Focus on Market Needs to Increase Your CU’s Competitive Edge

By John Oliver

Just 25 years ago, traditional financial services providers claimed 50% of the marketplace. Today, there are only half as many of these providers, and the share of the market has fallen to 20%. Traditional financial services providers are in a crisis.

The traditional business model many credit unions still follow was once seen as infallible. As the economy and technology began to evolve ever more rapidly, most of the institutions following this model are struggling to maintain market share. They have found themselves in a “survival of the fittest” situation, without understanding how “fittest” is defined in this new marketplace.

When I ask credit union CEOs what differentiates their credit union from other financial institutions, many will say, “the service we offer.” Credit unions have always prided themselves on their member service, and they should continue to do so. But, if nearly every credit union makes that factor the differentiator for their business, member service can no longer be defined as a differentiator.

Despite these challenges, your credit union can control its own destiny. In order to survive and thrive, your strategic objectives should revolve around the needs of the marketplace—and the first step is to do market research, more market research, and even more market research.

Learn what your current and potential members want and expect from their financial service providers. Then, be creative and innovative in focusing your business model and your products and services on these insights, in a way that can be flexible with changes in the economy and technology.

For example, you may find the pool of potential customers in your market need a provider that excels in offering a niche product or service, such as creative lending options. Or, your target market may expect a unique member experience encompassing high-quality member service, with something special that other financial services providers don’t offer.

The market is already in rapid decline—the time to begin focusing your strategy on the marketplace is now. With the right strategy, supported by research, your credit union can maintain its relevance in the marketplace and become a powerful competitor.

John Oliver is president of Laurel Management Services in Palm Springs, Calif.

Hear more about market-focused strategy at Oliver’s session during CUES Symposium: A CEO/Chairman Exchange, February 3-7, 2013, in Maui, Hawaii.

Recapturing Revenue From AFS Providers

By George Hodges

I had the opportunity to speak with a number of credit union CEOs and board chairs at CUES Symposium in Bonita Springs earlier this month. The dominant theme was liquidity and the absence of lending opportunities. Unfortunately that’s not a problem most credit unions have any control over at the moment, so it begs the question: Are there other immediate opportunities to grow revenue and expand your member relationships outside of lending?

If any of the following scenarios fits your credit union, the answer is probably yes.

•        You recently completed a segmentation analysis of your member base and identified that 35 percent are not profitable because their only product is a low-balance checking or savings account.
•        You serve a major university or large military base, but don’t seem to have a good product fit for the student population or enlisted personnel.
•         You have a youth/young adult strategic initiative, but don’t yet have a strong mobile/card-based product to support it.
•        You have an underserved designation with a working class population that is different from your current suburban, mass-affluent member base.

What each of these scenarios has in common is a large number of what the regulators call “underbanked” members.  According to the FDIC, this represents 23 percent of the U.S. population, totaling 60 million adults.

If you do a segmentation analysis of your member base, these are typically the members who only have a single savings or checking account with an average balance of less than $1,500 and are not an immediate lending opportunity.

At first glance, this is your least desirable group of members for profitability and growth. But looks can be deceiving.

If you only value their current account relationship, you are losing money on these members, right?  The deposit value of their low balance does not offset the cost of providing them a free account, and they do not generate any other revenue.

However, if you were to spend a “day in the life” with these same members, you would find that they make two or three visits every month to another financial services provider to cash their paychecks, pay bills, send money to family members, and purchase reloadable prepaid cards (to avoid overdrafts in their account). This monthly, reoccurring behavior represents an average of $30 per month in non-interest fee income that these “unprofitable” members are paying another provider!

So who is taking away your member’s transactions, $360 a year in revenue, and relationship potential?  A few years ago, the answer would be check cashing stores and payday lenders. Now, the list includes Wal-Mart, Kroger, Rite-Aid, and an increasing number of large banks.

If you don’t think that serving the underbanked has become mainstream, here are some compelling statistics. Reloadable prepaid debit cards are the fastest growing financial services product, and the two most recent IPOs in the financial services industry were Green Dot and Netspend, the No. 1 and No. 2 providers of prepaid cards respectively. Or, if you are in the southeastern U.S., just stop by a Regions Bank branch and check out NOW Banking, which makes all these services available right at the teller line!

What these large non-financial retailers and banks have figured out is that by bundling “alternative financial services” and using outsourced technology and risk management providers, you can convert previously unprofitable members into a profitable growth segment, save them money, and expand your relationship for future growth.

So, as you look beyond lending, you may find a golden opportunity to expand your services to existing members and create a new revenue channel at the same time.

George Hodges is managing director of New Market Partners, College Park, Ga., a CUES Supplier member and strategic provider of Cash Banking Solution in partnership with CUES.

Service Delivery Command Center

By Lisa Hochgraf

Steve Williams told attendees of the CUES School of Product and Channel Management last week in Schaumurg, Ill., about a marketing channel turned delivery channel.

A marketer was explaining to participants in the credit union's board meeting how great Facebook and Twitter were for marketing, said Williams, principal of CUES Supplier member and CUES strategic partner Cornerstone Advisors Inc., Scottsdale, Ariz.  

Then the CEO jumped in, saying: "I'm on our Facebook page right now, and last night our member Lance sent a message saying he was locked out of Internet banking and no one has responded to Lance 14 hours later.

"Facebook is not a marketing tool," the CEO continued. "It's a delivery channel because our members are making it one."

How's a credit union to keep up? Williams threw out the idea of developing a "service delivery command center."

To illustrate, he described go-live day when he assists a credit union with a core conversion. As the new system comes online, he sits with executives in a command center watching screens providing real-time feedback about how the conversion is progressing.

A similar command center could be set up for delivery channels. "Why not have the command center open at all times?" Williams suggested. "We might have a service delivery command center somewhere below the executive suite so we can get to it fast."

Lisa Hochgraf is a CUES editor. 

Learn more about Cornerstone's credit union consulting services in partnership with CUES. 

Who Ya Gonna Call?

By Lisa Hochgraf

Back in 1984, if you needed to manage a spook, you called "Ghostbusters," or at least that's what happened in the movie by the same name.

Deciding who should be called when it comes to assigning responsibility for delivery channel management at your credit union can be a far more difficult decision.

Today at the CUES School of Product and Channel Management in Schaumburg, Ill., presenter Terence Roche said deciding who's accountable for various areas of reponsibility associated with delivery channels is quite a challenge, because channel management crosses over many business areas.

Roche, principal with CUES Supplier member and CUES strategic provider Cornerstone Advisors Inc., Scottsdale, Ariz., asked attendees to assign primary responsibility for several areas of channel management to either retail, lending, operations, marketing, channel management--a new department charged with the task--or information technology. In the exercise, only one department could be chosen for primary responsibility.

Below is Roche's list. See who you'd call on to take responsibilty for each. Then compare your answers to those given by the 35 attendees of the school.

1. Monitor market trends and new technologies.

2. Monitor vendor product offerings.

3. Monitor member behavior, demands.

4. Maintain the channel roadmap, an implementation guide based on channel strategy.

Here's what the attendees chose: 1. marketing; 2. channel management; 3. marketing; 4. channel management.

"Go back and be clear in your shop" about who is charged with each responsibility, Roche said, acknowledging that sometimes it will vary by channel. "The more you say 'channel management,' the more you have a new position in your credit union."

Lisa Hochgraf is a CUES editor.

Terence Roche will also speak about best practices in product and channel management at CUES' CEO/Executive Team Network, Nov. 6-9 in Las Vegas.

Managing the Middle With Carrots and Sticks

By Lisa Hochgraf

My cousin is an emergency room doctor in Chicago. She told me once about the different types of patients that come in. On one hand she sees patients she can diagnose easily and knows just what to do for them. On the other hand she sees those, sadly, she can't really help at all. However, the ones in the middle are the ones that make her job as a doctor really interesting, she said. These are the ones with no easy diagnosis and to whom her choices about treatment can make a huge difference. 

So too with checking accounts: Success is going to come from managing the middle.

Checking account data from the 2008 Cornerstone Report and 2010 Bank Report suggest that checking profitability is innate to two groups on the edges of the customer spectrum: 1) those with low balances who pay a lot of non-sufficient funds fees, and 2) those with high balances and low fees, especially if those members who have other accounts with the credit union. In the middle are people who have middle-sized balances and may never pay a fee. CUs profit little from these accountholders.

"The fee payers and those with big balances balance out the ones in the middle," Terence Roche told the 35 participants in the CUES School of Product and Channel Management, this week in Schaumburg, Ill. He cited data suggesting that checking accounts cost financial institutions around $215/account/year in overhead, and that a balance of about $3,000 is what's needed to make a checking account break even.

 
"How do you manage the trough without ticking off the people on the edges who are producing profit?" asked Steve Williams, also presenting at the school. Both Roche and Williams are principals with CUES Supplier member and CUES strategic provider Cornerstone Advisors Inc., Scottsdale, Ariz.

"You also gotta have what you call your sticks and carrots strategy" to encourage members to use checking in ways that are helpful to the credit union's revenue picture, Roche said. "We're bringing in the concept of 'mutually beneficial': You have to bring us money with what you're doing."

Roche identified sticks as such account features as requirements for monthly balance and e-statement usage. He included rewards, personal financial management tools and interest among the carrots a CU could offer.

"We might use sticks on single-relationship members; carrots, on others," he added.  

 Lisa Hochgraf is a CUES editor.

Terence Roche will also speak about best practices in product and channel management at CUES' CEO/Executive Team Network, Nov. 6-9 in Las Vegas.