you. Buying and trying a few options is totally up to you Now consider your credit union s 3.5 X 4 label What does it say about you Is it what you WANT it to say Does it make you stand out or does it blend into the wall Does it look like a 9 bottle or 30 bottle Given your market what should it be Is it based on your target s feedback or is it straight from your CEO s preference A Label Only Gets You So Far Whether you drink wine or craft beer we ve all been fooled by fancy labels. We ve all experienced the bitter putrid nastiness of a company that spends its entire budget on a label with little focus on the product. Your brand will entice trial but your service experience and product delivery are the taste aroma and texture of your institution. They are what get people drunk with love and keep them coming back to your credit union for more. 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. 26 C R E D I T U N I O N B U S I N E S S D E C 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 ALEC HOLLIS There s Big Money in Pre-Funding Employee Benefits I Is your credit union giving employee benefit costs the attention they require If not you could be setting your CU up for a lack of staff quality. Discover how a pre-funded employee benefits investment account can help you attract and retain top-notch talent while keeping your costs in line. nstitutions across the United States face rising employee benefit costs. Thankfully there are many avenues to pursue to offset these expenses. Providing an appropriate response to this growing trend should be on all board agendas particularly because it relates to attracting and retaining quality employees. For credit unions the framework in Section 701.19 of NCUA s rules and regulations offers a solution in the form of a pre-funded employee benefits investment account. These programs have been gaining momentum over the past few years as more credit unions embrace the advantages of these programs. Investments that are used to pre-fund benefits vary widely but generally fall into two broad categories insurance investments and securities. Figure 1 illustrates the current composition of the industry and the growth since 2014. As of Q3 2017 insurance investments (split-dollar and other) account for just under 50 percent of the total industry pre-fund investments. Meanwhile securities account for 37 percent and other investments 12 percent. Since 2014 securities and split-dollar life insurance investments have grown rapidly. Figure 1 Aggregate Credit Union Data Quarter 3 2017 Total Assets 1 379 996 168 Net Worth Ratio 10.90% Employee Benefits Securities Other Investments Split Dollar Coll Asgn Split Dollar Endrsmnt Other Insurance Other Non-Insurance Total Amount ( ) 5 804 630 1 802 037 2 205 292 639 983 4 716 556 395 005 15 563 503 Percent of NW 3.86 1.20 1.47 0.43 3.14 0.26 10.35 Growth Since 2014 333% 17% 217% 31% 69% 100% 121% Source S&P Global Market Intelligence 27 C R E D I T U N I O N B U S I N E S S D E C E M B E R 2 0 1 7 C U B U S I N E S S . C O M CFO CURRENCY Net Worth 150 419 582 NCUA s Section 701.19 outlines credit unions general authority to administer employee benefits stating that they must be reasonable in type and size given the financial condition of the institution. It also outlines the investment authority investments can only be held for as long as there is a directly-related employee benefit plan or defined benefit plan obligation. ( Benefit plan and defined benefit plan have the same meaning as found in the U.S. Code of Federal Regulations.) Items explicitly outlined as impermissible such as salaries overtime pay incentives or holiday gifts cannot be pre-funded. Figure 2 highlights a few of the most common expenses that are permissible. Ultimately these expenses form the obligations that establish the legal basis for owning the investments funding them. As a rule of thumb portfolios whose sizes exceed 25 percent of net worth will receive enhanced scrutiny but this isn t a statutory limit. Each portfolio will be judged according to the credit union s specific practices. Benefit Expense Pension & Retirement Group Health 401(k) Contributions Group Life Disability Total Benefit Expense 2016 Q4 324 384 367 065 32 976 27 943 23 129 775 497 2017 Q1 378 448 367 065 32 976 28 325 27 374 834 188 2017 Q2 378 448 367 065 32 976 27 986 23 610 830 085 2017 Q3 322 099 397 845 32 976 41 823 27 455 822 198 4-Q Trailing 1 403 379 1 499 040 131 904 126 077 101 568 3 261 968 So given credit unions wide-ranging flexibility to fund employee benefits how should an institution proceed Luckily the options aren t necessarily mutually exclusive (barring any resource constraints of course). Many institutions have both insurance investment holdings and securities portfolio holdings. However NCUA has noted that insurance investments can often be complex thus placing the burden on management to understand the risks associated with any product prior to purchase. These risks are discussed in the OCC s 2004 Interagency Statement on the Purchase and Risk Management of Life Insurance. They include the liquidity transactional operational reputation and compliance legal risks associated with institutional life insurance. For credit unions desiring more flexibility or that don t have a solid understanding of how to properly engage in life insurance arrangements it s often helpful to partner with an asset manager. Overall the simplicity transparency and control afforded by a securities portfolio can grant the credit 28 C R E D I T U N I O N B U S I N E S S union greater freedom than institutional life insurance can. Institutional portfolio management techniques begin with formulating a policy statement return requirements and other guidelines. This groundwork includes determining desired risk tolerance expected return investment objective and benchmark to evaluate performance. Because a portfolio s underlying assets can affect both earnings and capitalat-risk the board and management need to be on the same page when identifying a strategy that aligns with institutional goals and overall balance sheet management. Understanding the accounting treatment these investments will receive particularly pertaining to equities is vital to this process. For example a more risk-averse institution may elect to avoid any equity investments to eliminate mark-to-market treatment of its portfolio. Additional considerations in strategy formulation include determining return objectives liquidity requirements time horizon and any other specific investment restrictions. 2 0 1 7 C U B U S I N E S S . C O M D E C E M B E R CFO CURRENCY Funding employee benefits costs is a must. Rising costs present credit unions with quite a burden and prefunding is one of many tools to help manage expenses. Regardless of how a credit union funds its employee benefits programs it must do so in a safe and sound manner. Pre-funding employee benefits is a strong approach to building a more competitive credit union. Mr. Hollis performs asset liability analyses for financial institutions various what-if analyses budget forecasting liquidity forecasting and any other modeling requirement to fit the needs of ALM s clients. As an associate Mr. Hollis s additional responsibilities include the presentation of results to client ALCOs and senior management as well as mentoring new financial analyst team members. He holds a bachelor s degree in finance from the University of Notre Dame. 29 C R E D I T U N I O N B U S I N E S S D E C E M B E R 2 0 1 7 C U B U S I N E S S . C O M GOVERNA NC E BY JOHN GREGOIRE Strong Board CEO Relationships Keys to Credit Union Success W Without a great leader your credit union is doomed to ungreatness. And a CU s Board members are instrumental players in ensuring outstanding leadership. With a focus on CEO evaluation this first in a three-part series reveals proven methods that will help you and your Board build a stellar leadership team. hat is the difference between credit unions that succeed tremendously and those that merely exist The answer in all cases is leadership. Think of credit unions that have weathered financial storms change of sponsor employment disruptions. Once you have that list you will find one common denominator a strong CEO and an informed engaged Board of Directors. Hiring and inspiring a great CEO is job number one for any Board. Interestingly there is an appalling lack of training on this important subject for credit union Board members. This article is the first of a three-part series dedicated to strengthening credit unions through proven methods of building great leadership teams. We believe that a Board s ability to recruit retain and inspire great CEOs is the most important contribution it can make to its credit union. The series will focus on three key issues CEO evaluation CEO compensation and CEO succession plan recruiting. John Gregoire The CEO Evaluation In our experience the CEO evaluation is a consistently weak part of the credit union Board CEO relationship. CEOs we have interviewed have told us candidly 30 C R E D I T U N I O N B U S I N E S S but unfortunately often anonymously that they lack a clear understanding of their Board s perspective of their performance. In some cases there is a reasonable scorecard with very quantifiable measures. In nearly all cases however the more subjective issues such as Board relations community impact and leadership are left largely to conjecture. Experts in the field have concluded that Organizational performance will over time deteriorate without clear communication between the Board and the CEO on these (see above) issues. 2 0 1 7 C U B U S I N E S S . C O M D E C E M B E R GOVERNANCE So how do Boards ensure that this gap is corrected in their credit union The first article in our series So how do Boards ensure that this gap is corrected in their credit union The first article in our series will detail methods to make certain that your organization excels in this key skill. Most if not all Boards understand that their only employee is the CEO. It is through the CEO that all credit union operations are delegated. This may seem like a basic and simple proposition however there are libraries full of books on the art of delegation. The extent of delegation and performance is most clearly described in the CEO evaluation review. Ask any HR expert and they will say that one of their biggest challenges is the performance review. Many in management consider this task a necessary evil and a departure from their daily tasks. This is true even where the distinction between responsibility and performance is clear such as the CFO evaluating the Accounting Manager. Imagine how much more complex and therefore difficult it is for seven or nine individuals with varying backgrounds which are normally inconsistent with running a not-forprofit financial institution to provide clear perspective on the performance of a CEO. In order to accurately grade a CEO s performance the Board members must have a strong understanding of the organizational focus and strategies. They must also have a firm grasp of the credit union s performance against peers to provide perspective on how well the credit union is actually performing. Many Boards assess performance primarily against budget. Without a peer comparison most Boards are unlikely to have the experience necessary to determine whether the budget was overly conservative or represented a real organizational stretch to achieve. For example one organizational target may be ROA. The goal may have been set at 0.75. The credit union may have achieved a 0.54 result which would 31 C R E D I T U N I O N B U S I N E S S appear to be sub-standard performance. As the recent recession demonstrated however the economic environment may change quickly largely impacting the credit union s ability to reach previously set goals. In this example the peer performance may have averaged 0.24 ROA. This would be an indication that the credit union significantly outperformed its peers. Achieving a 0.54 ROA probably required management decisions and performance that would be bonus worthy. Contrarily the economy may have been booming. Peers may have performed at an average 0.89 ROA. In this case the credit union seems to have underperformed its peers. It would be incumbent on the CEO to provide rationale for the 0.54 performance. This is where strategies specific to a credit union may come in to play. For example if you decided to engage on an aggressive building project hire additional staff in advance of a new strategy or put away additional capital to buffer the impact of a significant SEG or sponsor s potential decline the 0.54 performance is clearly appropriate. The same dynamics apply to most credit union metrics. That is why Board orientation and training should include a clear understanding of the organization s primary strategy and performance metrics. Beyond quantifiable organizational performance metrics the CEO should be evaluated on Board relations as well as leadership and external relations with the credit union s membership and community and with the credit union community including regulators. This assessment is usually more subjective and even more difficult for Board members. There are a number of methods to provide substance to this task. We will cover those options in our next article. D E C E M B E R 2 0 1 7 C U B U S I N E S S . C O M GOVERNANCE John P. Gregoire is a partner in Koker Nelson and Gregoire (KNG) a consulting firm dedicated to executive compensation succession planning and performance management in credit unions. With more than forty years of experience in the financial services industry and having held senior management positions in state and national trade associations and credit unions his is a broad-based perspective reaching to board governance team leadership CEO appraisal score carding succession planning mergers and the alignment between executive compensation and organizationalstrategy. John also founded the ProCon Group Ltd. now in its twentieth year of serving a client base comprising over forty percent of credit unions with a billion dollars or more in assets. A founding member of the Filene Research Institute he was instrumental in the development and publishing of the report on Board Responsibilities and Work Styles in Effective Credit Unions. He has authored a variety of articles on strategy the balanced scorecard and governance. John earned his master s degree in management from the Claremont Graduate School Peter B. Drucker School of Management Program working directly with Drucker on topics of executive management. He is a former board member of the National Credit Union Foundation. You can reach John at 608-239-3449 or John.Gregoire 32 C R E D I T U N I O N B U S I N E S S D E C 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 BILL HULTSTRAND What to Do When the Credit Score Sends a Mixed Message Some loan decisions are crystal clear and others are a bit fuzzy. How do you and your staff decide when to turn down a questionable loan request versus when to say yes This real world scenario sets the record straight on how to proceed through the haze. A nyone can make the decision to approve an A member with great income and low debt. But what about those Anyone can make the decision to approve an A member with great income and low debt. But what about those applications that come in with mixed messages (i.e. decent credit score but some troubling factors) That s what separates the great from the merely average decision makers. Let s look at the following credit report to see a classic example of the mixed message loan. But first here are the basics of the application Loan amount requested 35 493 for an RV Income 125 000 year Debt-to-income 39.19 percent Loan-to-value 75.83 percent Credit score 692 33 C R E D I T U N I O N B U S I N E S S D E C E M B E R 2 0 1 7 C U B U S I N E S S . C O M LENDING SOLUTIONS Below is a redacted version of the credit report. Let s take a look What are some things that we notice here FICO 692 with the following codes o Top two reasons are code 38 (serious delinquency) and code 18 (number of accounts with delinquency) o Next two reasons are code 10 (capacity) and code 8 (too many inquiries) By now your staff should have become familiar with the following guidelines o The first two codes carry the most weight. o The second two codes carry far less weight. Any codes relating to delinquency with a 692 score are great news Why The delinquency is becoming old old news Payment patterns equal 35 percent of a score s make-up. There is no way a consumer could score this high with any delinquency that is recent. Code 10 can be a dangerous sign or it can simply mean the consumer has limited available revolving credit. The credit report would penalize both these situations in essentially the same manner o Consumer A has 40 000 in limits and owes 36 000. His capacity is only 10 percent. o Consumer B has 2 500 in credit limits and owes 2 250. His capacity is also only 10 percent. o Consumer A most likely has a bankruptcy benefit indicator (BBI) that is much higher. Consumer A will absolve far more debts and strain on his budget regardless of income. 34 C R E D I T U N I O N B U S I N E S S D E C E M B E R 2 0 1 7 C U B U S I N E S S . C O M LENDING SOLUTIONS Let s look further on in the credit report and see what we find Delinquency is from a mortgage 14 months ago. When was the last hiccup with this consumer s credit report The consumer has large liens from approximately 18 months ago. These liens are driving the score down. So what would we do We don t ever want to immediately turn down a loan. This credit report has so many questions and holes. It needs a strong interview to proceed. The mixed message indicates we must do our due diligence. Here are some additional thoughts for the loan interview When you see a code 10 you must immediately look at the credit summary to assess how much revolving debt is outstanding. For this consumer his revolving debt is 2 500. His capacity is 50 percent. Are we concerned What is his BBI It s low based on just the revolving debt. The liens need exploring because they could change the landscape tremendously. Once a code 10 is present you need to immediately check the unsecured debt ratio to see whether the code 10 is a real problem. Inquiries in the past two years are 19. This is far too high. We recommend two to three per year. Always train staff to look at whether the inquiries are like as well as to see how much of a problem they are. 35 C R E D I T U N I O N B U S I N E S S D E C 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 We recommend testing your employees with this loan example (or with other mixed message applications you have in your portfolio). Using the score codes to determine the direction the score is heading is vital. The biggest key is getting your staff to ask the right questions while conducting a thorough interview. As the late great Paul Harvey would say always get the rest of the story. Bill Hultstrand is Director of Business Development for Lending Solutions Consultants. 36 C R E D I T U N I O N B U S I N E S S D E C E M B E R 2 0 1 7 C U B U S I N E S S . C O M AT M S EC U RI T Y BY MIKE RUTH Protecting the ATM It s a Matter of Security C Don t let a compromised ATM fleet destroy your credit union s reputation. To increase your ATM security and to curb cyberattacks certain processes and planning tips will help keep you in the safe zone. Enlisting everyone at your institution from the C-Suite down is critical. Keep reading for a step-by-step run-down of these strategies. redit unions are operating under increased scrutiny by regulators and consumers on security practices and plans. That is why security is top-of-mind for most credit unions. Recently 74 percent of financial services CEOs cited extreme concern about cyber threats.1 And that s no surprise given that 37 percent of financial services organizations recently reported a double-digit increase in cybersecurity incidents.2 Boosting ATM Security Starts at the Top ATM Security Breaches on the Rise When shoring up their cyberdefense credit unions can t afford to ignore their ATM fleet. From bruteforce physical attacks to sophisticated cyber malware credit unions are forced to protect ATMs against a broad range of threats. Recent figures from FICO indicate that the number of U.S. ATMs compromised by criminals rose a whopping 546 percent from 2014 to 2015. The general consensus is that this surge is due to criminals working to get in before the EMV migration in the U.S. reaches critical mass to reduce skimming. However even after EMV technology is completely in place one thing is certain as long as there is cash stored in an ATM there are people who will attempt to steal it. Creating a successful ATM security plan includes enlisting the help of the executive team employees and customers. 37 C R E D I T U N I O N B U S I N E S S If your ATMs are compromised perhaps the biggest blow and most difficult to repair will be to your reputation. Fortunately there are proven steps that your credit union can take to increase ATM security and starting with the c-suite is the first 1. Start with the board of directors and the c-suite. Given the scope of the potential impacts of an ATM 2. security breach security needs to be an explicit part of your enterprise risk management strategy. Involving your c-suite and board of the directors is an important step in the risk management process. Help your executive team understand your ATM risk profile. The impact of ATM security on 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 2 0 1 7 D E C E M B E R ATM SECURITY your institution s overall risk profile needs to be clearly understood by your board and management. Make sure senior executives have the information and resources they need to properly understand the scope of ATM security needs and what it will take to address them. Executives don t want to get into the technical details of what a specific threat does but they need to be able to quantify what the risk is. This will help them better understand the level of funding that will allow the credit union s operational teams to properly craft a security policy that will help address threats. Such threats include card skimming card trapping and smash and grab physical attacks in which the perpetrators try to steal the entire machine. 1. Get to know the proper tools and guidelines. The Federal Financial Institutions Examination Council s guidelines include a number of recommendations for credit union boards even for those institutions determined to be at the lowest assessed risk level. Among them are Discuss ATM risks at board meetings this will help to better understand the scope and depth of the problem and keep a focus on ATM security. Consider information on security-related expenses and tools in the annual budgeting process. Complete a formal risk assessment. Conduct regular not less than annual employee training. Cyberattacks Phish for your Employees Employee customer and soft IP data remain the top three targets of cyberattacks in financial services which is likely why a recent PwC report found that 59 percent of financial services businesses are investing in training and education programs to better defend against evolving security threats.3 38 C R E D I T U N I O N B U S I N E S S D E C E M B E R 2 0 1 7 C U B U S I N E S S . C O M ATM SECURITY One of the ways cyber thieves target employees and customers in their efforts to extract sensitive data is with phishing the sending of unsolicited emails attempting to get recipients to click on a link or take an action. When they do the result is often the downloading of malicious software called malware onto the credit union s systems and networks including ATMs. Phishing remains a top security challenge for the financial services industry with 31 percent of all phishing attacks targeted at financial institutions.4 Enlist Your Customers for Added Awareness Take Proper Security Measures to Combat Phishing Attacks To combat phishing it s not enough to have the best anti-virus or malware detection software in place employee education is also critical. Your employees can be your best line of defense against security attacks if they are aware of the scope of threats aimed at their organization. Credit unions should ensure that Employees know the importance of not clicking on unknown emails or ads on reputable sites and should be able to recognize bogus emails and ads. All personnel are warned not to use unsecured devices or connect unprotected personal devices such as flash drives to company systems. Additionally credit unions should ask these questions when addressing security issues within the company Do you have a formal security training program for all employees Do you request that your employees inspect your ATMs for physical anomalies whenever they use them Have you established and communicated policies regarding unsolicited emails Not only can your employees guard against security attacks enlisting your customers to help is also important. You don t want to raise undue fears or concerns but you do want your patrons to know that you understand potential threats and have taken the necessary measures to ensure proper ATM security. Some credit unions even use ATM idle screens to convey anti-skimming messages and remind users to check for foreign devices on the ATM. Don t wait until you re on the defensive let your customers know what you re doing and enlist their support. Today virtually everyone is aware of security and data protection and ATM scams are regularly documented in the media. However it s important that you don t allow others to dictate the message your patrons receive. Letting your customers know that you are continually working to make your ATMs more secure delivers a strong positive message for your credit union. When It Comes to ATM Security Planning is Key Proactive planning can save valuable response time when a security breach occurs and can result in accelerated containment and resolution of the incident. When creating a tailored ATM security plan keep these suggestions in mind Identify Security Risks A thorough assessment should identify all potential ATM security risks in your environment. You must first understand what type of vulnerabilities your ATMs have in order to determine what capabilities should be deployed to prevent damage detect intrusions and provide alerts when potential threats are identified. For example machines that sit inside guarded lobbies have a different risk profile than machines that sit on an island with no video camera surveillance. 39 C R E D I T U N I O N B U S I N E S S D E C E M B E R 2 0 1 7 C U B U S I N E S S . C O M ATM TAB SECURITY Determine Key Metrics You must determine which specific performance metrics will allow you to accurately assess the impact and effectiveness of your security initiatives. Once these metrics are identified then you may strategically define and prioritize which security features to put in place. This will help guide your plan toward effectively reducing critical vulnerabilities and minimizing the impact of a physical or virtual breach. Make Your Plan Your Own An organization s structure governance culture and risk assessment can all have a significant impact on its ATM security plan. ATM security must fit within with your overall business strategy and it is important to do the necessary research to make your plan unique to your organization. Review the various security frameworks available and identify the components that are most applicable for your organization as your plan might include components from multiple sources. Include Your ATM Vendor Most if not all ATM vendors have security guidelines available that provide a best practices approach. True ATM security is all about understanding the big picture the breadth and depth of threats and how all of the parts of your ATM infrastructure fit together. Your ATM vendor can be a valuable contributor to this planning process. When it comes to protecting ATMs against security threats the old adage that an ounce of prevention is worth a pound of cure rings true. The way your credit union proactively responds to a security breach can protect your members and save you from potentially irreparable damage to your reputation. Mike Ruth is the ATM Product Manager at Cummins Allison. He can be reached via email at RuthM Sources 1 19th Annual Global CEO Survey February 2016 2 Cyber Risk Management Financial Services 2015 April 2016 3 Turnaround and Transformation in Cybersecurity Financial Services 4 PhishLabs 2016 Phishing Trends and Intelligence Report 40 C R E D I T U N I O N B U S I N E S S D E C E M B E R 2 0 1 7 C U B U S I N E S S . C O M PAYMENTS BY CHUCK FAGAN 2 Top 10 Payments Trends to Watch in 2018 017 was a good year for credit unions and the industry is well positioned for a strong 2018. Lending and capital positions are strong. Cards were used more heavily in 2017 than in 2016 a trend likely to continue and consumer distrust of big banks remains high. From fraud and cyber security to fintech and other disruptors here is a look at the top payments trends to watch in 2018 -- Faster Payments -- There is a lot of hype around P2P payments. So far the numbers are not keeping pace with forecasts but 2018 might be the time when millennials in particular -- the generation that has grown up with Venmo -- helps turn the tide. With the release of Zelle and the Federal Reserve s preference toward these types of technologies we are already seeing a shift. -- E-Commerce -- As further evidenced by activity on Black Friday and Cyber Monday the shift to e-commerce is real. The gap between e-commerce and in-store transactions is continuing to increase despite valiant efforts by brick-andmortar businesses to drive consumers into stores. -- Mobile Wallets -- There was a mad rush to add mobile wallets several years ago at the financial institution and consumer level but adoption did not take off as anticipated. Many consumers used their new mobile wallet of choice a couple of times then quickly forgot about it and many merchants had not yet enabled mobile wallet technology. All of the equipment from the past couple of years has mobile wallet technology embedded in it. If merchants opt to turn it on we are going to see a significant increase in the number of transactions done on mobile phones at the point of sale. Instead of being 41 C R E D I T U N I O N B U S I N E S S D E C E M B E R 2 0 1 7 C U B U S I N E S S . C O M top-of-wallet it will be about being top-of-mobiledevice. -- Real-Life Data -- Many companies today talk conceptually about how to use data and analytics. Data in the credit union industry comes not only from payments but also from call center transactions fraud trends data from the core borrowing needs and more. Credit unions able to assemble the richness of this data and use it to improve the financial lives of their members will be the clear winners. -- Fraud -- Breaches like Equifax in 2017 made it clear that factors out of our control can create a lack of confidence from consumers. Not only do we need to protect information and consumers but there also needs to be a continual effort to ease the minds of consumers in light of headline-making breaches. While we have yet to feel the full impact of these incidents EMV will help protect against potential counterfeiting as it is intended to do. However fraudsters are not willing to take a pay cut. They will continue to find holes and gaps to exploit for example through rewards and call centers. We need to stay on top of our game to protect credit union assets and keep consumer confidence. -- Cyber Security -- Cyber security will continue to be a top concern in the new year. It is no longer a question of if you will suffer an attack in this industry but when. The most important thing to keep in mind is that cyber is not solely a technology issue It is an organizational issue. The entire organization has to be behind cyber efforts in order to stay a step ahead -- there is no magic silver bullet. PAYMENTS -- Interchange Income -- As the volume of transactions done through large retailers like Amazon Costco and Walmart increases it comes along with lower interchange. From a regulatory standpoint merchants will continue to come after debit something advocacy groups like NAFCU and CUNA are fighting to protect. On the credit side there will be less concern around interchange when it comes to government regulation but consumer behavior at these retailers in particular will likely drive interchange down. -- Member Experience -- Price is no longer the battleground many people think it is. More often than not it comes down to the member experience as consumers today will pay more for a better experience. The way in which today s consumers are transacting is changing. Credit unions need to adapt to consumer preference making sure they are there for members whenever and wherever they need them. In the past credit unions tended to take stock of all the technologies available in the marketplace and craft an experience accordingly. Many credit unions are starting to flip the paradigm and put the overall member experience first. It begins by identifying the ideal experience credit unions want to provide to members then looking at the ideal experience they want from various service providers and finally finding the companies and technology that fit the experience. -- Loyalty as a Driver -- The greatest asset credit unions have is their members. If you do not have a strong rewards program you are going to get left behind. All the national issuers have robust loyalty offerings. When you look at the average penetration of credit cards for example the upside to fostering stronger member relationships is apparent. -- Fintech Disruption -- Fintech is coming it cannot be ignored. Credit unions should look at how partnerships with these companies can benefit them. Take PayPal s partnership with Mastercard and Visa as an example. Credit unions can identify which of their members are already using PayPal on C R E D I T U N I O N B U S I N E S S a regular basis then offer them incentives to load their credit union card directly into their PayPal wallet. Walmart is dabbling in the banking services space with prepaid cards. Uber is making auto loans based on the demand for its services even if the borrower has no credit history. We need to be knowledgeable of and understand these companies and be on the front edge of working with fintech providers instead of trying to react down the road. Looking beyond 2018 credit unions need to consider the services they can wrap around their traditional business models that members would find valuable identifying offerings outside of checking and savings accounts loans and online bill pay for which members would be willing to pay. It will be about more than just how to offer a better auto loan or mortgage loan experience it will be about how to wrap other services around these core offerings. PSCU is starting to look at all of the things around the member experience from an omni-channel perspective and then building out back-end tools that support the overall experience. How can we enable it so that consumers can seamlessly start or end any conversation in any channel -- for example starting a loan application on a mobile device and finishing the process over the phone This is an area in which we will continue to dedicate significant time and resources. Credit unions must continually reinvent themselves to stay relevant. When credit unions can take advantage of having competitive products in the market they will generate income and grow in different ways than they have in the past. Chuck Fagan III joined PSCU as CEO in April 2015. He has nearly three decades of experience in the credit union industry and was instrumental in helping pioneer PSCU s role in bringing emerging payments technologies to credit unions. He can be reached at (727) 299-2504 or Cfagan 42 D E C 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