It is not news to us in the financial services industry that times are tough. Yields are low, margins are non-existent, and loan rates (if we can make loans at all) are at historic lows. Yet with these almost insurmountable challenges, we are expected to continue investing in our businesses, continue to improve service delivery, and in the end … add to our capital position.
The troubling aspect about this, from my point of view, is our willingness to first seek out “fee” based solutions that directly come on the backs of our members. If we are truly a member-centric industry, we should pause to think outside the box. The answer should not be to look at what banks are doing to increase their revenues!
In addition to buying higher-yielding loan participations, increasing “punitive” usage fees, and growing penetration of existing products within our current membership, there are a couple of other simple initiatives that should be explored. The credit union mantra is that, “we improve the financial lives of our members.”
We cannot continue to claim this differentiation if we fee like the banks do. In Connecticut, we have formed strategic partnerships with companies that provide products and services to our members that they already have, but at lower costs and better terms. These partnerships have resulted in literally hundreds of thousands of dollars of noninterest income for our credit unions, and at the same time, lowered expenses for Connecticut credit union members.
The next recommendation should be apparent to any business, but is the most over-looked aspect of revenue generation. It is the ability to examine our processes and identify inefficiencies and long standing functional, bureaucracies. As not-for-profits, every dollar not expensed, translates to a dollar earned.
Therefore, the more efficient we become (thus reducing expenses), the more income we generate for our members. Whether or not you agree with Walmart’s business tactics, it has been successful by constantly increasing operational efficiencies and ridding its processes of bureaucracy. We have the ability to do this as well.
In most cases, a thorough process analysis will uncover bureaucratic inefficiencies and unnecessary and expensive methods that have been implemented over time. An effective internal analysis allows management to identify internal barriers to efficient operations, whether it is people, unnecessary processes, or unnecessary expenditures.
At one organization, I did an analysis on the purchasing/requisition function of the company (that had been in place for more than 20 years). The results of the analysis showed that there were 129 individual and distinct steps involved in the requisition process. By identifying each step in the process, I was able to eliminate 108 unnecessary steps. This obviously resulted in a more efficient, cost-effective system being implemented. Every week I inquire of someone in a business as to why they are doing something a certain way, and most frequently the answer is, “we’ve always done it that way.”
Rather than falling back on the old paradigm and thought process of seeking new, revenue-generating products, it may be beneficial to stop and think about it from the members’ perspective. The point is that there are other ways to “skin a cat” and accomplish the goal of increasing revenues, but that will still allow us to keep saying, “We are here to improve the financial lives of our members.” Also, ask yourself: “Is my credit union the most efficient business operation that it can be?”
Anthony L. Emerson is president and CEO of the Credit Union League of Connecticut.