That dedication to efficiency could open up several opportunities for credit unions to build relationships through no-interest checking accounts and other products and services that do not charge minimum balance, account maintenance and other fees typically charged by banks, said Robert Hall, principal of Hall Associates Consulting LLC, a Washington-based firm serving the credit union industry.
"In today's economy, many of these no-employee businesses can help credit unions dramatically lower their cost of funds and manage their balance sheets," said Hall, who served as chief of staff to former NCUA Board Chairman Norm D'Amours.
In 2006, there were more than 20.7 million businesses with no employees in the United States, Hall noted in a white paper he authored that refers to data from the U.S. Census Bureau. These businesses had total revenues that year of more than $970 billion, with an average of $46,733 per business. Nationwide, three sectors of businesses without a payroll accounted for almost one-half of all business receipts: real estate and rental/leasing at $193 billion; construction at $159 billion; and professional, scientific and technical services at $124 billion.
Hall also found that these no-employee businesses have limited needs for cash services and are comfortable conducting financial transactions electronically online. Attracting this sector may require credit unions to have an electronically based delivery system that allows self-employed business owners to use the Internet to join, open and fund the desired accounts and conduct their ongoing business, he added.
Even though the businesses have just one employee, there may still be "a palpable hunger among self-employed people for access to employee benefits," Hall said. Credit unions already offer a number of products than can be grouped into bundles, he pointed out.
"[Self]-employed virtual employee benefits packages would not simply enhance stickiness, it would act as a super magnet," Hall said. "[This] could also generate a significant new amount of other income, further strengthening a credit union's balance sheet."
Among those employee benefit offerings would be life insurance, disability and long-term care insurance, dental and vision coverage, structured retirement savings programs and the option for automated withholding of a portion of deposits into separate savings accounts for quarterly estimated tax filings. Hall calls these the "other benefits that people in the 'W-2 world' take for granted."
Hall pointed to the recently launched REALTORS Federal Credit Union, which he was involved in getting off the ground. The virtual credit union's membership is almost entirely composed of self-employed independent contractors and their businesses. Hall said his firm played a central role in conducting market research, developing business plans and delivery systems, and structuring products and services focused on self-employed people.
"We recognized the importance of low-cost funds to support rapid growth and manage other risks on the balance sheet, and we tailored the business model around that key understanding," Hall said.
Real estate professionals frequently need loans or leases for automobiles where they conduct a lot of their business, Hall said. Across sectors, many may need loans to smooth out cash-flow issues, especially at quarterly estimated tax-filing time. All of these factors require different internal capabilities, and frequently they require different marketing strategies, he pointed out.
Different regions, states, metropolitan areas and counties have different no-employee business characteristics. For example, nationwide 14% of these businesses provide professional, scientific and technical services. However, in the Washington metropolitan area, they account for nearly 22%, Hall said. The financial services desired by this group can be very different from those needed by a self-employed person in the retail sector.
Some professional consulting businesses are primarily interested in deposit services rather than a source of operating credit, Hall explained. Other sectors such as retailers might require cash services and night deposits. They may also have a greater need for lines of credit and inventory loans than other sectors. Once the credit union understands the profiles in its market area, it must decide what specific types of financial services it wants to emphasize, he said.
"You need to know what is out there in order to devise an effective strategy to attract it," and after sizing up the marketplace, "The credit union must decide what changes it is able [and] willing to make in its products and delivery systems to attract these businesses."
Denver Bank Targets Smallest Businesses
Babysitters, piano teachers and wedding singers are among the targets of a FirstBank campaign that is running free 14-foot by 48-foot billboards for some of its smallest banking customers.
The Denver-based bank said it includes real phone numbers on the public billboards. Those for babysitters, however, do not include their actual names or phone numbers for liability purposes. When a potential customer calls the phone number, a recorded message says the person is booked up and directs the caller to contact someone else who gives the real number for a real business. FirstBank said it rotates referrals so that more small business owners can be reached.
Starting this summer, the bank plans to roll out a "DotFree" small business banking package including online cash management and business savings and checking accounts. FirstBank also plans to offer free Web site development through SquareSpace.com as well as free online banners and hosting services. The banner ads with the message, "We care about your business," will be featured on the bank's Web site and others such as Yahoo and Forbes.