LOMBARD, Ill.—One expert insists that any time a credit union finds itself with extra funds during the course of its budget year, the first thing to do is to consider the membership, since they are the owners.
The insights are being shared as part of a CUToday.info series on what to do with unexpected budget surpluses, such as the payment from the NCUSIF many credit unions will receive this year.
“Is it best to send that money back to members in the form of a dividend or would the institution be best served using those funds for another purpose?” asked David Irwin, president of Raddon. “If management can use the funds to add new members or increase products-per-member in a way that is beneficial for the credit union and existing membership, then that is a case of sound stewardship.”
Direct Marketing
Any additional available after the budgeting process can often be put to efficient use through direct marketing, he suggested. Campaigns focused on expanding relationships via cross-selling to existing members typically have higher returns on investment than those seeking to attract new members, noted Irwin.
“Marketing campaigns work best when they are repetitive,” he said. “Five mailings for each offer is generally a good rule of thumb. Even in today’s high-tech environment, direct mail is very much alive. As a case in point, Marcus, the retail bank of Goldman Sachs, was profiled in the Wall Street Journal – and alongside descriptions of Marcus’ ‘shopping spree in Silicon Valley,’ was mention of how heavily the bank is using direct mail, including 178 million pieces last year.”
The key factor in making campaigns effective is to market the right products to the right people, Irwin said.
“For this, a good basis of member segmentation is age and income. People need different services for different stages in life,” Irwin said. “Campaigns that target new loans will produce new profits within the year. Campaigns for deposits are fine when deposit-gathering is necessary, but less likely to provide a direct payback short-term. If a credit union has money to lend, executing an ongoing campaign to book new loans will likely result in a positive ROI, increasing income by more than the cost of the campaign. Of course, it is essential that a credit union offer loan products that are competitive and be able to underwrite the members that respond to an offer.”
If the credit union still has funds remaining following its marketing effort, it should then consider spending money on employee skill development, Irwin said.
“Many credit unions were formed and have operated in environments where sales skills were not a part of the picture,” he said. “Learning how to uncover member needs more effectively in the branch or call center is very valuable. By asking good questions and finding solutions employees can better serve members.”'
Debt Burden
For example, Irwin said too many consumers are burdened with debt service levels that are higher than they need to be, often because of high credit card debt.
“Credit unions are well positioned to help such people consolidate their obligations, often into equity-linked instruments that improve their financial health. That’s good for the credit union and the member, and rewarding for credit union employees,” he said.