TAMPA, Fla.–The CEOs of four large CUSOs are forecasting the coronavirus pandemic will have some long-lasting effects on CU operations and the broader marketplace, while also cautioning CUs to get ready for NCUA scrutiny—or prepare to stop lending—to rethink where and how people work, why this is an ideal time to be hiring, and where the opportunity lies in being the “white hat brand.”
The CEOs also offered insights around why mass issuance of contactless cards may be in order, why those 16-million people who signed up for Netflix in Q1 are a reminder of a marketing/revenue opportunity many CUs are missing, and why “buckets of bleach” are part of decision-making today.
Those issues and many others were addressed during a webinar hosted by Trellance. Taking part in the discussion were Tom Davis, president/CEO of Trellance; Tony Boutelle, president/CEO of CU Direct; Chuck Fagan, president/CEO of PSCU, and Todd Clark, president/CEO of CO-OP Financial Services. The discussion was moderated by Mike Lawson of CUBroadcast.
Here is a look at what was discussed:
Q: What sorts of things are you doing right now to support credit unions?
Davis: Trellance has approached (the pandemic) like many organizations. We have asked ourselves what products do we already have in credit unions’ hands that we can nimbly apply in this situation?
We have done a couple of webinars talking about how some members are using our products and taking creative approaches in identifying members in need. (Credit unions) are looking at the data to find folks who have lost their job or had a decrease in pay…to help them and to help manage the risks.
We also have a few new products. One helps find members who might need some payment products. We have other services around data management and acting on data more quickly. We have been working on implementation and procedural hurdles and becoming more nimble to help CUs meet needs.
We also have some stuff in the works to more creatively price and prepare our products to be attained much more easily. We expect the credit union market to look much different in a couple of months.
Tom Davis
Boutelle: We are, first of all, really focused on trying to get everyone working successfully virtually. About 95% of our team is now virtual. We have been reaching out to credit unions to see what we can do. If they have Lending 360, we have been working with them to help set up making emergency loans, for instance. For those with Lending Insights, we are working with them to help them predict what their loan-loss reserves might be in the future.
One interesting thing we think has been an intelligent decision we made but didn’t realize what a great decision it would be in the COVID environment, is the move to digital.
That includes going contactless. In our case, in indirect lending there is a lot of paper being touched with these loans. We have used AI and machine learning to have information stacked and imaged in the right order so it never has to be touched. We did it for efficiency reasons, not for COVID. The Golden 1 Credit Union says it’s doing 100% of its loans that way.
(Boutelle added that overall loan volume at CU Direct credit unions has been down approximately 50%, and more in some CUs’ cases.)
Fagan: From a contact center standpoint, our call volumes have pretty consistently been 150% of the volume we would normally anticipate and we have had days above 200%, such as on the days the stimulus checks were sent out. We have taken our team remote and gone to all our previous employees in the call center and asked if they would volunteer to get on a phone and help out.
On the payments side we have gone out with programs we set up for free to submit their members on cards, such as skip-a-pay and rapid fire credit line increases to give members the opportunity to purchase at a grocery store, which they are doing more frequently now.
We have really tried to get more active with the data. What can we learn and how can we work with the CU to keep the card top of wallet? That’s wallet is going to look different when we come out of this. The data is used to understand where the member is standing and how we can position the card.
Clark: Our approach has been to protect the employees first. We are seeing a similar 30%-40% increase on a daily basis in our contact centers, and then on days when (federal) deposits hit another 70% on that day. We took our three contact centers and made them six contact centers and moved people out and around so they could come to work and be separated.
While it may not be something everybody loves, we have continued to maintain our standards around security. Some credit unions have wanted to get into the system from home, which is not very secure, and we had to say no because that is one of the places where the bad guys try to penetrate.
We have completely virtualized THINK and that is going to be an awesome event (on May 7).
Q: Other than issues related to the pandemic, what should credit unions be doing short term, long term to plan?
Chuck Fagan
Clark. You need to continue to be the compassionate banking alternative and to use this to demonstrate why credit unions are different. I think that is going to build a ton of loyalty.
There are four steps:
- Respond. I think we’re all through the whole response thing. Now 80% of our employees are working from home and I think we have stabilized.
- Low-touch, high service. Our contact center folks are just (working really hard) . We have had part-timers going full time, full-timers getting overtime, and we’ve created CO-OP Cares to provide extra money to cover their costs.
- Recover: This last week we started having meetings about gracefully exiting this strange time we’re in. I think you can expect us to go slow. Our productivity is fine, everything is running fairly smoothly. We are hiring every day to beef up the contact center.
- Transform. Now, how do things look differently? I’m proud to say we’re not going to look that much different from what we were doing. We were pushing hard digitally anyway. But we are contemplating other things, such as more rapid movement to tellerless branches and the notion that cash is going to suffer.
Q: In a post-COVID world, what is going to be more common? What will be permanent?
Fagan: If you think back a year ago or even six months ago to what we were thinking about, the pandemic has accelerated things and the future is here now. When we think about connected and remote teams, we have more than 2,000 people at home adjusting to a new way of doing business. When I talk to credit union CEOs, it’s the same sort of thing. Now the discussion needs to shift to growth. What do we do coming out of this that we are able to accelerate?
When you look at transactions under $12, $15, 50% of those transactions are cash. When you think of paper currency carrying this virus, I think contactless will become the thing. In our case we will have three-million cards out on the contactless side. And the merchants are actually ahead of the issuers on contactless. You start thinking about different ways cash has been important--I still like to get the $5 trophy at the end of the round of golf, but Venmo may be the new path.
With digital banking and branches, the shift was already on to a more hybrid model. It’s difficult to justify having three or four tellers sitting there waiting for a line to materialize.
Our recommendations six months ago on contactless was to be ready to replace. Now, it’s not a bad strategy to think about mass issuance. The consumer is going to have apprehension around cash.
We and other providers have all been aligned around mobile first. But when I look at my two-and-a-half-year-old grandson, he will not need to learn how to spell or how to type. It will be more voice first. I think that might have an acceleration as well and will be the new normal.
I would encourage credit unions to scenario plan big-time now. Take advantage of being able to pull together different thoughts from inside and outside the industry. Some scenarios may be wild, but who knows?
Q: As we embark on the recovery process, how will data shift your organization’s long-term strategic planning and how should CUs use data?
Tony Boutelle
Davis: I think back about 90 days ago when the market was at all-time high, unemployment was at an all-time low, and nobody predicted where we could be. The first thing you do is get your strategic thinkers to revisit that scenario plan, and then you go through all those scenarios.
There are a lot of things to consider. How is this going to affect data privacy? We are now allowing the government to follow us around to trace the virus. At the beginning of the year California, New York other states were talking about privacy; now we’re going in another direction.
With scenario plans, that’s where data comes into play. How will you measure? Once you realize these scenarios are starting to come true and you respond, then data becomes important. How do you segregate members?
With contactless, think about it; every time I go to the grocery store and dip my card I feel I need to come home and throw my card into a bucket of bleach. Who would have thought six months ago that would have been a use-case?
Boutelle: I think data is going to be the way to navigate your way out of this. Really getting resources to the right members at the right time is going to be key. The other side is if you look at the 2008-09 recession, credit unions were the only ones making auto loans at that time and then what happened is NCUA started to realize credit unions were not managing their delinquencies well enough, and by 2011-12 NCUA was telling credit unions to stop. That’s when the banks came back in.
Credit unions may (again) realize they don’t truly have a handle on what their loan-loss reserves need to be and their delinquencies are out of control. If a credit union can’t prove to NCUA they have a good handle on that, they are going to have to stop lending again. If you can prove to them you understand what you are doing, usually they will let you keep going. It’s time to really get serious about using data analytics products.
Clark: March 16th was the first time we have seen negative year-over year growth from a transaction perspective. Over the last four weeks what we have seen is an average about 25% (below transaction averages). Since the stimulus checks our debit volumes have popped back up, although they are still not positive to last year and down 7%-9% to last year. I will tell you consumers don’t change their behaviors super-fast. People went right back to the same channels they were using before.
(The virus) can live on plastic for four days. If you’re dipping it, you’re thinking about that. So there is a big opportunity there. Transactions, I think, will come back stronger due to less usage of cash. But I think we are in for months of this.
Q: There are a variety of discussions around recovery. What does the future of lending look like in new normal?
Boutelle: I think a lot that needs to play out. Dealers have a very high cost of operation and they need to turn cars to make money. If this goes beyond summertime—and we have14 states where you can’t sell cars now and 11 where you can sell only online—you will see a lot of dealers will go out of business. NADA is predicting 10% of dealers may go out of business.
From a credit union perspective, if dealers go out of business--and our team can provide tools to watch for warning signs because you don’t want contracts in transit--in the long term, I think the loans will come back but it’s going to take some time. We had an event last week at which the group sees auto sales coming back next year. That’s probably more accurate.
We had a pretty normal first quarter. Now we are saying this year there will maybe be a 20%-30% drop in car sales. It is going to take some time for it to get back.
But as long as credit unions can show NCUA they’re managing their loan-loss reserves, I think we’ll be able to stay in that business. My fear is if we can’t show we have a handle on this and we’ll have that same issue with NCUA (as following the financial crisis).
Fagan: A lot of the CEOs I have talked to are seeing mortgage volume that is about double or event triple in some cases to what credit unions are used to. The rate environment on refi’s has definitely made for a push. I think that should continue.
Boutelle: We are getting into the mortgage business also (via Origence). We’re seeing that it’s going to be very strong for the rest of the year. It is carrying credit unions a long way. Credit unions have pulled back on portfolio loans and mini jumbos, but conforming loans are strong.
Q: What are your organizations doing now in developing or hiring talent during this time?
Davis: That is something we jumped on real quick. First, we did a lot to get everyone remote and safe. Then we formed the Double Down Team and talent acquisition was one of the key initiatives we looked at. Twenty-two million people have filed for unemployment, many in the service sector but also in the professional sector. A lot of people are getting benefits and it’s making it easier for them to consider taking another job. It may not be something a credit union is thinking about, but underneath this is the rich talent pool we have been fighting for years to be a part of. It can be hard to interview, but to pull in this help and get it a little bit cheaper is a good thing.
Clark. In contact centers especially, you deal with a person who is willing to leave the job for 25 cents an hour. Every dollar matters. We’re finding it easier and easier to hire in and not just in top positions but in lower levels, as well.
The hardest part of that is how to virtually onboard somebody. I think we’ve onboarded 25-30 people and we have 72 coming on board this month.
You worry people will feel left out in the cold. I’ve seen some of our teams on LinkedIn having a virtual meeting and maybe they are all wearing funny hats or supporting their college teams. It’s strange to say the separation has brought some of the teams closer together. Some of our teams are hosting virtual happy hours. I think a lot of people are saying, ‘Man, I sure am glad I work here,’ and know we are going to muster through this.
Fagan. We went into this with employees first in mind and that culture is so built into PSCU. It has just shifted into a different means. Keeping the employee first is the focus and then, obviously, our credit unions and their members. We will take the same approach coming out of this. It will be a phased approach. Whatever the date is isn’t going to be when everyone is coming back into the office. You’re almost going to have to keep two companies. Right now we have green teams and blue teams.
We have shifted to virtual orientations. I still participate in all new employee classes, I just do it with video. Business can’t stop and we want to accelerate. It’s just shifting.
Boutelle: We’re not hiring right now as we are taking a pretty big hit on revenues. I have to say in this new normal we are all settling into this virtual meeting thing. I think has created more consistent collaboration. Our senior management team used to meet once a quarter, and now it’s once a month. I think the communication and collaboration is stronger than it has ever been.
We expect in California (the state will re-open) in May, and we decided we will do a slow roll. This is working for us, let’s let the rest of world come back. For the most part we are looking at June, and for people with kids maybe they can stay home a little longer.
Todd Clark
We would like to see the rest of environment around us get back into their groove and we can keep doing what we are doing. I think we might have more of our product and development folks take more of a hoteling approach in the future.
Q: What jumps out as potential opportunities for credit unions after all the restrictions are lifted?
Boutelle: I think credit unions have done a great job already as the white hat brand in financial services. I see credit unions becoming an even more important part of their members’ lives, because they have shown up for them.
Fagan: We have seen on Lumin (PSCU’s digital solution) upwards of 50% higher log-ins. So, I would say credit unions need to make sure that their digital channels are on a really good path. It used to be said core decisions were 20-year decisions. I would say digital is maybe a five-year decision.
I would also add to this whole theme of local. That becomes an asset coming out of this. There is a lot of talk of local restaurants, local hardware stores, all the things that matter in small business, and credit unions can really play to that local nature.
Clark: I think it probably is the same as before, it’s just a bigger opportunity. It’s being that compassionate alternative. I think a lot of members are going to see that and credit unions should utilize that data. Use data to personalize the experience for members in a digital environment. How many (CUs) have run a program to get their card top of wallet with Netflix? Don’t they wish you had done that in November?
A recording of the webinar can be found here.