The gold standard: What would your credit union do?

The Credit Union CEO who hired me as his Chief Strategy Officer was fond of saying “If I have to choose between making a dollar, or giving a member the dollar I choose the member every time.”  That attitude is what underpins the idea of People Helping People and is likely what attracted you to the credit union side of financial services – it certainly attracted me. So at Understood Connections  we have a special affection for credit unions that are using behavioral economic techniques to help members exhibit good financial behaviors.

We recently posted a blog about some innovative work a credit union is doing.  We learned about this effort from the credit union’s executive who attended one of our workshops on behavioral economics. One of the comments we received from the posting was that the credit union, Digital Federal Credit Union (DCU) in Massachusetts, was the “gold standard” for doing the right thing for their members. And that got us thinking – should it be the gold standard, or should this be business as usual?

What is DCU doing that seems so special? They pay 5.12% on the first $1,000 of every member’s basic savings account, the one you open when you join the credit union. They monitor the balances, remind you when your balance falls below $1,000 and make it incredibly easy to move money from your other accounts to the saving account to maximize your return. They know that it’s not enough just to educate their members about smart behaviors; they provide tools and make it easy to do the right thing.

David Araujo, SVP, Technology and Innovation at Digital Federal Credit Union said “These changes will allow our 750K+ members to take advantage of this high rate, but more importantly have funds set aside for an emergency.  In addition to that, if a member is always maximizing their opportunity for the primary savings, we will then encourage them to establish a goal, which will be followed along with reinforcements for achieving that.”  

And yes, this process, at least in the short run, costs the credit union money and puts it squarely in the accounts of their members.

Another of our credit unions exhibits this kind of behavior in a different way.  They had a number of members who habitually made late loan payments on credit cards, auto loans, even mortgages and as a result were paying late payment fees every month.    A messaging system was created that reminded members of payment due dates and resulted in a double-digit percentage decline in the number of late payments. The credit union deliberately made a change that resulted in reduced revenue because they knew it was the right thing to do. Once again, you can’t just tell members what to do; you need to make the right behaviors easier to perform. Timely reminders are a great tool to shift behaviors.

Does your leadership have a plan to help members save? How would your board react if you presented these examples and proposed your credit union follow suite?  Has our focus on improving R.O.A. caused us to lose sight of our industry’s rai·son d’ê·tre? Should we take these “gold standards” and convert them to basic standards of behavior; behavior that generate no special attention because that’s the way we do business as an industry?

Rick Leander

Rick Leander

Rick Leander is Founder and Managing Partner of LFB Holdings, a behavioral insights consultancy that works with established and startup enterprises. At LFB Holdings we teach clients how to leverage ... Web: Details