1. business and industrial

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
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Finds Credit Unions Can
Benefit from “New Normal”
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Credit Card Transaction
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>> 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].
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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
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at Mercator
authored
the risk for
thatbad
would
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be rejected.”
technologies
and third
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to businesses
report. “While
moreparty
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data cannot
transform
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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
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the
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haslenders
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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
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bad prospectand
intoentering
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are cannot
using transform
differenta “risk
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and exchanges,
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direct lenders.
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as when
channels,
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asnew
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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
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packagesoptions.
such This
as includes
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based
they
are introduced to web-enabled
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cash advances,
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and equipment
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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.
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September 2013
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>> 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
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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,
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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.
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Credit Union BUSINESS
September 2013
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>> 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
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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
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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
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Uses
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Direction
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Truth
Seeks
Establishes
Concern
Doing the right thing
Doing things right
Credit
Gives
Takes
Blame
Takes
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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
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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
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>> 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
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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
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>> 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
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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].
September 2013
www.cubusiness.com
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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
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