While Sound Credit Union's business services program has been inplace since July 2007, a litany of bank mergers and closures in thearea has helped propel its business deposit portfolio over the lastyear.

“We haven't had to heavily market our program,” said Carl Roer,vice president of lending at the $536 million CU in Tacoma, Wash.“Our excellent branch network has also allowed it to grownaturally.”

Since 2009, business accounts have grown from 350 to 600,totaling $7 million, said Jenny Tharp, operations manager at Sound.The organic growth even came without a business development personon staff, a move that has also helped to keep costs down, Roeradded.

Noticing that there was a dearth of data on business deposits atcredit unions, CU Business Group LLC put together a survey to findout what products and services were currently being offered andwhich ones were likely to be provided over the next three to fiveyears. The survey was sent to 470 credit unions, including SoundCU, and nearly 50 responded, said Larry Middleman, president/CEO ofthe business services CUSO in Portland, Ore.

“We wanted to have some meat behind deposit services,” Middlemanexplained. “There's a lot of business lending data out there butnot much on business deposits. Most credit unions put together abasic program. It may run well and do great, so then the questionbecomes, 'What's next?'”

CUBG's business deposits benchmarking survey is set to beunveiled at the CUSO's annual conference Aug. 23-25 in Portland.Middleman provided Credit Union Times with some early highlights,including the top business deposit services offered by CUrespondents. Merchant bank cards topped the list, followed bybusiness ACH origination and business online banking. Rounding outthe ranking was a near tie between sweep and cash management andaccount analysis, then business remote deposits, with positive paybeing the least offered service.

Middleman said the CUs that provided data came from all over thecountry and had a mix of asset ranges above and below the $300million threshold. Regardless of their differences, credit unionsgenerally take three to five years to build a business depositprogram, he added. Some of the factors that may help with expansionare a sophisticated product mix, enlarged as appropriate over time,and a staff that is knowledgeable about the offerings.

That expertise is critical for services such as remote-depositcapture, named by survey respondents as the top product they planto offer over the next three years. Middleman said the cost toimplement RDC varies, with some licenses costing as much as $1,000.But the most important expense, he said, is training staff to beable to provide ongoing technical support to business members.

“That's what's stopping some credit unions,” Middleman said.“But it's so critical because credit unions can't offer the branchnetworks like a Bank of America or a Wells Fargo. Part of mypreaching is, 'Every day we don't do this, we're a day behind thebanks [that are offering RDC.]'”

Roer said Sound has taken notice of the importance of RDC. TheCU is reviewing proposals from a handful of vendors and isconsidering rolling out the service at the end of the year. Itwould complement its current lineup, which launched July 2007, saidChris Shenkel, vice president of branch operations at Sound.

Most of the survey's respondents said they offered businessdeposits and loans at the same time, Middleman said. Businesschecking and merchant accounts are typically among the initialrollouts. But with other operational priorities to attend to,that's usually where it ends. While there is a significant amountof fee income potential with business deposits, there could be somestagnation as a program matures. Middleman said that's the perfecttime to ramp up with things like RDC, ACH origination and onlinebanking.

Business members tend to have more products and services andhigher balances than other members, according to the benchmarkingsurvey. In the survey, CUBG collected data on what CUs averaged inthose three categories and then looked at the top 25%. Those whoscored highest in each category were named the top performers.Middleman said the goal was for CUs to be able to do peercomparisons against that mark, not just the average.

Unlike other credit unions in its region, Sound has been fairlyconservative over the years, said Jenny Tharp, operations manager.The larger deposits are parked in high yield money market accountsbecause of attractive dividends, she said. High yield checkingaccounts are also appealing.

Roer said people from businesses are looking to credit unionsbecause of bank mergers, such as Washington Mutual's takeover ofChase. He added that a number of community banks have been takenover or have gone out of business.

The opening up of more market share could mean more revenuestreams from business online banking, Middleman said. However, headded, a CU may have to spend in the five figure range to havecapabilities such as accounting and payroll, a reality that mayexclude some smaller CUs. Positive pay, which allows businesses toreview checks and transactions before they post to an account, is amuch more sophisticated offering and was the least offered serviceamong survey respondents. Middleman said the service is typicallyideal for larger entities like city and county offices.

Even though sweep and cash management and account analysis get alot of press, there are alternatives, Middleman said. A CU couldpay interest on a checking account, eliminating the need to sweepinto an interest-bearing account. Business online banking is aviable option for credit unions that don't want to invest in anaccount analysis system, he said.

Tharp said although an examiner is likely to focus on businessloans, deposits programs are also screened for risk. “They want toknow about the risk rating systems,” she said. “There's a lot onauditing issues.”

Middleman acknowledged that there are risks on the deposit side.“When you're offering ACH origination, does it carry certain levelsof risk, even potentially monetary loss to the credit union? Thereneeds to be a focus on risk management.”

While deposit programs tend to run on business from mom and popoperations, CUs do sometimes encounter businesses with 50employees, two or more locations, and an ongoing need to move moneyaround. That's a more complex realm, Middleman said, and the goalis to have the expertise in place to keep up with all of the movingparts. Commercial banks may have the advantage because they havethe staffing and technology for monitoring, he said.

“Where is this on the senior management priority level?”Middleman said. “If it's high, the credit union will work to getthe expertise needed.”

At Sound, the priority level of adding layers to its depositprogram depends on whether it makes financial sense and, moreimportantly, builds on what the CU already has to offer. Soundfigured business members wanted credit card processing from adependable source that didn't charge a lot of hidden fees, Roersaid. The credit union's business services and loan program,launched in 2007, includes a vendor partnership that adheres toboth criteria. Fifty members are using the service and the alliancecontinues to grow.

Deposits are growing faster than loans and total balances aregrowing, Roer said. However, the credit union has had to put on thebrakes in some instances. “We're seeing a lot of people who want todo startups,” he said. “That's high risk. Because of the economy,we've had to turn some people down. The credit union is managedconservatively. We're taking the same approach with deposits.”

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