The difference between a credit union and a funeral home is thatpeople are not dying to do business with a credit union.

But there are lessons to be learned from the funeral homeindustry that can help credit unions improve their primary financial institution status with members and increaseprofitability, according to David W. Furnace, a former communitybanker and president of Haberfeld Associates, a financialconsulting firm based in Lincoln, Neb.

“The credit union industry is alive and well and thriving, butwe think there are opportunities for credit unions to dosubstantially better,” Furnace said during his Aug. 26 webinar, TheMortician's Guide to PFI Member Growth in 2015. “What we hope foris the death of conventional wisdom about how credit unions shouldconduct their business,” he added.

Furnace drew on his own experiences making funeral arrangementsfor his late mother last year in Austin, Texas, for the webinar'scontent. Interactions with two different funeral homes provedunsatisfactory, causing Furnace to question the funeral industry'sbusiness model and find applications to the financial servicesindustry.

“We go through life experiences that cause us to think of ourbusiness in a different way, and that's the purpose of what I hopewill be a whimsical and not to macabre webinar,” Furnace said.

His initial observations of the funeral business included therealization that the services provided were a largelyundifferentiated commodity that varied little from provider toprovider. The funeral home itself is large, expensive facility thatis generally empty and underutilized, customers make buyingdecisions based on emotion rather than logic, and the morticianonly gets one chance to close the sale.

Furnace saw significant parallels between funeral homes andcredit unions. In examining one funeral home's business plan, infact, he discovered its motto was “People Remembering People.”

The funeral home's business plan estimated that it performed 29funerals per year or less than one every two weeks. That raised thequestion of whether the home had the capacity to expand itsbusiness significantly, something credit unions also should askthemselves.

“Do you have excess capacity in your credit union?” Furnaceasked. “Of course you do! In most credit unions I could fire acannon in the lobby and not hit a live member.”

Furnace estimated that banks hold about 60% of total consumerassets and have suffered a 20% hit in revenues from increasedcompliance, technology and other factors. As a result, banks haveembraced a strategy of raising prices and shedding marginalcustomers in order to keep profit levels high.

Most credit unions, on the other hand, operate at 20% to 30% ofcapacity and could as much as triple their business capacitywithout investing in additional fixed costs by expandingfacilities.

Should credit unions follow the same customer-sheddingstrategy?

This is where the death of conventional wisdom comes in, theconsultant said.

In most case, that wisdom dictates that credit union memberscost roughly $300 each to serve each year. In an excess-capacitysituation, however, it is more important to understand the marginalcosts of serving one more member, he said.

Fixed costs by and large remain the same, Furnace explained, butmarginal costs to give another member a checking account, provide adebit card and do the additional data processing to support theaccount are minimal. Marginal costs for additional members fallcloser to the $30 to $40 per account range, which makes thoseaccounts that the banks have shed suddenly more appealing.

“The right way to leverage the model is not to raise fees and become more exclusive in who we target,” Furnacesaid. “It is, instead, to say, 'I can get a lot more members, servea lot more people a lot better and perform better along theway.'”

Research by Haberfeld indicated the average member householdholds 2.49 credit union accounts and purchases 5.2 products orservices. Add to that fee income and cross selling opportunities,and the value of that account spikes much higher than the account'sservicing cost, assuming it operates within the institution'sexisting service capacity, Furnace said.

Based on this analysis, the net present value to the creditunion of a consumer relationship on average is $2,015, theconsultant said. The net present value of a business relationshipis $7,493.

“The key to growing this relationship is for the credit unionsto become the member's PFI,” Furnace said. “There is an emotionalcomponent and you want to engage that member with the credit union.A checking account is the beach head of that engagement.”

Success will hinge around gaining new members, which Furnaceadmits is extremely difficult unless consumers already are in theprocess of change. Roughly 10% to 15% of households switchfinancial institutions each year, a zero-sum game that revolvesaround institutions trading customers in a finite environment.

Since new accounts often are opened with new money that is notalready domiciled in another institution, being available aroundconsumer paydays can be critical to increasing the flow of fundsinto the credit union. In practice, people are often paid weekly,usually on Fridays, or twice monthly. Those are key time for creditunions to become visible entities in their marketing efforts, hesaid

Offering attractive financial products at a time when consumersare seeking a change can help credit unions increase their memberbase, which will lead to greater profitability, Furnace said.Member referrals can be the single most important component inattracting new members.

“Most consumers don't think they should have to pay for you tohelp manage their money. They want things simple and free,” Furnacesaid. “Just remember that complexity kills opportunity.”