The Triple Threat Shaping Credit Union Deposits
Positive credit union growth in membership and product penetration per member have been trending for the better part of this last year, putting intense pressures on P&L managers. Left at the intersection of deposit swell and member retention, the road leading to the best bottom line results can be unclear – if not seemingly blocked.
In the last six to 12 months, credit unions overall were aggressively diversifying their product portfolios and expanding service options in response to that steady growth. For some it means getting back into the card game or targeting small businesses, while deploying mobile functionality and leveraging cloud-based solutions for in-house efficiencies tops the list for others.
Regardless of each credit union’s approach, the challenge to sustain and then experience new deposit growth across both veteran and incoming members reinforces the age-old conflict of understanding how deposit strategies may impact operational costs and the member experience while minimizing credit risk and fraud risk.
Right now, credit unions’ deposit landscape faces the triple threat of the emerging innovations, regulations and aggravations shaping it. This trifecta need not stifle credit unions’ creative juices, yet each of the components must be carefully reviewed considering their effect on member acquisition strategy and relationship building.
Technology is changing how consumers interact with their financial institution every day. Self-service innovations and broadening payments capabilities have introduced a new era of banking. Plus, improved systems integration across the enterprise creates newfound efficiencies for credit unions while driving out costs and introducing internal process changes.
Sending money electronically as well as depositing a check and paying bills with a mobile phone are rapidly becoming preferred channels for transacting business. The prepaid movement is also redefining traditional account services and account holders.
As with any unchartered sea, there are strategic questions that need to be addressed around deployment, costs and risk. How will this service improve my member’s life and/or make it more convenient to interact with the credit union? What are the costs associated with offering the solution? How will I manage and report on the risks associated with the solution? Do I want to offer this product at all? If so, then how do I want to set its parameters such as dollar limits and volume of transfers, and to whom do I market it?
Next Page: Regulations and Aggravations
It is fair to say that changing regulatory requirements on top of rising examiner oversight influence credit unions’ deposit strategies. Just looking at Reg CC, or the Expedited Funds Availability Act, the guidance around check holds opens up vulnerabilities to check fraud. Under Reg CC, credit unions must allow personal checks to be withdrawn within two business days of being deposited unless there is reasonable doubt of collectability.
But unfortunately, many times the credit union does not know if an off-us check was counterfeit, remotely deposited multiple times at a variety of financial institutions or written from insufficient funds until after those funds are made available. The problem is that risk exposure to the institution as well as the member is heightened under this rule with the ease of creating counterfeit documents.
Financial institutions are under close watch regarding their efforts to fight money laundering. A more than $2 billion problem, the biggest hurdle is perhaps appeasing examiners with sufficient AML policies while actually being effective in the money laundering fight.
The changing state of the U.S. economy and health care has driven more members to need additional benefits from government programs. This increased demand is increasing costs to the financial institution with the volume of incoming requests to financial institutions from various government benefit programs to ensure the applicant is eligible for benefits.
These programs validate the qualification of applicants to receive benefits, and credit unions and banks alike are answering those questions for them. Such an influx of requests drains credit union operation and branch resources with limited to no reimbursement for the time spent fulfilling requests.
Finally, more members expect their financial institution to monitor their accounts for fraud and enable legitimate transactions. Today, hundreds of thousands of members will contact their credit union to notify them of travel plans to not be turned down as they make a credit or debit card purchase outside of their normal pattern.
There is emerging mobile technology available today to enable the financial institution to know the member is located in proximity to the branch, ATM or merchant. Various legislation, such as the Geolocation and Surveillance Act, seeks to define legal parameters to “give government agencies, commercial entities and private citizens clear guidelines for when and how geolocation information can be accessed and used." How will this new opportunity of using location to approve member transactions be received in the market? How will credit unions ensure proper opt-in/opt out procedures?
Credit unions are also dealing with fraud schemes and the fear put into consumers for trying new banking technologies. Take identity theft, especially when a member’s identity is compromised and used to open an account. Today, more than 20% percent of new account openings occur in a virtual world and that number is expected to increase as more adoption for online and mobile occurs. Credit unions must ask not only is this person who they say they are, but be able to make that determination for face-to-face account openings and in the online and mobile channels.
Having quality, accurate information is required to support the physical and online new account openings. Additionally, data breaches bring unwanted costs to the credit union when information is compromised or stolen. A member’s name, address, phone number, card number is taken because a merchant was hacked, leaving the number and associated PIN open to be leveraged for account takeover and identity theft. The institutions take those losses and the member is inconvenienced.
And, account takeover is no longer a top tier bank dilemma; it is making its way to credit unions, with attempts to move money or wire ACH out of an account when those funds are not authorized. Other fraudulent activity includes scraping, or when a hacker logs in as a member because his or her credentials have been provided. Counterfeit debit cards, and also credit cards, represent the largest amount of losses. The question then becomes how to deal with innovations from an authentication standpoint as well as fraud and risk standpoint?
It is important to embrace the triple threat – do not run away from it. New innovations, increased regulations and changing aggravations should not stand in the way of credit unions’ deposit strategies, but more so just be recognized for the role they play in developing the most effective deposit strategy. Adopt technology; embrace compliance and confront risk head-on.