As Credit Unions Are We Missing The Signs ?

This weekend I was reading an article in which the author described driving his car as drops of rain from a thunderstorm began to fall on his windshield. Over to the side of the road an electronic warning sign displayed “Standing Water Ahead”. The driver looking ahead of him noted that the road ahead appeared to be safe. However, because he had taken notice of the warning sign he was able to slow down and to prepare for potential unseen hazards ahead. For most of us this scenario might seem common place because for many of us the ability to notice and monitor early warning signs has become part of our normal course of being adults. We have been raised and conditioned to think that a fever could be the first symptom of some undiagnosed illness. Hence when we have a fever that is too high or lingers too long we seek out medical assistance.

This same logic can also be applied to us as a industry. As I have been reading various blogs and articles it is interesting to take notice of the subtle early warning signs that are showing up before us. For example in a article posted in CU Times author Claude R. Marx wrote, “President Obama’s Economic Recovery Board raised the possibility in a report issued this summer on ways to simplify the tax system and raise revenue. Unlike other financial institutions like banks and thrifts, credit unions do not pay corporate taxes on their income," the report notes. "Eliminating this exemption would raise revenue and level the playing field but would clearly raise taxes on credit unions."

Then I read a prominent credit union blog (http://creditunionwarrior.blogspot.com/) that commented on the credit union industry, “In many ways we've lost sight of what it is to be a credit union.” The author then does a excellent job of comparing how credit unions could find themselves in the same position as labor unions…grasping for relevance in a world that has forgotten the impetus that created them in the first place. How so ? Consider our own choice of how we describe ourselves. Too often we see credit union marketers trying to rebrand their credit union as a “better bank” or “a better way to bank”.  These attempts at trying to dummy down the message to consumers only dilute the value proposition for credit unions as a whole. When we start to refer to ourselves as “banks” we undermine the uniqueness of our corporate structure and the value we give back to our members.

This shift in language is driven in part by the flood of new talent moving into credit union space. Ten of thousands if not more of bankers have lost their jobs as the recession has bitten into the financial services industry. This flood of talent has brought with it new people who spent years working for Big Banks and who have taken company business plans from hundreds of banks. These business plans are then used a page at a time in key meetings as the new employee tries to impress incumbent management teams. Suddenly credit unions that have never done commercial banking are doing participation loans in “sand states” far outside their field of membership. Everyone is seeing money signs as old tricks become new again.

I was disappointed to read an industry consultant's 2011 strategic report about "high yield strategies" that was in fact nothing but a sales presentation on how credit unions need to raise noninterest income by creating more fees.  Five dollars for every member call to the call center or visit to the teller. Using fees to drive away the undeserved seems counter to the credit union movement.

Each of these events might seem non connected. Yet, I worry that we are not taking notice and collectively connecting the dots. That in our zeal to make the most of consumer backlash on Big Banks we are running straight to the very behaviors that we used to shun. Please don’t get me wrong I am thrilled for all new bank employees that find their way to credit unions. For many people, myself included, who have worked in financial services finding a credit union is like finding an oasis. That being said not every new tactic from borrowed business plans is worth following.

Some people will not like to hear it but “No, a killer iPhone app will not replace your branch network or the need to provide sound personal advice to your members” and now that you mention it, “Yeah, those hot shot commercial bankers you hired for cheap… well they are watching the market like hawks. Once they see the uptick some of them are gone. Remember how thrilled you were that they brought their whole book of business worth millions when they joined your credit union? Well that works both ways.

As an industry and as leaders in the businesses that support our members we have the ability to act and not to just be acted upon. We have an opportunity to really highlight our difference from Big Banks that are staggering from scandal to scandal. We should welcome every new idea we find on blogs, forums, and conferences. New blood and talent coming into the credit union industry is exactly the shot in the arm we need. That being said we still have to pay for the “tuition” of this new knowledge.  We still need to teach the philosophy and culture of cooperative financial services. We have to do our own due diligence and study the downstream impacts and personally “own” these next great ideas. Only in this manner can we know in mind and in heart what we are putting forward. We also need to pause and make sure we are taking notice of the early warning signs around us and managing our businesses accordingly.  

Don't just read the bog become part of the conversation. What are your thoughts ? Leave a comment and as always thanks for taking time out of your day to read and share your thoughts.

Providing Direction to Members To Avoid Financial Tombstones

I Take the Silver Miner Pancakes ...Please


After eight days, one airplane ride, and a 915 mile trek through the desert my family and I sat somewhat comatose in a breakfast grill a block from the OK Corral in Tombstone AZ. We had seen the natural arches of Moab, sailed down the Colorado River, walked the rim of the Grand Canyon, driven down the mountain pass in Sedona and now just wanted the “Silver Miner” pancakes for breakfast.


Our waitress could probably sense our weariness and spent the majority of her time talking to the table next to us. As my family and I sat and waited for our order I could not help but listen in on the conversation she was engaged in with the next table. This was not as easy as you think as I had a ten year old asking me who I would rather have a gunfight with-Wyatt Earp or Doc Holiday.


The waitress explained to the other table that she had been in the town for a year and had moved with her family from another state. Now after a year they were stuck in the town. They had used what money they had to move here and employment was not what she thought. So they were trying to save money to get enough to move to someplace cooler and more populated like Flagstaff.


For those of you who have never been to Tombstone the town is about 1500 people. Other than one or two city blocks there that looks like an old time western town from the 1890’s there isn’t much to see or do. The name kind of says it all.


When our food came I still could not help but think about the plight our waitress had found herself in. While the city name and the individual circumstances varied a little the core issue she faced was one that many people face. A well intentioned decision leads to an unintended consequence. Like the waitress many of us find ourselves stuck in places and we are unsure how to exit. Money is tight, options are limited, and the horizon seems to move further and further away.


That feeling of not knowing your next step can be paralyzing. It can create a sort of tunnel vision that can blind us to those around us who are willing to help us back on our way. I have listened to numerous phone calls in which a member calls in for one option and by the end of the conversation we have helped them see other options available to them. This is especially true with debt and credit.


I truly can’t count the number of times when one of our loan officers or branch managers has helped someone restructure their debt, freed up equity, and lowered the amount of interest the member is paying. Typically this results in more cash flow into the home.


Practical Application:


For those of us who work in financial services this is the opportunity to make an incredible impact in the lives of those who do business with us each day. This is the chance to execute a strategy that moves beyond selling product. Now don’t get me wrong there will always, one can assume, be need for some selling of products or services. 


When the strategy moves from the "selling of product" to the "matching of needs" then the aim of the organization is to make selling superfluous. The new aim of the organization is to know and understand the member so well that the product or service fits him or her and sells itself. Sometimes people just need a direction to move in with their financial lives. Shouldn't that be us with the compass in our hand point out a direction for our members ?

Big Bank Credit Card Rewards and Slick Ads

Ever wonder if everyone has a favorite commercial? I remember having a favorite commercial many years ago when my wife and I were searching for a name for our first child. It was during the time when the Pantene Shampoo commercials were on the air with the super attractive actress or model doing the Hollywood hair swoosh. Did the commercials work? Actually,I would say, "Yes" as they had an interesting effect on our family.

One model stood out and like many people we asked, “Oh, who is she?” [Interesting note: over a decade later you can Google Pantene commercials and still see questions posted of people asking, “who was the actress in the Pantene commercials?”]As it turns out the actress was named Hunter Tylo and we decided that Hunter would be the name of our soon to be born daughter. Luckily, time allowed for some additional perspective and “Hunter” became her middle name.

Today as consumers watch commercials on financial institutions we often see humor or lifestyle commercials aimed at getting our attention. The goal is to paint a picture they want us to see. Consider credit card reward programs. Why are they giving us something additional? Is it because they have decided that they make too much on the card and want to give you something back? No. BigBanks aren't giving you rewards because they like you. With one hand they give you small rewards while their other hand is collecting much more through fees and interest.

Many people sign up for rewards programs thinking that they will just pay off their balance each month and then sit back and enjoy the “free” stuff that will be coming their way. A small percent of reward program users don’t carry a balance each month and reap the perks of the program. However, another significant portion of the program users do carry a balance and that is where “free” no longer remains “free”. The lesson that “free” doesn’t always mean “free” is a lesson that I can attest to from my own personal experience.

I recall years ago as a newly married couple my wife and I belonged to card reward program. Like many young married couples we had no real clue of how to manage our personal finances. So a reward program seemed like a fantastic idea. We consolidated all our cards onto one card…triple points for balance transfer! 

We made the monthly payment each month and when the statement arrived we went straight to the points section to see how many points we had received for the prior month. I recall us being so excited when we had reached ten thousand points. We were now 2^nd tier on the rewards grid. We huddled around the computer looking at all the “free” things we could get. We were practically dancing as we ordered a phone with a build in answering machine! [note: in 1993 that was a cool thing to own]

A few months later I switched jobs and started working at a BigBank. I learned about interest rates and the impact of compounding interest. I realized ten thousand points was a ten thousand dollar balance! I looked at how much interest we were paying each month and realized I could have bought three or four phones for what we were paying. Now after almost two decades of working in financial services I think the ad tag line, “what’s in your wallet” is probably one of the saddest inside industry jokes out there. How much are you paying in interest? Paying over 15 percent, 19 percent, 30 percent? 


Practical Application:

Don’t let your members be fooled by slick ads shot in black and white, with an attractive and financially successful looking middle-aged couple. Don’t let your members buy the lifestyle hook being presented that suggests, "If you bank with Big Bank, your life could be like this." We all know that the odds are banking with Big Bank will not make your member look good in an open backed dress. However, I do agree your members should know exactly what’s in their wallet.

Hollywood Make Over for Big Banks

It was one of those moments in which you just groan inside. I had insisted on going to see a new movie that was based off of a cartoon my children and I watched together. I can’t be the only parent who uses their kids to justify the shows they watch…ahem all the dads who take their kids to Hannah Montana or Moms taking their daughters to Justin Bieber concerts. I digress.

Sadly, though in the case of the movie the director had taken the superficial elements of the TV show and added millions of dollars to amp them up. So the movie had tons of special effects, panoramic vistas…and none of the dialog or humor of the TV show. Let’s just say it lacked "substance".

Recently with all the regulation changes that have taken place in financial services many large banks are trying to remake themselves as well. Like a bunch of wolfs that are all reaching for a new sheep costume they have grabbed at the superficial and thrown big marketing budgets into special effects while ignoring the "substance" of the dialog itself.


Why did we have financial reform in the first place? Anyone remember headlines of billion dollar credit unions threatening the global economy? No…odd me neither. I find it sad that in the passing of new legislation the new rally cry from large banks is that they are going to do away with free checking. It reminds me of someone not liking the rules and deciding that since the rules are changed they are going to take their stuff and not play anymore.


I think one of the most blatant examples of this has been the commercials from a recently converted bank that show a TV announcer talking to a child sitting at a table.
“Would you like a pony?”  the "TV announcer"man asks her innocently.
"Yeah,” she replies.
The man then hands her a small toy pony and she bursts into a giant smile.
The "TV announcer" then turns to a second little girl, asks if she wants a pony, and she says yes.
The man then clicks his tongue and a real pony comes out.
The first little girl gives a look that could kill and says, “You didn’t say you could have a real one.”
“You didn’t ask,” the TV announcer man replies smugly.


The irony ...the bank converted to bank status to receive TARP money after booking billions of dollars in sub prime mortgages. Like the girl in the commercial many people will not realize exactly what questions they should be asking of their banks.  


Practical Application:

As more “Big Banks” look at the new legislative landscape they are going to try and do a Hollywood makeover.
They will add more of one thing (wow…nice dividend for your shareholders…38 cents for preferred share) but it will be at the expense of something else… yep, that "Stagecoach from the West" is leaving and is taking your free checking with it.
At the end of the day a Big Bank can’t remake itself into anything other than a Big Bank…lots of hype…little substance.