In the early 1990s, Honda Federal Credit Union ($603M, Torrance, CA) found itself, like many other credit unions, in the unlucky position of seeing its net interest income decrease, a sliding trend that its management could not seem to alleviate. Long before today’s low-interest-rate environment, CEO Jim Updike and his colleagues predicted that the credit union would need to diversify its income stream, but how? As one of the few remaining single-sponsor cooperatives, HFCU’s options seemed limited, so “we took a long hard look at the relationship we had with Honda,” Updike says.
Founded in 1966 by a group of Honda employees, HFCU bears the Honda name but is a separate financial entity from American Honda Motor Co., serving employees of the automotive corporation, along with their families. Historically the credit union had a strong relationship with Honda employees, but its relationship with the corporation that employed them was amiable but benign.
“Honda executives had really positive feelings about the credit union, but they just felt it was a great employee benefit, period,” Updike says. That was something he and his colleagues aimed to change.
They started by going directly to the top. Updike opened the cooperative’s doors to Honda senior executives by soliciting their participation and even inviting them to the credit union’s annual strategic planning meeting. By opening up a dialogue, Updike and his colleagues learned about the financial services the company could use and helped brainstorm solutions to meet those needs. In turn, Honda executives began to see the sophistication and range of services that HFCU could offer — services that they didn’t even know existed because they had never used them before.
Laying the groundwork for a relationship that steadily grew over the next few decades, Updike began Introducing new products and services as a result of those conversations. Since then, Updike estimates that HFCU has rolled out 15 to 20 new products or services.
It’s a strategy that has contributed to the credit union’s success and growth. In 1990, HFCU held about $43 million in assets, serviced 14,000 members, and owned four branches. Today, it boasts $600 million in assets and serves nearly 60,000 members at 10 branches in California, Indiana, Ohio, and South Carolina.
Reflecting on this 20-year relationship-building experience, Updike highlights a few of the programs and services HFCU took on, each of which has contributed to the credit union’s close ties with Honda.
VISA Business Card
In 1994, American Honda Motor Co. handed the management of its business credit card program to HFCU. The new VISA business card , used for travel and entertainment purposes by Honda businessmen, was one of the earliest programs HFCU and Honda collaborated on and has become the mainstay of their relationship, demonstrating the credit union’s capabilities to Honda executives.
HFCU now manages 2,100 accounts under the VISA business card program. In 2012, the program experienced about $50 million in purchase volume from 390,000 transactions, which garnered the credit union $1.2 million in direct interchange income. Updike considers it one of the most successful Honda programs.
Pre-Paid Debit Card
In 2008, Honda moved its pre-paid debit card program, used to reward top salesmen at Honda and Acura dealerships, from a bank in Iowa to HFCU. This switch saved the company $2 million in the first year alone, mostly because HFCU eliminated fees that the previous bank had charged. The move also generated $384,000 in interchange revenue for the credit union during the first year.
“Here’s a program that the company thought was already very efficient, and we still step in and save them $2 million. And we say, ‘By the way, any other income that gets generated off of this program comes back to the credit union, which ends up benefiting the Honda associates and their families,’” Updike says. “What an incredible win-win.”
DATA AS OF SEPTEMBER 30, 2012
© Callahan & Associates | www.creditunions.com
Generated by Callahan & Associates' Peer-to-Peer Software.
HondaCash Lunch Program
In 1996, Honda wanted to find an expedient payment system for employees to purchase lunch at its plants’ cafeterias, one that eliminated time-consuming cash exchanges. To address this dilemma, HFCU created a check card program, and the HondaCash Lunch program was born. Workers simply swiped their employee identification badge, and the cost of their meals was deducted from their accounts.
HFCU now oversees the lunch card program at Honda’s plants in Torrance, CA, Lincoln, AL, and Greensburg, IN, which collectively add up to between 6,000 and 7,000 accounts. In 2008, when Honda opened up the Greensburg plant, the car company mandated that its employees become HFCU members – a windfall of more than 2,000 additional members.
Sometimes the success of a service isn’t measured by the income it generates but by the goodwill it engenders. This was the case in 2005 after HFCU took over the payroll origination duties that an Ohio bank had handled. Because HFCU is the single largest recipient of payroll direct deposits, Updike pointed out to Honda executives that it made more sense for HFCU to handle payroll origination to eliminate the transaction fees associated with processing direct deposits from an external source.
That wasn’t, however, what impressed Honda executives the most. Like any company, occasional payroll mistakes occurred that the financial institution had to reverse, usually around the busy holiday season. In every case, HFCU worked overtime to respond quickly, serving Honda with a level of attention absent from its original bank.
“We’d work until midnight Christmas day, and we’d save their bacon,” Updike says. “Payroll origination doesn’t make us much, if any, money, but Honda began to develop a huge level of trust with us.”
Business Relationships 101
That trust has been integral to HFCU’s relationship with Honda. From the beginning, the cooperative didn’t try to “sell” to Honda, but positioned itself as a “trusted advisor” -- Updike’s favored term.
“These days, whenever the Honda companies need a financial institution, they look to us first.” Even in cases when HFCU declined partnering with Honda -- for instance, the credit union doesn’t try to compete with American Honda Finance Corp. for consumer auto loans or floor plan lending --- it still advised Honda on financial matters.
At a time when more single-sponsor credit unions are expanding their field of membership through select employee groups (SEGs), HFCU managed to leverage its single-sponsor status to its advantage.
“Honda recognizes that because we’re still a single-sponsored CU, the only people eligible for membership are Honda employees and their families,” Updike says. “If Honda were doing business with XYZ down the street, any fees they’re paying would go to the bank. But if they work with us, those fees come into the credit union and benefit Honda employees. So that becomes a huge selling point.” By generating income from corporate programs, HFCU has minimized the fees it charges its membership.
Updike believes that the responsibility for directing the SEG relationship falls to the CEO. He, however, has handed that responsibility to chief operating officer Steve Brandon because Updike plans to retire in 2015.
Though the strategies of a single-sponsor credit union may be different, Updike believes other credit unions can still learn from HFCU’s experience.
“Whether you’re SEG-based or community-based, you have businesses within your field of membership, and I’m absolutely convinced that you can take this model and start using it to develop relationships with those companies,” he says. And of course, when a mutually beneficial relationship develops, “the payoff is absolutely huge.”