As a credit union CEO one of the most critical roles I was responsible for was in planning for the future. To do this I proactively immersed myself in relevant publications, associations and conversations however this could lead to unnecessary distractions. Just as importantly I needed to understand how members behavioral activity at my credit union was changing or transforming. Here’s a short list of key performance indicators credit union executives might consider paying attention to at their institution heading in to 2015.
Member Growth Trends
At first glance the 3.1% member growth in the industry over the last year could be seen as strictly positive. Yet upon closer inspection it would seem a significant source of new members in 2014 is the indirect lending channel. Over the same period indirect loans outstanding have grown by over 23% to $115 billion. I’m not here to debate indirect lending –I think it’s a very smart way to deploy funds for a number of reasons. My concern is that we’ve deluded ourselves into thinking that we’re an innovative, attractive option for meeting consumers banking needs when we’ve essentially just “rented” a lending relationship. This stance can be somewhat offset by the industry’s increase in share draft penetration to almost 54% but the real answers lie in your own institutions results.
- Starting with new & closed members – what’s your monthly churn? If you are having a hard time just keeping up prioritize by reducing the closures. Do you know why your members are leaving? It’s expensive to attract new members so what are you willing to do to retain the existing?
- What products are driving new relationships? Just as importantly – what products retain relationships? Let’s face it – the whole membership share requirement is an awkward and inefficient use of credit unions resources which tends to distract focus from more important issues. Don’t get lost in that quagmire.
- Are you growing both the number and the percentage of your members who have active checking accounts with you? A true test of your relevance is the ability to attract and maintain core deposit members. How does your share draft penetration stack up to peers?
From my perspective the one relationship that’s indispensable is being at the hub of the members’ payments sphere (the ubiquitous share draft account). The daily interaction and ease with which we can securely facilitate our members’ routine financial activities is essential to validating the important part we play in their lives. There are a seemingly endless number of payments options with more being rolled out every day. Yet these are typically just conduits or delivery mechanisms between where the funds initially reside and the eventual destination. We want to maintain and solidify our position as being the primary home from which our members’ financial activity takes place. From a profitability standpoint understand that the best approach is to be in on a piece of the revenue on each transaction and build volume.
2015 will be an interesting year to watch the EMV and tokenization adoption. With the former still being a card based transaction and the latter being card less we may get an indication of how ready consumers are to change the way they pay. For small and mid-sized credit unions the ability to participate fully in both technologies may be financially daunting. You don’t want to guess wrong with the stakes being so high. At your credit union pay attention to:
- Volume trends associated with each of the various delivery channels & payments options; make plans to eliminate methods that are in decline and no longer desirable.
- Know (& understand) the income & expense structure associated with each of the various transaction types or delivery channels.
- Based on these results what operational & marketing adjustments do you need to make in 2015? Have you adjusted staffing models and employee expectations to maximize value?
It’s fantastic that credit unions are gaining market share with double digit gains in loans outstanding. As an industry we should want to be recognized as the consumer lenders of choice. Putting dollars to work by “investing” in indirect auto loans generally makes good financial sense and creates the opportunity for millions of new consumers to be provided with exposure to credit unions. We’ve reached all-time highs in credit card, auto and mortgage loan penetration. To improve upon current performance we don’t need to implement new products or services – just look at your own results and make strategic changes that will incrementally help the member experience and the bottom line.
- Compare the percentage of loans you fund in each credit tier with how your entire membership breaks down. Are your C and D Tier members getting their fair share of loans? Have too many impediments in place that are forcing a large number of your A tier credits to borrow elsewhere? Perhaps it even begins at the application stage where a significant number of potential borrowers don’t even bother to apply based on the perception that you aren’t interested in loaning them money. Discrepancies tell a story – is yours a good one?
- Look at the approved to funded ratio by product type. Here again inconsistencies may indicate that you have process gaps that require attention. Sure, the process to get an unsecured loan to closing is easier than that of a HELOC but inspect closely for results that don’t make sense. Any loan that you can get approved but doesn’t fund should merit further examination.
- Identify trends in the application channels – what percentage has shifted to online or mobile? What are you approval and funding ratios based on the application source? Can you streamline processes or eliminate requesting unnecessary information to keep members from bailing in the middle of an application?
It’s always fun to see what’s new and exciting on the horizon – just don’t forget to pay attention to what you’ve already got and what you must do to retain and grow those relationships.