Six strategies for navigating the COVID-19 pandemic

Credit unions always show their not-for-profit difference during tough economic times. And so, here they are again, this time facing a first-ever national and international economic shutdown. Much has already been learned during the past 8-10 weeks as, across the nation, businesses large and small were shuttered. Now, as they begin to re-open, credit union leaders are reimagining their strategic plans and operations to face the “new normal” of life during, and after a pandemic.

PWC recently published an excellent white paper titled, “How retail banks can keep the lights on during the COVID-19 crisis – and recalibrate for the future.” The relevance to credit unions is strong and timely.

Here is a summary of six steps that credit unions can take to serve their members and communities while positioning for the future.

Focus business continuity planning on issues for survival.

As essential service providers, credit unions have kept the vast majority of their over 200,000 employees working during the stay home orders. The norm was to allow appointment-only branch services while keeping drive-thrus open, encouraging mobile and home banking service usage, and operating remote call centers.

Now, as credit unions are re-opening branches and continuing other operations, credit unions will need to support social-distancing guidelines and in many cases, manage excess real estate capacity. Some will close some branches at least temporarily, maintain appointment-only in some branches, continue to use alternating staffing days to avoid cross-contamination, adopt “golden hours” early in the day for vulnerable members, and consider the special data needs that the team will need for targeting hardest-hit members.

To take the strain off of higher-health risk ATM cash transactions, credit unions will want to promote cashless transactions such as remote deposit capture and real-time transfers. As an income source, banks and credit unions may also consider increasing ATM surcharge fees for non-credit union members.

For phone support, as much as possible, credit unions need to use cloud-based telecommunications systems to lessen dependency on crowded call centers, and to look out for employee safety. Searching for vendors who provide third-party call support is an option as well.

Managing a tiered call center approach to separate routine calls from more complex ones will be important, and taking advantage of chatbot and remote video support will be also.

For back-office operations, credit unions will look even more aggressively at automating routine work and shift non-critical work to essential operations. This will require an investment in training and retraining certain staff. Therefore, customizable learning management systems should be a priority for credit unions.

The bottom line is that people and technology investments will need to be directed toward the most critical service support functions, given the realities of the new social-distancing economy.

Show empathy to your members while making sound business decisions. 

As the COVID recovery is now expected to take at least 12-24 months, this is a time for credit unions to build brand loyalty as never before. Keeping up with legal and regulatory mandates for mortgage forbearance and modified collections activities should be the table stakes. The real opportunities are found in how credit unions stretch to help hardest-hit members and communities in extraordinary ways.

We’ve seen this play out as credit unions of all sizes jumped in to participate in SBA Paycheck Protection loans, ramp up short-term emergency loans and extend payment dates on all types of loans while waiving fees.

Many credit unions are also proactively reaching out to members who are showing financial stress even before personal finances get out of control. Helping front-line staff become experts on the plethora of government assistance programs has also been important.

Since many core systems don’t handle payment deferrals and fee waivers at scale, collaboration with peer credit unions to push technology partners toward solutions will be more important than ever.

Rethink your balance sheet challenges while managing loan stress and member sensitivity. 

During different stages of the crisis, liquidity will ebb and flow. Many credit unions were already at, or above a 100 percent loan/savings ratio, so liquidity management became an immediate concern. Later, it became evident that deposits were growing as consumers sought a safe haven from volatile markets.

Learning quickly to take advantage of low-rate borrowing tools to fund loan demand is something that more credit unions must now juggle. Likewise, assessing the level of credit risk that can be taken on for PPP and emergency loans, while planning for higher losses, will require a mission-driven approach and solid asset/liability management.

With low rates comes high demand for refinancing existing loans. This is both an opportunity for service and a challenge for asset and liability management. Finding ways to bring new borrowers in versus refinancing existing member loans will matter more than ever.

Here again, making timely and smart investments in ALM and budgeting tools will be important, as well as partnering with consultants to make sure that the right processes are in place.

Find ways to trim your costs quickly.

PWC suggests a triage approach to spending, that includes freezing hiring for non-essential employees among other “quick hits.” Some of these suggestions include setting up a control tower process to separate the “must-have” expenditures from the “nice to haves.”  On physical facilities, shutting down climate control on unused floors and buildings while workers are remote, or consider using intelligent automation tools for this, as just one example.

In product development, low-impact programs and projects need to be re-prioritized, bringing some marketing functions in-house, and making smart investments in improved phone and mobile support services may increase technology costs, but reduce operational costs over the long-haul.

Nobody likes having to implement austerity measures, but at least in the near-term, managing growing risks, controlling costs and generating new revenue are the top priorities.

Reset your revenue outlook. 

On the revenue side of the ledger, maintaining and growing revenue will be more challenging than ever. Areas that PWC suggests warrant special attention include the forecasting of lost interest income, preparing for the potential of negative rates, finding new sources of non-interest income, and managing the deposit portfolio.

About 20% of regional banks’ deposit portfolios are made up of time deposits which reprice over time. By comparison, this was only 8 percent leading up to the 2008 recession. For credit unions with excess liquidity, finding investment yields above zero will be more difficult than ever. The catch-22 will be finding high-quality loans vs. letting money sit idle in low-yield investments.

Funding high-yield member checking accounts as a brand differentiator will become more challenging as good lending and investing options become so elusive. Through all of this, having or gaining the ALM and product pricing expertise will challenge every credit union, especially smaller ones.

Replot the post- COVID-19 strategy. 

Finally, and perhaps most difficult, PWC suggests that banks and credit unions operate with two separate plans, one for the near-term and one with a longer view in a post-COVID-19 world.

Credit union leaders should ultimately position for member expectations for excellent remote service delivery. That obviously means eventual reductions in brick and mortar facilities. This is not a new concept; it has just dramatically accelerated. This becomes even more difficult due to a possible glut of commercial real estate as more and more businesses work to enable remote work for their employees.

And speaking of employees’ expectations for remote work opportunities, finding and attracting talent will require new strategies for meeting these expectations. The good news is that this may align with new member satisfaction with remote service delivery. These two COVID-driven trends will help justify a move toward scaled back, lower-cost real estate investments, in favor of technology-driven services.

Credit union leaders will be focused in the near-term, on survival and relevance strategies. But it is also essential to find bandwidth for a better understanding of what the post-COVID-19 world will require of small depository institutions. This 3-5 year strategic plan should dictate future investments in technology and talent that will assure success in the new world.

In essence, this means that the same well-known trends will exist, but consumer impatience with financial institution adoption will be accelerated. For instance, improved risk-management and ALM, finding new sources of non-interest income that rely less on interchange and overdraft fees, improving remote service capabilities with an emphasis on member experience and mobility, and a successful battle for talent will all be the strategic drivers that will define success. There just may be greater urgency to act on these trends.

Looking on the bright side of a once-in-a-lifetime crisis, credit unions will eventually come out of this challenge better suited for meeting the high service demands of the consumers and small businesses whom they serve. They will also have proven once again, the durability and necessity of the not-for-profit sector of financial services.

Dave Adams

Dave Adams

Dave Adams is  President / Chief Executive Officer of CU Solutions Group. The  CUSG office is located in Livonia, Michigan. Mr. Adams joined the Michigan Credit Union League in August of ... Web: Details