By Ray Birch
LOMBARD. Ill.—A continuing slide in member profitability illustrates the need for a sales culture within many credit unions, according to one analyst.
Megan Cummins, strategic advisor at Raddon, a Fiserv company, said the evidence is clear, pointing to a recent Raddon Performance Analytics data that show how unprofitable many credit union members are.
“There are credit unions that definitely have a sales culture, but there are still many that don't,” Cummins said, recalling a recent meeting with a credit union during which the topic of sales was addressed. “They wouldn't even let me say the word sales in the meeting because you can’t say sales at this credit union. They said they never use the word because they don’t want to sell to their members.”
Cummins insists that thinking must change.
“In that meeting the credit union said they never want to feel that they're selling,” said Cummins. “But at this point we have to sell to the members we have. We have no choice.”
According to Raddon Performance Analytics data, which measures member data at more than 300 credit unions, on average, only 29.8% of credit union members are profitable, down from 33.9% two years ago.
Cummins said there are many contributing factors to the downward trend: increased operating expenses, decreased NSF/courtesy pay income, increased deposits and decreased loan volumes.
It’s an important time to understand what makes an accountholder profitable and how to derive more profit from the increasing group of unprofitable accountholders, Cummins explained.
The Big Driver
“The biggest driver of profitability is relationship, both by number of products and by balance,” said Cummins. “The more products accountholders use, the more profitable they are. But the products must be active and carry a balance—the larger, the better. For example, if an accountholder opens a checking and credit card account but doesn’t use either one, the result is usually a very unprofitable accountholder. Inactive accounts are costly to institutions.”
As analysts have pointed out over the last few years, banks have moved much faster than credit unions to relationship pricing to persuade consumers to open more accounts.
“Sometimes in the credit union industry, executives are not comfortable talking about the profitability of their members. This must change in order to prosper and grow,” said Cummins. “Credit unions need to be more comfortable from top to bottom and across departments, talking about profitability and understanding who their most prosperous members are.”
Megan Cummins
A ‘Rampant’ Issue
Moreover, Cummins said CUs also need to be more comfortable asking members for the business, referring again to a situation with a CU client in which the “sales” word is a no-no.
“I recently worked with a credit union whose marketing executive said they pay close attention to how their employees are cross-selling to members, but they never want to use the ‘S’ word and even had me delete the word ‘sales’ from every page of my presentation,” Cummins said. “This culture runs rampant in the credit union industry, and if credit unions want to grow, they need to get more comfortable with selling.”
Cummins also pointed out that Millennials are joining banks at a much higher rate than they are becoming members of credit unions, largely due to banks’ convenient digital offerings.
“We’re not only losing balances, credit unions definitely do not have their fair share of wallet from account holders,” she said. “Members are flocking to the big banks daily. In fact, Raddon Research Insights’ data tell us that for Gen X and Millennials, those who said a big bank is their primary financial institution increased from 38% (Gen X) and 47% (Millennials) to 52% and 68% between the years 2018 and 2020.
Not Afraid to Ask
Cummins emphasized big banks are not afraid to ask CU members for their business, so the credit union should not be afraid to do the same thing.
“Focus on relationship building with your current members because adding one new member could cost anywhere from $200 to $1,200,” Cummins noted. “Although you will never get to a place where 100% of your accountholders are profitable, you can begin to increase your earnings by understanding who your most profitable and unprofitable accountholders are, and then develop a strategy to continually engage those who have the largest opportunity for improvement. You don’t have to use the dreaded ‘S’ word, but in order to develop a culture that comprehends accountholder profitability, you may need to embrace the idea of ‘sell’ being more than a four-letter word.”