The Great Recession has highlighted the advantages inherent in the credit union model. This positive dynamic will lose its luster as the economy moves into recovery, so evaluate your credit union’s retention strategy to ensure it is maximizing the benefits of the credit union difference. It is inefficient and unrealistic to combat member turnover simply by attracting more members. Instead, examine why members have come to your credit union, and then ask what your credit union can do to retain those members as future opportunities arise.
Gear Up for Planning Season
Credit unions were not impervious to the recession, nor will they be to the recovery. The economic, social, and cultural trends that were advantageous to credit unions are shifting. Loan acquisition is always on the radar of credit unions, but this new period might require a swing in strategic focus from member and deposit growth to member retention.
At a 2009 NAFCU Conference, Ron Parker, a certified public accountant who has worked with credit unions for more than 35 years, encouraged Board members to raise three issues with their credit union's management team.
1. The Contingency Plan
Rising delinquencies, NCUSIF assessments, and low interest rates are not doing any favors for your income statement, but they do make it a good time to re-evaluate your growth strategy. Times will change; are you prepared? Imagine you are bringing in new members at 4% but letting 2% slip out the back door. Would it cost more for your credit union to increase new member acquisition to 5% or reduce member attrition to 1%? How would a lower member turn-over influence the effectiveness of your cross-selling?
2. Risk Assessment
Most likely, your credit union has models in place to determine the impact of changes in rates, delinquency, and charge-offs on income, expenses, ROA, etc. In addition to assessing credit and rate risks, what other risks exist? What if member attrition increases two percentage points? Would your credit union still have enough capital if members reinvested a significant portion of their deposits in an external institution? What if new member acquisition decreases two percentage points? What are the growth assumptions in your credit union’s credit and rate risk models?
3. Next Steps
You cannot predict the future with absolute certainty, but you can consider what could be next. How do your credit union's various contingency plans meld into a comprehensive strategy? Is this strategy based solely on projections using internal data, or do your contingency plans incorporate the various potential influences the shifting economic landscape will have on your members?
Look at your two year plan before your planning sessions. Define your assumptions regarding the changing economic environment and project how these changes will influence your credit union’s growth strategy. And remember, retention is a viable growth strategy that weathers change.
Excerpted from “Making Retention a Priority for 2010”