Positive credit union growth inmembership and product penetration per member have been trendingfor the better part of this last year, putting intense pressures onP&L managers. Left at the intersection of deposit swell andmember retention, the road leading to the best bottom line resultscan be unclear – if not seemingly blocked.

In the last six to 12 months, credit unions overall wereaggressively diversifying their product portfolios and expandingservice options in response to that steady growth. For some itmeans getting back into the card game or targeting smallbusinesses, while deploying mobile functionality and leveragingcloud-based solutions for in-house efficiencies tops the list forothers.

Regardless of each credit union's approach, the challenge tosustain and then experience new deposit growth across both veteranand incoming members reinforces the age-old conflict ofunderstanding how deposit strategies may impact operational costsand the member experience while minimizing credit risk and fraudrisk.

Right now, credit unions' deposit landscape faces the triplethreat of the emerging innovations, regulations and aggravationsshaping it. This trifecta need not stifle credit unions' creativejuices, yet each of the components must be carefully reviewedconsidering their effect on member acquisition strategy andrelationship building.

Innovations

Technology is changing how consumers interact with theirfinancial institution every day. Self-service innovations andbroadening payments capabilities have introduced a new era ofbanking. Plus, improved systems integration across the enterprisecreates newfound efficiencies for credit unions while driving outcosts and introducing internal process changes.

Sending money electronically as well as depositing a check andpaying bills with a mobile phone are rapidly becoming preferredchannels for transacting business. The prepaid movement is alsoredefining traditional account services and account holders.

As with any unchartered sea, there are strategic questions thatneed to be addressed around deployment, costs and risk. How willthis service improve my member's life and/or make it moreconvenient to interact with the credit union? What are the costsassociated with offering the solution? How will I manage and reporton the risks associated with the solution? Do I want to offer thisproduct at all? If so, then how do I want to set its parameterssuch as dollar limits and volume of transfers, and to whom do Imarket it?

Next Page: Regulations andAggravations

Regulations

It is fair to say that changing regulatory requirements on topof rising examiner oversight influence credit unions' depositstrategies. Just looking at Reg CC, or the Expedited FundsAvailability Act, the guidance around check holds opens upvulnerabilities to check fraud. Under Reg CC, credit unions mustallow personal checks to be withdrawn within two business days ofbeing deposited unless there is reasonable doubt ofcollectability.

But unfortunately, many times the credit union does not know ifan off-us check was counterfeit, remotely deposited multiple timesat a variety of financial institutions or written from insufficientfunds until after those funds are made available. The problem isthat risk exposure to the institution as well as the member isheightened under this rule with the ease of creating counterfeitdocuments.

Financial institutions are under close watch regarding theirefforts to fight money laundering. A more than $2 billion problem,the biggest hurdle is perhaps appeasing examiners with sufficientAML policies while actually being effective in the money launderingfight.

The changing state of the U.S. economy and health care hasdriven more members to need additional benefits from governmentprograms. This increased demand is increasing costs to thefinancial institution with the volume of incoming requests tofinancial institutions from various government benefit programs toensure the applicant is eligible for benefits.

These programs validate the qualification of applicants toreceive benefits, and credit unions and banks alike are answeringthose questions for them. Such an influx of requests drains creditunion operation and branch resources with limited to noreimbursement for the time spent fulfilling requests.

Finally, more members expect their financial institution tomonitor their accounts for fraud and enable legitimatetransactions. Today, hundreds of thousands of members will contacttheir credit union to notify them of travel plans to not be turneddown as they make a credit or debit card purchase outside of theirnormal pattern.

There is emerging mobile technology available today to enablethe financial institution to know the member is located inproximity to the branch, ATM or merchant. Various legislation, suchas the Geolocation and Surveillance Act, seeks to define legalparameters to “give government agencies, commercial entities andprivate citizens clear guidelines for when and how geolocationinformation can be accessed and used.” How will this newopportunity of using location to approve member transactions bereceived in the market? How will credit unions ensure properopt-in/opt out procedures?

Aggravations

Credit unions are also dealing with fraud schemes and the fearput into consumers for trying new banking technologies. Takeidentity theft, especially when a member's identity is compromisedand used to open an account. Today, more than 20% percent of newaccount openings occur in a virtual world and that number isexpected to increase as more adoption for online and mobile occurs.Credit unions must ask not only is this person who they say theyare, but be able to make that determination for face-to-faceaccount openings and in the online and mobile channels.

Having quality, accurate information is required to support thephysical and online new account openings. Additionally, databreaches bring unwanted costs to the credit union when informationis compromised or stolen. A member's name, address, phone number,card number is taken because a merchant was hacked, leaving thenumber and associated PIN open to be leveraged for account takeoverand identity theft. The institutions take those losses and themember is inconvenienced.

And, account takeover is no longer a top tier bank dilemma; itis making its way to credit unions, with attempts to move money orwire ACH out of an account when those funds are not authorized.Other fraudulent activity includes scraping, or when a hacker logsin as a member because his or her credentials have been provided.Counterfeit debit cards, and also credit cards, represent thelargest amount of losses. The question then becomes how to dealwith innovations from an authentication standpoint as well as fraudand risk standpoint?

It is important to embrace the triple threat – do not run awayfrom it. New innovations, increased regulations and changingaggravations should not stand in the way of credit unions' depositstrategies, but more so just be recognized for the role they playin developing the most effective deposit strategy. Adopttechnology; embrace compliance and confront risk head-on.

LauraWeinflash is vice president and market strategist with Early Warning Services LLC inScottsdale, Ariz.