Tag: credit union

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Which Way? 3 Ways to Prioritize Your Options for Growth

By John Dearing, Managing Director, Capstone

The possibilities may be endless, but your resources are not. For many CUSOs with limited time and money, deciding which ideas to pursue can be a challenge. Here are three ways to prioritize your options for growth:

  1. Start with your vision

The best way to make sure you’re moving in the right direction is to take a step back from all of your ideas and begin by looking at your vision for your CUSO. Who do you want to be as an organization? When you have a clear picture of your goal in mind, it will be easier to visualize what steps you need to take in order to achieve it. Without a clear vision you could end up pursuing options that actually drag you in an opposite direction.

  1. Use tools to stay objective

While it’s natural to be somewhat subjective, after all growth is exciting, you don’t want to make decisions based on emotions alone. Try bringing objectivity into your decision-making process by using tools to evaluate and compare your options. When it comes to external growth, CUSOs can use the Market Criteria Matrix to evaluate the best markets for and the Prospect Criteria Matrix to evaluate acquisition or partnership prospects. These tools can be adapted to evaluate any opportunity for growth.

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A New Approach to Banking Money Service Businesses (MSBs)

In speaking at various bank and credit union events about the banking of businesses that are  cash intensive, or “Money Services Businesses” (MSBs), one common theme is clear:  despite changes in the regulatory landscape, the process for banking MSBs has remained the same.  As a result of systematic “de-risking,” MSBs across the country have been losing access to the financial system.  But with a driving force behind de-risking, Operation Choke Point, now officially ended, it is time to assess the aftermath of de-risking, and specifically how financial institutions can service MSBs in this new environment.  For this to happen, institutions must be ready to discard legacy concepts and practices associated with banking MSBs and embrace a new approach.

De-risking created a wealth of new opportunities with respect to the banking of MSBs.  As many large financial institutions have exited the MSB market, small and regional institutions are poised to fill the void left by them.  For MSBs themselves, losing access to financial institutions represents an existential threat to their businesses, regardless of how long they’ve been around or their adherence to regulations.  This means there are many responsible MSBs desperate to regain banking access, and many financial institutions open to serving them. Nonetheless, much of the MSB industry remains underserved.  So, what is the problem?

The answer may be found in some of the most common reactions heard from financial institutions about the prospect of banking MSBs:

  • “I don’t have the staffing to bank MSBs”
  • “We don’t have the tools to properly bank MSBs”
  • “We don’t know where to start”
  • “How do you bank MSBs in a profitable manner?”
  • “My compliance officer says we can’t do MSBs”

The consistent thread in these responses is compliance and cost.  And while they are related, I’ll address these concerns separately and explain how they can be overcome with a new approach to banking MSBs.

Compliance:

The exit of many large financial institutions from the MSB market exposed a problem with legacy compliance technologies – that they were not built to address the unique challenges of banking MSBs.  And yet, many institutions banking MSBs keep repeating the same mistakes by relying upon these ill-suited compliance technologies.  In one telling example, I was speaking with a bank that had been in and out of the MSB market many times while using legacy compliance technology.  When I asked what the primary problem was, the answer was “everything” – initial underwriting and due diligence, risk analysis, documentation, transaction monitoring, site visits (or lack of), baseline analysis, and expensive manual processes.  This institution finally realized that the old approach to MSB compliance had become outdated, and that a new approach, with the help of Hypur’s technology, was needed.

Contrary to conventional wisdom, the success of an MSB banking program does not depend upon the size of a financial institution.  I have seen large, well-known, institutions sanctioned for insufficient MSB compliance, and relatively small institutions successfully process $100 million per month in MSB volume.  The key is having the requisite capabilities necessary for the compliance challenges posed by MSBs, which increasingly requires the use of technology.  The right compliance technology can minimize the errors and maximize the efficiencies associated with banking MSBs.  Our financial institution clients, including the one identified above, utilize Hypur’s technology to address the unique challenges of banking MSB through automation and granular-level transparency.  When coupled with appropriate training, policies, and procedures, technology can enable banks and credit unions to responsibly, sustainably, and profitably bank MSBs.

Cost:

The imbalance of supply and demand around banking MSBs – with the latter vastly outstripping the former – gives financial institutions significant pricing leverage.  From the financial institution’s perspective, they can justify higher fees because of the additional risks and costs associated with banking MSBs.  From the MSBs’ perspective, the choices are rather stark – pay higher fees to obtain or maintain an account, or risk losing their entire business.  A pricing dynamic rarely gets more favorable than this for financial institutions.

And yet from what I have seen, financial institutions have been slow to seize this opportunity.  At a recent banking association conference, I asked the audience how many had MSB clients, and about 40% said that they did.  I then asked whether they had different fee schedules for their MSB customers.  Surprisingly, only 10% of the group said they charged their MSB customers more than their standard account and analysis fee schedules.  The rest continue to charge “normal” fees because, as many said, “that is how we have always done it.”

Put simply, the concept of free or low-cost compliance for the banking of MSBs is an outdated model that ignores current regulatory and economic realities.  Risk analysis should be conducted on each MSB customer to determine an appropriate fee schedule that properly accounts for the cost and exposure to the institution.  But I still see time and again institutions that throw FTE’s and manual processes at problems and then wonder why their margins are so low.

De-risking has caused significant disruptions to the banking industry, but also significant opportunity.  But while the landscape has changed, many financial institutions continue to utilize an outdated playbook when it comes to banking MSBs.  The combination of new technologies, including our company’s, and commensurate pricing, offers the promise of both enhanced compliance and increased revenue.  By adopting this new approach to banking MSBs, financial institutions can turn the disruption caused by de-risking to their advantage.

If you have any questions, please email Hypur executives directly aherrera@hypur.com and jvardaman@hypur.com.

Authored by:

Andre Herrera – EVP of Banking & Compliance, Hypur

John Vardaman – EVP & General Counsel, Hypur (formerly with the Department of Justice and Cole Memo/FinCEN guideline author)

 

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The “M” in DREAM is for Motivate!

For the last several weeks we have been having some fun dissecting the best credit union book out there CU 2.0: A Guide for Credit Unions Competing in the Digital Age by Ongoing Operations CEO Kirk Drake. This book is available on amazon.com (how cool is that) and currently has 22  five star reviews. That’s a better rating than the complete collection of Harry Potter (yes, there are some Harry Potter haters….I know, who would hate Harry?) but I digress.

Kirk breaks the book down in an easily digestible and memorable format. We have posted a blog on each letter. In case you missed the first four here are the links:

D – Differentiate

R – Recreate and Reinforce

E – Educate and Excite

A – Automate

M – Motivate

In this final section of his book Kirk talks about using a motivating structure to help demonstrate to the member the value of their credit union ownership, Clearly motivating the member and demonstrating the value of their membership, along with the rest of the DREAM approach, will help your credit union differentiate itself from a crowded field and allow it to compete with FinTech startups. I hope this story “Motivates” you to read this helpful book.

The first time I ever saw a Cirque du Soleil it blew my mind. If you’ve never been it’s hard to describe. It’s a “human circus” with acrobatic numbers that seem impossible. It’s all set to music, with incredible costumes, sets, props, and again, really hard to describe. But I remember distinctly this one scene where a four story building appeared on stage. Looked more like a burned out warehouse, no glass in the windows, dark and dingy. Suddenly these acrobats came running onto the stage and “bouncing” off the ground, diving head first into the windows. That one scene gave me this incredible thought. First of all, “How do they not die?” and secondly “How many times did they have to rehearse that to get it right?”

The following week I was working with a credit union helping them create a strong brand by differentiating themselves from their competition. Part of the project was the launch of a very unique branch idea. This credit union was known for their used car auto loan program. Specifically they had partnered with a local auto broker to find the best possible fleet of used cars. They would not “endorse” the cars unless they were still under warranty, had passed an additional 18 point inspection and were highly rated. The joke for a while was “What color Toyota Camry would you like to buy?”

Anyway, the CEO asked “What if we added a showroom to the lobby of this new branch and used part of the parking area as a used car lot?”  To the best of my knowledge I had never heard of a credit union attempting this. And it brought me back to the scene from Cirque du Soleil. The only way we could really pull this off would be to “choreograph the experience and rehearse it.” And that’s exactly what we did.

We sat down and through a great brain storming idea we identified “death threats.” Specifically the reputation of a used car salesman. About as slimy as it gets. How do we put on a performance that is the complete opposite of what people expect? We identified the things people hate about used car lots.

  • Salesmen lurking over your shoulder
  • The inaccurate or misleading data about the car
  • The outrageous up-charge
  • Dickering on the sticker price
  • The high pressure sell

To address each item we chose to do the polar opposite

  • There would never be a salesman on the lot
  • The information about the car would be clearly posted including what the broker paid for the car, what the blue book value is and what the price was
  • There was no outrageous up-charge
  • There was no dickering on the sticker price – the cars were priced fairly
  • It was not a requirement to finance the car at the credit union, they were welcome to finance it elsewhere

Once we had this script in place we got the branch staff together and we rehearsed the scene over and over again identifying situations that might come up that would cause us to “fall down,” Opening night was a hit.

In Kirk’s book CU 2.0 he states, “Gone are the days of members expecting MSRs to “sell” services to them. What they are seeking instead is a better overall experience with transactions that flow through their life stages in ways that are best suited for them.

“Branch technology has two facets: how the technology affects the design and the physical appearance of the branch, and how it is used in the branch. It is important to note that the branch environment should be designed to differentiate and personalize based on data, educate excite, validate, and automate. If the credit union fails to stay true to these principles. it will violate its digital branch promise and all this e-commerce work will be discounted in the member’s eyes as a major failure, leading to an erosion of trust.”

“Without trust, you can’t help the member.”

Thank you Kirk for writing this book. If your credit union has big DREAMS, we’d love to hear about them. Send us your story tokdrake@cu-2.com and you could win an autographed copy of CU 2.0 and receive $200 off the 2018 NACUSO Network Conference at the Disneyland Hotel in Anaheim on April 16th – 19th.

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The “A” in DREAM is for Automate

DREAM Big Contest Continues!

Think of the first three letters Differentiate, Recreate and Educate as the ingredients to bake a one-of-a-kind-out-of-this-world-cake. Now we put them all together and automate (or bake) it.

Kirk recommends the new member experience be the first place to try marketing automation.

I recently sat in on a conference call regarding Net Promoter Score and found out that most credit unions are not “blowing members away” when they open up their new account.  In fact, very few members will give a promoter score citing “Too early to tell” or “I just opened the account and I don’t feel I know them yet.”

But this was even more disconcerting. In a Pacific NW study of credit unions and banks they found that Chase AND Bank of America scored higher with Millennials (18-34) on the “overall recommend” question. They did not cite service as the reason but rather just the opposite. They do a great job making it possible for the Millennial customer to NEVER have to interact with a human. And they do that using automation.

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The Story of CU Lunch Local: An annual celebration of credit unions commitment to community.

CU Lunch Local aims to raise awareness about the importance of supporting local small businesses across Michigan. Studies show that money spent at local businesses tend to stay in the community and a greater percentage of every dollar spent is recirculated at the local level when compared with non-local businesses. CU Lunch Local was founded in 2011 in collaboration with Michigan Business Connection, a commercial lending CUSO.

Bill Beardsley, CEO of Michigan Business Connection and Board Member of NACUSO sat down with us to talk about CU Lunch Local. A unique way to celebrate International Credit Union Week.

Tell me a little bit about how this movement came to be? 

CU Lunch Local was born in 2012, when MBC reached out to its credit unions’ marketing departments to come up with ideas on how to capitalize on the impact the credit union industry has on local economies. On one of those calls, the idea of a “cash mob” type of event was thrown out to the group. Everyone loved it, and from there it was just a matter of sorting out the details. Since that time CU Lunch Local has become an annual event. One that we want to continue to see grow.

What is a cash mob? 

Cash mob events are similar to flash mob events, but with one key difference. Instead of dancing in the street, people who participate in cash mob events spend money.

Their goal is to support local businesses and encourage others to buy local. On October 17th, we hope to have hundreds of credit unions from all around the country that  will commit to dine, shop, or buy local.

Do you know how many credit unions participated last year?

That’s a tough question to answer. We ask participants to sign up, but we know there are dozens of participants that just go for it, and participate without signing up. I can estimate that we’re in the hundreds though.

What is your goal for this year? 

We’d like to see more states and more credit unions, and CUSOs join the movement. We’d also love to see credit unions, leagues, and other partner organizations “tag” another organization and challenge them to join CU Lunch Local this year.

What are some of your best memories of CU Lunch Local? 

There are just so many, it’s impossible to name just one. Every year one of the best parts about this event is, that we’ve always said, CU Lunch Local can be as simple as buying a cup of coffee locally and then sharing that purchase via social media with the hashtag #culunchlocal. But, the reality is credit unions and the industry go all out, and the ideas and the impact and the fun everyone has with CU Lunch Local is amazing.  

How can credit unions and CUSOs get involved?

Getting involved is easy. First, like the official CU Lunch Local FB page, www.facebook.com/culunchlocal, then sign up, https://signup.com/go/AXePFmr, questions and requests for the logo, etc. can be emailed to: jessica@in-fusiongroup.com.