For many credit unions, the first 90 days after a new member signs on can be a critical gauge on whether a relationship can be nurtured and sustained for the long term.
That time frame will certainly be a factor as questions from both in and outside the credit union industry wonder what became of the 214,000 members who joined in the month leading up to Bank Transfer Day on Nov. 5, 2011. That’s not including the 450,000 new members who joined credit unions in September, October, November and December last year.
Competitors, particularly some banks, may also wonder if that membership surge led to meaningful, revenue-building relationships.
Indeed, the $2 billion Redwood Credit Union questioned whether BTD was a one-off event, said Anne Benjamin, executive vice president and chief operating officer. Between Oct. 1, 2011 and Aug. 31, 2012, the Santa Rosa, Calif.-based financial institution opened 24,019 new accounts. It currently serves more than 220,000 members.
“It’s interesting because we’ve been thoughtful on what has happened to those members who came on last year. Are they growing, are they thriving?” Benjamin asked. “The question was ‘Is this a flash in the pan or will they embrace the credit union long term?’”
Redwood conducted an internal survey to find out. The credit union’s average monthly new member growth was about 1,500. After Bank Transfer Day, its average is now 1,900. Normally, the checking penetration rate would be 65%. Benjamin said that percentage increased to 85%.
Online banking use also bumped up from 78% to 84.5%, and bill pay and credit cards were at higher levels. Benjamin said single-service households dropped from roughly 14% to 8.6% and products per household, normally an average of 2.02, increased to 2.05 during the Transfer Day quarter.
The question of whether some of those new members that rode in on the Transfer Day wave to Redwood have become unprofitable due to a lack of having multiple product and service relationships is not an issue, Benjamin said, pointing to layers of data that show otherwise.
“These are truly committed members. We do a really good job of listening to our members and helping them find the right products to meet their needs,” Benjamin noted. “That has been our focus for a very long time.”
Much on that growing loyalty has hinged on Redwood visibility in and involvement around the communities it serves, Benjamin said.
“Because we have been highly visible, it made us a good candidate for people to make their move. We found they completely divorced their financial institution,” Benjamin said of new members who joined over the past year.
In the middle of the Transfer Day buzz last year, some sources, including banking groups, said that some of the new members who joined credit unions around that time, may have been former, unprofitable bank customers.
At the time, Brian Turner, director of advisory services at Catalyst Strategic Solutions, an investment subsidiary of Catalyst Corporate Federal Credit Union in Plano, Texas, called the criticism a clear case of sour grapes–an opinion he continues to hold on to nearly a year later.
While profitability is an important element of any financial institution, particularly the safety and protection of equity capital, Turner said, some bankers may believe that there is a natural conflict between the mandate that credit unions have to create member benefits from the services they provide and the fiduciary responsibility they have as a financial institution.
“Providing lower loan rates and higher savings rates while delivering their products and services at a lower cost,” Turner said, has helped credit unions to avoid the need to charge across-the-board fees for its services.
“So, this is not an issue of the profitability of these new members. Even with low rates and declining marginal spreads, adding member deposits at this time can be achieved without harming the return profile of the institution or benefits to the membership,” Turner said.
Kirk Kordeleski, president/CEO of the $4.9 billion Bethpage Federal Credit Union in Bethpage, N.Y., is convinced that new members that come in with just a checking account are not drains on the bottom line.
“When you come in that way, folks are moving transactions, be it with direct deposits and debit transactions. That creates connections to the institutions,” Kordeleski said. “That’s why checking and mortgages have been primary financial institution builders for credit unions.”
Since Transfer Day, Bethpage’s membership added 16,000 new members to its more than 201,000 membership, Kordeleski said. New checking accounts grew 30% on top of what the credit union would normally do going from 1,600 to 2,200 each month.
These new members are also going into the branches to make more connections and at the same time, building a primary financial institution alliance for the long term, he added.
“I just don’t buy that argument that they’re a drain on the bottom line. BTD was about the checking account,” Kordeleski said. “They’re just so much substance there.”
Some credit unions may not want to say it out loud, but the reality is gaps have to be filled to make up for those members who, for whatever reasons, are not taking advantage of the products and services available.
“We always come to fall in line with the national statistic of 20% of members supporting the other 80%,” said Kim Faucher, vice president of marketing for the $91 million Northwest Resource Federal Credit Union in Portland, Ore.
By no means is the cooperative dismissing BTD’s impact. The numbers were solid across the board. Cross-sell figures went from 1.87% to 2.37% and new members continued to add additional products over time.
The average increase of accounts per member from open date, which varied since Transfer Day to August 2012 data was 11%, Faucher said. Twenty-five percent of new loans were originated, and there was a 60% increase in new checking accounts as well as jumps in auto loans, credit cards and real estate, Faucher said. The average loan balance from the new members doubled compared to membership as a whole.
“Although we want everyone contributing to the cooperative, but if it’s just a savings account, there is a fee,” Faucher explained. “It goes against the credit union philosophy, but if they’re not participating with additional products, we do know that we have to fee them.”
After Bank Transfer Day, which was sparked by a failed attempt by Bank of America to levy a $5 monthly debit card usage fee, CUNA Mutual Group Chief Economist Dave Colby urged credit unions to move rapidly to establish multiple, mutually beneficial product relationships. Not doing so, he warned, could possibly lead to a headline that might read “CUs Rush to Purge Unprofitable Members as Best Members Leave.”
Colby said that while he still feels the same today, there are still spaces where credit unions can turn unprofitable members into profitable ones.
“The area where credit unions can show the most positive advantage is lending. It could be a lower rate credit card, a car loan or a mortgage purchase or re finance and of course, debt consolidation,” Colby said. “The lower interest rate environment only makes it easier to show a positive impact of replacing existing debt with a new credit union loan.”
Credit unions might also consider going beyond the checking account with a debit card and do a financial review and then providing rate or bonus incentives for direct deposit, automatic payments, paperless and online banking, Colby offered.
“One of the strategies I like best is to make it a community challenge where the credit union advertises, ‘The recovery begins here in our community, one member at a time,’” Colby said. “Find cash flow with lower rates and better terms on loans. Then, continually remind the community how much you have saved members.”
The $141 million San Jose Credit Union in San Jose, Calif., signed on about 660 new members from November 2011 to this past August, said Sara Holtz, marketing manager. The cooperative serves more than 11,000 members. Auto loans, checking accounts and online services increased as a result of Transfer Day, she added.
A better indication of the credit union’s results is that prior to the national switch day, it signed an average of 48 new members a month, Holtz said. After November 2011, that average increased to about 65 new members a month, and the growth trend continues to this day.
“Credit unions are sometimes the best kept secret because people don’t realize how much membership actually benefits them,” Holtz said. “While the effects of the day won’t last forever, and we don’t consider it a one and done initiative, Bank Transfer Day was an inspiring way for our credit union to be an influential part of a larger financial movement.”
In its internal survey of member activity post-Transfer Day, Redwood discovered a wrinkle that confirmed where long-term, profitable relationships can be found: all over the demographic map.. While the new members tended to be older–an average of 44.4 years old compared to 40.8–there was an overall growth rate of 32% in the 18- to 34-year old category during the Transfer Day quarter, a percentage consistent with previous quarters.
“They’re more loan oriented,” Benjamin said of the younger members. “But we know we need to have a balance of older deposits.”
Turner said if credit unions can be the best at five to 10 principal products and services that most of its members need, brand loyalty is certain to follow, helping to reduce margin delivery costs.