you might be a bank if…

I just stumbled upon this ABA article about “You Might be a Morphed CU if…”

Well you might be a bank if:

-you charge your “underserved” members $35 dollars a month for a checking account
-you can’t remember the last time you reversed a fee
-you charge your customers to talk to you on the phone
-you charge your customers to write checks
-you charge your customers for bill pay
-you only offer 3 CD’s
-websites like this pop up about you

feel free to add on because I’m sure I missed some…

The changing times

“My grandma belongs to that credit union” is something I frequently hear. CU’s do a great job of serving their current, aging members. But we are going to have to change our focus very soon to providing services to our younger members. To quote Debbie Matz from the Board of the NCUA:

“Members age 18-24, who are about to enter their prime borrowing years, represent only 5% of adult credit union members. It is unnerving that more than half of all adult credit union members have aged beyond their prime borrowing years and there are very few young members to replace these aging members.”

CU’s need to change their mindset and starting making decisions for their future. We need not only to get these new members, but have products that fit their needs, a brand that they can associate with, and a way to provide them with greater financial opportunities.

Product profitability

How does one measure a financial service’s profitability? Do you fully allocate the expense of the organization to each product, or let each product fly on it’s own? If each product is on it’s own, then CD’s, for example, will always be “unprofitable”.

You could use a replacement rate to calculate profit. If you have $5M in 9 month CD’s at 4.5% and borrowing from a corporate or FHLB is at 5.5%, then you’re saving that 1% spread.

Loans are a little easier. Simplistically, the rate of the loan portfolio minus write-offs would get you close to where you need to be. I think that the only way to effectively measure deposit profitability is to use the replacement rate mentality. If you had to fund your loans with 5.5% borrowings from the FHLB or 4.5% from your members, the answer is pretty obvious.

But how much money is 100 new checking accounts worth to a CU? What about 1000 more money market accounts???

Sometimes I wish we were selling widgets. Sold widget ABC for $1 and it cost 50 cents to make. It is pretty easy to figure the profit out on that one.


Fueled by the conversation with Trey and Matt today, e-checking accounts have been weighing heavily on my mind as another opportunity for CU’s. Paperless checking, e-checking, whatever the branding is, CU’s need to have an account that meets the needs of that particular segment.

We had a brainstorming session today about our currently liquidity position, the upcoming cyclical decrease in share balances, and how we can hold it off. Both high-yielding savings accounts and e-checking came up as the possible solutions. From the liquidity standpoint, the high rate savings will save CU’s in a liquidity crisis better than an e-checking. And the existing “core” members of the CU’s most likely won’t be attracted to e-checking account. But in 10 to 20 years, the current e-checking members will be that core membership.

A liquidity crisis causes CU’s to think very short-term and they can lose focus very quickly if they don’t maintain that long term vision: Grow and serve your membership!

shrinking margins…

As the fed keeps raising rates (I hear an 80% chance for the upcoming meeting), credit unions are trying to find new and innovative ways of squeaking out some more margin. You’ll notice by looking at some of the call reports, or just attending the TrendWatch quarterly conference call put on by and Callahan, lots of CU’s are getting into the business lending game. Many are investing in business lending CUSO’s to handle the larger participations.

So what about some internal margin tweaks? What are some of the basics that everyone is doing to try and keep their cost of funds down and loan yields up? Aggressive expense cutting? It looks like everyone is liking the certificate market at the moment. We’re seeing anything around the 12 month term go for at least 5.25 now.

The whole borrow short term, lend long term isn’t going to work for much longer if/when there is an inversion of the yield curve. And in that inverted state, the CU’s that will survive will be able to manage their margins internally with creative thinking. The CU’s that have to play rate games are going to have a painful time in front of them.

Focus Groups

I’ve heard it said before that blogging is the new focus group, and I believe it now. I just sat through a focus group for a product development project we’re working on and received very valuable feedback. I received so much in fact that I’d love to be able to do a monthly city hall type meeting and encourage members just to come and chat about the credit union.
Increasingly, I’m seeing the divide between what upper management thinks our members want and reality. I think that the city hall type meeting, more focus groups, and blogging will go a great distance to changing some of those misguided perceptions.

Innovation and CU Products

After reading the article about Herman Miller in the most recent issue of Fast Company, I came away with a quote:

“…suggests that companies aim their innovation efforts at the jobs customers need to get done, rather than incrementally improving products they already produce.” — Christensen

I believe this is one huge area of opportunity for CU’s in product design innovation. Ideo and Intuit (makers of Quicken and Quickbooks) observe their customers using their products. I think too many FI’s simply re-design existing programs they have to better fit what their market is offering. Note the current rush of people talking about and trying to implement “Keep the Change” or “Change is Good” programs, discussions of the “One” account and other innovative ideas. While these ideas, at their building blocks, are fairly basic redesigns of existing products, innovative thinkers looked at how people used their accounts, or wanted their accounts to work, and designed stellar products to meet those needs.

CU’s need to follow the same path. Listen to your members and design for what they want and how they use your products.