As the new year approaches, many credit unions are looking for new ways to increase profits and become more effective.
"At Red Canoe Credit Union, we know our database has a fair number of single-service households," said Amy Davis, vice president of marketing. "Over time, accounts with loans get paid off, and the member keeps a low balance saving a placeholder for possible future lending needs. On one hand, we should feel honored that our membership is worth holding onto. However, a member's good intention does cost the credit union money in the form of inactive, unprofitable accounts."
Davis said that Red Canoe CU, in Longview, Wash., has tried to look at its single-service households in a new light-one of opportunity.
As for acquiring new membership, the largest battle is "generally reaching the right audience at the right time," Davis said.
"And the fact that your audience doesn't necessarily know what a credit union even is makes the message even more difficult to communicate. Even though these members aren't fully participating in the credit union, we do now recognize that they did join the credit union at one time for a reason."
One program Red Canoe CU launched in 2010 to help remind members of the value of membership at a credit union was the Rediscover Red Canoe Campaign, a direct-mail program.
"Although the activation rate is low, the return on investment is very high," Davis said. "We activated 22 members, resulting in $85,480 in net revenue to the credit union at an ROI of 1.4 %."
But even though the success of the program generated a positive ROI, the large number of remaining households still continue to drain the credit union's overall profitability.
"It's unrealistic to think a marketing campaign can solve this problem alone," Davis said. Red Canoe CU also invested in its sales culture in 2010.
"Employees look for opportunity with each member to gain relationships that benefit their daily lives," Davis said. "What doesn't pay off today will likely pay off tomorrow. The reality of the financial world is not every member can be profitable during their entire life cycle. Whether you market to them or decide to charge inactivity fees, single-service households are a part of every credit union's membership and will likely always plague profitability."
FIS is offering some tips on examining unprofitable customers and investigating methods for increasing their profitability.
Closely examining vulnerability, profitability and demographic details can give financial institutions greater insight into the reasons some customers remain consistently unprofitable, FIS said. Other tips from FIS include predicting a loss before it happens by using thorough analytics, identifying common factors that can help financial institutions determine increased opportunities to leverage existing customer relationships, ensuring the most profitable customers are here to stay by maximizing current relationships, and taking immediate steps to turn around customers who are not profitable.
Ann Legg, chair of CUNA's Marketing & Business Development Council and vice president of marketing for Cabrillo Credit Union, said that in California they are still feeling the impact from the real estate losses.
"At this point, loan losses are still our largest expense," she said. "So when you ask about unprofitable members, our first thoughts turn to those who produce losses for the organization. This situation may be regional to California, but as I review the tips that FIS offers, I think they are quite sound."
Legg did offer some additional thoughts to each tip.
For predicting losses before they happens thorough analytics, Legg added, "You can use MCIF data or data from your core processor to help identify both positive and negative trends and build predictive models."
For identifying common factors that can help financial institutions determine increased opportunities to leverage existing customer relationships, Legg agreed, and added that "evaluating what your members do not have and why they do not have a particular product or service is a great way to identify what your specific product-service potential is."
For ensuring the most profitable customers are here to stay by maximizing current relationships, Legg noted that keeping members that credit unions determine valuable is key to any profitable strategy. "I would suggest using net promoter score and other ways to measure their satisfaction and ensuring that these members are happy and feel valued at the credit union."
For immediate steps to turn around customers who are not profitable, Leggs said, "I also believe that it is identifying the members with the greatest potential of being profitable and determining strategies to encourage them to do so."