March 9, 2015

100 Million Members! Now What?

Q&A with Dan Kaiser, Senior Vice President, Lending & Payment Security, 
CUNA Mutual Group


Q: 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?

A: As credit unions look to grow, indirect lending continues to be a valuable product to build new membership. While increased use of indirect lending as a strategic lever to grow loans can bring positive business results, it tends to produce softer relationships between member and credit union.

A member who has an indirect loan may not have the same affinity as a traditional member, increasing the marketing costs to expand this relationship beyond the indirect loan. As a credit union looks at its strategic portfolio of member wallet share, the challenge or opportunity will be how to expand the indirect lending relationship over the next several years.

In addition, the digital and mobile revolution in the financial industry has weakened an institution’s ability to be recognized as a consumer’s primary financial institution.  Historically, consumers would choose where to keep their checking and savings account, and then rely on that same institution for other financial/insurance products and services.

In the digital age, more competition and options provide consumers with the ability to spread their financial services and investments, letting rates and the best experience win their business over pre-established relationships and familiarity. Credit unions are not immune to this trend, and must continue to compete not only on service but also on product and technology innovation to attract the younger demographic.

Q: 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?

A: While the 80/20 rule can provide a general understanding and perspective with customer sales and profitability, it may not ring true with specific member segmentation on profitability. Most credit unions do not have the detailed data at the member level; however, they can assess the aggregate in order to develop an overall understanding of membership profitability.

An example of this is fee and non-interest income, specifically debit card interchange fees, NSF courtesy pay and mortgage fees. This income provides a substantial part of a credit union’s profit stream. While these fees can increase overall profitability, it is challenging for credit unions to allocate their costs down to the individual member level, making it difficult to assess individual member profitability.  It also largely depends on the credit union’s operation model and member demographics. The credit union needs to understand the makeup of the membership and how these fees contribute to the credit union’s bottom line. In some cases that contribution may be 20%, while in other demographic markets, it might be higher.

Q: 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?

A: While some larger credit unions have the ability to leverage their member data with advanced data analytics and segmentation, many credit unions measure member value by product count versus profitability or wallet share. For many credit unions, a sufficient level of data is being captured – but it’s how that data is being analyzed and used that needs improving.
In addition, there are extensive compliance and privacy requirements for how member data is collected, used, and protected.  Data mining and analytics can take significant investments, resources, and expertise to ensure the data provides the right information for decision-making. This can be difficult for many credit unions to fund.

Q: What can be done to improve wallet share capture among new members? Existing members?

A; Data analytics and member segmentation are very powerful strategies to improve cross-sell opportunities and increase wallet share amongst members. The industry must shift from understanding the member beyond demographics and leverage data to tailor product offerings that align with their personal financial situation, life moments and milestones, and future financial goals. This next-level data segmentation positions credit unions to create significantly more opportunities to expand the relationship. Better segmentation creates a more consultative sales culture that asks the right questions and tailors the right message that ultimately drives additional sales opportunities for existing members.

In an environment of such heightened competition, better segmentation becomes more about putting the right product in front of a member, at the right time and in the right way.


Q: What can be done to better align marketing, IT and management to address this issue?

A: Alignment largely depends on the size, culture, and leadership of the credit union. While cross-functional teams can drive customer service priorities, connecting sales and customer service goals with investment and budgets can also support better alignment across the credit union.