New Challenges, Fresh Approaches to Revenue
We’ve all heard the news: Revenue is a shaky subject. Overdraft income and interchange? Future unknown. New regulations and a skittish housing market make it difficult to gain any traction. The economy lags.
Stop gathering the evidence. Whatever challenges lie ahead, revenue must be made – and generating it is going to take some work. Imagination and work. But there’s good news as well: You already know how to do this. You are not being asked to perform the piano works of Liszt, but instead to do what credit unions are supposed to do well – manage money.
In surveying what credit unions are doing across the country to rev up their revenue, we found ideas for expanding efficiencies in programs you’re already running, new revenue opportunities you may not have considered, and reason to believe that the future isn’t limited by today’s options. Need a little inspiration? Read on.
The first and best place to look for revenue-boosting ideas is in your existing systems. If you’ve already been over your operations with an auditor’s eye, consider going over them again with opportunity in mind. You’re not looking for ways to cut back or crack the whip. You want to mine your current operations for potential growth.
Mark Hoaglin, vice president of investment and insurance services at Patelco Credit Union in San Francisco, and founder of Above the Crowd Business Development Group thinks most credit union investment and insurance departments are underachieving. “Before starting my own consultancy and then coming to Patelco, I was president of a broker-dealer that was owned by 22 credit unions,” he says. “I saw 22 ways that credit unions were supporting – or, in some cases, not supporting – their investment teams.
“Often, the problem is a lack of focus. It’s a catch-22. If you have a program that traditionally has not provided a lot of meaningful revenue, the tendency is for management to say, ‘This isn’t performing very well; let’s take a look at the next program,’” says Hoaglin.
But if credit unions are going to offer investment services anyway, why not develop the sales culture and support necessary to help them excel? At Patelco, Hoaglin and the entire team work together. This means that branch staff members are trained to cross-sell investment services. Training includes seminars, webinars and a monthly calendar of topics to discuss with people who come into the branch. In September 2010, for instance, the topic was life insurance.
Goal-setting is also important. “We’re only touching about three percent of our membership with investment services,” says Hoaglin. “We have about 300,000 members, so if we can just increase that to five percent, we’re going to see a significant bump in revenue.”
Better still, adding investment or insurance services to a member’s portfolio strengthens their relationship with the credit union. “Sales, ideally, should create loyalty,” says Hoaglin. “There’s a tremendous affinity that people feel toward their credit unions. In the case of investments, many people don’t even know that their credit union offers investment services. It’s not even a matter of competing with other financial services; it’s developing awareness and making the connection.”
On a different scale, delving into details may also yield results. Caroline Lane, CO-OP Financial Services’ senior vice president of business development and marketing, notes that roughly 60 percent of credit union non-interest income comes from debit and credit card interchange and overdraft fees. Even as this income is at risk under provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law in July, working to optimize your card portfolio is well worth your while.
As is the case with neglected or underdeveloped departments, sometimes the culprit is inattention. “I had someone say to me recently, ‘I have to confess that we don’t always pay attention to making sure we have good penetration with our debit cards,’” says Lane. “It’s an obvious thing to look at, but sometimes that’s the reason it’s overlooked.”
In addition to issuing more debit cards, credit unions can take a closer look at their portfolio’s performance. Genisys Credit Union in Auburn Hills, Mich., adopted CO-OP Revelation portfolio management in the summer of 2009. By tracking members’ card usage trends, Genisys was able to identify low-usage cardholders and create offers they couldn’t resist.
“We wanted to specifically identify low-card-usage members with one to five signature transactions per month,” says Darren Cameron, vice president of marketing at Genisys. “We worked with CO-OP and Saylent Technologies to develop the card group criteria and then simply ran the report every month.”
For its first targeted marketing campaign, Genisys sent a mailing to the 11,145 members in its low-card-usage group, pulling the mailing list directly from CO-OP Revelation. It touted the benefits of signature debit transactions (which earn more interchange than their PIN-based counterparts) and highlighted popular loyalty rewards for using Genisys cards more frequently.
“Post-mailing, we saw an increase of 66.5 percent in signature debit usage,” says Cameron. “Among this group, the amount they spent on their purchases increased by 44 percent. We also noted that the average number of monthly transactions per card user grew by 134 percent, from 2.6 transactions per card per month to 6.1 transactions per card per month.”
The immediate success of this Genisys campaign may, in fact, be less significant than the ongoing strengthening of member relationships it produced. “If you can drill down into your own data and find ways to alter your members’ behavior, you can grow your volume,” says Lane. “One of the things we’ve learned is that Gen Y members spend a great deal of their money on iTunes. So if we can identify those members and offer them an iTunes card in exchange for using their debit cards six times at the grocery store, we’ve altered their behavior and demonstrated that we understand them.”
Finding ways to boost card usage in the long-term will have long-term benefits. “Volume growth is the way out of this crisis,” says Lane. “Credit unions are going to be repricing their products, but consumers are not going to be tolerant of a lot of new or higher fees. This may also be a good time for credit unions to get back into offering credit cards: There’s some significant demand there. But that alone is not a solution. Growing the volume of existing debit accounts is a clear way to optimize revenue and a counterbalance to raising fees and going after new members.”
Something Completely Different
Then again, sometimes raising revenue means venturing into totally new territory. David Deckelmann, vice president of operational subsidiaries at MaPS Credit Union in Salem, Ore., promotes CUSOs to expand and diversify the credit union’s revenue base.
What kinds of CUSOs? Here’s a quick rundown:
Credit Union Wireless offers affordable cell phone packages to credit union members across the country. This generates revenue for MaPS, as well as its credit union partners.
Advanced Reporting provides background screening for credit unions and private businesses.
Fi-linx is a financial services software company whose primary product is a deposit reclassification program that enables credit unions to free up reserve requirements and earn additional interest income.
Willamette Business Group is MaPS’ business lending CUSO. It shares ownership with other credit unions in order to maximize collective asset size.
Credit Union Insurance Alliance (The Alliance) is an insurance brokerage designed to provide insurance and fee income solutions to its credit union investor/owners.
Co-operative Payroll Solutions offers discounted payroll processing services to credit unions and is based in Allegacy Federal Credit Union in Winston-Salem, N.C.
If you’re keeping count, that’s six different CUSOs – enough to justify Deckelmann’s employment with work to spare. “It’s a major part of what we do here at MaPS,” says Deckelmann. “We’re fortunate to have a CEO, Mark Zook, who is extremely entrepreneurial and very creative in figuring out alternative ways to generate income.” Nurturing the CUSOs – along with the MaPS sales culture that supports them – takes all of Deckelmann’s focus, but it also adds diversity to MaPS income.
According to Deckelmann, there’s a secondary bonus in joining forces with other credit unions to form and maintain CUSOs. “No one cares about this industry more than we do,” he says. “We all win when we figure out how to work together to benefit each other.”
Not every credit union is going to enjoy – or be able to support – new ventures and ideas like these. But for those that can, opportunities abound. Suppose your fantastic collections team could offer their services to business members. Not only would you generate revenue, but you’d also reinforce your connection with those clients.
Branching out into “new” services is paying off for credit unions offering health savings accounts. In addition to bringing in deposits, HSAs give members and potential members a new reason to interact with their credit unions, provide an additional benefit for select employee groups to promote and create excellent cross-selling opportunities. Who holds the top credit union HSA balance? Patelco Credit Union, with more than $75 million.
Going on a quest to enhance revenue takes energy and more than a little guts. Whether you’re putting new muscle behind an existing program or launching something entirely new, nothing is gained without something first being ventured. There’s a lot to learn, a lot to be accomplished – and then there’s the risk of failure.
“Although credit unions started during the Great Depression, credit unions with the current business model really haven’t seen an economic situation like this one before,” says Lane. “Credit unions have always had threats to their business model because banks have been unhappy with them. But this time they’re going through it side-by-side with banks.” Whether threatened by increased regulation, a stumbling economy or individual struggles of one kind or another, credit unions are under the gun. And so, shoring up revenue sources feels like a heavy task.
That’s why this might be a good time to take a cue from the nearest kid you can find who is counting babysitting cash or trying to sell lemonade on a cardboardbox table in front of the house. Look closely and you’ll see it: Making money is fun.
Though no one is going to argue that the revenue challenges facing credit unions are easy or small, reminding ourselves that there’s also joy in building strong systems, making new connections, creating great products and championing new ideas may give our efforts the extra spark they need to turn inspiration into reality. Credit unions do good work and they do it well. If that’s not money, what is?