Member Loyalty Can Mean Big Returns for Suppliers

Credit union suppliers use different criteria to define their target markets. Some suppliers look regionally, while others look for specific size indicators, like assets or membership. One set of criteria that should not be overlooked is member loyalty.

 
 

Credit union suppliers use different criteria to define their target markets. Some suppliers look regionally, while others look for specific size indicators, like assets or membership. One set of criteria that should not be overlooked is member loyalty.

Member loyalty is important to a credit union supplier for two reasons. The first reason is the overall business opportunity at a credit union. In some cases, there is a direct correlation between membership participation and business opportunity. For instance, if my business is check printing, the number of share draft accounts will lead directly to more check printing for my firm. In almost all cases, high membership participation will have an indirect effect on my business. If I sell ATMs, a credit union where members average 2 or 3 accounts each, will be much more in need of multiple ATMs as they try to serve all of their members' accounts.

The graph below demonstrates how member loyalty can be an indicator for other business development. This scatter plot graph demonstrates a correlation between share draft penetration (the percentage of their members with checking accounts) and non-share draft accounts per member. Each diamond represents a credit union over $250 million in assets. Generally speaking, credit unions with a higher share draft penetration also seem to have more non-share draft accounts per member. These accounts include other savings accounts, like Savings Certificates or IRA accounts, as well as any loan the member may have. Where members have a lot of share draft accounts, they are also more likely to have an auto loan, a credit card, a savings account, etc.

The other reason member loyalty is an important factor in determining your target market is what it says about credit union management. When analyzing other financial institutions, the major strength indicators revolve around financial performance, most importantly, the strength of their bottom line. Credit unions, because of their cooperative nature, are different. With credit unions, you look to financial performance measures to determine their safety and soundness, but the managerial success is best gauged by member satisfaction. Nothing indicates satisfaction like increased business.

To determine the loyalty of a credit union's membership you want to look towards a few factors. Share draft penetration and total loans and savings accounts per member are generally good starting places. The average credit union has 50% share draft penetration, and 2.4 accounts per member. Numbers higher than these probably indicate quality product and service offerings and overall member satisfaction with the institution.

Some other indicators of member satisfaction and loyalty include the percent of potential members that are members. This can mean positive word-of-mouth from members to non-members, especially in instances where field of membership is defined by employment or some other close-knit group.

Consider also, if a credit union has a transactional website, what percentage of their members use it? The more contact members initiate with their financial institution, the more exposed they are to product and service offerings, including your product and service offering.

 

 

 

June 9, 2003


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