An E-publication from the Delaware League Services
An E-publication from the Delaware League Services |
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Second Quarter 2007
Provide Members With Easier Access to Your Credit Union With
Shared Branching
Your Credit Union - Now With 2,407 Branches Nationwide!
A total of 1,312 credit unions are now attracting potential members and strengthening relationships with existing members. How are they doing it? Shared branching!
Now available in Delaware! Delaware credit unions may now join the shared branching network through an alliance between the Delaware and Pennsylvania leagues.
In Pennsylvania, there are currently 26 credit unions that offer shared branching to their members through Pennsylvania Credit Union Service Centers, Inc. (PaCUSC). Six of those credit unions - 1st Choice Community FCU, Allegent Community FCU, Eagle One FCU, Tri County Area FCU, Visionary FCU, and Westmoreland Community FCU – joined the network within the last year.
In fact, 2006 proved to be a particularly strong year for shared branching growth in the Commonwealth. During the year, PaCUSC opened seven new shared branch locations in Pennsylvania. New locations included credit union offices located in the Erie and Pittsburgh markets. PaCUSC now coordinates a total of 35 shared branches – 34 shared branching locations in Pennsylvania and an office of Clearview FCU located in Charlotte, North Carolina.
One of the driving factors behind the growth in shared branching is growing demand from members. A series of animated television commercials that emphasize the convenience of shared branching has been running in the Erie, Pittsburgh, and Wilkes-Barre/Scranton markets. “The commercials have been a boost to the visibility of shared branching in Pennsylvania, as well as demonstrate how extensive shared branching is on a national level,” according to PaCUSC SVP Bob Hinchey. The campaign was developed as a joint effort between PaCUSC and participating credit unions in each market.
As of this writing, one Delaware credit union has signed up as an issuer and a Pennsylvania credit union with a branch in Claymont, Delaware, is an issuer and soon to be a shared branch outlet.
For additional information on the shared branching network, contact PaCUSCState Coordinator Sandy Shenk at 1-800-932-0661, ext. 5267, or e-mail sandy.shenk@pcua.coop. You may also contact Jane Bailey, DCUL, at 1-800-292-7875 or jane@dcul.org.
The Road to a Successful Auto Loan Promotion
Delaware Alliance FCU’s last auto loan campaign, the “Road Signs” design by Visions, Ink., pointed credit union members in the right direction towards a great deal on a auto loan.
Judging by the results, this campaign was a huge success. Postcards and posters offering members a 2% rate reduction on their auto loans proved a highly successful marketing tool; the credit union doubled its auto loan portfolio in just two months. Their marketing goal of $300,000 was exceeded by an actual volume of $571,354, and the credit union netted a return of 2,893% on its investment.
This was a win-win situation, with members taking the credit union up on its offer to save money on their auto loans, and the credit union far surpassing its goals for the promotion.
Prepaid Reloadable Debit Cards- CUMONEY
By Kimberly Schreiner, Supervisor, Implementation/Debit, PCUA
Delaware League Services is pleased to announce that Prepaid Reloadable Debit cards (CUMONEY) are now available to your credit union via our partnership with the Illinois Credit Union League - Service Corporation. What exactly are Prepaid Debit cards? Prepaid Debit cards carry the VISA logo on the front of the card and cardholders can add value to the card at anytime. In addition to the 20 million VISA locations worldwide where the cards are accepted, the reloadable cards also work at ATMs and merchants anywhere your members see the Plus or Interlink (pinned based pos) networks.
The CUMONEY program is set up as an agent program. Because of this, there is no credit union liability and no fraud exposure. Credit unions can choose if they want the card branded with or without their credit union logo. The CUMONEY program gives credit unions the extra flexibility to offer a way to access ATMs and VISA merchants to those that may not qualify for a debit card. In addition, the cards provide additional income opportunities to the credit union along with a competitive advantage.
If you are interested in offering the CUMONEY program, please contact Jane Bailey at 1-800-292-7875 or jane@dcul.org.
Balance Transfers, Platinum and Risk-Based Pricing
Keys to Credit Card Success
Compelling balance transfer promotions touting attractive offers—such as a competitively priced Platinum card with rewards points—will help bring your members back from the banks.
By Konnie M. Werner, president and CEO, Team One Credit Union, and board vice chair, Credit Union Card Services (CSCU)
When you open your mailbox each day, how many credit card solicitations do you find? Chances are, most days you get at least one—and so do your members. That’s why it’s vitally important that your members also receive mailings from you, reminding them that their credit union’s card is the best deal around, and that your card has the flexibility and features they want.
Big banks want your members’ credit card accounts, and it takes attention and effort on your part to keep those accounts. With the right attention and effort, you won’t just retain and grow current balances; you’ll lure accounts from your competitors.
Your credit card program’s return-on-assets (ROA) can far outstrip your other loans’ returns. That is, if you treat cards like a core product. By this I mean developing and actively managing the product’s strategic plan, dedicating experienced staff to its operations, monitoring and controlling losses, ensuring your product is competitive, and—especially—marketing year-round.
While all of my credit union’s loan products perform satisfactorily, our card portfolio—even with some losses—earns an ROA of 6.75%. It’s nearly equal to our home equity portfolio’s ROA of 7%, and that portfolio hasn’t seen any losses. Credit cards represent just 9% of our total loans, but account for 12% of total loan income.
Balance transfer promotions, Platinum cards and risk-based lending have helped push our card portfolio to these levels, and my credit union is not unique in this regard. I talked recently with three credit union colleagues who have seen dramatic increases in portfolio profitability through similar strategies.
Significant results immediately
With $111 million in assets and 21,000 members, Glass City Federal Credit Union, Maumee, Ohio, has over 5,600 active credit card accounts, nearly 200 of them new in the last year. In November of 2005, after consulting with its processor, the credit union revamped its card products and then launched a balance transfer promotion. “We saw significant results immediately,” reports Melanie Ogrodowski, marketing director.
“Our goals were to increase penetration and usage among our existing membership and to attract new accounts,” she continues. “Increased usage was probably our biggest goal. A lot of members had cards they weren’t using—or they weren’t carrying balances—probably because our rates were too high.”
The credit union began by converting all existing cards to Platinum. “Platinum carries prestige, and research shows Platinum cards are more likely to be at the top of your wallet,” says Ogrodowski.
Glass City Federal also implemented risk-based pricing based on credit score. “In the past we set credit limits and interest rates according to the type of card a member had—Classic, Gold or Platinum—regardless of credit score,” explains Ogrodowski. “We had members with 800-plus scores paying 14.88% because they had Classic cards. It didn’t make sense and it wasn’t fair.” The credit union lowered rates for these cardholders to 8.49% and ran credit reviews upon request for members with lower scores.
All existing accounts included a bonus-points rewards program. The credit union created a second card product without rewards that charged slightly lower risk-based interest rates, and allowed cardholders to request this product if they liked.
To attract new cardholders, Glass City Federal set a six-month introductory rate of 3.99% and solicited balance transfers via direct mail, lobby signage, on its Web site, in its newsletter, and in card carriers and statement stuffers. “Our frontline staff was our number-one marketing tool,” says Ogrodowski.
The campaign cost $20,000, and by June 2006, outstanding card balances had increased by $872,000, or 13% over the previous June. “That alone more than paid for the program, without even considering increased usage,” says Ogrodowski. Usage was up too—Interchange (per-transaction) income had increased by $37,000, 15% over the previous year.
“Now that we have a program we can promote, we always have a campaign going, in addition to our standard 3.99% introductory-rate offer,” Ogrodowski says.
Credit line increases across the board
University Federal Credit Union, Austin, Texas, $700 million in assets, 101,000 members, wanted to increase its outstanding credit card balances by $3 million in 2005. “Our balance transfer goal for the year was $2 million,” notes Lee Thorsness, credit card product manager.
“Aside from our existing cardholders, we knew the majority of members had around $2,000 to $4,000 in credit card balances with other companies,” she says. “We might as well have their balances with us.” The credit union evaluated results from previous marketing campaigns. “We found that our members were happy with our credit card program, but were—of course—interested in rate reductions.”
First, University Federal offered credit-line increases to members across the board so they’d have available credit. Then, says Thorsness, “We offered balance transfer promotions to all of our members in good standing.”
The credit union’s direct mail solicitation garnered a response rate of 2.1%, 1.1% above industry standards, and University Federal promoted the balance transfer offer on its Web site, in branches, and in its newsletter. “We also marketed at credit card fairs and promoted our bonus-points rewards program, among other things. I make sure to run concurrent promotions—that’s how you grow a portfolio,” Thorsness says.
“We were mostly targeting new cardholders, but the majority of people that did balance transfers already had cards with us,” she says. For existing cardholders, the credit union offered a six-month promotional rate at 3% lower than their current University Federal card’s rate.
The multi-pronged effort paid off. “We spent about $100 for some reports from our processor, and used 85 staff hours to process balance transfers—and our finance charge income increased about $100,000 per month over the previous year,” says Thorsness.
The credit union’s outstanding card balances increased by $10,742,321 in 2005, 19% over 2004 levels, and average monthly sales exceeded $11,464,157. The bonus-points promotion netted an additional $30,000 in usage over two months.
“Because of the balance-transfer promotion’s success we elected to run it again this year,” says Thorsness. “From January 1 to June 30 we processed $2,024,787 in balance transfers, and we’ve already started another go-round.”
Platinum with rewards
Alliant Credit Union, Chicago, Ill., $4.3 billion, 200,000 members, launched a Platinum card program with bonus-points rewards in 2004. “One of our strategies was to upgrade non-rewards accounts to Platinum rewards cards, with risk-based pricing based on credit scores. We also wanted to attract new members to the program, increase total balances and increase product usage,” says Jennifer Divelbiss, director of marketing and communications.
“Our research showed that the net income from members with our rewards card is five times that of members without the card,” she says. “The net income, deposits, and loan balances grew five times higher than when they didn’t have rewards cards. I’m not sure if that’s entirely due to the rewards card, but it’s at least a component.”
For existing cardholders, the credit union included a preapproved balance transfer offer as a statement insert. A statement message alerted cardholders to the promotion, which offered free bonus points, tiered according to the balance transfer amounts. “Its relationship pricing—the more business you bring us, the higher the rewards,” says Divelbiss.
“We also targeted 45,000 non-cardholder members that had active relationships with us,” she adds. “They weren’t dormant accounts; we already knew they were interested in doing business with us.”
Alliant used direct mail for this promotion. “We’ve always seen a very strong response,” Divelbiss says. “Since our membership base is nationwide, we need to leverage automated channels or direct mail—less than 30% of our membership uses our branches.”
The credit union spent $27,800 for printing and $7,800 for mailing the solicitations, and averaged a 4% response rate for the two promotions. Alliant gained 322 balance transfers totaling $1.2 million, and outstanding balances increased by $7 million. Divelbiss credits a combination of factors for the promotion’s success—the research her credit union did before structuring the offer, the overall pricing and positioning of the product, and the creative design of the promotional materials.
“We plan to do another rewards campaign in the next month or so,” says Divelbiss. “We’ll offer balance transfers that honor the promotional rate until the balance is paid off. In the other campaign the rate lasted six months before converting to the lowest standard rate the member could qualify for.”
Impressive portfolio gains
These credit unions of varying sizes, membership bases and geographic locations all achieved impressive card portfolio gains in a year’s time. Their examples illustrate the power of Platinum, risk-based pricing and balance transfers in battling the big banks that want your credit-worthy cardholders.
About Team One Credit Union
Team One Credit Union, Saginaw, Mich., has $253 million in assets and over 37,000 members. The credit union has 7,844 active credit card accounts.
About CSCU
Card Services for Credit Unions (CSCU) was founded in 1989 when 455 credit unions, with just over 1.3 million accounts, united to establish a card processing association dedicated to meeting the growing and unique needs of credit unions. Today, with over 3,400 member credit unions representing over 12 million Visa and MasterCard accounts, CSCU is the nation’s largest credit and debit card processing association exclusively for credit unions.
Keep reading…
Meeting the Challenge of Asset Liability Management (ALM)
Today's credit unions face the challenging task of managing their assets and liabilities. Asset liability management (ALM) requires credit unions to continually rearrange and review both sides of the credit union’s balance sheet in order to maintain profitability, minimize risk and provide adequate liquidity. This requires credit unions to frequently review, monitor and revise strategies to achieve these financial objectives.
Mid-Atlantic Corporate Federal Credit Union understands the importance of proper asset/liability management. That’s why we have added Fisher-Rager Consulting and FIMAC Solutions LLC as ALM partners to help credit unions identify the asset/liability management tools that best suit their individual and unique credit union needs.
Fisher-Rager Consulting - Fisher-Rager Consulting is a credit union asset/liability management advisor. Fisher-Rager Consulting works with credit union boards, management, and regulators in providing clients with independent risk measurement, ALM advisory services, and balance sheet strategy formation. Fisher-Rager Consulting works for a flat fee determined up front under a short or long-term contract. They are totally independent and strive to help the credit union balance risk with reward. Services offered individually or by group:
Currently, Fisher-Rager is offering Mid-Atlantic members an Interest Rate and Market Risk Snapshot for just $200. This analysis is completed based on information derived from the credit union’s NCUA 5300 report. Data is shock tested up and down 300 basis points. While the snapshot is not intended to be used for making critical decisions, it’s a great tool for determining if there are problem areas in your balance sheet that should be examined further.
FIMAC Solutions LLC - We can also offer services to credit unions through FIMAC Solutions LLC. FIMAC Solutions LLC provides their credit union clients with the Risk Analytics® interest rate risk model, Balance Sheet Manager™ “what if” tool, as well as the Leading Light Budgeting Model. The Interest Rate Risk management report allows credit unions to understand how changes in interest rates and the resulting change in cash flows of balance sheet items affects future earnings and Net Equity Value. Armed with this information, management can perform its own dynamic “what if” analysis using FIMAC Solutions’ Balance Sheet Manager™ (BSM) software. Leading Light is their recently released budget tool designed to work with data produced by the interest rate risk model and Balance Sheet Manager™. Other reports available include Back Test and Sources of Risk.
Effective ALM practices are as important in today’s environment as they have ever been. If your credit union would like more information on Fisher-Rager Consulting, their snapshot special, or the services offered by FIMAC Solutions LLC, contact your Corporate Account Manager, toll-free at (800) 622-7494.
The Delaware League is offering Bank Secrecy Act Reviews through an arrangement with the Pennsylvania Credit Union Association’s Audit Services. The review assesses internal controls and procedures that maintain ongoing compliance in accordance with the financial recordkeeping and reporting requirements of the Bank Secrecy Act, 31 C.F.R. Part 103. Also included is an independent testing of the Bank Secrecy Act, Office of Foreign Assets Control, and Member Identification Procedures. Contact Jane Bailey at jane@dcul.org for more information.
Thank you for reading Service Issues!
Jane Bailey, Editor
Delaware Credit Union League
www.jane@dcul.org