Saturday, March 12, 2011

Words of Wisdom From a Former Credit Union CEO

The term “small credit unions” is relative. That said, even when times are good, the “small credit union” tends to face challenges in a way that “larger credit unions”, another relative term, do not.  Speaking from experience, the pressures on the small credit union leadership looms large on a daily basis. The leadership must be intimately involved in all aspects of the operations.  Regulatory burdens alone loom large for the small credit union. Small credit unions have a more intimate relationship with their members. These smaller institutions are under a higher degree of pressure as they assist their members.

Asset quality in small credit union has not changed over the past several years.  The net worth ratio remains robust.  Navigating the economic uncertainty can be difficult.  Negative trends catch the eye of examiners, boards and management.
There are no quick answers here, however, with that said, there are common themes, of which, regardless of asset size are helpful.
  • Place negative trends in context.  Make sure interested parties know how other credit unions are fairing.  Information will help directors and management make informed decisions and transparency reduces the likelihood of knee jerk overreactions.
  • Most small credit union have plenty of capital.  Avoid penalizing members with higher loan rates. higher fees, lower dividend rates. service reductions, and layoffs just to maintain net income.  Analyze the impact of those decisions.
  • Rising delinquency and loan losses require close monitoring and active collections.  Don’t simply tighten underwriting standards. Revisit loan quality parameters.  Analyze the remaining inherent risk in the loan portfolio.  Score the loan portfolio and analyze the scoring migration.
  • Mortgage defaults are on the rise.  One mortgage delinquency in a small credit union can have a large impact.  Develop a mortgage modification policy and guidelines to assist the membership during economic downturns.
  • Avoid big strategic initiatives in uncertain times.
  • Loan demand falls during economic downturns.  Reliance on investments takes center stage.  Investments yields are low so be conservative when placing investments. “SLY”-Safety, Liquidity, and Yield.  Build a basic ladder.
  • Since market conditions are volatile asset-liability management becomes more important.  Set policy parameters on fixed rate mortgages.  The federal reserve is out of policy options on the short-end of the yield curve.  The federal reserve through quantitative easing or now QE2,  is forcing mortgage rates down to historic lows.  Market rates will rise at some point.  Credit Unions with large portfolios of long-term fixed rate (rate insensitive) assets will pay a high price (compressed NIM) in a rising rate environment.
  • Engagement with outside 3rd party vendors require additional caution during uncertain economic times.  Have a robust vendor due diligence program and policy in place.
  • Stress that your deposits are federally insured.
  • Reduce to writing your plans and be able to communicate your credit union’s tolerance for risk.  The regulators will expect the leadership has considered where the credit union is financially headed and there is a road map containing a reasonable achievable plan.
During times of financial dislocation credit unions, regardless of asset size, can show others the benefits of the cooperative movement.


The blog entry you have just read was written by Edward Lis who was a former CEO and CFO of two different credit unions. If you enjoyed this article I encourage you to learn more about Edward by visiting www.edwardlis.com


Don't just read the blog become part of the blog by submitting your own article or by leaving a comment below. 



Is “Silence” The Newest Credit Union Fee To Hit Consumers ?


Classic Look Back
I have reposted this blog entry from earlier as I  think it is perhaps even more relevant to our times. Big Banks are looking for new ways to separate the average consumer from their hard earned money. Credit Unions not only need to resist this trend but need to make sure they are vocal about the real choice they offer each person who lives, works or worships on Main Street. 


What Will Be the New Strategic Flavor of the Month
A few months ago I had the chance to listen to a presentation for credit unions on how to increase growth and revenue. As the presentation continued ideas would surface that the moderator would add to a flip chart page. The ideas ranged from increasing fees for convenience services, creating virtual kiosks for remote branch networks, and moving into social media. All of these are worthwhile ideas and they all have a place on the map when credit union leaders talk about strategy. What never made it to the flip chart was accountability or performance metrics. Briefly the topic of sales came up (the moderator mentioned it) and quickly segments of the audience voiced their discontent with the idea of proactive sales within the credit union space.

Ever Feel Like A Stranger in a Strange Land
As a reformed banker I was quite on the issue. It felt like one of those weird moments when you see a couple you know start arguing and you have an opinion but don’t want to intrude on the conversation. Yep…it just felt awkward. I wanted to engage in the conversation as the “anti sales” segment of the audience clearly marked their position in the ground. They did not want their employees to sell at the member expense. No product pushing. No individual incentives. No one should be in a position to have to sell or risk being fired. As each point was articulated I could see heads nodding in agreement in unison. I agreed with every point being made. All of those things should be taboo in credit unions

Soon the topic turned to education and how members of the audience felt that credit unions needed to do a better job of working with their SEGS (select employee groups) and explain to members how they could save them money on auto loans and increase their savings rates. The mood was visibly different as more and more audience members agreed that SEGS and younger members were of vital concern to keep credit union membership growing.

To me the disconnect between the two positions could not be more clear – how could so many people agree with SEG education and involvement and young adult marketing efforts (Facebook, Twitter) and not consider the proactive use of sales in a credit union friendly way? Then it occurred to me what the difference was. It was a matter of perception and word choice.

For many credit union advocates the idea of adopting any bank like behavior is moving in the wrong direction. Sales being the very worst of the bank behaviors they want to avoid. After all wasn’t it Big Bank “sales” that put people into subprime mortgages with option ARMs? Wasn’t it Big Bank “sales” that credit card companies engaged in when they sent out mailer after mailer encouraging people to take on more debt and live beyond their means?

The answer is “Yes” it was "selling" that did that… and that is exactly why credit unions have to speak up and talk to their members about the products and services they offer. People accept bad advice most often when they have nothing else to compare it to. It is the absence of having the credit union voice that most quickly leads to our member being sold on a product that does not help them. It is allowing members to hear only the Big Bank sales presentation that leads to members being in positions they can’t climb out of. How would your member ever know they don’t have to pay 22 percent on a credit card unless you tell them?

I think now more than ever as people look for ways to make lower paying salaries stretch further credit unions have a responsibility to proactively engage their members in conversations about the choices they have. Call it member advocacy or any other term to fit the culture. Bottom line our collective silence in not engaging our members only hurts them. Our silence and our aversion to the concept of sales only come at our member’s expense...a hidden fee on our membership.

Practical Application:

  • How do you get your staff engaged in proactively engaging members and helping them improve their savings returns?
  • How do you get your staff engaged in helping members restructure their debt to save them interest?
  • What impact would you create for your credit union? Would it help you lower your dependence on non interest income?
  • What is the opportunity you are leaving on the table because your staff is reluctant to move beyond being “order takers?”
  • As Big Banks have turned their branches into retail shops with high pressure sales tactics have you allowed  your employee “silence” become the newest member fee you have passed onto your membership?

Monday, March 7, 2011

Big Banks Kicking Up Smoke on Free Checking and Free Bill Pay

The Game Changers
In 2002 the proverbial shot that was heard around the world of online banking was...free bill pay. The culprit credited as being behind the shot was the Big Bank that calls Charlotte, North Carolina home. Actually the first “free bill pay shot”  was fired by the “Big Bank That Never Sleeps” five years earlier when it did a major marketing campaign on the streets of Manhattan touting its no-fee electronic banking message but it was largely ignored by the financial services industry. Yet, in 2002 when the world took notice of this "game changer". Big Banks were no longer charging five dollars a month for online banking and soon the rest of the industry was forced to follow its lead. Since then every new service or feature associated with the online channel has been basically “free”.

So now it is interesting to watch the rest of the industry as the same Big Banks attempt another game changer by change the rules once again. In the "The Billy the Kid Checking Account” post I highlighted the new pilot testing that is happening in test markets in Arizona. Most of the article focused on the cost of having a checking account. This is because I looked exactly where the Big Bank marketing department wanted me to look. I was supposed to look at the checking account fee structure as it was the smoke that obscured what was really going on.

I Didn't Like the Song till I Saw the Video
This morning I saw another example of shifting peoples attention as I was watching a music video that came on TV. The video looked rather boring and I was about to change the channel until it cut to a scene with a dancer in a pirate or historical costume dancing and kicking up smoke. Suddenly I was no longer noticing that the singer in the video never moved or that I never saw the band. Instead my mind was focused on the "Cool Ninja Pirate Dancer" who was kicking up all the smoke. The same thing is happening as people are watching the changing trends in consumer fees and are focused on watching what the marketing department wants them to.

It is easy to miss with all the smoke being kicked up over checking accounts that the "silent shot in the dark" is actually on free online bill pay. Only this time around the Big Banks are not doing a major advertising campaign on the new fee structure like they did back in the day.


The Products Behind The Smoke
Below I have listed the two lowest cost accounts being offered in the test markets in Arizona:

·                     An “Essentials" checking account is a basic account with a monthly fee (six dollars) and a debit card. Sadly you do get online banking but you do not get bill pay with it. Bill pay, well that is 4 dollars more per month.
·                      An "eBanking" account has no fees if the customer opts for e-statements and makes deposits and withdrawals online or by ATM. Also includes mobile and bill pay for only nine dollars a month.  
Notice that online banking is free but the cost of actually having bill pay adds to the monthly charge. To pay bills online you have two options with the accounts listed above. Those options are listed below.

·                     Option #1: You can have the entry level “essentials account” and add bill pay as an ala carte item for 4 dollars a month. This brings the total expense for checking and online banking with bill pay to 10 dollars a month
·                     Option #2 is to upgrade to the “ebanking” account which has no monthly fee when you make all deposits and withdrawals online or at an ATM (not at a teller) and sign up for paperless statements. However if you walk into a branch or call someone that visit will cost you as you then get hit with a monthly service fee of 9 dollars.

The pricing on this is shady. They have positioned the lowest cost option first and then added an ala carte bill pay feature that is more expensive than the next product up the product line.

The sad fact is that the people who are in the most need of watching their balances, paying their bills on time, and having access to someone to talk to them about improving their financial lives are being discouraged by add on fees from ever talking to the very people who could help them.

There are around 130,000,000 consumer checking accounts in the United States and most of them belong to people who most of us would consider residents of Main Street society. Given this fact it is not hard to see that the smoke being kicked up is directed onto the lower and middle class households on Main Street that are in need. 

Migration of Checking Accounts 
If you were to look back to 2009 you would find that Big Banks and Regional Banks with deposits over $50 billion enjoyed about 45 percent of this market. Today you would find that about five million accounts in 2010 shifted from Big Banks to community banks and credit unions. This shift is expected to continue throughout this upcoming year as community banks and credit unions grab up to 65 percent of the checking account market. Looking back over the last several months, from July 2010 to February 2011, community banks offering free checking increased by one percent and credit unions by nine percent! 

This is great news for credit unions and small banks. When you stop and consider how hard it is to get someone to change their financial institution you really appreciate just how much resentment is out there on this topic. This migration tells us that this is an issue worth talking to your product managers and marketing experts about. Five million people saw past the smoke and went home to fill out a switch kit. They went through the trouble of changing their online banking bill pay recipients and their direct deposits. Bottom line they were aggravated enough to take action.  

The silent message being sent by the Big Banks is that free checking and free online bill payment are things of the past. In their drive to maintain fat margins they have kicked up smoke and fired a shot at every person who lives or works on Main Street. Big Banks taking aim at the consumer is nothing new. No, what is really interesting is that five million people saw through the smoke and shot back firing their Big Banks. 

Practical Application:
Now is the perfect time to tout your free services. Don't let Big Banks define the trend you follow or set for your membership. 

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