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Evolving to Meet New Consumer Expectation Not a Choice

By

Myriam DiGiovanni

Joe Sullivan, CEO of Market Insights, has a simple message for credit unions–evolve or die. At CUNA Mutual Group's Discovery Conference, Sullivan shared that it's time to stop the recycling of ideas and get back to the basics of finding out what members want and expect now and what your credit union can do about it.

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Filling in the Gaps Among Best Ways to Court Baby Boomers

By

Michelle A. Samaad

The message has been heard before: Baby boomers remain a financially influential group and credit union leaders will have to change their mindset about who they are or risk losing them.

Click here to read the entire story.

Member Needs and Board Engagement are Key to Creating Innovative Products

By

Michelle A. Samaad

On paper, credit unions may view opportunities to create innovative products and services as a no-brainer to meet the needs of their members, but convincing boards used to the status quo may halt their efforts.

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Taking Control of Declines in ROE, ROA Key to CU Sustainability

By

Michelle A. Samaad

Long-term sustainability for many credit unions may mean having more control over operating expenses and fee income as declines in return on assets and return on equity plague the industry.

Click here to read the entire story.

Consultant: Be Proactive to Increase Non-Interest Income

By

Jonathan Londino

In the current climate of rising delinquencies and tightened regulation, credit unions need to be smarter to find opportunities to improve non-interest income.

Click here to read the entire story.

To Lend to Gen Y, Think Like Gen Y

By

Marygrace Murphy

Gen Y is the largest demographic surge since the late 1940s–some 76 million strong. By 2015, they will be spending $2.45 trillion each year. But they will not just fall into credit unions' laps. Fortunately, catching Gen Y's eye doesn't have to mean creating new lending products. Shelly Vils, senior manager of credit union training at CUNA Mutual Group, recommended tweaking your existing ones and marketing them in a way that addresses young people's interests and needs.

Click here read the entire story.

Recruitment, Education and Board Evaluations Hot Topics in Discovery Chat Room

By Myriam DiGiovanni

While most directors agree that attracting and retaining younger, more diverse directors with a broader base of backgrounds is a priority, recruitment remains a challenge.

Click here to read the entire story.

Trend Spotting Everyone's Responsibility

By Myriam DiGiovanni

"Is mobile banking the trend or is it providing anytime, anywhere access?" That's the question Denise Gabel, Filene Research Institute's chief innovation officer posed when asked how to get members to sign up for the service during her session at CUNA Mutual's first virtual Discovery Conference.

If credit unions want to effectively leverage consumer trends for growth, Gabel urged them to first understand why they are tracking a trend; know the difference between a fad and a trend; be curious; build a framework; explore the impact of that trend and respond.

"When you see the headlines about unemployment, underemployment or the CARD Act making access to credit more difficult you get the obvious impact to credit unions like delinquencies and loan losses," Gabel said. "But if you dig deeper, for example with underemployment, those who are employed but at a lower skill level, and think about its impact on the credit union you can then look at what financial services can we create? Perhaps we can develop volunteer opportunities and help build talent of that segment and that is how you drive growth."

With external trends reshaping America, credit unions need to determine the relevance of a trend to their organization.

"For example, look at the do-it-yourselfers, if you had a model for that what would it look like for financial services? Does it fit financial service? What does your credit union do to serve DIY and if something is not in place what could you do that is in alignment with your organization's focus?" Gabel said. "You've got to be creative and change your perspective so try looking at magazines you'd never normally pick up, discover subcultures, raise your head from the everyday operations and look around. That curiosity will help you be a better trend spotter."

She advised taking a broader look at consumer trends. For example, lending has been a challenge, but within the framework of anytime, anywhere perhaps credit unions should be looking at how they can make accessing or applying for loans easier, or think about more nontraditional lending opportunities that can help with lifestyle changes.

Recent Filene research also revealed that some 60% of people have more ideas than they share.

"If you want a culture of innovation and to drive growth be mindful of a hierarchy or structure where people are comfortable in releasing their ideas to key people," Gabel said. "It could be creating more informal channels that generate conversations. Trend spotting is everyone's responsibility, including the board. As long as they are clear that it is not their responsibility to manage and execute on a trend, create a framework on how they could enter their thoughts as individuals and as a body."

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Evolving to Meet New Consumer Expectation Not a Choice

By Myriam DiGiovanni

Joe Sullivan, CEO of Market Insights, has a simple message for credit unions–evolve or die.

At CUNA Mutual Group's Discovery Conference, Sullivan shared that it's time to stop the recycling of ideas and get back to the basics of finding out what members want and expect now and what your credit union can do about it.

"Ask yourself, are we really evolving or just buying time until the recession passes so we can get back to business as usual?" Sullivan said. "Consumer expectations have changed. It's time to get out of our own way and stop doing things the way they've always been done and do what needs to be done."

He warned credit unions not to be reactive or adopt a "me too" perspective.

"I don't care if every credit union and bank is talking about safety and soundness or even a green checking account-it's time to stop product matching," Sullivan said. "Ask your members and sit back, listen and learn what they value and want from you. It may be wanting to use you as a sounding board. Half of typical members are too ashamed to go into a branch to talk about what's going on in their financial life, so be relevant-figure out what's needed out there."

To evolve strategically, Sullivan says credit unions must know their market, know their members, think like consumers, look both inside and outside the industry and focus on relevance.

"We are all consumers, we're influenced by companies outside financial services and experiences that have all shaped our own expectations," Sullivan said. "Everything you do as business owners must evolve from market preferences, which is constantly changing. Going forward we have to evolve and change to meet those new consumers in a new place and that presents a huge opportunity for all credit unions."

He also advised credit unions to stop trying to be everything to everyone.

"Think about what your ideal member looks like. You can't serve everyone. Pick a focus-this kind of member we serve well and this we don't. Think like a consumer. Focus on being relevant, not 'the best credit union in this county' or 'most convenient' because the reality is you're not and you can't hang your hat on that."

He added that there is greater opportunity when credit unions discover what's in consumers' hearts and minds and deliver what they really want. He advised credit unions to be inspired by the competition or what they see in retail stores like Apple, but rather than replicate what they're doing to reflect on what it may mean for their credit union.

"Evolving is constant and consistent, it's not 'I just got a new website.' Make feedback, ideas and engagement a part of your culture. If you don't evolve you become irrelevant," Sullivan said. "If you haven't really talked to your members in the last six to 12 months, you don't know them. Ask members what they value and what they want from you. It's not enough to do our best but rather do what's required."

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Filling in the Gaps Among Best Ways to Court Baby Boomers

By Michelle A. Samaad

The message has been heard before: Baby boomers remain a financially influential group and credit union leaders will have to change their mindset about who they are or risk losing them.

Jeff Hunt, consumer product manager for the 55-plus strategic market for CUNA Mutual Group, has trumpeted this warning many times. He again shared this suggestion Nov. 3 at the company's first virtual Discovery Online Conference. Online participants experienced the same presentations at CUNA Mutual's Discovery Conferences and its Discovery Webinar series, according to CUNA Mutual.

Boomers and CUs are right on the edge when it comes to retirement and what the cooperatives can offer, Hunt said. The generation born between 1946 and 1964 are still in their prime earning and asset years, yet they are looking outside of CUs for help with their retirement needs. A 2009 CUNA Mutual study revealed that 17% of boomer members said they would leave their CUs within the next five years. That's 5.6 million members with $617 billion in net worth. Forty-one percent of members belong to the baby boomer group.

While 83% of boomers said they do not plan to leave their credit union when they retire, according to CUNA Mutual, only 48% of the group consider the cooperative to be their primary financial institution.

Hunt said one of the biggest ways to retain them is through individual retirement account rollover assistance. Billions of dollars are at stake with the average rollover at $69,000 for boomers. He suggested that CUs start paying more attention to those members who turn 59.5, which is when persons are eligible for IRA withdrawals without incurring a penalty.

The oldest boomers will turn 65 and be eligible for Medicare in just two months. Credit unions can also fill in the coverage gaps not provided by Medicare by offering products such as long-term care insurance.

Another area to watch is financial planning. Boomers seek out trusted financial advisers who can explain things in language they will understand, Hunt said. Achieving the coveted position of the member's retirement adviser requires every credit union employee to play a role, ensuring they work as a team to be successful, Hunt said. The credit union itself should be seen as the adviser, not just a person with that title. Having a full suite of products tailored to boomers also helps.

"Today's boomers are redefining the role of what it means to be a grandparent," Hunt said. "They're not making cookies in the oven. They're clearing them from their Internet Explorer."

It all comes back to rethinking who boomers are and who they are not. Credit unions should work on breaking the concept of the widower retiree. Boomers will continue to spend and have debt. Still, they control more of their own retirement assets and income than past generations did. While their predecessors may have had a pension, boomers are managing retirement though their 401(k) and IRA savings.

"There is a new mindset, but it is still unique to boomers," Hunt said. "They have not become cynical or negative like other generations. They are still optimistic and have dreams, but they are simpler-and maybe better-dreams."

–[email protected]

Member Needs and Board Engagement are Key to Creating Innovative Products

By Michelle A. Samaad

On paper, credit unions may view opportunities to create innovative products and services as a no-brainer to meet the needs of their members, but convincing boards used to the status quo may halt their efforts.

Innovation was the topic of debate during a Nov. 3 chat session at CUNA Mutual Group's Discovery Online Conference. Moderated by Denise Gabel, chief innovation officer at the Filene Research Institute, nearly 80 participants tuned in.

Gabel kicked off the session by asking how and where credit unions can identify innovation opportunities. One executive said simply asking members about their unmet needs is a good starting point.

"Just because it's not broken, doesn't mean it can't be enhanced," offered one session participant.

A CUSO leader piqued the interest of several others when she asked, "Isn't innovation breaking the model, like not charging interest on loans?" The immediate response was to question how the CU would make money. A flat fee for a lifetime of interest-free loans would be one way to build relationships with younger people, she replied.

Another executive said he likes to check out other CUs' websites for ideas and best practices. One chat respondent liked the idea of P2P lending where members get to choose the rates. Innovation outside of the CU industry should also be considered, said another session visitor, who noted Walmart has looked at replicating what financial institutions are doing.

Meanwhile, a handful of participants said it has been a hard sell convincing boards to embrace innovation. "Getting the board to understand that lobby traffic no longer equals business is a challenge."Another person suggested board members be required to work in the CU for at least one day a quarter to observe members and experience what staff have to go through.

One CU rep said that when the credit union introduced debit cards and online access, checking accounts soared. Another CU's debit program was a hit among its members even though the product has not been a moneymaker.

Gabel said she is in the process of putting together an innovation opportunities worksheet that will be a part of a bigger Filene report. It is expected to be available in the next few weeks, she told attendees.

–[email protected]

Taking Control of Declines in ROE, ROA Key to CU Sustainability

By Michelle A. Samaad

Long-term sustainability for many credit unions may mean having more control over operating expenses and fee income as declines in return on assets and return on equity plague the industry.

Spread compression, increased competition, high operating expenses and special assessments have all contributed to the drops industry wide, said John Lass, senior vice president of strategy and business development at CUNA Mutual Group, who gave the keynote address at the company's Discovery Online Conference Nov. 3. Lass said any of these factors could cause ROE or ROA to move in either direction. Credit unions should come up with a list of the ones they have the most control over.

"Will the gross spread continue to compress after the crisis or will it widen? It's hard to say," Lass said. "As the spread has begun to improve a bit ROA has plunged, driven by loan losses-especially in the sand states-and through the impact of NCUA assessments at the corporate level and more recently with natural person credit unions. The credit union system cannot operate successfully if ROA continues to compress."

Lass cited Navy Federal Credit Union, State Employees' Credit Union in North Carolina and Star One Credit Union as examples of cooperatives that have strong sustainability models in large part because they have consistently kept their operating expenses low.

The DuPont Sustainable Growth Model-a framework to measure and break down return on equity-is a plan of attack Lass recommended to credit unions planning for their future.

"This sustainable growth model can help credit unions plan for growth, despite the headwinds they face from the recession, loan losses, NCUA assessments and regulatory caps. This model can also help you understand changes to make your business grow faster."

Lass listed six levers credit unions can pull to manage their business. The two primary revenue levers are spread and fee income. The two primary expense levers are loan loss and operating income, and then there are the asset turnover (asset utilization) and leverage (inverse of capital ratio) levers.

"The trick is to make those levers work in a harmonious fashion. You can't manage just one lever; all of them must be managed," Lass said. "What credit unions need to ask is what variables do you have the most control over? Two of those levers might be operating expense and fee income."

Lass concluded by telling credit unions their future model will need to address continuing economic headwinds and recognize that the competitive dynamic will continually change.

"This isn't our last economic crisis. The real challenge will be building a sustainable model that will help address the changing dynamics of our time."

–[email protected]

Consultant: Be Proactive to Increase Non-Interest Income

By Jonathan Londino

In the current climate of rising delinquencies and tightened regulation, credit unions need to be smarter to find opportunities to improve non-interest income.

At CUNA Mutual Group's first-ever online Discovery Conference Nov. 3, financial support consultant Bob Larson presented data from the NCUA that showed credit unions are only recently able to cover operating expenses from net interest margin alone. In 2009, non-interest income was up to 21.45% of total income, more than half of which is still accounted for by the three largest areas of NSF/courtesy pay, debit card and credit card.

Larson identified several obstacles to increasing noninterest income, including new legislation such as Regulations E and Z and the CARD Act, but Larson attributed a recent dip of 10 basis points in non-interest income not as much to increased regulation as to reduced real estate loans and changes in member behavior. In fact, he said, although many credit unions were only able to get 60%-80% of their members to opt in after Reg E, others managed to market it to their advantage and actually make money.

Larson noted that fewer consumers are using credit cards or checks in today's economy, and warned that many merchants are offering discounts on their own cards or even incentives to pay with cash. More CUs are looking at nontraditional fees, he said, but they should make sure that there is always a free alternative so that competitors cannot use these fees against them. Credit unions need to walk a fine line for fees like overdraft charges; if raised too high, they can deter members. With technology adoption increasing, Larson observed, members are better informed about their account balances, and this helps explain why overdraft charges have dropped since 2005.

Larson identified two main types of noninterest income: transaction-type fees and conversation-type fees. Transaction fees, he explained, are those that are automatically incurred after a member makes a transaction, such as an interchange fee. Conversation fees are those that occur after a product-credit insurance, for example-is sold through a conversation with the member. He suggests that credit unions make this distinction and form task forces to compare their own non-interest income statistics with national averages, seeking areas with potential for additional revenue and diversifying sources of income.

As for opportunities to generate more non-interest income, Larson mentioned credit protection, GAP and MRC coverage and debt protection, putting special emphasis on the importance of sales and marketing. Larson recommended that credit unions be proactive about making changes to noninterest income strategies, and espoused communication, accountability and tracking as critical to making sure spikes during marketing promotions are more than just temporary.

–[email protected]

To Lend to Gen Y, Think Like Gen Y

By Marygrace Murphy

Gen Y is the largest demographic surge since the late 1940s–some 76 million strong. By 2015, they will be spending $2.45 trillion each year. But they will not just fall into credit unions' laps.

In fact, credit unions are being outperformed by banks when it comes to Gen Y, according to Shelly Vils, senior manager of credit union training at CUNA Mutual Group, who spoke during the firm's Nov. 3 online Discovery Conference about sparking Gen Y's interest in CU loans.

"We have done an incredible job marketing to our boomers and our Xers, but not to our Gen Y," Vils said. "We are going to lose millions of dollars in loans over the next decade if we don't increase our penetration to this generation."

Fortunately, catching Gen Y's eye doesn't have to mean creating new products. Vils recommended tweaking your existing ones and marketing them in a way that addresses young people's interests and needs.

For example, she said one credit union she worked with had great success offering college students and recent graduates a "moving out loan"–an unsecured line of credit up to $1,000 with a similar interest rate to the CU's other unsecured loans. Even though it was essentially an old product with a new name, the loan was a hit because the credit union made it relevant to a Gen Y life event.

"It was a great opportunity for the credit union to expand their lending portfolio, to get interest from this generation, giving them a little something to help them move out of mom and dad's home and then start their new life," Vils said.

Another reason the loan did so well is because the credit union also promoted it to parents, who have a very strong influence on Gen Y, according to Vils.

"We've done such a great job as credit unions to really get the baby boomers on board, so remember them," she said. "Target them with your marketing."

Vils also urged credit unions to familiarize themselves with the unique characteristics of Gen Y and tailor their products accordingly. For example, she suggested that CUs tap into young people's concern for the environment by offering a rate discount on green auto loans. Gen Yers also value advice and guidance, so Vils recommended that credit unions pair loans with online financial literacy sessions that educate them on financial planning and improving their credit score.

Excellent ideas for how to capture young people's attention can come from other industries as well, Vils said. She cited Apple's strategy of bundling their products, such as putting together a back-to-school deal that allowed students to get an iPod Touch and a printer for free (after rebate) if they purchased a laptop. "They put it into an irresistible package that was obviously going to drive loyalty, further purchasing and attraction," she said.

Another example Vils gave came from an article she read in USA Today about American Eagle's efforts to raise brand awareness on college campuses. On move-in day at West Virginia University, student representatives of the clothing retailer offered their peers car-to-dorm help with heavy belongings and threw a free pair of flip-flops into the bargain.

"The great part about this article was [the strategy] wasn't executed by an American Eagle executive," Vils said. "It was executed and overseen by a 21-year-old student whose major is in public relations. That's the way we have to think and get creative. We have to tap into the generation by using the generation for ideas."

She advised credit unions to invite their Gen Y members to join discussion groups or even just ask their younger employees to provide feedback on whether they would use a product and how they feel about the way it's being delivered and marketed.

Insight into Gen Y's reality is important not only for modifying your products, but for looking at your lending policies as well. Vils recommended that credit unions consider adjusting their underwriting requirements to reflect the fact that young people no longer work in one place as long as previous generations did.

"The generation does move from job to job and most of the time it's for the better," she said. "They're continually progressing in the fields that they're interested in. We need to be prepared for that and make sure that we understand that's going to be a standard of this generation."

–[email protected]

Recruitment, Education and Board Evaluations Hot Topics in Discovery Chat Room

By Myriam DiGiovanni

While most directors agree that attracting and retaining younger, more diverse directors with a broader base of backgrounds is a priority, recruitment remains a challenge.

In a chat focused on board practices that correlate with good financial performances on Nov. 3 at the CUNA Mutual Group's Discovery Conference, Ben Rogers of the Filene Research Institute shared that many boards seem to be adopting a wait-and-see attitude rather than emphasizing more rigorous recruiting practices like evergreen lists.

"Several interviewees stressed that it is hard to remove underperforming directors–even when their terms are up–for fear of hurt feelings. We see this, and the research backs it up, as one of the biggest challenges in credit union governance–the inability to move beyond the personal to performance," Rogers said.

He added that examples from boards of publicly traded companies revealed that they are very rigorous about looking for certain characteristics.

"It's simply understood that when the board needs expertise in legal, or marketing, or IT, then you go out and find someone who fits that," Rogers said.

Whether it's requiring each director to bring at least one candidate to the board's attention every year or adding associate directors to introduce a younger group of professionals to the boardroom, the general consensus was that recruitment essentially needs to start at the board level. It was also suggested that an initial pre-qualification of candidates could be a proactive way to prevent the personal over performance dilemma.

One credit union CEO shared his strategy for a more active approach to recruitment, which involved several elements ranging from background and membership involvement, to goals questioning why the individual has run for the board and offering an initial training of the board function.

For SEG-based credit unions, Rogers said, "They need to get back to basics and dive into the middle/senior management ranks to find folks willing to serve. Eight may say no, but one will say yes. Too often boards limit themselves to 'easy picks' that existing directors already know rather than going out and actively searching."

He added that nominating committees should adopt a similar approach, being active, engaged and willing to search out many candidates, knowing that most will not participate but a handful will. Credit unions were also advised to include the front line staff in the search for candidates.

"They chat with them, see their financial habits and get a sense of their community involvement level," one attendee said.

Another hot button issue was board education, with Rogers citing recent research that revealed that boards with formal continuing education requirements as a condition of serving tended to outperform those without the requirement.

"I think it's essential that board members seek out more training, especially with a changing regulatory environment," he said. "Beyond that, I think it's important for the credit union to be open to sending directors to events/schools outside of credit union land to get a real sense of the changing competitive marketplace."

While many acknowledged the value and importance of education, the issue of enforcement was raised. "Technically, you can't unseat a board member unless the supervisory committee does its thing–and I don't advise going down that road," one attendee said. "Our issue is that we have aging board members who don't support a lot of technology and due to current economic conditions, we have a moratorium on travel."

Some of the solutions offered ranged from asking board members to attend certain sessions at conferences to report back to the full board on their educational experience, to having a board education policy that outlines various educational opportunities, which are tracked and reported monthly as a requirement for board member retention.

"A lapsed director that has not fulfilled policy-mandated education requirements should not be re-nominated," Rogers said. "Unfortunately, only the board can truly enforce an education requirement. If the chairman or a majority of the board does not push it, there's little recourse and it's really, really sad."

In response to the question of how to make the membership aware of directors who do not attend meetings or fulfill their education requirements, one attendee bluntly stated, "Recruit qualified folks to run against them! It sounds mercenary, but it's the only thing that will work short of not re-nominating a member or actually kicking them off."

The value of board evaluations was also discussed.

"A dearth of board introspection means board chairs and other directors need to be proactive in formally evaluating their own contributions," Rogers said. "They should consider implementing annual board effectiveness surveys, formal peer feedback, formal reviews of the chair, and feedback from management."

Evaluations could be as basic as asking board members what their peers have done well and how can they improve.

Rogers also shared that the board/CEO link drives financial performance.

"The only governance practice that yielded a strong positive correlation with actual credit union ROA performance was whether boards felt they had an effective CEO evaluation in place," he said.

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