DES MOINES, Iowa—Does the 80/20 rule still hold true for credit unions, in which 20% of members are profitable? No, says one person: it’s more like 90/10.
What can a credit union do to capture greater walletshare, especially as new member growth remains strong? Get much more assertive, recommends Brian Scott, VP of sales with The Members Group (TMG). Scott shared his thoughts as part of CUToday.info’s series, “100 Million Members: Now What?”
CUToday.info: Why are credit unions so good at signing up new members, but then not capturing wallet share from those new members? Is there a flaw in the process? Training? Culture?
Scott: Those credit unions that have the assertiveness to capitalize on new memberships have the greatest success capturing wallet share. Even with a “people helping people” mission, it is still possible to develop and sustain a tenacious sales culture. Credit union leaders believe in the missions of their credit unions. Management must find a way to turn that passionate belief into aggressive promotion of products and services to turn the heads of more causal members.
Some of this is also because credit unions, as a general rule, are more risk averse than other financial institutions. However, with more emphasis on financial inclusion and innovations in technologies and data analytics providing a more complete picture of new members’ credit worthiness, that may not be as much of an issue in the future.
CUToday.info: In your experience, is the 80/20 rule still a rule (80% of members not profitable)? Do you have any insights into what the “80” is costing the average credit union?
Scott: Today, that rule is more like 90/10. Much of this is due to indirect lending. In these situations, the credit union becomes more like a biller than a financial partner. Think of the average auto loan holder who comes to the credit union through a dealership: after he or she pays off that car, the account is closed and it’s off to the next dealer for financing. Here again we go back to the need for a sales culture. If credit unions don’t assertively communicate the value of this new membership to the auto loan holder – and very early on – that new member is likely to move on as soon as his or her obligation is met.
In terms of what it’s costing, you’d have to consider the costs of earning and servicing that indirect, casual member. My guess is that for the majority of these members, credit unions are not building a great deal of revenue – at least not to the point that they shouldn’t also be looking to leverage the potential relationship for more penetration.
CUToday.info: Are credit unions capturing the data they need to have a full understanding of individual member profitability? Or do they have the data they need and it’s not either A) understood, or B) utilized?
Scott: While credit unions may be capturing the data, they are likely not using it effectively. Most credit union leaders are smart enough to make good decisions based on the data. They just have to get it in front of them. And doing so doesn’t have to be costly or time-consuming. Often it just comes down to finding the right person to devote time to even the most rudimentary analysis. Credit unions could hire a college intern, put him or her in front of Excel, and come away with some phenomenal insights. Just a quick picture of how many one-product members can give your marketing team a list of “most likely” prospects for their next product penetration campaigns.
CUToday.info: What can be done to improve wallet share capture among new members? Existing members?
Scott: At Ondine Irving’s recent School of Credit Card Program Management, I asked the audience a question: “How many of you give new members a credit card immediately upon signing up?” Almost no one raised their hand. This is just one example of the kind of strategy that helps members see a highly competitive credit card product as an exclusive benefit of membership.
With existing cardholders, here again it becomes important to emphasize (and continuously remind) cardholders of the competitive rates. Is that card in their wallet, or is it in a filing cabinet or lock box for a rainy day? Well-timed reminders, based on the analytics of a members’ financial journey, can be just the push an existing cardholder needs to engage or reengage. Be careful not to be short-sighted in this analysis, however. At first glance, a member within 5% of the credit card limit may look to be in trouble. But check out their daily purchases. Are they meeting their basic needs with the debit card? They may actually need a credit line increase.
Credit unions, as well, have to consider expanding the availability of their rewards beyond the already profitable cardholders. Time and again, the analysis TMG runs shows the most profitable credit card portfolios offer cardholders robust rewards programs.
Mobile integration is going to be another effective way to drive wallet share. Members who have access to – and take advantage of – mobile banking to make smart financial decisions should be rewarded. How can you align your credit card perks and/or rates with the demonstration of responsible behavior through mobile offerings?
CUToday.info: What can be done to better align marketing, IT and management to address this issue?
Scott: This is one of those things that comes from the top. If everyone’s goals are the same, you’ll see a huge difference. Let’s say, for example, the credit union has a goal to increase membership by 15,000 members and wants half of them to become credit cardholders. Marketing will have a clearer idea of which strategies to pursue, as will IT. When an idea is presented to the department, each team member can ask, “Does this support the +15K goal?” If it does, the answer is yes. If the answer is no, that idea is shelved. Management will understand what these departments are working toward and can then offer truly valuable support.