Does Your Business Model Still Work?
The rules of the game have changed. On the surface things may appear calm, but underneath, currents are swirling and business fundamentals are being transformed rapidly.
Credit union CEOs preparing for the next 12 to 18 months are contemplating much more than just the economic, regulatory and competitive environments. They are closely monitoring customer sentiment. To develop strategies that will create profitable and loyal members, credit union executives must begin by asking a tough question: Does our business model still work?
As a former credit union CEO, I have seen firsthand the industry’s love of the status quo. Innovation as a concept is difficult, but credit union leaders are changing and becoming more agile. They are warming to the idea that we must all look at the credit union business model differently – and not only because the financial habits and preferences of constituents are changing, but because the players are changing. This creates constantly oscillating rules of engagement.
A focus on four very important competencies will help credit unions maintain – and possibly even elevate – their position in the financial marketplace: 1) Profitability, 2) Efficiency, 3) Product/Service Mix and 4) Deeper Member Relationships.
Profitability remains tight across the industry, in large part because the top three non-interest income sources (non-sufficient funds, debit interchange/fees and credit interchange/fees) will most likely take hits from regulatory and environmental burdens. With reduced loan demand, economic uncertainty and interest rates predicted to remain low into 2013, the focus must be on ways to add or raise fees – smartly.
The trick becomes determining which services members will pay for. Clearly, there is very low tolerance for monthly fees on debit cards and checking accounts. But how would members perceive a similar fee if new perks were added, such as merchant-funded rewards? Such perks may provide credit unions the additional fee income needed to survive.
Just as families all over America are re-evaluating their expenses in the name of good old-fashioned budgeting, credit unions must do the same.
Video teller machines, teller cash recycling, remote deposit capture and advances in mobile and online banking and self-directed transactions will help credit unions gain more efficiency. Credit unions that simplify everyday financial transactions will be providing value while also saving costs.
To be ready for the road ahead, credit unions need to re-evaluate their current products, like checking and debit cards programs. They must also consider the development of new products, such as an overdraft line of credit, point-of-sale financing, retail loan programs, investment products – or even more innovative yet, developing CUSO business.
Mobile, EMV and chip-and-PIN technology will be key areas of concentration in 2012, as well. Without a doubt, mag-stripe cards are the plastic of yesterday. Migrating to new technologies will be worth the investment.
Deeper Member Relationships
In the coming year, credit unions have a great opportunity to generate more income from existing members. Laser-targeted data analysis tools will give CEOs and other staff the ability to drill down to the member level, while modeling tools will lend the quickness necessary to test new products and ideas before pulling the trigger.
A new kind of member will be on strategic minds, too. The unbanked and underserved represent an outstanding opportunity for credit unions. This includes young people who have different financial priorities than generations past, as well as retirees who need more financial help in their twilight years.
As loan demand remains sluggish and regulatory burdens continue to stifle traditional income sources, creativity will be crucial for credit unions. The goal must be to recognize the very real opportunity that these unprecedented times present and to make a difference in the everyday lives of loyal members.
Shazia Manus is CEO of The Members Group in Des Moines, Iowa.