Credit unions were created to cooperatively provide affordable access to loans and other financial services to people sharing common bonds. The mission of “people helping people” has been paramount since the beginning. To achieve that, credit unions must operate in a fiscally sound manner.
The need to produce revenue and manage expenses in order to achieve profitable results is essential, and a positive bottom line is critical to the mission. It enables credit unions to reinvest in their businesses and deliver unsurpassed value and service to their members. The pace of technological change and accompanying consumer expectations, along with economic and regulatory uncertainty, present a daunting challenge ahead. Continued success will require foresight and nimbleness to adapt to a rapidly changing environment.
The Ongoing Transition To E-Commerce And Mobility
If you have not noticed, this is well underway. Whether checking balances, paying bills, depositing checks, transferring money, redeeming points, paying a friend, opening an account, or shopping for anything, consumers are clearly demonstrating a growing preference for online and mobile channels.
To remain competitive, credit unions need to up their game. The ability to provide a feature-rich and frictionless experience is imperative to keeping and attracting members. This necessitates continued investment in their own capabilities and collaboration with service providers that offer best-in-class solutions and also align with the credit union’s service orientation.
Credit unions need to leverage these investments to yield greater operational efficiencies. If properly informed and incented, members can be guided to greater adoption of digital alternatives. Examples include paying a higher dividend yield on share draft accounts based on the use of payroll deposit, e-statements, online or mobile banking, and a minimum number of debit card transactions. New fee opportunities will also be available, as long as value can be effectively communicated and demonstrated.
Data ― Finding The Golden Nuggets
Big data, little data, and data analytics are all buzzworthy terms we have been hearing and reading about in recent times, and for good reason. The physical and digital environments that we now live in have created an overwhelming amount of information, advertising, promotions, and product offers ―with mind-numbing effect. Consumers desire and now, to a large extent, expect product and promotional offers to be personally relevant. People want information that is beneficial to their own unique wants and needs.
Credit unions have troves of data from which they can glean invaluable insights to inform and guide their member interactions, promotions, offers, and treatments. Data can be transformed into knowledge that enables cost-effective, specifically targeted campaigns offering the right product or promotion to the right member at the right time. The greatest success can be achieved by getting a holistic view of the member relationship, and that may require extracting and aggregating data from disparate systems ― which is worth the effort it requires.
A more focused allocation of marketing dollars will produce a higher success rate in incenting desired behaviors. Investing in the capability and tools or leveraging the expertise of trusted partners (or a combination of the two) will provide returns now and into the future.
Success stories abound in the targeted acquisition, activation, and increased usage of credit cards, for instance. The whopping contribution this undersized asset and great relationship product makes to the average credit union bottom line is eye popping. Card outstandings represent 6% to 7% of loans for credit unions with credit card programs, and typically generate between 20% to 30% of net income.
Keeping The Bad Guys At Bay
Another area that requires significant attention is fraud, and especially cybercrime, which is fraud involving computers, networks, and mobile devices. Actual fraud losses, the cost of combating it, and the expense associated with cleaning up the mess are all impacting credit union bottom lines and the quality of their member experiences.
Security issues are a top-of-mind worry for credit unions and consumers alike. Consumers report that concerns about information security are the leading impediment to greater adoption of new payment channels, especially mobile. Increased complexity in member acquisition, servicing, and transactional environments require that safeguards and tools credit unions use to combat fraud keep pace.
Consumer card controls are one example of how credit unions can improve fraud prevention for debit and credit cards. By placing controls in their cardholders’ hands (who happen to be in the best position to avert payments fraud), credit unions are improving the member experience and mitigating the risk of fraudulent transactions occurring. Enhanced tools such as these that aid consumer authentication and engagement, transaction monitoring, and reporting, and robust data analysis will ultimately lead to happier relationships and improved economics.
Credit Unions Can Compete
The way forward presents challenges and exciting opportunities. Credit unions need to evolve their business strategies and tactics to continue to compete, grow, and generate positive financial results. Each credit union has unique strengths to leverage and improvement areas to address, and also distinctive membership characteristics that will help shape their path forward. Credit union CEOs and their management teams need to bring focus, energy, persistence, and a resolve toward successful completion on their specific initiatives. Their ability to execute on creating new revenue, operating more efficiently and securely, and delivering superior member experiences will drive future success.
Barney Moore is principal, credit card consulting for Advisors Plus, PSCU’s division of strategic consultants and marketing experts. He brings over 25 years of experience in consumer financial services to his work in credit card portfolio management, analysis and product development.