Not All Members are Created Equal

by: Ron Daly, President/CEO, DigitalMailer, Inc.

It’s been tough going the past few years, as credit unions everywhere face the rising cost of doing business. From basic services and utilities, to payroll and product costs; everything seems to cost more today. Add to that the new rules and regulations facing all financial institutions, and it simply takes more revenue to run your credit union.

To compensate, credit unions are trimming expenses where they can, with many closing branches and reducing staff to cut costs. But in too many cases, it’s still not enough. While it’s true that credit unions are not for profit, they do need money to keep the lights on. You’ve got to make money somewhere … and it’s not coming from the old standbys of overdraft fees and interest.

Some credit unions are now turning to relationship pricing as a way to drive revenue and shed operating costs. Whether you call them unengaged, unprofitable or inactive members, every credit union has members where the relationship is not profitable.

What did we learn from Bank Transfer Day?

So is relationship pricing the model for the future? Let’s face it, LOYALTY & RELATIONSHIP = FREE STUFF! It’s happening all around us from airlines and credit card travel rewards to checking accounts, gas and grocery loyalty programs. Bank of America and large banks proposed a fee because the customer’s relationship didn’t support the required level for FREE STUFF. They wanted to offset the operating costs for the account or have the fee motivate them to close the account. If the customer stays, income offsets the expense and the bank wins. If the customer closes the account, expenses decrease and net income goes up and the bank wins.

Now you’re not going to like this next statement from the CFO that lurks in my past…. Every credit union has its own “Bank Transfer Day” line drawn in their members, the line between a profitable relationship and one that costs money and ultimately capital. The difference between big banks and credit unions is that our operating costs are lower. But make no mistake about it, the line is there and costs can only be driven so low. Pile on that while credit unions are adding new remote services and technology to compete in new channels, they’re adding to existing costs rather than replacing them. For example, adding mobile banking doesn’t eliminate the need for a call center and the cost associated with it. This moves the BTD Line up and places more members on the wrong side of the line.

So, what’s the answer? Can credit unions hold tight to their philosophy while at the same time making wise, bottom-line business decisions? Yes, but it’s a balancing act. If your credit union closes its doors, no one wins. Remember, not for profit doesn’t mean not covering expenses.

I am not suggesting that credit unions jump in feet first and start charging members for every face-to-face transaction, in-branch inquiry or excessive calls to the call center to address concerns about the bottom line.  I’m suggesting seeking a balance. Here are some ideas for a softer approach:

• Charge online banking members who receive paper statements. You can quickly improve the budget by cutting postage and printing costs associated with mailing out statements. eStatements are proven to save credit unions $8 to $12 per year, per member. Multiplied by the total number of members, and that’s significant savings. Note: a local community bank who shall remain nameless charges $10 per month if you want to get a paper statement for accounts signed up for electronic access.
• Offer members access to deposit-taking ATMs. On average, financial institutions pay about 85 cents per ATM transaction compared with $3.75 for a call-center inquiry and $4 for an in-branch transaction. Develop a campaign to encourage members to take advantage of 24/7 ATM access. It’s more convenient for them, too.
• Offer special services as free benefits to members to encourage profitable behavior. Reward programs are popular because they work. Consider offering members valuable add-on services as an incentive. When they increase their savings on deposit or enroll in online banking, acknowledge them with complimentary benefits. These might include waiving foreign ATM fees or giving complimentary access to online safe deposit storage.

So the big questions – is the industry moving fast enough towards a new model? Or will the model in the future continue to be to give everything away for free? Is the idea of “being a member with this TYPE OF RELATIONSHIP = FREE STUFF” too extreme for credit unions? While the industry struggles to sort it out credit unions should step up their efforts to move members from the non-profitable side of their own BTD line to the profitable side.

Today’s credit unions are being challenged to find ways to balance their service-minded philosophy and sound business sense. But in their efforts to avoid seeming like for-profit competitors, they may risk future success. The key is finding the right balance. We need to manage members’ expectations while ensuring they make a positive contribution to the bottom line. Consumers recognize value and will pay a fair price for it. The same should be expected of credit union members.

Ron Daly is President of DigitalMailer, a digital communications and electronic marketing firm providing credit unions the power to reach their members across multiple digital channels, including onboarding programs. You may contact him at rdaly@digitalmailer.com.  www.digitalmailer.com