First Quarter 2007

Loyalty Programs Boost Results

Loyalty programs are far from new, but the concept has always remained the same -- communicate the program to the masses, expect high participation, but know that consumer follow-through will be at lower levels.

With a well executed program, you can expect one or more of the following benefits:

•     Increased transactions
•     Greater dollar value on each transaction
•     More transaction dollars on each account
•     Growth in number of accounts
•     Higher customer retention

At the core are two advantages working for you: 1) float, or the granting of a reward long after the purchase has been made; and 2) breakage, or points earned but never redeemed.

Float works in your favor because, for a variety of reasons, participants can be slow to redeem points. It’s typical for less than five percent of points issued in the first year to be redeemed that year. Thereafter, it often grows by five percent per year, leveling off at about 25 percent. As float builds, you reduce overall expenses by investing the assets of the accrual account.

Breakage recognizes that no program redeems 100 percent of points issued. Some members are attracted by the dazzle of the prize, but never stake their claim—or choose an item worth less than what they have earned and relinquish the remainder. Up to a third of your members will ignore the program altogether, and some accounts will be cancelled, with points forfeited.

As you begin the design process, it’s important to keep four basic tenants in mind:

• It must be fiscally responsible.
• It must be easily administered.
• It must be competitive.
• It must be compelling.

Fidelity National Information Services (FIS), a loyalty program leader, aids its clients in program design, promotion and administration. Through its ScoreCard® program, many clients opt for a broad-based program with the following parameters:

Travel—Coach-class, round-trip airline tickets to the contiguous 48 states and Canada available at a fixed price of $400 (30-day advance reservation and Saturday night stay required). Hotel rooms, rental cars, cruises and tour packages available at stated point levels or with dollars-off credits, with a third-party travel supplier handling bookings.

Merchandise—More than 450 items falling in categories according to value, with the lowest category requiring the redemption of 2,000 points and the highest requiring 500,000. Again, a third-party supplier was used for fulfillment.

FIS provides its client with: program rules; regular reports for both the credit union and its members, detailing points earned, adjusted, redeemed, deleted and available for redemption; creation and maintenance of the official program website where cardholders can view an accounting of their points, as well as awards, rules and order forms; internal announcements and staff training; marketing materials including lobby posters, tent cards and regularly scheduled statement stuffers.

Loyalty programs are flourishing and heavily woven into the fabric of consumer expectations. When properly designed, promoted and administered, loyalty doesn’t cost—it pays.

Fidelity National Information Services  (NYSE:FIS) is a leading provider of core processing for financial institutions; card issuer and transaction processing services; mortgage loan processing and mortgage-related information products; and outsourcing services to financial institutions, retailers, mortgage lenders and real estate professionals. For more information, visit www.fidelityinfoservices.com.

Mid-Atlantic Corporate Eases MBL Workload
By Jim Burns, Vice President/Chief Financial Officer

Member Business Lending (MBL) is gaining momentum daily in the credit union industry as a potentially profitable business line. Credit unions see MBL as a way to attract new members who may have a small business and are looking for assistance in funding their business needs, such as equipment purchases or working business capital. Once the credit union executes the MBL, the work behind the scenes begins. The work I am referring to is the servicing of the loan or the backroom operation in support of the loan.

Mid-Atlantic now offers loan servicing for member business loans. If you are a credit union who already offers MBL and are looking for ways to trim costs and streamline your operation, look to Mid-Atlantic for loan servicing. The same also holds true for any credit union looking to venture into MBL, and who are evaluating having a third party service the loan portfolio.

Mid-Atlantic can assist with payment processing, member billing, and reporting. When your lending cap becomes tight or you are looking to close larger deals and have willing credit union participants, turn to Mid-Atlantic Corporate. We can service loans with multiple participants and multiple interest rates. The servicing of the participation piece consists of payments as well as reporting. 

Mid-Atlantic Corporate’s Loan Servicing provides secure online access to any loan in your business loan portfolio. The information is refreshed on a daily basis and contains eighteen months of loan history, outstanding payment amounts, and lines of credit availabilities. The billing for the loans is done in accordance with the terms of the loan and the statement is customized with the credit union name. Your members can send their payments to a lockbox administered by Mid-Atlantic Corporate. These payments are processed and funds are available to the credit union the day after processing has occurred. In addition, the credit union will receive daily reports showing the application of the payments. The loan payment can also be made over the counter, and as the credit union provides the payment information to Mid-Atlantic Corporate, the loan servicing system will be updated to reflect the payment has been received.

Mid-Atlantic Corporate provides detailed monthly reports on any loans originated or purchased. Year-end activity such as 1098s & 1099-INTs are also generated for you. Tracking mechanisms are contained in the system such as the ability to track delinquent loans and the expiration of UCC’s.

No matter what the size of your MBL portfolio, we are here to assist you in offering your business members more services. If you already have an existing MBL portfolio and are looking for an escape from the tedious backroom operation of loan servicing, Mid Atlantic Corporate is the answer. We can assist you in the extraction of loan documentation and data in order to service your existing portfolio without missing a step.

If you are thinking about offering MBLs or are already offering them and would like to remove the servicing burden from your staff, please contact your Corporate Account Manager, toll-free at (800) 622-7494.

Using Strategic Planning as a Business Strategy for Your Credit Union – or How to Keep Up With the Pack

Strategic Planning can help your credit union answer the question, "Where are we, and where are we going?"

It can increase your effectiveness in handling FOM issues, product and service expansion, staffing, succession planning, member penetration, lending policies, member education, hiring, staff development, and other key areas.

Strategic planning can also be used as a business strategy to help you identify your credit union's core values and purpose for being. Although products, service standards, technology, and member service may change based on the environment, core values and purpose remain constant and distinguish your credit union from any other financial institution.

More and more it seems, financial products are becoming a "commodity." The credit union needs to offer a wide enough range of products and services to satisfy the needs of its members. These products need to meet or do better than the competition whenever possible. As we look around, however, at the banks, brokerage firms, car dealerships, insurance firms, and retailers that have entered the financial arena, we realize that diversity of products and value in service offerings are becoming "the price of admission, not the ticket to success."

Credit unions that are able to clearly identify their core values and reason for doing business stand a better chance of attracting and retaining members in the future.

The process doesn't end once core values are established. Even though strategies, products and services, technology, quality standards, and ways of doing business may flex with changes in the environment, the core values and reason for being remain constant. They should serve as the basis for all business decisions impacting the member and guide the alignment of all processes, initiatives, and procedures that the credit union undertakes.

In serving as a highly effective means to identify an organization's core values, goals and strategies, more and more credit unions are viewing strategic planning itself, as an essential business strategy.

What is strategic planning?
Strategic planning is a systematic process that enables your Board (and Committee) members to have discussion and reach agreement on where you want the credit union to be in the next 3 to 5 years. It is one of the best things that Board members can do for their credit union, because it provides a sense of direction and the means to getting there.

How will it benefit my credit union?
Each credit union benefits tremendously based on the unique make-up of its Board and members. If you have new members, it helps to unify the group and clarify their roles and responsibilities. With a mature Board, the session opens up the communication to industry information, creative ideas, and possible solutions that may not be discussed at regular Board meetings.

Every credit union comes away with its own specific goals, objectives, and strategies that will guide its course over the next several years.

Why get involved?
The competition to gain employees' financial business is intense. NCUA is placing greater emphasis on each credit union's ability to anticipate risk and manage growth. DCUL acknowledges that leaders need to stay focused on economic and environmental issues and determine what impact they will have on managing the credit union going forward.

Why change now?
Things that worked in the past may not be as effective in the future, given the dramatic changes within the financial services industry. Banks, brokerage firms, insurance companies, auto dealers, retailers, and others are competing aggressively for your member's financial business.

What are some of your current issues?
With FOM changes, declining loan to share ratios, the need to increase members and attract volunteers, there are more than enough reasons to consider strategic planning. Changes in any of the following areas provide an excellent opportunity as well.

• product penetration,
• products and services,
• marketing and PR,
• capital position,
• business development,
• new technology,
• customer/member relationship management (CRM),
• branding or name change,
• succession planning,
• physical office/staffing needs, or
• charter conversion

How do you measure success?
Success is only partially measured by how effective the planning session is. Real success is based on executive leadership's commitment to implement the goals and strategies. Unfortunately, this is where a large number of strategic planning programs break down. Early on in the planning process, the credit union needs to anticipate what steps it will take to make sure this doesn't happen.

What are some things to consider before committing to a planning session?
Is there a budget? Do you use someone from the credit union or hire an outside facilitator? When and where should we have it? How long should the session be? How do we structure the session?

• Who should facilitate? If you decide on someone outside the credit union you may incur a cost/fee. They are likely to be more objective, focusing on the process rather than getting bogged down with the issues. They should have experience within the financial services industry - the broader, the better. They should understand group dynamics and be able to apply various methods to involve all Board members and work through any potential conflicts.
  
  
• If you use someone within the credit union, it is unlikely that there will be extra cost. They will be familiar with the credit union, its culture, strengths, issues and objectives. Their knowledge of the industry/movement may be limited to credit unions and if so, he or she may not have a broad enough view of the financial services industry. The individual may not have expertise in group dynamics.
  
  
• When and where should we have it? Determine the best time to get your Board together. Balance this with what needs to be accomplished, your expectations and objectives. The planning session can be held onsite or at a remote location (hotel, league, etc.).
  
  
• How should the session be structured? First, decide what your objectives are for the session. Is this the credit union's first experience, or is formal planning done on a regular basis? The structure and length of your session should be based on how these questions, and others, are answered.

What should happen after the strategic planning session?
Results of the day's discussions are consolidated into a formal Strategic Planning Report. If certain conditions are met, this can double as a Strategic Plan or even Business Plan. Otherwise, the original data needs to be converted into a Business Plan describing the objectives, goals and strategies for the next year or so. Depending on staff size, the Business Plan can be converted into individual Action Plans to involve all staff in the implementation.

How do we determine its success?
What the credit union does with the results following the planning session is a direct measurement of its true success.

To ensure the health, vitality and future growth of your credit union, consider strategic planning as an essential part of your planning and business strategy. It remains "one of the best things that a Board can do for its credit union."

For information on setting up a strategic planning session for your credit union, contact Jane Bailey, (800) 292-7875 or jane@dcul.org.

Time Magazine Focuses on TraceSecurity Hacking Expertise

NEW YORK (12/13/06)--Time magazine features a Credit Union National Association strategic services partner, TraceSecurity, in an article about the company's methods for showing credit unions and banks how to protect their data.

Basically, says the article (Dec. 18), the institutions pay Louisiana-based TraceSecurity and other companies to steal from them and then show holes in their defense. They've posed as pest controllers, fire officials, OSHA inspectors and foreign diplomats to gain entry into banks' and credit unions' inner sanctums.

In four years, the company has never failed to crack a system--mostly because people are too trusting, too unaware or too lazy to take precautions to deter thieves, said the article.

Time accompanied company co-founder Jim Stickley and his "accomplice," Dayle Alsbury, on several "social engineering engagements" or break-ins.

Stickley and Alsbury, wearing fake fire-inspector uniforms and sporting walkie talkies blaring a recorded dispatcher's voice (downloaded from the Internet and transmitted from their getaway car), saunter into a credit union. They flash homemade badges, go behind the tellers' counters and into the credit union's inner sanctum. Within half an hour, they gain access to the credit union's entire computer network, security system and member data, without the knowledge of employees on the premises.

At another credit union branch, Stickley flirts with female staffers in the break room. Meanwhile, Alsbury gets four minutes alone in the credit union's communications center. That's enough time to: install a wireless "sniffer" that can broadcast information going in and out of the institution; shut down security cameras, alarm and telephone systems; and drop a disc into an unattended, logged-on computer so it can download a Trojan virus to allow hacking into the system. They also access the back side of an ATM and a room with boxes of backup member data.

Fake heists show that members and customers aren't the only weak links in the security chains. Stickley said the company has hacked into every single online banking application that it's tested, except one.

TraceSecurity does not hire hackers. Its 50 employees must undergo extensive background checks and tend to have work experience in corporate security and computer engineering.

TraceSecurity recommends these steps to help keep real criminals at bay:

• Shred all documents. Con artists will dive into dumpsters for clues. A Post-it note with a member's name and phone number is enough information for a scam. Employee names, positions and work schedules are invaluable.
  
• Always escort strangers. Never let pairs split up, and never leave them alone. Stickley has faked illness and waited in the bathroom until even the most vigilant escort gave up.
  
• Verify IDs. Ensure that the stranger is who he claims to be, even at the risk of insulting the stranger. Check the name on the badge against a driver's license, then call the purported employer to make sure the person is legit.
  
• Double-check e-mail requests. Stickley sets up a fake e-mail address and credit union website, then sends e-mails claiming to be from the credit union's information technology manager. The e-mail asks employees to "test" the new website by entering their own account and password information. They often provide all he needs to empty out the accounts.

For more information about TraceSecurity, use the resource link.

Resource Links
TraceSecurity/CUNA Strategic Services

Boost Member Retention, Increase Fee Income With Auto and Homeowners Insurance

     The competition has always made it clear that they’re out to recruit your credit union’s members. However, the number and type of those competitors is growing in new and ominous ways.
     Depository institutions still threaten to erode your membership base, especially those members who see only rates and terms as reasons to belong. The fastest-growing threat, however, comes from insurance companies, mortgage lenders, and other nontraditional providers who’ve established or purchased their own banks, enabling them to offer many of the services you offer. Members who buy products or secure loans from these companies are that many steps further away from your credit union and that much closer to becoming customers of other financial providers.
     However, by offering insurance products from the insurance companies and strategic partners of CUNA Mutual Group, you can leverage the situation in reverse. Rather than lose members to financial providers who’ve only recently discovered banking, you can maximize your members’ existing relationships to offer products they want and need. Your credit union earns non-interest fee income, while also increasing your institution’s strength and providing valuable services to those your members.
     Consider a strategy built around MEMBERS™ Auto and Homeowners Insurance, which supplies affordable and reliable protection that your members need, plus property and casualty coverage at member-only rates. The coverage, made available by CUNA Mutual Insurance Agency, Inc., and developed in partnership with Liberty Mutual, the country’s eighth-largest auto and homeowners insurer, and Progressive, the nation’s third-largest auto carrier, gives your credit union capabilities to counter the competition’s attack while realizing three specific advantages:
     • By offering MEMBERS™ Auto and Homeowners Insurance made available by CUNA Mutual, you have another product to gain greater member “wallet share.” As you know, the more products members have, the more loyalty they exhibit toward the credit union and the more products they are likely to purchase in the future.
     • Through competitive pricing and services, MEMBERS™ Auto and Homeowners Insurance helps keep competition from non-depository institutions at arm’s length. If you can provide members with products that are superior to what the competition offers, there’s less reason for those members to transfer their loyalties and less likelihood they’ll do so.
     • Finally, by offering MEMBERS™ Auto and Homeowners Insurance, your credit union can realize increased non-interest fee income through the sale of those policies. In an era of ever-tightening margins, there are few better ways to profit from more effectively serving your members.
     On top of that, MEMBERS™ Auto and Homeowners Insurance can be marketed to your members through MemberCONNECT™ CUNA Mutual’s direct marketing program. Our results have proven that credit union affinity leveraged in direct marketing pieces carry great importance and attract immediate attention from members receiving them. If your members respond to direct mail advertising for the insurance products you make available, then there’s a good chance they may never get to offers from “those other guys.”
     Strategy should always drive the product selection you offer members. Let MEMBERS™ Auto and Homeowners Insurance spearhead your efforts to keep the competition at bay while strengthening your relationship with members and your bottom line. For more information, call your CUNA Mutual representative.

Thank you for reading Service Issues!
Extra credit if you can guess my dog’s breed.
Jane Bailey, Editor
Delaware Credit Union League
www.jane@dcul.org