How To Take Risk
T h e B U S I N ESS L E N D I N G I s s u e How To Take Risk Latest Debit Issuer Study Finds Credit Unions Can Benefit from “New Normal” Are You Paying Too Much for Credit Card Transaction Processing? september 2013 | VOLUME 8 | ISSUE 9 | $9.95 CREATE A CAR-BUYING EXPERIENCE your members will love with AutoPilot® Lending With SWBC, your credit union can offer a car-buying experience that goes beyond just issuing a car note. Our AutoPilot® Lending solution includes the superior MPOWER™ loan with complimentary vehicle and loan protection products, giving your members financial security when they need it most. Plus, we’ll help you provide superior service and member communications that keep you top-of-mind when it comes to purchasing a vehicle. Scan the QR code to download the AutoPilot® Lending product sheet or call 866-316-1162 for more information. For more information, please visit info.swbc.com/autopilot-lending www.swbc.com © SWBC 2013. All Rights Reserved. MPOWER ™ is a trademark of Enterprise Financial Group, Inc. 5540-987 05/13 >> CONTENTS Credit Union Business september 2013 V O L U M E 8, I S S U E 9 22 pov 4Good Fortune Latest Debit Issuer Study Finds Credit Unions Can Benefit from “New Normal” Tim O’Hara Steve Sievert achieving skills 6 Be Great! 25 CU LENDING Ondine Irving What is an “Alternative Lender” and What Does it Mean for a CU? 28 Zalman Vitensen 12 How to Take Risk cu content Robert Perry Bringing it Home CU OPERATIONS 34 www.cubusiness.com techn ically speaking Get SaaS-y for Faster, Maybe Cheaper Newer Technology Roy W. Urrico Call Centers Continue to Play a Key Role in Credit Union Success Mark Chatfield Leadership vs. Management Cfo currency 31 It Has Always Been About Liquidity Outside the Box Marketing Produced In-House Brings Success Laura Enock 19 leadership Differences and Similarities Dr. Sandra L. Torres lending line Rex Johnson 16 CREDIT/DEBIT CARD REPORT Are You Paying Too Much for Credit Card Transaction Processing? Holly Herman 8 CU DEBIT CA RD UPDATE CU SPOtlite! 40 It is Still about Service at Park Community Sharon Sweda September 2013 Credit Union BUSINESS 1 >> ABOUT US Publishing Team Tim O’Hara, Publisher [email protected] Steve Magnuson, Managing Editor [email protected] Iliana Nord, Operations Manager [email protected] Patti Manzone, Designer Ashok Kumar, Circulation Director Staff Writers THE BUSINESS LENDING ISSUE SEPTEMBER 2013 | VOLUME 8 | ISSUE 9 | $9.95 How To Take Risk Latest Debit Issuer Study Finds Credit Unions Can Benefit from “New Normal” Are You Paying Too Much for Credit Card Transaction Processing? Laura Enock CU Content Holly Herman Achieving Skills Sharon Sweda CU Spotlight! Dr. Sandra L. Torres Leadership Roy W. Urricho Technically Speaking Contributors Mark Chatfield Ondine Irving Rex Johnson Robert Perry Steve Sievert Zalman Vitensen Subscriptions Credit Union BUSINESS is published monthly (12 issues per year) by CU Business Magazine, Inc. A one-year membership costs $89 for print or $69 for Digital. An online membership form is available at www.cubusiness.com/register. Sales and Advertising Bernie Fitzgerald, Advertising Executive [email protected] or 561-282-6015 #1 Greg Halpern, Advertising Services Manager [email protected] or 561-282-6015 #4 Contact Information Credit Union BUSINESS Magazine P.O. Box 2223, Palm Beach, FL 33480 (561) 282-6015 | (561) 588-7711 (fax) [email protected] 2 Credit Union BUSINESS September 2013 www.cubusiness.com >> FROM tim I Publisher’s POV have always considered myself to be an extremely lucky guy. I have been married to Tierney O’Hara, the world’s most patient woman, for many years and together we raised two great children, neither of whom ever (well, almost never) gave us a moment of worry (except, perhaps, sometimes). I love what I do for a living. I have always found the people who work for credit unions, and the people who sell products and services to the people who work in credit unions, a pleasure to deal with. At Credit Union BUSINESS, I work with a small and dedicated group of professionals, one of whom I met when she was working in a credit union. I eventually stole her away. Iliana Nord is a very smart young woman who keeps track of the money coming into and going out of CUB. She was born in Miami, where her father worked for Eastern Airlines. One of Iliana’s first jobs was working as a teller at Eastern Financial Florida CU in Miramar, FL, outside of Fort Lauderdale. I met Iliana a few years later, just after she and her husband Bryan had moved to West Palm Beach and Iliana had begun working as a senior member service representative at Tropical Federal CU. CUB was started with funding supplied by a member business loan from Eastern Financial Florida and, ironically, I was holding an unbound proof of Volume 1, Issue 1 of Credit Union BUSINESS under my arm the same time I waited in line to deposit the Eastern check into my Tropical account. Iliana was filling in on the teller line when I presented my deposit, and I was lucky enough to get her window. “Hey,” she exclaimed,” I used to work at that credit union!” She asked me what I did for a living, and I explained that I had worked on two national credit union publications and was starting a third. I offered to show her the pages of the July, 2006 premier issue of CUB and Iliana led me over to her desk, looked over the magazine, and offered to show me which CU products would work best for our new business. 4 Credit Union BUSINESS Iliana Nord, Operations Manager I ran into Iliana many times over the next few months and always found her to be extremely helpful. One day Iliana called to ask if we had any open positions. My enthusiastic and immediate answer was “yes!” That was eight years ago, and Iliana Nord has worked as the Operations Manager of CU BUSINESS Magazine, Inc. helping us to grow and prosper, ever since. From time to time I reflect that my good luck continues. Happy Anniversary Iliana and thanks for all your hard work. Thanks for reading! September 2013 Get it for the entire executive team! www.cubusiness.com/register www.cubusiness.com >> Achieving Skills Be Great! By Holly Herman A great leader starts with an emotionally and physically strong person. Great leaders learn what they want early on, are fairly self-aware and know where they are on their development path. Do you know where you are on your personal development path? Have you managed to keep your personal life balanced with your professional life? If not, now is the time to put personal balance in perspective. After all, if you haven’t been able to manage yourself, how can you successfully manage anyone else? Creating strong boundaries keeps you strong. Here are some thoughts on how you can strengthen your life. Thought 1: Have a Life Outside Work. Try to create a rewarding life outside of work. You travel far more turbulent waters when you devote yourself to just one endeavor. If it should go awry, you are left without a lifeline and you flounder. Having a life outside of work provides important emotional strength and balance; it will keep you floating in tough times. Having a variety of outside activities and interests not only helps you recharge during stressful times, it provides opportunities for you to meet other people outside your work. You expand your reach and your life becomes richer. Thought 2: Tend to Your Emotional Needs. Make sure your emotional needs are satisfied outside of the work place. I’ve seen many supervisors and managers damage their careers because they’re looking to get too much emotional support from co-workers. Here are some red flags to watch for: • My friends are primarily from work. • Co-workers often hurt my feelings. • Someone who wasn’t a nice person got promoted. • I know most details of my co-workers’ family situations. • I could never fire anyone. • My boss likes others more than he likes me. 6 Credit Union BUSINESS If you regularly use any of these phrases your probably hoping to have your emotional needs met at work. You’re over personalizing the work-place environment and need to learn that there is a difference between being friendly and seeking friendship. For the most part, you should be friendly at work and seek friendships outside of work. Thought 3: Get in Shape. It’s difficult to be strong if you don’t feel strong. It’s hard to feel well if you’re out of shape. It’s impossible to get ahead if you’re not healthy. Mens sane in corpore sano (a strong mind in a healthy body) are words attributed to the Roman writer Juvenal and date back to the second century A.D. They were true then and they are true now. Healthy people living a healthy lifestyle are more productive, alert and perceived to be smarter and more responsible than their unhealthy co-workers. They are managing themselves well and it shows. Start building your physical and emotional strength through diet and exercise. September 2013 www.cubusiness.com >> Achieving Skills Thought 4: Maintain Healthy Boundaries. You know you have healthy boundaries when: • You take responsibility for failure, but not the blame or shame. • You don’t get caught up in any adrenaline/deadline rushes. • You don’t answer the phone when you’re focused. • You don’t let others “dump on” or be disrespectful to you. • You can say “no”. • You don’t volunteer unless your work is caught up. • You’re honest with your manager regarding your workload. • You think about and evaluate inquiries before your respond. • You finish your work and leave on time almost every night. www.cubusiness.com Holly Herman is a former CEO of two credit unions, Chief of Staff for National Credit Union Administration Chairman Johnson, and currently an Achievement Coach helping individuals and organizations. She can be found at www.AchievingSkills.com, or contact her at [email protected]. CEO Subscription With Benefits! Benefit your CFO, COO, CMO, CCO, CLO, CIO, HRD With Free Monthly E-Newsletters > Subscribe NOW! @www.cubusiness.com/register September 2013 Credit Union BUSINESS 7 >> cu LENDING What is an “Alternative Lender” and What Does it Mean for Credit Unions? By Zalman Vitenson A s of August, the national unemployment rate was hovering around 7.4 percent, which is a slight improvement over last July when the rate stalled at 8.2 percent. While this is an encouraging economic indicator, many people remain out of work, some of whom will be looking to tap into their inner entrepreneur and start a business or grow an existing company. Both options could create additional employment opportunities. As more qualified, experienced people look to launch or expand a small business, they will be looking for lending partners but it is increasingly difficult for this niche of borrowers to secure funds. Last month, the Federal Reserve Bank of Cleveland released the report, “Why Small Business Lending Isn’t What It Used to Be,” co-authored by policy analyst Ann Marie Wiersch and visiting scholar Scott Shane. The authors found that the number of commercial and industrial loans of less than $1 million, which is normally considered a proxy for small-business borrowing, dropped by 344,000 from mid-2007 to the end of 2012. During the same time period, the number of small businesses increased by 100,000. “Banks have been exiting the small business loan market for over a decade,” the authors noted. “This confluence of events makes it unlikely that small business credit will spontaneously increase anytime in the near future.” As a result of the small business loan collapse, many “alternative” lenders are entering the market as traditional lenders such as banks, and to a lesser degree credit unions, have been slow to act. 8 Credit Union BUSINESS “Traditional lenders like banks are recognizing the value in partnering with alternative lenders to service the small business customers who bank with them.” -RapidAdvance CEO Jeremy Brown “Traditional lenders like banks are recognizing the value in partnering with alternative lenders to service the small business customers who bank with them,” noted RapidAdvance CEO Jeremy Brown, a company backed by Wells Fargo. “They recognize having the ability to utilize lenders with alternative underwriting criteria enables them to access financing for their clients that may not fit their traditional criteria—enhancing the overall relationship with the customer.” Great Recession’s Loan Balance Impact As noted, over the last two years the unemployment rate has slowly decreased, but small-ticket business loan balances at commercial banks have yet to return to pre-recession levels. According to the Mercator Advisory Group report “Small Business Lending: New Alternatives?” there has been a lack of September 2013 www.cubusiness.com >> cu LENDING “New lenders are incorporating different data types into their risk assessments and coming up with different answers to would-be borrowers,” said Patricia McGinnis, director of the by higherAdvisory rates, it canGroup enable who financing at acceptable “acceptable risk”and criteria when it comes to bankService loans. New Commercial Enterprise Payments at Mercator authored the risk for thatbad would otherwiseinto be rejected.” technologies and third partnerships are beginning to businesses report. “While moreparty or newer data cannot transform a genuine prospect a good credit Mercator’s data underscores the diminishing role of banks change this paradigm. risk, when integrated with new technology and supported by higher rates, it can enable financing in small business finance. For businesses operating under at acceptable “New lendersrisk are for incorporating different data types into businesses that would otherwise be rejected.” their risk assessments and coming up with different answers $1-billion in assets, commercial lending by banks has dropped data underscores diminishing of banks in in small finance. For 30 percent 2008 business to 25 percent during the first quarter toMercator’s would-be borrowers,” said Patriciathe McGinnis, director role of from of 2013. lending As a result, alternative arefrom using different the Commercialoperating and Enterprise Service Mercator businesses underPayments $1-billion in at assets, commercial by banks haslenders dropped “risk tolerances” and entering the small business-financing Advisory Group who authored the report. “While more or newer 30 percent in 2008 to 25 percent during the first quarter of 2013. As a result, alternative lenders marketplace, either as channels, marketplace, such as matchmaking data genuinetolerances” bad prospectand intoentering a good the are cannot using transform differenta “risk small business-financing and exchanges, or as lenders. direct lenders. credit risk, integrated with technology and supported intermediaries either as when channels, such asnew matchmaking intermediaries and exchanges, or as direct As more borrowers explore nontraditional sources of finance, they are introduced to web-enabled Asvendors more borrowers nontraditional sources of finance, SBA loans,California business credit cards, business offeringexplore different types of credit packagesoptions. such This as includes the Carlsbad, based they are introduced to web-enabled offeringOfficer different Rudy cash advances, capital that and equipment loans and leases, MyBusinessLoan.com. Chiefvendors Operating Navarroworking explained the business types of credit packages such as the Carlsbad, California based among other loan types. lending tool was launched to personalize loan service and offer the best possible financing MyBusinessLoan.com. Chief Operating Officer Rudy Navarro “While banks continue to deny or make it harder for small explained that the business lending tool was launched to business owners to obtain a business loan, alternative lending personalize loan service and offer the best possible financing has become a more creative, popular and flexible funding option 2 www.cubusiness.com September 2013 Credit Union BUSINESS 9 >> cu LENDING to address growing market needs for capital,” noted Navarro. Types of Lending and Lenders There are a plethora of third party business lenders operating successfully in the market; however they often deal with different loan products. These lenders specialize in term debt products, which, on average, differ in scope from traditional term loans. For example, Merchant Cash Advance (MCA), which is unsecured, credit card lending, is based on credit card receipts. Other direct lenders in this segment include Rapid Advance, Capital Access Network/AdvanceMe and Kabbage, among many others. Lenders that concentrate on Daily Pay Term Loans, which are based on payment flows, such as credit card, cash and checks, include On Deck Capital and MyBusinessLoan.com. “We seek to create long-term partnerships with small businesses by improving their business credit profile and providing new business loan opportunities to access the capital their businesses need to grow,” said Navarro. Regardless of the lender selected, alternative lending can be more expensive with terms ranging from three to 18 months. On average, most of these loans are less than one year and range from $5,000 to $100,000. These loan metrics are not considered viable by large banks, which reinforce the lending gap between small businesses and large companies. As a result, the rates and terms of alternative loans run the gamut and borrowers must heed the age-old advice: caveat emptor. 10 Credit Union BUSINESS “There are literally hundreds of companies trying to lend money to small business owners in the alternative lending space as a result of the credit crisis,” noted Ami Kassar, CEO and founder of MultiFunding, a small business planning and lending firm located in Philadelphia. “In light of all of these options, it’s critical that small businesses look at several options when they’re looking for money, are sure they understand the loan and all of its associated expenses, and have a business plan that makes sense for the financing they’re aiming for.” Why Would Borrowers Take These Loans? The need for third party alternative lenders is not just due to banks opting out of servicing the small business market. Other reasons include: Many would-be borrowers do not qualify for SMB traditional bank financing; prospective businesses are often too new and unproven; or banks consider owner personal credit too risky. And these are not the only alternative loan borrowers. While costly, small businesses often seek financing because of some immediate need and without proper planning. For example, a company might have found an excellent deal to buy inventory but doesn’t have funds to make the purchase; perhaps it lacks the necessary cash to pay off a demand notice from the Internal Revenue Service; or maybe business is growing fast, but receivables are coming in slowly. Alternative unsecured financing is most often based on revenue flow as opposed to an owner’s credit score. September 2013 www.cubusiness.com >> cu LENDING “The benefits of online alternative financing provide business owners with anytime, anywhere options; a streamlined loan process that saves time and money; and more customized loan options that fit the customer’s unique circumstances,” noted Navarro. When it comes to near term small business lending practices, Navarro is encouraged by recent experiences that build on last year’s forward direction. He points to 2012 findings from the Small Business Lending Index that showed approvals by mid-tolarge-size banks improved for the second consecutive month to 11.3 percent from 11.1 percent in June 2012, representing the highest approval rate by banks since March 2012. He explained, “Oftentimes, accessing financing online can expedite the loan process and increase the chances of receiving loan approval, simply by being matched with the right lender based on your unique circumstances.” As is the case with RapidAdvance, larger banks like Wells Fargo and US Bank have partnered with certain alternative lenders to service a portion of their depositor base. Credit unions would be well advised to investigate forming their own partnerships, as it’s likely that many of their members are ideal candidates for alternative lending. This should be part of a larger program to help members who own small business better plan and manage their financing. Credit unions should view these lenders as interim or bridge or even a stopgap measure until the business matures. However, Kassar implores due diligence and oversight. “Understand the APR of the loan clearly. If they are borrowing $10,000 and paying back $12,000 over three months as an example, the interest rate is not 20 percent—it’s at least 80 percent,” he continued. “If the lender is taking a percentage of the business’s credit card sales, don’t confuse the daily percentage with the interest rate of the loan. As an example: A lender taking 10 percent of your daily credit card deposits until you pay them back shouldn’t be confused with a 10 percent interest loan.” As is the case with payday advances, it is difficult for credit unions (or banks) to join the fray, but it www.cubusiness.com may be worthwhile to review the players and explore potential partnerships as a way to find alternative lenders who are less predatory. “Small business owners are finding that alternative lending is complimentary to their traditional financing or—in many cases because of the access and uniqueness of the capital—a better fit solution for their business,” said Brown. Next month, we will discuss small business matching marketplaces, 3rd party business loan service providers and crowd-lenders, as potential partners for credit unions. Zalman Vitenson has been in commercial finance for about 20 years. He is presently CEO of Integrate Financial, a Supply Chain Finance Company. You may reach him by email at [email protected]. September 2013 Credit Union BUSINESS 11 >> lending line How to Take Risk By Rex Johnson O ur last article was titled “Taking Risk is Now Encouraged”. This article is on how to take risk. Any credit union can have a loan to share ratio of 90 plus percent: just make everybody a loan. This strategy has been tried time and time again but always fails. Why? Because lending is an art and lenders are professionals with the right skills. They are: • Excellent communicators • Outstanding listeners • Problem solvers • Doers, not talkers •Gregarious •Optimistic •Energetic •Truthful Ask yourself if this describes your loan staff. Do they possess all of these qualities? Would you want to borrow money from your own credit union? Could you trust that all the information you gave your lending staff would be kept confidential? Would you want to be judged by the person who is taking your application? Members can sense when someone is selling them something rather than recommending something in their best interest. They want to do business with someone who is representing them, not just their credit union. Have you ever had a member, when applying for a loan, tell you that “there is something you need to know about my credit: I had to declare bankruptcy six months ago” before asking if you could help them? Have you ever been given this information before you told them that you’d have to pull a credit report? You probably have. Why are they giving you this information up front? It’s because they believe that: • They know what your answer is going to be once you’ve seen their credit report • You are going to judge them and compare yourself and your ideal 800+ credit score to them 12 Credit Union BUSINESS • You are in a hurry and will make up your mind instantly • Chances are good that you won’t even notice how well they paid their bills before filing for bankruptcy Why do members tend to think this way? It’s simple: Once they’ve filed for bankruptcy, they’re told that they will have a hard time getting credit in the future and that no one will ever trust them again. It is also likely that they have already applied for credit a few times somewhere else and were told, “I’m sorry, we can’t help you.” They know that you will find out about: • Bankruptcy, public records collections • Delinquent credit obligations • Low credit scores • Debt to income ratios • Unsecured debt ratios, etc. They know the outcome because they have been there and done that with other lenders. Now, all of the above can work in your favor and allow you to make loans that others can’t or won’t make simply by following a few recommendations. I must warn you that you can’t pick and choose. You can’t take only what you like and September 2013 www.cubusiness.com >> lending line ignore the rest of my advice. If you want this strategy to work, it has to be a total package deal. Step 1: Analyze your Loan Portfolio Have an independent portfolio analysis done. Lending Solutions Consulting, Inc. does this all the time for credit unions. We are not looking to be critical of what you are doing; we just want to find out what is keeping you from making more loans. We look at approximately 75 loans and our samples include: •Turndowns •Bankrupts • Charge offs • Indirect loans • New Accounts • Cross Selling • Financial Trends •Policies •Pricing •Incentives •Collections Using your own examples, we will show you how you can make more loans and increase your loan volume while improving your loan yield. If you are having delinquency problems, we will show you why and what you can do to fix them. We will send you an in-depth analysis plus discuss the findings with you once you’ve reviewed our findings via conference call. Examiners prefer that you have a third party examine your loan portfolio. But whether you review your portfolio yourself or use a third party, the key is you must begin here: Examine your loan portfolio. Doctors don’t operate before conducting a thorough examination. Step 2: Develop an Action Plan Once you’ve determined why: • Your loan volume is down • Your delinquencies and charge-offs are up • Your loan yield is too low • You are too conservative, etc. An action plan has to be developed and implemented. You must get total buy in from: • The Board of Directors • Senior Management • Your Employees www.cubusiness.com September 2013 Credit Union BUSINESS 13 >> lending line Step 3: Retrain your Staff Before you start taking on more risk, it is imperative that you train your employees, both lenders and collectors. Make sure you have enough staff to handle the increase in volume you are going to get once members realize that yours is a new credit union and will go out of its way to find solutions to nearly every problem. You should be able to approve 90% of all loan requests, but only if you are willing to think outside the box. higher rate just to get a loan and a chance to rebuild their credit. The bankruptcy law changed in 2005 and most attorneys as well as the bankruptcy court no longer allow members to re-affirm unsecured debt, even if they want to. Many of these members never intended on hurting their credit union. They want to remain a member but our policies say no, we don’t love you anymore and we are denying you all services. This is a good example of why you need to rewrite your policies. Step 4: Rewrite your Policy Manual Start rewriting your loan policies by removing all the loan barriers you currently have in place. Stop telling members what you cannot do and start telling them what you can do. Tell them that you will come up with a solution. I will share a program with you that you can offer anyone who applies for a loan without their having to put up any money. No member will ever be able to rebuild their credit score until they start to establish or re-establish their credit. They need someone to explain why it is important for their credit rating to have a creditor reporting to the credit bureau showing that they are making all their payments on time. Remember, payday lenders don’t report to the credit bureau, so using them does not help members improve their credit scores. Credit unions do. You can help all your members get a fresh start. Just imagine how much fun it would be if you didn’t have to deny any member a loan, regardless of their credit history. They may not get the loan they applied for, but they will get a loan without having to put up any of their money. To remove all the barriers you must rewrite your policy manual and get the Board of Directors to approve it. Credit unions often make the big mistake of denying members loans because they lost money when the member went bankrupt and was unable to pay back the money. The CU will then compound the problem by withdrawing all member services while refusing every loan request, which only forces members to seek financial services elsewhere. Perhaps that somewhere else is the credit union down the street that did not lose any money. They end up with a new member, get their checking and savings account business, and the member is debt free. They are not only a good risk because they are debt free, they are also more likely to be willing to pay a Step 5 – Goals It is critical that you have challenging and realistic goals. These goals should focus on three major areas: • Loan Growth Minimum growth of 10% per year • Loan Yield Our net yield, after charge off, should be 7.5%. The following is an example: Yield Charge Off Net Yield 8% .5% 7.5% 8.5% 1% 7.5% 9% 1.5% 7.5% Your goal is to end up with a net yield of 7.5% after charge off. This will insure that you will have a very positive bottom line. • Reasonable Delinquencies and Charge Offs Credit unions are turning down way too many members because they are striving for fewer delinquencies and lower charge offs. They are trying to out perform their peer group so the examiners won’t get upset. But being too conservative comes at a huge cost. Remember that the NCUA has gone on record saying “credit unions that don’t take risk are a bigger risk to the insurance fund than the credit unions who do take some risk.” As a side note credit card companies are charging off up to 5% or more and are making lots of money because of yield plus fees plus volume. 14 Credit Union BUSINESS Step 6 – Rewards and Incentives Every credit union needs a pay for performance program. Your goal is to provide employees with an opportunity to exert more effort to produce more revenue. A good way to encourage employee performance is to increase their opportunity to earn more income. All employees, regardless of their position in the credit union, should be offered financial incentives. September 2013 www.cubusiness.com >> lending line One of the definitions of incentive is to drive to action and a good incentive program will make you money, not cost you money. My experience has shown that you get five dollars back in income for every dollar you pay out in incentives. A lot of good lending opportunities come out of the collection department. Make sure you design a goals and rewards program for Collectors that includes delinquencies and charge offs, as well as loans. And I don’t mean work out loans, but loans where your CU advances cash. Several of our credit union accounts have assigned loan goals to collectors and are rewarding them for producing loans. You need to start looking at collections as a real lending opportunity. Step 7 – Relationships Credit unions should encourage developing relationships with bankruptcy attorneys. Bankruptcy is not going away and I’ve already told you that bankruptcy can be an asset to your credit union, not a liability. You need to establish relationships with bankruptcy attorneys to make this happen. Don’t panic, this doesn’t mean that you are not going to advise a member to go bankrupt. But, think about it: How often do you turn a member down for: • Excessive debt • Delinquent credit obligations with others • High debt to income ratio • High unsecured debt ratio What does all that suggest? It’s simple, that member is headed for bankruptcy and came to you as a last hope: you simply told them what they already knew. Too often they walk out of your credit union with no solution and the only recourse they’re left with is to go bankrupt. The problem is they owed you a substantial sum of money when they came in to talk, and got no help from you. The last thing they remember is you told them NO at the very moment they most needed your help. So what is the solution? Recognize potential bankrupts the moment they come in to apply for a loan and welcome them. We have a financial model at Lending Solutions, Inc. called HYLS (High Yield Lending Strategy). This model nearly always identifies which members will end up in bankruptcy by isolating 17 unique factors that other models overlook. www.cubusiness.com Train your employees how to discuss bankruptcy without offending the member. When a member asks how much a Chapter 7 or Chapter 13 costs and if you can recommend any attorneys, have a list ready to hand out. The list should include up to four attorneys along with approximate costs. Call on attorneys in your community the way you would call on car dealers. Be prepared to discuss what you bring to the attorney relationship, including: •Referrals • Your willingness to help them get transportation, a car loan at a good rate • A checking and savings account • Chance to rebuild their credit and credit score Know what the attorney can do for you: • Refer clients who are filing for bankruptcy to ready to get a fresh start. • Provide you with a new, debt free member who will remember you for the rest of their life. • Protect you and insure a reaffirmation on the members you are referring to them. What I am telling you really works. I know because I have lots of credit union clients that are thinking outside the box and getting great results. I’ll leave you with these simple thoughts: Our product is money and it is a great product: everybody likes money. Our money spends just as well as the money from the nation’s largest banks. Our passion is our members: we can save them thousands of dollars and establish a lifetime relationship. Finally, if taking risk is such a bad idea, why are there more payday lenders than there are McDonalds, Burger Kings and Wendy’s combined, and why are their numbers still growing? September 2013 A. Rex Johnson is the Founder/Owner of Lending Solutions Consulting, Inc. (LSCI) Credit Union BUSINESS 15 >> CU CONTENT Bringing it Home Outside the Box Marketing Produced In-House Brings Success W By Laura Enock ould you consider running an ad that promotes your credit union as being “below average”? Would you avoid all images of smiling, beautiful couples simply because every bank and credit union in America is using images just like that? Would you trust an agency that tells you to do that? Would you trust your own staff? For Chad Lopez, Media Specialist at Neighbors Federal Credit Union, standing apart from the crowd is a no brainer. “I’m lucky that our management team is open to new ideas,” he says. “We just completed an ad that reads We’re Below Average”; an eye-catching line, to be sure. In this case, lower than average refers to loan interest rates, but that isn’t the message that readers will clock at first glance. Neighbors FCU believes in using creativity to catch peoples’ eyes, stand out, and get them to read your message. “When I see a picture of a smiling couple on top of text, I don’t even have to look,” Chad says, “I know that ad is coming from an insurance company or a credit union/bank.” “It seems as though the majority of the financial industry has missed the memo that if you want to use the ‘Starbucks’ and ‘Apple’ models you have to embrace creativity in your marketing as well as other areas,” says Lopez. “Give yourself and your people the freedom to stray from the norm and move outside the ‘bank box’. Use creativity to make your products and service more interesting. Shall we even dare to say cool?” Lopez challenges credit unions to open a local paper or magazine, preferably one in which the credit union advertises, and see how similar ads for banks, credit unions, and insurance companies look. Wouldn’t it be refreshing to see an ad that’s fresh, new, and eye catching? How does the NFCU marketing team accomplish this? “You almost have to think of a new audience,” Lopez says, “and define the essence, the most interesting aspects of your particular product.” Ground breaking “We’re Below Average” campaign emphasizes competitive auto interest rates. 16 Credit Union BUSINESS September 2013 www.cubusiness.com >> CU CONTENT At Neighbors FCU, member segmentation is a part of marketing planning to make sure there’s a clear target audience for each marketing initiative. Recently, the credit union ran a series of testimonial ads. Impressively, all of the work was done in-house. Each video featured a different member in a casual setting, often simply engaged in their own hobby, talking about what they like about the credit union. Neighbors FCU shoots all of the video footage and edits it in-house. The credit union recently introduced an app. Because they’re targeting a younger demographic, the decision was made to stray from their normal marketing approach in order to reach out to this specific, younger audience. They produced a time-lapse video that was very well received. It’s all well and good to believe in the power of creative marketing, but it’s a whole lot easier to use stock images, write easy, clichéd copy, and run with it. Where do all these off-thebeaten-path ideas come from? The key, Lopez believes, is brainstorming meetings where everything goes. No idea is too outrageous to be considered. While many of those ideas don’t make it into an ad, there’s often the germ of a practical, if unusual, idea hidden in something that, as the brain-stormers’ joke, “Senior management won’t go for”. Lopez is quick to explain that sometimes you’ll need to go to bat for your ideas. “You’re not making someone nervous,” he says, “is a clear sign that you’re doing the same thing everyone else is, and your marketing won’t generate much attention.” Is there resistance? Sure. But for the most part, overcoming any resistance is simply a matter of explaining the possible benefits to the credit union. At this point, creative marketing has already proven itself at Neighbors FCU, and the marketing department has been given more leeway. Lopez claims he was lucky to join the credit union just as a new marketing director came onboard eight years ago. With experience in graphic design, this marketing director was able to bring a lot of the work in-house and willing to experiment with different ideas. Bringing all production in-house was a process. At first, Neighbors FCU started creating and producing their print ads themselves and outsourced everything else. Slowly, they’ve been taking over more projects, and have found that the marketing work they’ve done in-house produces better results. Now www.cubusiness.com Neighbors FCU is the second largest credit union in Louisiana. Their marketing department is one of the largest of any credit union its size and includes a full-time market research analyst. The credit union also does a lot of television advertising. About five years ago, the credit union paid an outside firm $30,000 to produce eight commercials. After watching the camera crew, the marketing department at Neighbors FCU decided producing commercials was something they could do themselves. For $2,500, they purchased a new camera and produced three videos in-house, at which point, the camera had already paid for itself. Since then, the credit union has shot a total of 30 commercials. Another project the credit union brought in-house was a blog featuring their VP, who is having his first child. Titled Stone Age Dad, it touches on financial literacy and is geared to the niche market of expectant parents. Neighbors FCU blog featuring first time dad and VP, geared to first time parents. While it’s difficult to get a firm ROI on projects like this one, the proof is in the numbers. Neighbors FCU is one of the few credit unions on a steady growth curve with no decrease in deposits. Lopez has this advice for credit unions: try to make yourself nervous. Come up with the strangest, wildest ideas you can. Then, pare them down to something acceptable. But it’s critically important that you step out of your comfort zone. T here’s a huge upside to being perceived as professional, but it’s also associated with being cold and impersonal. You want to be professional and personal at the same time. While your ads may be trendy and hip, they might not be connecting to their intended audience. Does your audience really want you to be so professional? These days, it’s a lot less about wanting to go in and see the suit, but more about “I want you to cater to me”. Credit unions should seek to develop a personality that connects to their members. “We flipped our ads on their heads, and saw a lot of benefit September 2013 Credit Union BUSINESS 17 >> CU CONTENT One of Neighbors FCU off-the-beaten path ad campaigns demonstrating their unorthodox approach. from doing so,” says Lopez. “We completely changed the style of our ads, and people recognized our logo.” Nothing the credit union has done backfired on them. “You can’t look like you did ten years ago.” Lopez says. “You need to be fresh and different.” Interestingly, in the case of Neighbors FCU, marketing creativity began to flower once the credit union brought it inhouse. While you may not be ready to bring everything home, muster your courage. Find the confidence to step outside the box and be ready to enjoy the possible benefit of having all your marketing produced by a team who has a primary focus—not on marketing—but on your members. Laura Enock, Managing Editor of Credit Union Toolbox and founder of CUcontent.com, provides credit unions nationwide with content for their websites, newsletters, email marketing and social media communications. Enock moderates the popular CreditUnionToolbox webinars on best practices and provides individual credit unions with social media, marketing and PR support on a consulting basis. Contact her at [email protected] or follow her on Twitter @ CUtoolbox. Post card mailed to members in their onboarding campaign. CEO Subscription With Benefits! Benefit your CFO, COO, CMO, CCO, CLO, CIO, HRD With Free Monthly E-Newsletters > Subscribe NOW! @www.cubusiness.com/register 18 Credit Union BUSINESS September 2013 www.cubusiness.com >> CU OPERATIONS Call Centers Continue to Play a Key Role in Credit Union Success C By Mark Chatfield all centers currently play an important role in credit union operations and will continue to do so in the future. In a world where direct human contact seems to continue losing ground to email, voice mail and texting, the sound of a real human voice can be a significant business asset whenever a member calls for help or wants to conduct a transaction such as buying a car. Talking about cars, an interesting consumer study by Maritz Research titled “New Vehicle Customer Study” reveals that, contrary to the growing belief that social media will soon replace traditional automotive dealerships, the dealership’s salesperson is still the most influential source of information for car buyers when it comes to selecting and purchasing a car. According to the study, 21.9% of respondents cited their car salesperson as the most important information source with family coming in second at 18.4%. “People buy from people,” said Chris Travell, Vice President and Strategic Consultant for Maritz Research. “Social media can certainly support the selling effort, but I believe it would be a mistake to believe that social media will usurp it.” Although call centers do not offer direct face-to-face member contact, it’s the next best thing and a powerful asset in today’s digital, arm’s length, “please leave a message and we will get back you” world. Outsourced call center services can be a primary conduit for client credit unions by helping members secure auto loans, mortgages and conduct a wide variety of other lending and transaction services. Call volumes have increased steadily along with the improving economy. www.cubusiness.com Call Centers and Branch Transformation Branch transformation is one of the key issues many credit unions are dealing with today. Updated branches emphasize self-service, teller automation, alternative communication channels and integrated channel support. Traditional physical branches have morphed into sophisticated, multiple channel delivery centers. While these new services are important for credit unions competing across new access channels, in this new age of financial services, call centers are taking on an even more important role in providing a full menu of services to members— not to mention providing person-to-person help when needed. As members become more used to doing things whenever they want—whether inquiring about balances or originating a loan—the call center, with its 24/7 coverage, provides the instance gratification members have come to expect. In the transformed branch, call center services contribute September 2013 Credit Union BUSINESS 19 >> CU OPERATIONS to a seamless member experience and reinforce the positive customer service positioning that is so important to every credit union. As branches evolve, call centers offer an economical way to support credit union revenue generating services without adding unnecessary infrastructure and staffing. Call Centers and Gen Y Perhaps ironically, according to a study by FISERV Inc., the ubiquitous Gen Y consumer—children of the virtual age—often prefer human contact to digital touch. While the convenience and immediacy of transaction makes them gravitate towards digital services, that preference does not seem to limit their actual use of “live” channels such as call centers and branch visits. In fact, research shows Gen Y consumers are more likely to contact a call center or visit a branch than any other age segment. Additionally, Gen Y consumers represent the highest percentage of high volume users for these services: five or more visits per month. Gen Y consumers appear to have an “all the information, through all the channels, available all the time” attitude that values the touch-tone availability of call centers. Capture Every Opportunity Call centers make it easier for credit unions to extend their services, including lending and marketing opportunities, 24/7, which helps them make sure they never miss out on new revenue potential. Prime shopping time for credit union members, especially when buying a car, is after hours. With call center services in place, credit unions can capture those loan opportunities; without one, they may lose the loan and any associated insurance and fees. “Members are coming into branches for accounts over loans at a four-to-one ratio,” said Pierre Cardenas of CU Lending Advice, speaking to attendees at the Credit Union Association of New Mexico’s (CUANM) 2012 Call Center Conference. While this statistic has implications—yet again—for the future role of branches, it also highlights opportunities for credit unions to think differently about loan generation. “Five years from now, 80% of loan originations will be coming from the contact (call) center,” Cardenas stated. “It’s where all remote channels are going.” 20 Credit Union BUSINESS Using evolving technologies, call centers provide a central information hub where knowledgeable assistants can quickly help members access existing and emerging self-service systems as well as other financial tools, such as mobile banking and video conferencing. By using call centers as technology “help centers,” credit unions can be current on technological innovations, and advance the value of branches as counseling and sales hubs. Part of Credit Union DNA Most daily transactions—like balance inquiries and fund transfers—are often relegated to home banking but are ideally suited for outsourcing to an experienced call center service provider. CO-OP Member Center, a subsidiary of COOP Financial Services, is one such example; their call volume increased by 13% from 2011 to 2012. Avoiding unnecessary overhead by utilizing a call center helps credit unions achieve operational efficiencies that boost profitability and improve member service, convenience and trust. For a growing number of credit unions, call centers are as much a part of their DNA as low rates and personalized member service. Having a friendly voice from a real human being assisting members helps reinforce the trust and loyalty credit unions are known for and other financial service providers can only dream about. Whether operated in-house or in partnership with a professional organization, call centers are, increasingly, an integral part of credit union success and long-term member loyalty. Mark Chatfield is Chief Operating Officer of CO-OP Member Center, Fort Worth, Texas, a wholly owned subsidiary of COOP Financial Services, Rancho Cucamonga, Calif. Chatfield can be reached at [email protected] and (817) 554-0575. September 2013 www.cubusiness.com With the AskAuto app, help your members shop for a car and a great loan. The AskAuto™ app is the new research and lending app from CUNA Mutual Group. It will get your customized lending message to Over $850 million in loans requested through loanliner.com® via mobile devices. Source: CUNA Mutual Group internal reports, 2013 members while they’re on the dealer’s lot and know whether the dealer is one of your indirect dealers, or Want help getting your share of auto loans? a competitor. The AskAuto app will go a long way to Just AskAuto at 800.356.2644 or visit help simplify the member’s auto buying experience, www.loanliner.com/askauto. from providing selling price info, to comparing vehicles they’ve scanned, to streamlining the application process. Find out how the new AskAuto app can help your credit union build relationships with members and grow auto loans at the same time. CUNA Mutual Group is the marketing name for CUNA Mutual Holding Company, a mutual insurance holding company, its subsidiaries and affiliates. 10003260-0713 © CUNA Mutual Group, 2013. All Rights Reserved. >> CU DEBIT CARD UPDATE Latest Debit Issuer Study Finds Credit Unions Can Benefit from “New Normal” By Steve Sievert E ven though the Regulation II interchange cap does not bind most Credit unions, they are experiencing a “new normal” in the debit card business. The 2013 Debit Issuer Study, commissioned by PULSE, found that issuers continue to grow their debit card volumes in spite of significant regulatory changes. While fraud continues to be a challenge, issuers are seeing success in mitigating a lot of fraudulent activity. And many are looking beyond classic debit card demand deposit accounts for other methods of expanding their payments business. Of course, under the terms of Regulation II, even though a credit union does not have the $10 Billion in assets necessary to qualify as a “regulated issuer” it does not mean that it isn’t impacted by the new regulations. The study found that “exempt issuers” saw competition among debit networks drive down their average interchange rates by $0.02 per PIN and signature transaction, a decline of less than five percent and far less extreme than anticipated. Exempt issuers surveyed in the 2011 Debit Issuer Study (conducted prior to the implementation of Regulation II) expected an average decline in interchange revenue of 73 percent. Despite regulatory and economic changes in the debit industry, one aspect of the market has remained constant: the number of debit transactions continues to grow, providing credit unions with opportunities to differentiate themselves and improve their portfolio economics. Credit unions have several competitive advantages when it comes to growing their debit card portfolios despite the increased caution throughout the financial services industry and downward pressure on interchange rates. 22 Credit Union BUSINESS Credit Union Opportunities As I looked through the reams of data in the 2013 Debit Issuer Study, I saw three key takeaways for credit unions: continued growth of debit cards, a drop in net fraud cases and a growing consumer appetite for general purpose reloadable (GPR) cards. 1. Continued Growth of Debit. Even against this backdrop of increased regulation and competitive pressures, debit card use is growing. The study reveals that the number of debit card transactions conducted by active cardholders increased to an average of 19.4 per month, the highest seen in the eight-year history of the study. In other words, consumers appear to be unaffected by the behind the scenes changes in regulation. The study showed penetration and active rates made modest improvements over the 2012 study and revealed growth in PIN usage, in part because issuers are encouraging PIN over signature use, due to the lower processing and fraud costs of PIN transactions. 2. Drop in Net Fraud. The challenge of fraud comes up in virtually every conversation with issuers and this attention to fraud is paying off: fraud loss rates are declining significantly. Issuers report that net fraud losses fell 30 percent year over year, for both PIN and signature debit in 2012. PIN debit fraud losses declined from $0.004 per transaction in 2011 to $0.003 per transaction in 2012; during the same time signature fraud loss rates fell from approximately $0.031 per transaction to $0.02 per transaction. One of the factors driving the emphasis on PIN debit is that it remains eight times more secure than signature debit. September 2013 www.cubusiness.com >> CU DEBIT CARD UPDATE 3. Appetite for GPR Cards. The third key finding from the study is the interest in promoting GPR prepaid cards. The number of GPR issuers grew from 19 percent of financial institutions in 2011 to 36 percent in 2012—a nearly 50% increase—and study participants project a 55 percent growth in GPR prepaid cards issued this year, more than twice the growth rate projected in last year’s study. Primarily, issuers use GPR prepaid cards in two ways: as supplements to the direct deposit accounts of members and as standalone products that expand an institution’s product base in order to reach new, under-banked consumers who may not have a history of demand deposit accounts. GPR prepaid cards are also used as defensive tools and give issuers the option of offering them to current members who might otherwise be inclined to close their accounts and move to non-credit union issued GPR prepaid card programs. Rewards Programs Another area of focus for exempt issuers to consider for growing their debit portfolio is the support of rewards programs. The percentage of regulated issuers with rewards programs fell from 37 percent in 2011to 24 percent in 2012. In 2010, two out of three regulated issuers offered rewards programs. Meanwhile, the study found that the percentage of exempt issuers with debit rewards programs grew from 27 percent in 2011 to 44 percent in 2012, almost as much as the historic high of 46 percent in 2010. Investing in debit rewards programs is one way that credit unions can generate excitement among their members and further differentiate their offerings from large, regulated www.cubusiness.com financial institutions. Because credit unions are less impacted by drops in interchange rates, they are in a better position to invest back into their business to attract more members. The study also shows increased interest among issuers that have debit rewards programs in using merchant offers. Merchant-funded programs, offered by 52 percent of issuers with a rewards program, versus 38 percent last year, are seeing increasing interest among both regulated and exempt issuers. In fact, merchant offers have become as popular for rewards as point-based programs have been in previous years. Mobile Payments The study found that 80 percent of issuers expressed interest in using mobile payments to offer merchant-funded rewards. Significantly more exempt than regulated issuers view mobile payments as a key opportunity. While the number of financial institutions that say they are currently participating in mobile payment pilot programs is up nearly 50 percent from 2012, overall adoption remains relatively low, with just one out of eight debit issuers involved in such tests. Despite the relatively slow move to mobile payments, it is clear that debit issuers believe the shift is inevitable. Ninetythree percent of issuers expect that more than five percent of debit transactions will migrate to mobile in the next five years. EMV Transition The transition to EMV (Europay, Mastercard, Visa) will be one of the major administrative challenges facing financial institutions, including credit unions, within the next year. To encourage issuers and merchants in the U.S. to migrate to EMV, the major payment networks have announced plans to shift the liability for disputed transactions to the party that is not EMV-enabled. There is no mandate or requirement for issuers or merchants to act. Ninety-five percent of all issuers are aware of the networks’ announced liability shift and almost all are evaluating the best way to proceed. Thirty-eight percent of financial institutions plan to issue chip-based debit cards in 2014 and another eight percent plan to make the transition in 2015. September 2013 Credit Union BUSINESS 23 >> CU DEBIT CARD UPDATE Forty percent of regulated issuers terminated or restructured their debit rewards programs in 2012. Still, that means many institutions remain uncertain as to how they will proceed and have adapted a wait-and-see approach. Compliance and complications associated with it, is one of the issues facing financial institutions. Even if issuers wanted to move to EMV they are unsure how to do so while adhering to the merchant routing choice obligations mandated by Regulation II. Responses to Rate Drops Interchange rates have fallen significantly for regulated issuers, much more than the average two cents per transaction that exempt users have reported. While issuers in both groups have responded to these rate drops in a number of ways, cost cutting has been the most common response to getting them more aligned with the new debit card revenue proposition. Changing the issuer’s product structure was also frequently mentioned as a way to offset a change in revenues. Financial institutions are seeking to grow their share of member wallets with a particular type of account holder, or to encourage those individuals toward accounts that generate more revenue or have lower service costs. Forty percent of regulated issuers terminated or restructured their debit rewards programs in 2012. Other tactics included changing organization size and structure, adding or raising fees and encouraging other payment products. These findings may provide credit unions, which typically face less pressure on interchange rates, with opportunities to differentiate themselves with tactics such as robust rewards programs and other moves that focus on delivering superior member service. This is the eighth installment in the annual Debit Issuer Study, which PULSE commissions and Oliver Wyman conducts. Sixty-four financial institutions participated in this year’s study including credit unions, large banks and community banks. The sample is nationally representative, with debit issuers distributed by size, location and debit network affiliation (not all participants are affiliated with PULSE) in order to gather the greatest insight into the challenges and opportunities facing debit issuers today and in the future. I believe you will find the insights from this study valuable as your credit union navigates through this “new normal” in the debit business. Steve Sievert is Executive Vice President of Marketing and Communications for PULSE, a Discover Financial Services company and operator of the PULSE® electronic funds transfer (EFT) network, one of the nation’s leading debit/ ATM networks, serving thousands of credit unions, banks and savings institutions across the country. CEO Subscription With Benefits! Benefit your CFO, COO, CMO, CCO, CLO, CIO, HRD With Free Monthly E-Newsletters > Subscribe NOW! @www.cubusiness.com/register 24 Credit Union BUSINESS September 2013 www.cubusiness.com >> CREDIT/DEBIT CARD REPORT Are You Paying Too Much for Credit Card Transaction Processing? W By Ondine Irving hat have I been finding on credit card processing invoices and in card processing proposals lately? There are many inequities in authorization and transaction posting fees in credit card processing. Common sense would tell us that signature debit and credit card transactions involve the same sequential process: an authorization followed by a transaction posting. In the ten years since creating Card Analysis Solutions, I’ve been educating my clients on the importance of having effective credit card program management processes so that credit unions can continue to offer their members fair and ethical credit cards. This means CUs need to find ways to increase their card program’s income and reduce expenses without passing any additional costs on to members through higher rates and additional fees. One of the big early pushes was helping CUs understand the importance of maintaining a clean credit card account database: Inactive accounts make up 40% of the average credit union credit card program portfolio. I do not want credit unions to pay for accounts that are closed, bankrupt, lost, stolen, upgraded, etc. In addition to account residency fees, many processors continue to assess monthly fees for fraud detection, Ondine Irving Owner of Card Analysis Solutions and CreditCardConnection. www.cubusiness.com reward program administration fees, customer service, and numerous other fees, regardless of whether the account is open or closed in the system. Doesn’t seem quite fair, does it? This is why credit unions need to step up and make sure their database is clean every quarter. But we have already been down this road and most credit unions now understand how important this quarterly credit card database cleanup is. What about debit cards? The same scrutiny should be given to a credit union’s debit card database. So, with the collaboration of my 500 clients, we are on to the next discovery. What Are You Paying for Credit Authorization and Transaction Posting Fees? I want to focus on the disparity in transaction processing and authorization posting fees from the various credit card processors in our industry. I have seen fees range from a low of $0.04 (combined authorization and transaction fee) to a high of $0.30. Please don’t look at these minute amounts as just pennies. When you’re talking about 500,000 transactions (debit and/or credit) per year, this could mean a difference of $130,000 annually. Certainly, volumes will vary by credit union and all expenses will vary accordingly, but it’s still more than pennies and a cost well worth looking into. When Was The Last Time You Actually Negotiated Your Pricing? Why are some credit unions paying $0.15-$0.30 for this combined credit transaction fee and not the more recent $0.04-$0.08? Sometimes it’s because the credit union is on an September 2013 Credit Union BUSINESS 25 >> CREDIT/DEBIT CARD REPORT outdated, auto renewable contract from the late 1990’s. The contract and the outdated pricing renew each and every year without re-negotiation. The upside of most auto-renewable contracts is that they typically have a 90-day out clause. If you discover you are in this situation and plan to re-negotiate, be prepared to settle into a long-term contract. However, the reduced costs of credit authorization and transaction posting fees could be substantial over the long term. Alternatively, since you have the luxury of a 90-day out clause, you could always search for better pricing from another processor. And a bigger question: Why is there such a wide disparity between credit card and signature debit card transaction posting and authorization fees? The transaction process is exactly the same for a signature debit and a credit card transaction. My gut instinct tells me that it continues to exist because the processors have never been called out on it. I know for a fact that several processors are operating on a more than fifteen year old outdated credit pricing structure, which they have been able to get away with because no one has ever challenged it. Was Your Credit Union Lured In By a Huge Up Front Incentive? When your credit union first entered into your current cardprocessing contract, were you offered a generous sign on bonus or other incentive? Chances are this generous incentive was offset by a higher transaction-posting fee—possibly double the standard fee. If your processor did offer you an upfront incentive to convert to their system, make certain that the authorization and transaction posting fees are in line with industry standards. In general, a credit union should be paying between $0.06 and $0.08 for every credit transaction, posting and authorization fee combined. Sometimes the authorization fee will be higher, sometimes lower. The same is true for the transaction posting fee, but combined, the fee should average $0.06-$0.08 for both. Personally, I feel a credit transaction should be priced the same as a debit signature transaction since the transaction flow is exactly the same. Pricing for debit transaction and authorization fees is nearly always less than that for credit cards. You can check this out at your credit union and see for yourself. 26 Credit Union BUSINESS Dig Out Your Debit and Credit Card Contracts In conclusion, do your credit union and members a favor: Pull out your current CREDIT and DEBIT card processing contracts. Check the terms. Check up front incentives. Compare the variances in the authorization and transaction posting fees for both debit signature transactions and credit card transactions. In an ideal world, there should be no variance in fees since the transaction routing for signature debit and regular credit are identical. If necessary, call your processor and renegotiate. I can assure you that if you are paying more than $0.06-$0.08 for a combined credit authorization fee and credit transaction posting, you are paying too much. And for any processors that may stumble across this article, I know my clients will no longer stand for outdated pricing. And yes, this time we are comparing “apples to apples”. Ondine Irving Owner of Card Analysis Solutions and CreditCardConnection.ORG, founded Card Analysis Solutions (www.cardanalysissolutions.org) in November 2003 after a 12-year career at Baxter Credit Union, 5 years at Certegy Card Services (now FIS) and a short time with Raddon Financial Group and, in 2010, worked for Suze Orman. In 2010, Ondine created www.CreditCardConnection.ORG--a tool for consumers to find fair and ethical credit union card programs. This is the largest aggregation of Credit Union Credit Cards on the Internet with over 1,064 fair and ethical credit union card program options for consumers. Ondine is the creator of the original “School of Credit Card Program Management” which debuted in 2008. These popular classes sell out 60 days in advance. Upcoming sessions include Chicago December 16-18, 2013 and Las Vegas January 27-29, 2014. Her focus is to teach credit unions in an objective manner the expense savings and income opportunities of the credit card portfolio and strongly believes credit unions should issue and manager their own card programs. September 2013 www.cubusiness.com >> CU leadership Leadership vs. Management: Differences and Similarities By Dr. Sandra L. Torres I t has often been said that leadership is an art and management a science. If true, this helps to explain why leadership is inherently more flexible and management more structured. While there are differences that distinguish one from the other, there are also similarities that bind them together. Research provides many examples of how management differs from leadership, but to begin to understand the differences it is important that we first establish a clear definition for each. Perhaps the simplest and most common definition of leadership can be summed up with one short phrase: the ability to influence others. It suggests the capacity for visionary and strategic thinking; the potential for developing and implementing a mission; the courage to challenge processes; and the inclination to set example. Management, however, engages more with the mundane: performing operational tasks such as the supervision of others, overseeing budgets, developing projects, and achieving goals. Doing the Right Things vs. Doing Things Right Warren Bennis, a renowned authority on leadership, identified the functions of a manager as one who administers, initiates, maintains, focuses on systems, relies on control, wants immediate results, asks how and when, and has an eye on the status quo. Leaders, on the other hand, are those who innovate, originate, initiate, develop, focus on people, inspire trust, have a long range view, ask what and why, have their eye on the horizon, and challenge the status quo. Bennis is best known for identifying managers as those who do things right, and leaders as those who do the right things. Many other writers have attempted to describe the characteristics of managers and leaders. Some of the distinctions 28 Credit Union BUSINESS identified include their focus, longevity, personality, and their high level of proficiency. Whatever characteristics were applied to each, all writers agreed on the importance of both the manager and the leader as pivotal forces in the successful operation of any organization. Followers vs. Subordinates By definition, managers have subordinates. For the most part, managers tend to be authoritarian and function with a transactional leadership style, primarily because they have been vested by the organization in positions of authority. Their subordinates work for them and understand that they are generally required to do as they are told. Transactional leadership involves the rewarding of subordinates (with salary, incentives, etc.) for work performed. Managers are also subordinates and are subject to a similar relationship with their superiors. Leaders do not have subordinates—at least not when they are leading—they have followers. Many organizational leaders may have subordinates, but only because they are also managers. They are at their best when they are leading, however, and have ceded formal authoritarian control. Because to lead is to have followers, and following is always a voluntary activity, the best leaders have superb persuasive and inspirational skills. This selling style of leadership is referred to as transformational. Simply telling people what to do does not inspire them to become followers. It is no surprise that leaders with strong personalities find it easier to attract people to their cause; they typically promise transformational benefits as a part of their influence. These benefits enable their followers to believe that they will not just reap extrinsic rewards, but that they will become better people. To some extent, the most effective leaders also possess a char- September 2013 www.cubusiness.com >> lEADErSHiP >> CU leadership leaders need to say “thank you” in a genuine manner. Your team members will likely Leaders vs. Managers workandmuch if they feelManManagers leaders areharder involved in different activities. agers have unidirectional authority and produce order, consisthat what they’re doing really tency and achievement. Leaders have multidirectional influence andmakes produce change, movement and innovation. Research, a difference, and that while sometimes contradictory in differentiating between manefforts noticed byeffective agerstheir and leaders, generally are concludes that the most leaders possess a strong combination of characteristics of both those with power. effective management and inspired leadership as illustrated in ismatic personality, but that is not a requirement. The quiet personae that give credit to others and accept responsibility are very effective at generating subordinate loyalty. themessage Leadership Management Characteristics ed willvs.bring you success in employeeTable. motivation, as The Leadership vs. Management Characteristics table gives lanwell as in building a positive, productive workplace. guage the differences between leaders and managers. is Fortomany leaders employee appreciation is part ofThis their only but an illustrative in mind in thatfact, there is DNA, for others characterization. it can be a scarceKeep commodity. many organizations, are offering leadership development training to ensure that leaders develop skills in this area. Take this Thanksagiving gradient spectrum between the ends ofthe thisexception scale along season to make your workplace andwhich use eveach role can range ery opportunity to widely. Many people lead and manage at the same time,your therefore may display a combination of behavdemonstrate iors. The biggest gratitude to yourdifference between managers and leaders is the way they influence and motivate the people who work or team. follow them, and this sets the tone for most other aspects of what they do. Author, speaker, and leadership Dr. Sandra L. MiTorres is an author speaker and leadership consultant, consultant. ami-based Miami Dr. based, Dr. Torres has researched leadership practices around the world. More than around 20 yearstheofworld. exTorres has researched leadership practices perience in the credit union industry has made her an arMore than 20 years of experience in the credit union indusdent believer of the credit philosophy try has madeand herpractitioner an ardent believer andunion practitioner of the “people helping people”. Leadership Si offers bilingual leadcredit union philosophy “people helping people.“ Leadership ership expertise via her writings, training, workshops and Si offers bilingual leadership expertise via her writings, trainspeaking engagements. Her specialty is women’s leadership. ing, workshops and speaking engagements. Her specialty is Get to know her better by visiting: leadership-si.com women’s leadership. Get to know her better by visiting leadership-si.com. Dedicated to developing leadership across cultures. Leadership Programs Develop Talent and Achieve Results Studies show, that on average, leadership development programs have a 20-40% significant impact on the following: Personal Ability—Communication - Collaboration—Teamwork Productivity—Quality and Cost of Work Consider how an investment into coaching, mentoring or training initiatives will result as a positive ROI on your organization's income statement. Become an extraordinary leader! www.leadership-si.com www.cubusiness.com www.cubusiness.com September November2013 2012 Dr. Sandra L. Torres Leadership authority and founder of Leadership Si (see) offers bilingual leadership expertise via her writing, training programs, workshops and speaking engagements. Develop great leadership skills. For more information contact her at: [email protected] Credit CreditUnion UnionBUSINESS BUSiNESS 2921 >> CU leadership Leadership vs. Management Characteristics writings, training, workshops and speaking engagements. Her specialty is women’s leadership. Get to know her better by visiting: leadership-si.com Leadership vs. Management Characteristics 30 Subject Leader Manager Essence Change Stability Focus Leading people Managing work Have Followers Subordinates Horizon Long-term Short-term Seeks Vision Objectives Approach Strategic Operational Decision Executes Implements Power Personal charisma Formal authority Appeal to Heart Head Energy Passion Control Culture Shapes Enacts Dynamic Proactive Reactive Persuasion Sell Tell Style Transformational Transactional Exchange Excitement for work Money for work Likes Striving Action Wants Achievement Results Risk Takes Minimizes Rules Breaks Makes Conflict Uses Avoids Direction New roads Existing roads Truth Seeks Establishes Concern Doing the right thing Doing things right Credit Gives Takes Blame Takes Gives Credit Union BUSINESS September 2013 www.cubusiness.com >> CFO CURRENCY It Has Always Been About Liquidity O By Robert Perry ne doesn’t have to look far in an in Internet search of the word “liquidity” to find a long list of articles and papers written on the topic since the financial crisis. From academic to regulatory to definitional, they’re all there. Concepts of liquidity in most economic literature relate to the ability of an economic agent to exchange his or her existing wealth for goods and services or other assets. A couple of key ideas come from this simple definition that should be noted: First, liquidity is a flow concept, not a store concept; and second, the agent must be able to realize these flows. This means there must be at least two parties involved and some probability of success. There are also different types of liquidity to consider, such as market liquidity, central bank liquidity and funding liquidity— all of which have their own sets of issues and interactions. With depositories as our major audience, the remainder of this piece will focus on funding liquidity. Liquidity and liquidity risks have been at the forefront of many recent regulatory discussions with banks and credit unions, and deficiencies in many liquidity risk management programs continue to appear at some institutions. Areas lacking include: 1. 2. 3. 4. Sufficient holdings of liquid assets Meaningful projections of available cash flow Illiquid assets funded with volatile liabilities Well-thought-out contingency funding plans (CFPs) The Basel Committee on Banking Supervision issued guidance in 2008 (BIS 2008) on lessons learned from the financial crisis in the area of liquidity and liquidity risk management. This work ultimately formed the underpinnings for the interagency policy statement on that topic. The Basel Committee defines funding www.cubusiness.com liquidity as simply the ability of banks to meet their liabilities; in other words, the ability to unwind or settle their positions as they come due. While this is a very simple concept, it can create monumental stress to a financial institution. From the interagency guidance, we see liquidity defined as “a financial institution’s capacity to meet its cash and collateral obligations at a reasonable cost” and that maintaining adequate liquidity depends on the institution’s “ability to efficiently meet both expected and unexpected cash flow and collateral needs without adversely affecting either daily operations or the financial condition of the institution.” Continuing with this theme, liquidity risk is “the risk that an institution’s financial condition and overall safety and soundness is adversely affected by an inability or perceived inability to meet its obligations.” History shows that this “perception” of inability or non-performance has caused bank runs and liquidity spirals. A Midwest banker once told me that during the depression years, they avoided bank runs by placing all the vault cash “out on the counters in the lobby” so people “could see their money and that everything was alright” as they walked by. Obviously, this was an interesting way to squash any “perceived” liquidity September 2013 Credit Union BUSINESS 31 >> CFO CURRENCY problems. Some of these same Midwest bankers also wore U.S. Treasury-issued Colt45 revolvers as a way of managing liquidity risk. Thankfully, times sure have changed. In today’s complex environment, institutions should focus on the following checklist for liquidity management: The Banker’s Checklist for Sound Liquidity Risk Management 1. 2. 3. 4. 5. Calculate meaningful cash flow projections Indentify diversified funding sources Hold a cushion of liquid assets Run stress tests Develop a formal contingency funding plan (CFP) The first step on our checklist is to calculate meaningful cash flow projections using robust models over meaningful time horizons. This is clearly an area that should be supported by the ALM process as it is usually the source for cash flow projections. Actually, ALM analytics and liquidity modeling make a great combination for meaningful scenario analysis that regulatory agencies and management teams are using more often. Models must be analytically capable of projecting cash flows for the individual assets on the institutions balance sheet—a very important point as many institutions simplify the modeling of complex assets for ALM analysis using non-option based deterministic formats where stochastic models and non-stationary prepayment modeling are needed. Cash flows from portfolios of mortgage assets can, and do, change quite a bit as interest rates change in level and slope. Mortgage cash flows are also driven by levels of mortgage spreads and implied interest rate volatility. The market’s gyrations over the last few months provide a reasonable testing ground for evaluating changes in mortgage-backed security (MBS) cash flows. The weighted average life calculation that time weights principal payments may not be a great measure for interest rate risk, but it can shed light on the average time to receive principal payments over the life of an asset. For example, a zero coupon 10-year Treasury note has a weighted average life of 10 years in all scenarios. Whether interest rates go up, down, curve flat or curve steep, it doesn’t matter, a 10-year zero coupon bond is 10 years long, regardless. It may be very liquid and financeable, but it doesn’t produce any natural scheduled principal payments for Credit Union BUSINESS Table 1 shows the weighted average life of a 20-month-old pool of 3.5 percent, 15-year MBS over the recent past. MBS pools, unlike the zero coupon example and many amortizing assets, naturally produce scheduled and unscheduled principal that can be and should be modeled for liquidity planning. Unfortunately, principal payments from prepayment sensitive assets change with market factors and must be modeled as such. Table 1 Calculate Meaningful Cash Flow Projections 32 10 years. From a cash flow perspective, it’s not a very good provider of liquidity. WAL April 3.07 May 4.02 June 4.65 Identify Diversified Funding Sources Effective funding strategies should provide diversification in the sources and tenor of funding. Further, institutions should maintain market access and regularly test their ability to raise funds quickly. FHLB advances, reverse-repurchase agreements and dollar roll financings should all be explored. For institutions holding at least some portion of their investment portfolio in on-the-run Agency MBS pools, dollar roll financing transactions many times dominate the alternatives. For example, the implied repo rate on 30 year, 3 percent MBS pools averaged approximately negative 0.50 percent for many months over the last year and a half. Institutions holding this asset on balance sheet should have rank-ordered it at the top of the list of assets to finance or provide liquidity. A highly liquid market with negative financing costs isn’t common. Other funding source alternatives include: 1. 2. 3. 4. September 2013 Deposit growth—beware of weak early withdrawal penalties and hot money Lengthening maturities of current liabilities Asset securitization Sale of business lines www.cubusiness.com >> CFO CURRENCY A well-thought-out CFP should delineate policies to manage a range of stress events, establish clear lines of responsibility, articulate clear implementation and escalation procedures, and be regularly tested. Hold a Cushion of Lquid Assets Holding a store of liquid assets should help provide a cushion to protect against the adverse effects of a stressed liquidity environment. The size of this cushion should obviously be derived from the institution’s stress testing. Highly liquid assets used in liquidity planning should be unencumbered, and management should understand real executable bid-side pricing for potential sale and asset-specific haircuts for potential financing. U.S. Treasuries, Agencies, and Agency MBS work well in this area. Management should be careful with many Agency CMO structures, as their liquidity can be surprisingly worse than the underlying collateral pools. Run Stress Tests At ALM First, we recommend conducting regular stress tests for a variety of firm-specific and market-driven events. The goal is to identify areas of potential liquidity stress in advance and formulate appropriate responses. This can easily be integrated into periodic ALM analytics. As far as market-driven events go, variations in expected principal payments and maturities driven by changes in the level and the slope of the yield curve should be high on the list and regularly evaluated. Deposit runoff scenarios should also be keenly understood. For example, ask whether the institution can continue funding itself if interest rates increase 300 basis points and disintermediation takes hold of 15 percent of core funding. Stress tests should be realistic and firmly rooted in a modern financial framework. Probability www.cubusiness.com weighting stress events are also a reasonable way to understand stress scenario analysis. Develop a Formal Contingency Funding Plan (CFP) A well-thought-out CFP should delineate policies to manage a range of stress events, establish clear lines of responsibility, articulate clear implementation and escalation procedures, and be regularly tested. Contingent liquidity events are unforeseen situations that may increase liquidity risks and may include an institution’s inability to replace maturing funding or unexpected deposit withdrawals. Other market-driven events should be evaluated against the contingent liquidity backdrop, as well. Large, spread-widening events during the financial crisis caused significant asset price declines, hindering their marketability and reducing their value for financing. In the end, a wellthought-out CFP should be used as the game plan for a stress event. It’s better to identify the who, what, where, when and how of liquidity management in advance, rather than in the middle of a crisis. Conclusions Liquidity risks remain a major focus for depositories and depository regulators, and less than adequate liquidity riskmanagement programs continue to show up on the radar screens. Building a sound liquidity risk management framework and CFP is crucial to a successful liquidity risk management program, and failure to do so may be considered an unsafe and unsound practice. September 2013 Robert B. Perry is a Financial Advisor with ALM First Financial Advisors, LLC, responsible for advising multiple financial institution clients on asset/ liability management and investment strategy. In this role, he also performs scenario analyses and portfolio reviews for clients. Credit Union BUSINESS 33 >> TECHNICALLY SPEAKING Get SaaS-y for Faster, Maybe Cheaper, Newer Technology By Roy W. Urrico T he cost of doing business in the financial services industry has forced many credit unions to reassess the worth of legacy software. Conventional applications require considerable startup, maintenance, support and upgrade costs. In addition, once a credit union implements a new system or system improvement it is committed to that version for some time. Credit unions might look at software as a service (SaaS), aka “on-demand software,” as an alternative. These outsourced and cloud-based solutions can mitigate costs and compensate for limited in-house resources. Software as a Service, supplied by independent software vendors or application-service-providers (ASPs), is a delivery model in which applications and associated data are centrally hosted. Centralized hosting of business applications dates back to the 1960s when mainframe providers conducted business as service bureaus. Such services included providing computing power and database storage to financial institutions from data centers. The development of the Internet brought application service providers (ASP) that provided businesses with a hosting service and management of specific business applications. SaaS fundamentally expands the ASP model, except while a good number of ASPs focus on managing and hosting third-party software; SaaS vendors typically develop and manage their software. Implement Better Technology Faster and Cheaper “Cloud-based SaaS solutions allow credit unions to implement new technologies at a lower up-front cost, since there is limited infrastructure and implementation investment required, freeing up capital to pursue other revenue generating opportunities,” says Jim Buckley, account executive and program manager for transaction management systems at Norcross, GA-based TransCentra, an outsourced remittance processor. In a cloud-based SaaS model, the service focuses on a specific area, which creates unique economies of scale and makes 34 Credit Union BUSINESS the technology more efficient, adds Matt Gerber CEO of Liberty Lake, Washington-based IT-Lifeline, a provider of business continuity compliance testing and disaster recovery services. “Credit unions are able to quickly implement the service without the delay of shipped equipment or internal resources being pulled from other critical areas,” explains Gerber. Therefore, new internal and external member facing services can be tested and deployed more quickly. Another advantage is that a SaaS solution does not need the installation of hardware or software. “The pay-by-usage cost structure gives immediate access to on-demand use of efficient, scalable, redundant IT infrastructures with much smaller capital costs than building in-house,” suggests Jennifer Werner, chief marketing officer of Nashville-based EFT Source, which provides financial institutions with turnkey card programs. “By consuming SaaS from a cloud service provider, the credit union experiences more utility and less infrastructure,” says Brendan McGowan, CTO of Alpharetta, GA-based Safe Systems, which provides compliance-centric IT solutions. Internal infrastructure commonly has a lower total cost of ownership over its useful life but requires a larger initial investment and maintenance. “It all depends on how the credit union values these different aspects of the tools they use to do business,” notes McGowan. Helping Credit Unions Remain Competitive SaaS can help credit unions level the playing field by implementing new technology faster. “A cloud based SaaS provider can serve one instance of a tool to many subscribers by taking advantage of multi-tenant software design. These economies of scale enable the SaaS provider to deliver rich features and performance at a competitive price’ says McGowan. He points out that a tool that starts its life as an Internet-based service is immediately more accessible to the credit union’s customers. September 2013 www.cubusiness.com >> TECHNICALLY SPEAKING SaaS options typically enables credit unions to deploy critical business applications and member-services faster, while eliminating the cost and time associated with purchasing hardware, software and maintaining infrastructure, maintains Gerber. Also, services can be updated without long and expensive upgrade cycles. In addition, SaaS improve scalability, since the maintenance and infrastructure requirements are transferred from the credit union to the SaaS provider. “Because these SaaS providers offer the software to multiple end users, their hosting environment can scale up or down with the needs of the credit union with little to no impact on the service,” says Buckley. Could Lower IT Costs There are some direct and indirect savings resulting from SaaS computing. “It eliminates the cost of purchasing hardware and software and lowers labor costs associated with managing the technology. In a SaaS model, the cost of these resources is shared by multiple credit unions, which drives down operational costs usually carried by a single institution,” explains Gerber. Werner states that “It’s generally considered that as much as a 30 percent reduced labor is gained from no maintenance, no installations, no upgrades, reduced down time, etc.” Because cloud technology allows credit unions to outsource their IT infrastructure, IT support and the hosting of application software the credit union only pays for the services they use instead of carrying the expense of unused capacity. “For this reason, IT costs should be lower. Increased transparency is achieved if the cloud services provider openly communicates performance metrics such as system availability, outages and problem resolution times,” notes Buckley. He advises that these factors should be clearly defined during contract negotiations through the establishment of acceptable Service Level Agreements (SLAs). SaaS may be easy but it is not free and costs need to be monitored. “Consuming applications from a SaaS provider commonly means you incur predictable monthly operating expense for as long as you use the service. This is a very clear true cost to own compared to the cost of a traditional capital expenditure product lifecycle of buy, maintain, replace. As far as comparing the over cost of the two models, there is not an automatic winner here,” explains McGowan. The reason for this is that most www.cubusiness.com software products that offer their licensing in both SaaS and perpetual models have a point in the future where the two cost lines intersect. SaaS starts out cheaper, but at some point the investment in perpetual licensing pays off. “You’re going to pay either way. You need to choose what operational benefits you are looking for. SaaS typically gives you rapid onboarding, predictable costs, and the ability to change providers. A perpetual model has a higher initial investment but low recurring cost and greater control over the application.” Improving the Customer Experience Buckley points out the one of the clear benefits of using SaaS is it can improve the customer experience by enabling credit unions to roll out new tools and technologies to customers more quickly and more frequently. “With SaaS, it is very easy to turn on new tools, modules or services, allowing credit unions to react more quickly to the needs of their customers or changes in the marketplace…as soon as software upgrades are available they can be rolled out to the end customer.” This can be a big advantage when trying to satisfy new customer demands such as with mobile banking. “TransCentra offers a cloud mobile deposit application, and many of our customers say that it allowed them to roll out the service before competitors because they avoided the internal support and implementation costs and are charged per transaction. This makes the business case for mobile deposit much more acceptable and rolling out new services more quickly gives credit unions a competitive advantage,” explains Buckley. Electronic Content Management (ECM) solutions can also provide great benefit to back-office lending operations. Buckley suggests that SaaS based ECM solutions provide easier entry into the technology and enable credit unions to improve their loan-processing capabilities. McGowan personally benefitted recently “I actually just bought a new truck this week. I did an auto loan through my local credit union and was able to upload documents to their secure client portal instead of going into the branch. I only had to go in to sign the final papers. The process was fast and painless.” Staying on Top of Security and Compliance When it comes to security, credit unions always need to be on the lookout and be prepared for dangers ahead. Having a SaaS September 2013 Credit Union BUSINESS 35 >> TECHNICALLY SPEAKING partner with better protection capabilities helps shore up credit union defenses. An intelligent SaaS system with a trustworthy supplier will be designed with security as the underpinning. Werner explains that part of the SaaS providers’ service model is to meet the critical demands of security for financial institutions, “By outsourcing, a credit union would have the ability to meet regulatory requirements efficiently.” SaaS providers have the resources to invest in the latest security technology and a business-continuity solution as well suggests Gerber. He adds, “This helps to protect the credit union’s reputation and ensures that service level agreements are met.” Modern SaaS applications are created with the security, authentication, and accessibility attributes built in, says McGowan, “legacy applications can also be delivered to commercial customers over the Internet but only after security, authentication, and accessibility technologies are layered on top of them. There is one caveat to using SaaS. “While SaaS providers have to make security a fundamental part of their product, increased adoption of cloud services by credit unions only increases the importance of rigorous vendor management.” He recommends that credit unions validate the security claims of SaaS providers by requiring the right certifications from every SaaS vendor and having their own IT experts review the security mechanisms of the product. “In and of itself, SaaS is not inherently more or less secure than on-premise software,” says Buckley. “SaaS may provide a security advantage if the SaaS provider follows the latest security procedures and protocols. Technology providers must have methods for managing the risk of hacker attacks, but there is no certification other than existing self-attestation oriented audits,” adds the TransCentra executive. He recommends the Cloud Security Alliance, which offers STAR (Security, Trust and Assurance Registry), a self-assessment based on the Cloud Controls Matrix. Buckley also suggests that financial institutions should ask whether a cloud provider offers a built-in disaster recovery and business continuity plan consisting of backup sites and multi-site production. SaaS for Credit Unions? Credit unions have many concerns as they deploy resources to keep up with new technologies and customer demands. Utilization of SaaS applications allows a credit union to mitigate the 36 Credit Union BUSINESS costs of the technology without losing any control of the process and/or service they provide, points out Buckley.” Because the credit union is still operating the application, they have full control over staffing, training, procedure and quality control. The costs savings associated with the SaaS application along with the maintained control of the process can produce more successful product offerings.” Werner explains it very well, “It provides data in real time or on-demand. This could be a huge benefit in helping credit unions service their members in a timely, more proactive manner. Plus, the cost savings gained from not having to build inhouse infrastructures can go toward member-focused initiatives.” Another customer related benefit is that rather than worrying about maintaining infrastructure SaaS enables credit unions to focus on improving member service, explains Gerber, “The risk that comes with implementing and maintaining technology is reduced and service performance is increased. “Any time you can leave the burden of IT management in the hands of the experts, you can go about the business of serving your customers. SaaS is an enabling technology that makes it that much easier.” adds McGowan. Credit unions seeking to upgrade technology could consider partnering with a SaaS provider. However like in all technology investments, credit unions need to perform due diligence and choose wisely. It is imperative to locate a technology partner that keeps up with innovation and protects against ongoing and evolving threats. With the increase of customer expectations, credit unions need to decide where their technology needs to be today and tomorrow and locate vendors that can meet those needs. Roy Urrico, is a freelance ghostwriter and byline writer of books, articles, newsletters, guides, case studies and white papers about financial institutions, financial technology, compliance, information security, credit and collections, foreign exchange and many other financial topics. To find our more about how Roy can help your organization check out Roy’s profile on LinkedIn, visit his Web sit at brightideaswriting.com or email him at [email protected]. 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Self-Service Coin Centers Currency Dispensers Currency Recyclers Proven Performance and Quality Facilities & Design Lending A Nationwide Lender with the Expertise to Get Your Deal Closed Business Partners is a nationwide provider of commercial real estate lending services with years of experience funding loans. We provide financing for most property types in primary and secondary markets: + Loan amounts of $500K to +$20MM Competitive rates + Terms of 3, 5, 7 or 10 years + 25 year amortization + Up to 75% LTV of appraised +value or purchase Loan feesprice 1% of the loan amount Atlanta, GA - Los Angeles, CA - Chicago, IL - Dallas, TX - Denver, CO - Stamford, CT >> cu spotlight! It is Still About Service at Park Community By Sharon Sweda T echnology is proving to be a strange beast. No one denies that, in technology’s infancy, equipment was pricey, software was often cost-prohibitive and the learning curve was labor intensive. Several decades into the computer revolution, the technology climate has changed dramatically: Prices have softened and both hard and software are more attainable through leasing or pay-as-yougo options while software has become easier to learn and use. Today we enjoy countless benefits that few could have imagined when programmers were first learning how to navigate the MS-DOS systems of the last century. All but the smallest credit unions have kept pace with Internet banking demands and most now offer mobile applications that mirror the banking services of mega-banks. Unless the mobile banking user searches a drop box for locations and branches, they’ll barely be able to differentiate among institutions of similar size. Online payments, internal transfers and mobile account management no longer lure clients because they are an expected service of most banking sites. Now that the dust is beginning to settle, the technology chase seems to be ending. Consumers have come full circle, swinging back around to the beginning. Knowing they’ll get all the tech services that financial institutions have to offer, they are specifically looking for good rates and outstanding service. Park Community Credit Union—with branches in Alabama, Indiana and Kentucky—is offering all the same technological bells and whistles that insure they are in-step with the competition, but offering it in a bold new way. Any Android or Apple device user now has the choice to access their account information through mobile apps, the web or via text messaging. Their check deposit feature allows app users to skip the visit to the branch, which is possibly the best customer service of all. Time is money, after all, and the ability to avoid a branch visit provides Park Community Credit Union members with a convenient and tangible, timesaving service. Mobile Banking and phone apps are not the only features that retain members at Park Community. For the more traditional members, who are still uncomfortable with cloud environments and electronic banking, Park Community has fourteen brick and mortar branches and participates in the national CU Service Center, which offers PCCU members plenty of ATM options. When nothing but a conversation 40 Credit Union BUSINESS will do and a trip to the branch is inconvenient, customers are encouraged to make use of their 24/7 hotline. Park Community fosters the same universal member concern that other credit unions share, which is reflected in their service platform. While health care might seem like an unlikely venue for credit unions, it speaks directly to those institutions whose heart and sole is vested in member wealth. They are keenly aware that few life events can impact a household budget more catastrophically or unexpectedly than health care costs. Park Community offers their members a Health Savings Account (HSA) with interest benefits for qualifying balances along with year-to-year carryover. While not every member participates in the Park Community HSA, the credit union’s platform provides a menu filled with discounts on many other goods and services including everything from auto insurance to Dell computers to amusement parks and more. Credit union members qualify for Preferred Pricing on General Motors products, a three percent discount with Toyota and a half percent discount off auto financing rates when they purchase a car from Enterprise’s rental fleet. All members receive a twodollar savings on car washes at a local car wash and ten percent off wireless phone service from Sprint. In the boldest move ever, Park Community has contracted with MemberShoppers in an effort to rate their member service and identify areas that need improving. Park Community members are invited to participate in the Mystery Shopper program where they can rate the service they have received while conducting business at the credit union. Once they submit a shopper’s report, ten to twenty dollars—depending upon the service that was rated—is deposited into their account. While Mystery Shoppers almost seems oxymoronic at a time when electronic services are replacing the need for physical visits, it’s just good business for PCCU. Certainly, the march of technology shows no sign of slowing, but it looks like Park Community Credit Union’s eye is on future. And that means their target continues to be great service, no matter how it’s delivered. Sharon Sweda is a freelance writer who has worked in the real estate and finance industries for the past 28 years. Contact Sharon at [email protected] to SpotLite! your CU. September 2013 www.cubusiness.com ARE YOUR E XECUTIVE BENEFITS COMPLIANT? We Work to Ensure Compliance with State and Federal Regulations. BFB specializes in executive benefits for Credit Contact us today to find out Unions. Our knowledge of ever-changing regulations how your organization can will allow you to rest easy knowing your plans have BENEFIT been designed to be compliant and defensible… and our ongoing support will ensure they stay that way. 888-494-8911 | BFBbenefit.com | FRO M OUR FOCUS [email protected]
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