Discovery Conference Executive Summary

Transcription

Discovery Conference Executive Summary
WEDNESDAY / OCTOBER 21 / 2015
EXECUTIVE SUMMARY
DESIGNED TO GIVE CREDIT UNION LEADERS A COMPETITIVE EDGE.
Gain real insights to help you move forward with even more confidence.
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The conference is over, but the learning continues. This Discovery Conference Executive Summary
has been prepared exclusively for October 21 Discovery Conference attendees. Consider this your
post-conference trigger to revisit the conference, now on-demand, and gather all the big ideas you
missed the first go-around.
What’s inside?
• Briefs of the closing keynote presentation “Beyond Disruption” and all eight breakout
sessions. Review the highlights or watch the videos, now available on-demand through
June 2016.
• Product highlights and downloadable materials are available in the Solution Center
on-demand.
This tool is most useful when shared. Forward it, post-it, mail it. Just don’t “file it”!
The CUNA Mutual Group Discovery Conference Team
Table of Contents
KEYNOTE PRESENTATION
Beyond Disruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
STEVEN RICK
Director and Chief Economist, CUNA Mutual Group
BREAKOUT SESSIONS
U.S. Economic Outlook & Its Impact on Credit Unions . . . . . . . . . . . . . . . . . . . . . . .
STEVEN RICK
7
Director and Chief Economist, CUNA Mutual Group
Strategies to Sustain Small Credit Union Growth – A Panel Discussion . . . . . . . . . . . . 15
BEN ROGERS, Moderator | Research Director, Filene Research Institute
JON HERNANDEZ, Panelist | CEO, CalCom Federal Credit Union, Nikkei Credit Union, and Mattel Credit Union (CA)
JED MEYER, Panelist | CEO, St. Cloud Federal Credit Union (MN)
LINDA BODIE, Panelist | Chief + Innovator, Element Federal Credit Union (WV)
Reaching the Subprime Auto Lending Market – Make It a True Win-Win! . . . . . . . . . . . . 19
STEVE HOKE
Director, Loan Growth Products, CUNA Mutual Group
What Matters Now™: Insights to Boost Membership with Middle-Income Americans . . . . 25
ANGIE FUHRKEN
TruStage, Director Marketing Strategy & Commercialization, CUNA Mutual Group
Payments (r)Evolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SAM MAULE
Emerging Payments Practice Lead, Carlisle & Gallagher Consulting Group, Inc.
Cybersecurity: Protect Your Credit Union’s and Members’ Data! . . . . . . . . . . . . . . . . 35
JAY ISAACSON, Moderator | Vice President, Business Protection, CUNA Mutual Group
JOHN W. CARLSON, Panelist | Chief of Staff, FS-ISAC
MARK GREISIGER, Panelist | President, Net Diligence
CHRIS LACKE, Panelist | Director, Business Protection, CUNA Mutual Group
New Frontiers for Large Credit Unions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
DAVID POLET
CCUE, Director, Voice of Customer, CUNA Mutual Group
Omni-Channel – What You Need to Know . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
MARK SIEVEWRIGHT
President, Credit Union Solutions, Fiserv
SESSION BRIEF
KEYNOTE PRESENTATION
Beyond Disruption
STEVEN RICK
Director and Chief Economist, CUNA Mutual Group
OVERVIEW
The financial services industry is becoming a breeding ground for disruption and incumbent
players like credit unions face threats on two fronts: an ever-growing cast of financial
technology (FinTech) startups, such as Lending Club and Venmo, and a new breed of
leading-edge financial institutions. Steven Rick describes these developments and offers
practical steps for moving beyond disruption. Discover how you can adopt some of the
strategies of disruptive financial institutions to drive unprecedented growth and increase
member relevance.
WATCH THE VIDEO
ON-DEMAND THRU
JUNE 2016
1
CORP-1326807.1-1015-1117 © CUNA Mutual Group, 2015. All Rights Reserved.
SESSION BRIEF
KEY TAKEAWAYS
Six signs that may indicate a credit union is being disrupted.
If the CEO of the nation’s
largest bank (Jamie
Dimon of JP Morgan &
Chase Co.) is concerned
about this topic, then, of
course, we should be very
worried.
These include:
1.
2.
3.
4.
5.
6.
Membership decline
Steady decrease of assets per branch
Decline in percentage of members with draft accounts
Drop in average number of products per member
Decrease in the number of members under age 30
Members’ outbound ACH payees including disruptive financial
services such as Lending Club, PayPal, etc.
Disruption is growing outside the traditional financial services
industry, but has yet to gain a lot of market share. In 2014
alone there was $12 billion invested in financial technology (FinTech;
a three-fold jump from 2013) and a growing number of players have
emerged across a broad spectrum of service offerings. The startling
reality is that every product and service provided by a credit union
or bank can now be provided by a technology player with strong and
highly valued digital capabilities and few—if any—legacy costs.
If you’re not
growing, you’re
dying.
Slide 21
The biggest disruption is still coming from financial
institutions. Although the growth rate of key players such as Lending
Club—which has seen exponential growth in just four years and
facilitated $1.9 billion in loans in Q2 2015 alone—has been phenomenal,
the vast share of the market for consumer credit is still coming from
traditional players. The nearer-term threat remains with disruptive
financial institutions, retailers, platform players, telecoms, card
companies, and non-bank competitors.
2
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SESSION BRIEF
Slide 28
There are three categories of disruptive financial institutions
and three factors that differentiate their business model.
Slide 33
Disruption enablers: “Rent” out their charter to a disruptor and rely on
this partnership for their income; have few, if any, members and may/may
not have a branch.
Challengers: Built as an Internet or mobile-only entity, offer deposit
and credit products, use data analytics extensively, and use an open
application programming interface (API) layer. This API layer allows these
banks to securely share data with third-party FinTech companies in order
to provide a wider array of services to their customers.
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SESSION BRIEF
Progressive incumbents: Existing innovative financial institutions
that focus on an Omni-channel experience, deliver a convenient
member experience, optimize branch networks, provide personalized
financial management tools, leverage data analytics, experiment, and
have strategic partnerships.
WHAT SHOULD CREDIT UNIONS DO NOW?
Credit unions need to strive to become disruptive in their own right. To
do so, they should follow the lead of progressive incumbents:
Become member-centric. Traditional credit unions tend to be
product-centric financial institutions organized along product line.
Disruptive credit unions’ highest priority is to understand and meet
their members’ needs.
Provide a robust, consistent Omni-channel experience. Become
member-centric. Traditional credit unions tend to be product-centric
financial institutions organized along product line. Disruptive credit
unions’ highest priority is to understand and meet their members’
needs.
Optimize branch networks. Branches are still valuable but must
be delivered wisely. Disruptive credit unions are cutting branch size,
moving into complementary locations (e.g., grocery stores), deploying
interactive teller machines, and combining teller and member service
representative roles into a universal employee position.
Slide 57
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SESSION BRIEF
Leverage data. Data can help credit unions uncover and address a
huge range of issues.
Support experimentation. The credit union system is fortunate to
have organizations like Filene Research Institute and the Members
Development Company that engage in research, development, and
Support experimentation. The credit union system is fortunate to
have organizations like Filene Research Institute and the Members
Coop Financial Services
Slide 63
Development Company that engage in research, development, and
experimentation. Credit unions can support and learn from their efforts
or find their own ways to support experimentation—a great example is
Digital Credit Union, which has a financial services incubator. Be willing
to take a chance and willing to fail—though, ideally, in small and low-risk
ways.
Be strategic about build/buy/partner decisions. Evaluate goals
and resources and determine when it’s best to build in-house, buy
outside services, partner with a CUSO, or collaborate to create a shared
capability.
What’s the payoff if your credit union takes steps to become
progressive? There’s strong evidence to show that progressive credit
unions, which we’ll define here as having more e-service offerings, have
higher membership growth.
CUNA Mutual Group ■ 2015 Discovery Conference
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SESSION BRIEF
So What’s the Pay-Off?
Progressive Credit Unions Enjoy Higher Membership Growth
30%
20%
2011-2014 Membership Growth By e-Service Offerings
e-Services:
• Mobile banking
• Electronic bill payment
• e-Statements
• Remote deposit capture
10%
3.7%
1.2%
-3.7%
-10%
15.0%
< $100M
$100M-$500M
*Note: Small number of CUs in this category; N = 11
≤2 e-Services 2010-14
Increased to 2+ by 2014
7.1% 6.9%
4.4%
0%
20.0%
>2 e-Services 2010-14
0.5%*
$500M-$5B
Source: NCUA 5300 Call Report Data, CUNA Mutual Group analysis
Slide 69
Embrace speed as you move your credit union beyond
disrup-tion. Will your credit union become one of the disruptors
and succeed in joining the ranks of the progressive incumbents?
The answer de-pends on how quickly you take action. As Chinese
military strategist Sun Tzu wrote in his book, The Art of War,
“Quickness is the essence of the war.” Credit unions should take
heed in today’s dynamic environment.
6
6
SESSION BRIEF
Economic Outlook
STEVEN RICK
Director and Chief Economist, CUNA Mutual Group
OVERVIEW
Leaders must understand how the global economy, the overall financial sector and the
Federal Reserve will affect the U.S. economy, U.S. interest rates and ultimately credit union
balance sheet and earnings performance. Analyze and establish standards against which
your credit union’s own performance can be measured. Learn trends of savings and loan
activity, and weigh the influence of future economic events on growth patterns into 2016.
WATCH THE VIDEO
ON-DEMAND THRU
JUNE 2016
7
© CUNA Mutual Group, 2015. All Rights Reserved.
SESSION BRIEF
KEY TAKEAWAYS
No recession is anticipated through 2017. The current forecast
is for the economy to grow at roughly 2.8% annually over the next
two years, which is slightly better than the recent past. The four
factors that tend to drive a recession—high inflation, excess product
inventory, bubbles (house prices, stock market), or an external event
(war, terrorist attack)—are largely seen as being under control, though
of course, something like a war is nearly impossible to predict. The fact
that 80% of the U.S. economy is service- rather than goods-based also
makes it less likely a recession will occur.
Good employment numbers, low commodity prices (especially
Economic Growth Will be Above Trend in 2016-2017
Annual % Change in U.S. Economic Output
(Real GDP - Chainweighted 2009$)
5%
4%
4.1%
3.8%
2.8%
3%
3.3%
2.7%
1.8%
2%
2.5%
1.8%
1.6%
2.8%2.8%
1.5%
1.0%
1%
2.4% 2.5%
2.2%
0%
-0.3%
-1%
-2%
-3%
-2.8%
-4%
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
Source: Department of Commerce.
Slide 6
There is a credit cycle
in this country: a boom
followed by a kaboom. By
2017 we’ll taper off mainly
because we’re running
out of liquidity.
oil), pent-up demand, and low interest rates will drive strong
loan growth across categories. With the U.S. economy rapidly
approaching full employment (typically defined as an unemployment
rate of 5%), huge drops in gas prices, pent-up demand across
categories (mortgages, home equity, auto, and durable goods), and the
government’s decision not to raise rates in September, credit unions
should continue to see good loan growth in most areas over the next
two years though the levels will be slightly lower than 2014/2015.
Household financial assets are at record levels. A number of
factors have contributed to this including the rise in the stock market
(though it’s shown a high level of volatility in recent months, overall
levels are still good), increasing home prices, and the decrease in
household debt levels. It’s important to recognize that two-thirds of
CUNA Mutual Group ■ 2015 Discovery Conference
SESSION BRIEF
Loan Growth Will Decelerate Slightly in 2016-2017
Credit Union Loan Growth
12
(Annual Percent Growth)
10.8 11.0
10.9
10.7
11.0
10.0
10
8
7.0
10.0
7.8
7.5
8.0
7.6
7.3
6.7
6
4.8
4
2
0
1.2
00
01
02
03
04
05
06
07
08
09
1.2
10
11
12
13
14
15
16
17
-1.2
-2
Slide 16
debt disappeared because of bank and credit union charge-offs—rather
than consumers paying off their debt—but economists believe the
current debt-to-income ratio of 104% is a sustainable number. One key
thing to keep in mind: income inequality. Although a growing number
of members have stocks, retirement plans, and own a home, not all do.
Those without these assets might struggle to weather changes in the
economy.
We’re currently at record
levels of wealth…the
numbers in 2007 included
the artificially inflated
housing bubble so we’re
actually higher today.
Household Net Worth Are at Record Levels
Household Net Worth
(As a Percent of Disposable Household Income)
700%
700%
680%
680%
660%
660%
640%
640%
620%
620%
600%
600%
580%
580%
560%
560%
540%
540%
520%
520%
500%
500%
480%
480%
460%
460%
440%
440%
420%
420%
400%
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
400%
Source: BEA & Federal Reserve.
Slide 21
CUNA Mutual Group ■ 2015 Discovery Conference
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SESSION BRIEF
Delinquency and charge-off rates should hit record lows in
2016. Credit unions should see some of the lowest rates in history
because the number of loans is growing quickly and the system
should see drops in both delinquencies and charge-offs thanks to the
improving economy.
Credit unions are taking market share away from banks.
Banks currently have loan growth of about 6% vs. credit unions’
10% level—which indicates credit unions are stealing market share.
Improved credit quality and a strong economy might entice credit
unions to loosen their underwriting standards somewhat and this could
contribute to additional loan growth.
Interest rates are likely to rise as of December 2015, though
more slowly than in the past. Although an expected September
2015 raise didn’t occur because of economic volatility, economists now
believe the Federal Reserve will start to raise rates 1.25 percentage
points annually beginning in December. The ten-year treasury interest
rate is also expected to rise at low rates—likely to 3% by 2017 .
The Federal Funds Interest Rate Will Reach 2.5% in 2017
Interest Rates and Recessions
10
10
9
9
8
8
7
7
6
6
5
5
4
4
3
3
2
2
1
1
0
00
01
02
03
04
05
Recession
06
07
Baa
08
09
10
Fed Funds
11
12
13
14
10-yr Treas
15
16
17
18
0
Forecast
Slide 28
CUNA Mutual Group ■ 2015 Discovery Conference
SESSION BRIEF
The 10-Year Treasury Interest Rate Will Reach 3% in 2017
Nom inal Interest Rates, Real Interest
Rates and Inflation Expectations
6.0
Inflation Expectations
5.5
10-yr Treas
6.0
TIPS (10-Yr)
5.5
5.0
5.0
4.5
4.5
4.0
4.0
3.5
3.5
3.0
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
0.0
-0.5 07
08
09
10
11
12
13
14
15
16
17
-1.0
-0.5
-1.0
Slide 29
Changes in savings could squeeze net interest margins.
Savings levels are forecast to drop as interest rates rise and this
will also impact where members put their savings: there’s a strong
correlation between interest rates and whether members keep their
money in a regular share account or a certificate of deposit. Credit
unions will have to raise rates to compete in these areas, which will cut
net interest margins.
Savings Growth Will Slow in 2016-2017
Credit Union Savings Growth
(Annual Percent Growth)
16
15.0
14
12
11.3
10.6
10
8.4
8
6
6.9
6.2
6.1
5.0
4.1
4
5.2
4.8
4.4
4.4
5.0
4.0
3.6
3.0
3.0
2
0
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
Slide 30
CUNA Mutual Group ■ 2015 Discovery Conference
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SESSION BRIEF
Savings Distribution Trends Will Reverse in 2016-2017
Savings Distribution
U.S. Credit Unions
60
60
Certificates
55
55
Share Drafts
50
MMAs
50
45
IRAs
45
Regular Shares
40
40
35
35
30
30
25
25
20
20
15
15
10
10
5
5
0
0
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Slide 33
Large credit unions are doing better in every income and
expense category. It’s no surprise to learn that the economies of
scale (operational advantages driven by size) and scope (the ability to
offer a wider array of products and services) mean larger credit unions
are doing better than smaller ones. In some categories small credit
unions are still seeing positive numbers—for instance, their loan growth
is 2.9%, which is better than the previous year—but in other categories
they’re struggling. For instance, small credit unions have a return on
assets that’s less than 10 basis points while large credit unions are
nearing 100 (which is traditionally seen as the target level).
Return on Assets Correlated with Asset Size
Credit Union Return on Assets
(by Asset siz e)
120
2014 First Half
2015 First Half
100
99 98
80
Basis Points
80
74
65 65
60
45
40
25
20
8
32
52 53
39
7
0
< $20 mil
$20-$50
$50-$100
$100$250
$250$500
$500-$1
bil
>$1 bil
Slide 35
CUNA Mutual Group ■ 2015 Discovery Conference
SESSION BRIEF
WHAT SHOULD CREDIT UNIONS DO NOW?
Be prepared for economic and income instability. Although many
indicators look good at present, your strategy should reflect less-thanrosy future scenarios too.
Recognize that not all members are participating in the economic
boom. Are there changes you should be making now to reflect this
reality?
Continue to position your credit union as a strong alternative to banks.
Credit unions have seen stronger loan growth than banks in recent
years. Keep the momentum going.
CUNA Mutual Group ■ Discovery Conference ■ October 2015
13
SESSION BRIEF
Strategies to Sustain
Small Credit Union Growth
A Panel Discussion
BEN RODGERS
Moderator | Research Director, Filene Research Institute
JON HERNANDEZ, Panelist | CEO, CalCom FCU, Nikkei CU & Mattel CU (CA)
JED MEYER, Panelist | CEO, St. Cloud FCU (MN)
LINDA BODIE, Panelist | Chief + Innovator, Element FCU (WV)
OVERVIEW
What should small credit unions being doing now to ensure future success for their
institution? Leaders from credit unions under $200 million in assets share their insights
on member development, lending growth, channel management, risk, brand marketing,
and more.
WATCH THE VIDEO
ON-DEMAND THRU
JUNE 2016
15
© CUNA Mutual Group, 2015. All Rights Reserved.
SESSION BRIEF
KEY TAKEAWAYS
Though this conversation was geared toward small credit unions, many
of these insights could prove valuable regardless of asset size.
A retail model can help grow business. In today’s highly
competitive financial services world, credit unions can’t wait for
members to come to them—they have to create opportunities to engage
and learn through every channel available (including the SEG, website,
focus groups, social media, contact centers, and more), then use this
information to provide valued products, services, and offers. And, as
every retailer knows, one-on-one connections are critical.
“Don’t try to be everything
to everyone—find
your niche and design
processes and programs
specifically for them.”
Linda Bodie
“As a cooperative
organization, we’re not
afraid to lose those
members who don’t
contribute, and do more—
like loyalty programs—
for those who contribute
more.”
Jon Hernandez
Consumers value the sharing economy and credit unions
need to communicate they’re a part of it. The cooperative
movement and the sharing economy are seeing a groundswell—think
crowdsourcing, Uber, Air BnB, and the like. Credit unions must get the
word out about their long-time presence in this space.
Advance preparation helps small credit unions leverage their
nimbleness. Agility has long been recognized as a small credit union
strength, but that doesn’t mean it’s a given. At St. Cloud Federal Credit
Union, senior staff goes through an intensive annual strategic planning
process, looks at its activity report and balance sheet on a daily basis,
partners with outside companies to stress test its balance sheet, and
scrubs its internal loan portfolio on a quarterly basis. Although these
might all fall into the category of “traditional” activities, doing them
consistently and well helps the credit union understand who they
are and what they’re good at, and allows them to adjust quickly in a
changing marketplace.
Meet members where they are. This applies across the board—in
everything from product development and delivery to how the credit
union communicates.
Element Federal Credit Union is committed to uncovering and meeting
member needs: its brand promise is to help members 100%. When
Element discovered members tended to be relatively uneducated
when it came to loans, the credit union focused on lending education.
When Element learned members had bucket list and “midlife crisis”
dreams, it developed loans to help achieve them. And when Element
Federal Credit Union learned members wanted to communicate via text,
Facetime, and Skype, they added those tools to their lineup.
CUNA Mutual Group ■ 2015 Discovery Conference
SESSION BRIEF
The credit union, which is located in a mining area that’s often
economically hard hit, makes it a point to reach out to members during
economic downturns to work out payment arrangements and act as a
true financial partner.
Judicious choices, outsourcing, and collaboration can help
small credit unions act more like big ones. Small credit unions
can seldom take advantage of the economies of scale and scope that
larger credit unions often take for granted. But that doesn’t mean they
can’t compete.
For instance, is the credit union making assumptions about its inability
to meet member needs? St. Cloud connected with millennials and
learned that although technology—especially mobile—was important
to them, they wouldn’t choose a financial services partner simply
because they had the most cutting edge mobile app. St. Cloud was able
to deliver affordable digital channels without compromising member
needs.
“We’ve developed and
researched a threepage list of ideas and
plans that align with
our defensive strategy
that we can jump into
quickly if the marketplace
changes.”
Jed Meyer
Some credit unions have found outsourcing best meet their needs,
while others found that collaboration does. The three credit unions that
Hernandez leads (Mattel, Nikkei, and Calcom), have collaborated with
other credit unions to vet a core processing system, provide back-office
services, and get a better rate on health benefits; they’ve also been
able to share employees. And St. Cloud has partnered with other credit
unions to share training and meet disaster recovery needs.
Innovation doesn’t depend on size. It’s easy to assume small
credit unions can’t compete when it comes to innovation—especially in
the realm of technology. But that’s not necessarily true. For instance,
Element was the first financial institution in the country to deliver a
remote deposit app! With membership all over West Virginia, the credit
union knew it could be hard for members to get to a branch and wanted
to provide more convenient deposit options. They started by allowing
members to scan their checks, then graduated to pictures on their
cell phone. The advent of the smart phone allowed Element to deliver
remote deposit convenience and security.
Appropriate risk management can help drive innovation.
Examiners and lawyers tend to see innovation as a risky proposition.
Small credit unions already pay a commensurately higher cost for
compliance than larger ones do—can they afford to innovate? These
credit unions say “yes.”
“Sharing isn’t just about
reducing costs, it also
allows us to afford
things—like marketing,
business development,
and compliance officers—
that we couldn’t alone.”
Jon Hernandez
Hernandez breaks risk into two categories and develops strategies to
CUNA Mutual Group ■ 2015 Discovery Conference
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SESSION BRIEF
“Innovation should occur
because it’s what your
members need and want
and it flows from your
strategy.”
Linda Bodie
address it: Reactive is for things they won’t have any control over (e.g.,
the potential FASMI ruling ) and proactive for things they do, such as
how to become less reliant on fee income given the potential that the
Consumer Financial Protection Bureau will reduce the fee structure for
most credit unions.
Bodie vets many new solutions herself—evaluating risk levels, working
with collaborative partners for additional insights, and documenting the
process.
Actions become the credit union’s brand.
A credit union’s brand is about more than its marketing: it’s about
culture and relationships. What’s communicated internally has to
match the message going out to the community and it’s critical to
review, measure, and address what’s happening when the credit union
intersects with the member.
WHAT SHOULD CREDIT UNIONS DO NOW?
Connect with members.
Resource efficiency is critical to small credit unions. Connecting with
members helps ensure credit unions aren’t wasting resources on
products and services members don’t value.
Be prepared to leverage agility.
Don’t assume small size automatically allows the credit union to “turn
on a dime.” Reflect, strategize, and be ready to respond.
Embrace manageable innovation.
“My approach is to
develop the solution
first—based on member
needs—and then worry
about compliance.
Otherwise, you’ll never do
anything.”
Linda Bodie
18
It’s easy to be intimidated by the cost and potential risk of innovation,
but small credit unions should be on the lookout for affordable, riskappropriate ways to create change.
Collaborate.
Work with other credit unions, vendors, and even those outside the
financial services sphere, to save money, uncover opportunities, and
deliver products and services that smaller organizations can’t afford
alone.
SESSION BRIEF
Reaching the Subprime
Lending Market
STEVE HOKE
Director, Loan Growth Products, CUNA Mutual Group
OVERVIEW
The subprime auto market (FICO scores below 650) has been growing in value: Today $2
of every $10 in auto loans goes to this segment and up to 30% of the new vehicle loans
made in Q2 2015 were to nonprime borrowers.1 But market strength isn’t the only reason
credit unions should be interested in this target. Predatory lending is common and many
subprime borrowers are forced to pay 16-25%2 on their auto loans--the equivalent of putting
a car on a credit card. This session investigates current auto buying trends and how credit
unions can better meet the needs of subprime borrowers without exposing themselves to
unnecessary risk.
WATCH THE VIDEO
ON-DEMAND THRU
JUNE 2016
19
LG-1312642.2-1115-1217 © CUNA Mutual Group, 2015. All Rights Reserved.
SESSION BRIEF
KEY TAKEAWAYS
Car sales are booming. Since the recession, there’s been strong,
steady expansion in auto loan portfolios and that’s expected to
continue into 2016.
Experian-Oliver Wyman Market Intelligence Reports
Slide 18
Subprime loans are on the upswing. Subprime lending makes up
an impressive share of auto loans: $129.5 million in the first 11 months
of 2014, which is over 25% of all auto sales. 3
High vehicle prices are driving new purchasing trends. The
average purchase price of a new vehicle was $34,500 in 20144 and the
average monthly payment was $471.5 These price levels are driving
longer loan periods—roughly a third of all auto loans are now 72 months
or longer and 3% of loans are for 84 months—and more leases (26.5%
of all new vehicles are now purchased through a lease).6
Although overall debt is shrinking, almost 40% of loans are
going to subprime borrowers.7 In most of the U.S., over half of the
population falls into the subprime segment8 and nearly four in ten auto
loans, credit cards, and personal loans, went to this group in the first 11
months of 2014.9
One size doesn’t fit all when it comes to subprime. There are
a variety of reasons why a consumer might fall into the subprime
category (defined here as having a credit score of 550-619).10 Some
are young and don’t have a credit history; others may have faced an
expensive medical emergency or job layoff and gotten behind on their
bills. Or a consumer might have a good income and simply do a poor
CUNA Mutual Group ■ 2015 Discovery Conference
SESSION BRIEF
Majorities of consumers in 37 states have subprime credit scores; Washington
Post, February 27, 2014
job managing their finances. The Consumer Financial Protection Bureau
defines financial well-being as having the following characteristics:11
control over day-to-day, month-to-month finances; capacity to absorb
a financial shock; on track to meet financial goals; and having the
financial freedom to make choices to enjoy life. Subprime consumers
are missing at least one of these.
Cars equal jobs. Credit unions sometimes believe they’re doing
members a favor by not giving them an auto loan they “can’t afford.”
But with 86% of the population commuting to work, a reliable car is a
critical lifeline and so is an affordable loan.12
Credit unions’ share of subprime is shrinking. Over half of
all credit union loan portfolios are in prime or super prime loans.13
Members who can’t get an affordable loan through their credit union
are often forced to do the equivalent of putting their car on their credit
card. This is a shame considering that credit unions offer lower interest
rates for both new and used car loans (47% and 49% respectively)14
than traditional banks do, which makes their loans highly attractive to a
subprime consumer.
CUNA Mutual Group ■ 2015 Discovery Conference
Slide 29
Studies show that a
person’s financial wellbeing can increase by
over 25% with access to
reliable transportation.15
21
SESSION BRIEF
Experian; State of the Automotive Finance Market First Quarter 2015; April 2015
Slide 35
CUNA Mutual Group Internal Report; October 2015
Slide 40
Subprime loans can provide a great income opportunity and
attract new members. While subprime lending certainly adds risk,
it can also be highly rewarding and subprime lenders might not be as
risky as typically perceived. In addition, the subprime market offers
good opportunities for non-interest income through credit insurance,
debt protection, and mechanical repair coverage. Another benefit
is that subprime loans allow the credit union to attract new target
markets, including highly desirable Millennials who are just starting on
their journey to finding a primary financial institution.
CUNA Mutual Group ■ 2015 Discovery Conference
SESSION BRIEF
WHAT SHOULD CREDIT UNIONS DO NOW?
Subprime lending programs can provide exceptional income and
membership opportunities with the right safeguards and best practices
in place. Hoke recommended the following:
Stay close to subprime borrowers and reward good behavior.
It’s important to maintain a closer-than-typical relationship with
subprime borrowers to ensure their payments stay on track. And
when they do, reward their good behavior. One way is through a lower
interest rate. A good program to try: LIFT16 or Lower Interest Rate for
Timeliness. This program was developed by Filene Research Institute
and cuts the interest rate of subprime members at specific points
throughout the loan to reward continuing timely loan payments.
Consider insurance to mitigate risk. It’s impossible to remove all
lending risk but insurance can help to lessen the blow if problems occur.
Two options to consider: collateral protection insurance—which protects
auto loans against damage in the event of an accident and is paid as
part of the member’s loan—and an umbrella policy, which is covered by
the credit union.
Use proper underwriting and collections. Good policies and
procedures help to lessen risk.
Confirm identity and application data. It isn’t uncommon for
applicants to falsify information and research shows that those who
overstate their income by more than 15% on an auto loan application
are three times more likely to be seriously delinquent.17 Technology
tools—like face recognition software that verifies a person’s identity
through social media—can help confirm the borrower’s identity and
personal information.
Use direct marketing to recapture existing loans. Missed a loan
the first time? Screening tools can help uncover opportunities to offer
members a better deal and recapture their loan.
Most subprime borrowers
that are paying those
higher interest rates are
good regular payers on
their loans.
Promote additional lending products. Subprime borrowers—
especially those with a used vehicle or a longer-term loan—benefit
greatly from additional protection products and 49%18 of these
members indicate they’re interested in learning more about them.
Leverage technology to increase direct loans. Don’t assume
subprime borrowers aren’t using mobile: 71%19 of the U.S. population
has a smartphone and sometimes it’s a subprime member’s only
“computer.” As of August 2015, 32% of loan applications (tied to
loanliner.com) came through a mobile device—that’s four times the rate
of 201120.
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SESSION BRIEF
Consider joining a CUSO to access indirect loans and spread
the risk. Don’t have ready access to subprime borrowers? Aren’t
Subprime borrowers
are just as invested in
technology as the rest
of the lending population.
comfortable taking on the risk of subprime alone? Collaboration can
help. One option to investigate: CU Lending Edge, a platform that gives
credit unions access to indirect, subprime loans and allows them to
spread risk among likeminded peers.
Use GPS to turn off late loans. Although this is seen as a bit
controversial, some credit unions are embedding GPS into vehicles so
they can shut them down in the event of late payments. Be aware that
there are privacy concerns with this and, also, that the credit union will
have to decide how to deploy the GPS, who will pay for it, and if it will
be recovered from the vehicle.
Use flexible rates to retain members and protect against risk.
These strategies are typically used with indirect loans. The credit union
might offer one rate to get the subprime loan and immediately lower
the rate to retain the new member; some credit unions will mark the
rate up slightly and use the difference to create a reserve that covers
the cost of collections and write-offs.
1
State of the Automotive Finance Market, Experian Automotive, 2015
2
7 Simple Steps to a Subprime Auto Loan, Edmunds.com, March 2, 2015; Buy Here, Pay Here”
Abuses, Center for Responsible Lending
3
The Next Subprime Crisis Will Ride on Four Wheels-Unless the Government Stops It, NewRepublic.com, February 26, 2015
4
5 things we learned from Dec. and 2014 auto sales, USA TODAY, January 7, 2015
5
Americans borrowing record amount to buy cars, cnbc.com, March 4, 2014
6
More car loans exceed 6 years as prices rev, USA TODAY, March 12, 2014
7
Lenders Step Up Financing to Subprime Borrowers, The Wall Street Journal, Feb 18, 2015
8
The majority of consumers have subprime credit scores, report says, The Washington Post, January 29, 2015.
9
Lenders Step Up Financing to Subprime Borrowers, The Wall Street Journal, February 2015
Q2 State of the Automotive Finance Market 2Q 2014, Experian
10
11
24
Financial well being: The goal of financial education, Consumerfinance.gov, January 2015
12
Majority of Americans Drive to Work, But Less so for Urban Millennials, Commerce.gov, August 13, 2015
13
State of the Automotive Finance Market, Experian, 2015
14
WalletHub 2013 Study: Auto Loans & Lease, Wallethub.com, 2013
15
Credit Union Times; Piloting Service to Subprime Borrowers; May 2, 2014
16
Lower Interest for Timeliness (LIFT) Pilot: Final Report, Filene Research Institute, July 25, 2014
17
Subprime Auto Loans: A Second Chance at Economic Opportunity, Equifax, February 17, 2015
18
Loanliner.com Protection Interest Report, CUNA Mutual Group, July 2015
19
Mobile Millennials: Over 85% of Generation Y Owns Smartphones, www.nielsen.com, September 5, 2014
20
U.S. Smartphone Use in 2015, Pew Research Center, April 1, 2015
SESSION BRIEF
What Matters Now™
Insights to Boost Membership with Middle-Income Americans
ANGIE FUHRKEN
TruStage, Director Marketing Strategy &
Commercialization, CUNA Mutual Group
OVERVIEW
What will it take to attract more middle-income Americans to your credit union? While
credit unions are currently serving 42% of middle-income Americans, there are over 50
million who are not members.1 Would they consider a credit union? Our What Matters Now™
research shows 64% of non-credit union members would consider joining a credit union. 2
The values of middle-income Americans closely align with credit union values, making them
a strong target for you to grow membership. Gain new insights on strategies to bring them
to credit unions.
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TSIP-1329269.2-1115-1217 © CUNA Mutual Group, 2015. All Rights Reserved.
25
SESSION BRIEF
Middle-income Americans are a valuable credit
union target.
This target is defined by age 30-70 years and household income,
$25,000- $100,000 annually. They add up to an impressive 36% of
the U.S. population. 3 Consider that nearly half (43%) don’t have life
insurance4 and the vast majority (80%) don’t belong to credit unions—
but that nearly two-thirds (64%) would consider opening an account5—
and the value of this demographic is even more apparent.
Recognizing the importance of this target, CUNA Mutual Group
conducted a three-part research study that looked at the differences
between credit union members, bank customers and those who didn’t
have any sort of relationship with a financial institution. This research
included:
• A longitudinal analysis of roughly 25,000 consumer encounters
(this examined their attitudes, media use, and behaviors)
• A photo journalism/social media program with 83 consumers that
captured their insights about credit unions
• Custom quantitative surveys with 5,000+ consumers to validate the
themes uncovered in the qualitative research
This market segment prioritizes family and
financial stability.
“When we focus on what
(our community) cares
about, the numbers
show it. Last year our
membership growth
was 2% higher than our
peers and we had a 46%
increase in new loan
applications.”
Laura Eibin
AVP of Awesomeness
Mazuma Credit Union
When asked to define success (in the CUNA Mutual Group research),
middle-income Americans’ top three picks were: good kids (for most
this was defined as having a good value system and strong morals); a
great relationship with a partner/spouse; and financial stability (being
able to provide for their families). Following close behind were good
health and a strong spiritual relationship.
What they did not care about included having a lot of money, broad life
experiences, or advancing to the top of their profession.6
Financial worries are keeping them up at night—and
sometimes every night.
Nearly two-thirds (62%) of this target group worry about their finances
every day.7 Many have an income that fluctuates from month to month
and making ends meet is a true struggle. They’re heavily dependent on
potentially undependable vehicles—many are dealing with older cars,
longer car loans and upside-down car values—and have likely gone
without some form of medical care because of cost.
CUNA Mutual Group ■ 2015 Discovery Conference
SESSION BRIEF
Middle-income Americans care about good service.
Member service has long been a credit union strength and, good news
for credit unions, 61% of middle-income Americans seek this out when
they’re looking for a financial institution.8
Forty percent of middle-income American credit union promoters
mentioned the word “service” when asked their primary reason for
recommending credit unions.9
When it comes to finances, this segment listens to
their friends and family—and are likely to know a
credit union member.
Middle-income Americans want to hear what their friends and family
have to say about their financial institution and are likely to be
influenced by their choices. Luckily, nearly half of them (46%) know
someone who belongs to a credit union and these members are highly
likely to recommend their credit union.10 Credit unions’ net promoter
scores are aligned with perennial consumer favorite, Apple.
Forty percent of credit
union promoters
mentioned the word
“service” when asked
their primary reason for
recommending credit
unions.
This demographic has good things to say about credit unions—and
some misperceptions. The good news first: even those who didn’t
belong to a credit union believed they offered good, customer-focused
service. The misperceptions: unfortunately, non-members tended to
NET PROMOTER SCORE:
CREDIT UNION VERSUS BANKS
70.00%
60.00%
50.00%
40.00%
Credit Union
Members
30.00%
20.00%
Bankers
10.00%
0.00%
18-34
35-54
55+
22
Source: Filene Research Institute, 2010, Next Generation Needs: Examining Credit Union Loyalty Among Young Adults
Source: Filene Research Institute, 2010, Next Generation Needs: Examining Credit Union Loyalty Among Young Adults
CUNA Mutual Group ■ 2015 Discovery Conference
Slide 26
27
SESSION BRIEF
The rate on a loan or a
savings account or the
fees charged were some
of the key things that
brought people to credit
unions instead of banks.
hold a number of misconceptions that could limit the likelihood they’d
make a switch: namely, that credit unions were less likely to have
conveniently located branches, ATM access or good online banking.
Credit unions who want to reach out to this target must address these
concerns. One piece of information that should help: research shows
members give their credit union an impressive 90 out of 100 score on
their satisfaction with their credit union’s online services.11
WHAT SHOULD CREDIT UNIONS DO NOW?
Get the word out about products and services that meet the
needs of middle-income Americans. This group needs the help that
credit unions have to offer—especially things like affordable car loans
and insurance coverage and good rates on savings. Credit unions
that clearly articulate their value proposition and motivate staff with
member success stories, instead of volume goals, have had good
success.
Explore ways to reach new members through their family and
community. This target values family and friends and trusts them
to recommend good resources. Credit unions that have successfully
targeted this segment have had good results with direct mail and
social media and by partnering with local organizations (in one case, a
popular soccer team).
Keep the focus on service. Credit unions have a sterling reputation for
excellent services and this market heavily values it.
Reinforce this critical message: We can help you create financial
stability. These consumers worry about their finances on a daily basis.
They need help managing their payments and their cash flow; they
want to protect their families and their futures. Show them how credit
unions can help.
The rate on a loan or a savings account or the fees charged were some
of the key things that brought people to credit unions instead of banks.
For more on the What Matters Now™ research, visit
www.cunamutual.com/whatmattersnow.
GfK Mediamark Research & Intelligence, LLC, 2013 MRI Doublebase, as provided by Hiebing Group
TruStage What Matters Now™ Consumer Survey, 2014
4
LIMRA, Facts of Life, 2012
11
CFI Group, 2014, Credit Union Satisfaction Index
1, 3, 8, 9
2, 5, 6, 7, 10
CUNA Mutual Group ■ 2015 Discovery Conference
SESSION BRIEF
Payments (r)Evolution
SAM MAULE
Emerging Payments Practice Lead, Carlisle & Gallagher
Consulting Group, Inc.
OVERVIEW
FinTech (financial technology) venture capital investment continues to be one of the hottest
growth areas globally, and payments continue to be a central focus area for disruption of
traditional financial institutions. This session focuses on the three key areas undergoing a
significant revolutionary change:
• Mobile Payments
• P2P Payments
• Cryptocurrency
It also identifies the key trends and innovative companies driving consumer adoption and
engagement in the ever-evolving payments space, and the priority channels credit unions
should engage in now.
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© CUNA Mutual Group, 2015. All Rights Reserved.
SESSION BRIEF
KEY TAKEAWAYS
The pace of financial services innovation is exploding. The vast
majority of financial service innovation has happened in the last 15
years and it’s not likely to slow down any time soon. In the payments
space alone, there’s been a jump from 910 payment company startups as of 2014 to 2,051 as of September 2015. And in the broader
financial services marketplace, there were 8,300 companies focused on
disrupting the industry—vs. 6,981 banks, the lowest number since the
Great Depression.
Slide 9
“Silicon Valley is good
at getting rid of pain
points. Banks are good at
creating them.”
Jamie Dimon
CEO and Chairman
JP Morgan Chase
The most critical innovations focus on the consumer—not the
credit union. Take a look at the many payment tools that are currently
disrupting traditional financial service providers and it’s quickly
apparent that they’re all about the consumer. Just as the ATM made it
possible for consumers to go to a “bank” when and where they wanted
to, the latest innovations are succeeding because they address a core
consumer need and help remove transactional friction.
Every service a credit union offers can (likely) be replaced by a nontraditional player with no legacy infrastructure. FinTech players can
CUNA Mutual Group ■ 2015 Discovery Conference
SESSION BRIEF
Slide 19
Slide 27
focus on a narrow, deep market niche with none of the attendant costs
that a traditional bank or credit union needs to account for.
Mobile wallets might be a “solution looking for a problem,”
(according to Sucharita Mulpuru, at Forrester) but mobile
payments are already happening. The launch of Apple Pay in
2014 caused many to think mobile wallet dominance was just around
the corner, but to date they’re still not perceived as a “must have” by
consumers. The two top reasons: security concerns and the ease of
using a plastic card.
CUNA Mutual Group ■ 2015 Discovery Conference
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SESSION BRIEF
That said, some players are succeeding in mobile payments. One is
Starbucks, which can boast the following mind-boggling statistics:
• 90% of the $1.6 billion in U.S. mobile payments in 2013 was through
the Starbucks app
• 13 million app users
• 16% of all Starbucks transactions come through its mobile app
• 7 million weekly transactions
Another is PayPal, which has payment volume that’s approaching $50
billion a quarter.
Slide 31
And Venmo, a person-to-person payment solution, has a daily volume
that even beats Starbucks and, like Google, has become a verb:
“Venmo me.”*
* Venmo is growing 350% a year.
And Paypal owns Venmo.
Slide 40
CUNA Mutual Group ■ 2015 Discovery Conference
SESSION BRIEF
FinTech is a massive ecosystem built around Millennials.
Though it would be foolish to over-generalize about the 80 million
Millennials in the U.S. population, it is safe to say they’re changing
the world of financial services. Most in this segment believe banking
and payments are in the middle of massive change, are incredibly
comfortable working with FinTech companies, and think innovation will
come from outside the financial services industry.
Cryptocurrencies are likely to change how financial
institutions manage assets. Although it might be difficult to predict
just how cryptocurrencies will change the future, the fact that the
world’s nine largest banks have created a consortium to advance the
technology underlying cryptocurrencies (known as a blockchain) is
reason enough to think credit unions need to have it on their radar.
WHAT SHOULD CREDIT UNIONS DO NOW?
Be aware. Ignorance is not bliss. Credit union executives typically have
little to no awareness of the start-ups who are slowly destroying their
revenue streams. Assign a staff member—someone young who loves
FinTech—to continually investigate the hottest technology in banking
and provide a monthly summary.
Focus. Understand your member base and act accordingly. Their
needs and their preferences should drive strategy and investments.
Partner well. The shelf life of FinTech solutions is incredibly short and
it often doesn’t make sense for a credit union to invest in their own.
Find out who’s dominating a space and determine if it makes sense to
work together.
CUNA Mutual Group ■ 2015 Discovery Conference
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SESSION BRIEF
Cybersecurity
Protect Your Credit Union’s and Members’ Data
JAY ISAACSON
Moderator | Vice President, Business Protection, CUNA Mutual Group
JOHN W. CARLSON, Panelist, Chief of Staff, FS-ISAC
MARK GREISIGER, Panelist, President, Net Diligence
CHRIS LACKE, Panelist, Director, Business Protection, CUNA Mutual Group
OVERVIEW
Panelists from FS-ISAC, Net Diligence, and CUNA Mutual Group discuss cyber risks and
trends facing credit unions. Panelists provide actionable insights into how information
sharing, insurance, and risk management practices can help you better protect credit
union member data.
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35
© CUNA Mutual Group, 2015. All Rights Reserved.
SESSION BRIEF
KEY TAKEAWAYS
Credit unions must familiarize themselves with best practice
cybersecurity tools. The Cybersecurity Assessment Tool from the
Federal Financial Institutions Examination Council (FFIEC) incorporates
concepts and principles contained in the FFIEC IT Examination
Handbook, the National Institute of Standards and Technology (NIST)
Cybersecurity Framework, and industry-accepted cybersecurity
practices. This tool was created specifically for financial institutions
and, while it’s considered voluntary at this time, the NCUA has said
its examiners will soon be using it when evaluating credit unions’
cybersecurity preparedness.
“Don’t be afraid of cyber
being a technical issue.
It’s really fundamentally a
risk management issue…
Don’t shy away from
it. Dig in…if you don’t
understand something,
ask.”
John Carlson
“How you respond…is
now a CEO-level issue.”
John Carlson
Most credit unions will face some sort of data breach in the
coming year. The experts have long agreed that organizations should
assume that a breach event is “when, not if.” Common sources of data
loss include leaks from open source mobile apps, hackers, malware,
and lost laptops. Common recent frauds have involved fake emails and
domain names and payment fraud through wire transfers.
Data security is a moving target. The dynamic reality of
technology—and the increasingly connectedness of society—means risk
is changing constantly and must be evaluated and addressed on an
ongoing basis.
Timely information sharing is critical. Knowledge is power—and
timely knowledge is even more powerful, as it’s vital to minimize the
time between when a threat is identified and addressed. There are a
number of listservs and organizations that share information both inand outside the financial services system. These are a valuable way to
stay on top of attacks, learn the steps other organizations have taken
to address threats, and share information. One thing to be aware of:
the availability of automated information sharing. Credit unions can
leverage standards created by the Department of Homeland Security
and use “machine-to-machine” communication to identify a threat,
rather than waiting for staff to wade through emails and alerts.
Third-party vendor contracts tend to favor the vendor. Be
aware that many vendor contracts create a high level of risk for credit
union data. Common examples include claims that the vendor owns
any data in their network, having no provisions for notifying the credit
union in the event of a data breach, and not allowing a credit union to
do a forensic evaluation in the event of a breach.
CUNA Mutual Group ■ 2015 Discovery Conference
SESSION BRIEF
Good communication is critical. Have a breach? Prompt,
appropriate information sharing with members and media could have a
huge impact on the credit union’s reputation and bottom line.
WHAT SHOULD CREDIT UNIONS DO NOW?
Check in with IT staff. Are data worries keeping them up at night?
Do they feel the credit union is sufficiently staffed and prepared to
address data-related threats? Are they aware of threats they need help
to address? And do they feel like part of the larger team? Hear what IT
has to say. And make sure they feel valued—it’s vital to have the right
people in place and this skill set is in high demand and easily poached.
“You do not want to be
exchanging business
cards (with law
enforcement officials) at
the event. You want to
have had the relationship
ahead of time.”
John Carlson
Do a baseline, enterprise-wide security analysis. This is a critical
first step in understanding and addressing a credit union’s security
risks. Use a data matrix that captures the variety of data collected
throughout the organization—including personal and business data—and
where it resides both within the credit union’s servers and on partners’
servers.
Build and test the incidence response plan now. Every credit
union should have a plan in place that spells out both what happens
next and who’s in charge of handling each element in the event of an
incident. Most organizations will rely on external experts to address
an attack—key players typically include a legal team, and forensics and
public relations experts.
Improve due diligence on third-party vendors. The vast majority
“One in three events is
now caused by a thirdparty vendor.”
Mark Geisinger
of credit unions (80%) outsource some or all of their computing to
third parties. This means due diligence is more critical than ever.
Evaluate if a cyber liability policy is appropriate. It is impossible
to completely eliminate data-related risks and a growing number of
credit unions are opting to use insurance to limit their liability.
Join information networks. These are a valuable way to share
information on threats, attacks, incidences, and strategies. The one
widely recognized as a “must join”: the Financial Services Information
Sharing and Analysis Center (FS-ISAC).
Collaborate. Work with other credit unions, vendors, and even
those outside the financial services sphere, to save money, uncover
opportunities, and access products and services that smaller
organizations can’t afford on their own.
CUNA Mutual Group ■ 2015 Discovery Conference
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SESSION BRIEF
New Frontiers for
Large Credit Unions
DAVID POLET, CCUE
Director, Voice of Customer, CUNA Mutual Group
OVERVIEW
Although credit unions with more than $500 million in assets make up only 7% of the
system by number, they hold nearly 75% of all loans. The growth of these credit unions (in
assets, members, and loans) will continue to accelerate based on information gathered from
multiple sources. This session digs into some of the opportunities and challenges that this
group is likely to face over the next three to five years in the areas of lending portfolios,
channel and technology strategies, and regulatory pressures.
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© CUNA Mutual Group, 2015. All Rights Reserved.
SESSION BRIEF
KEY TAKEAWAYS
Top challenges are shared across asset sizes
Slide 14
This segment invests heavily in compliance. Anecdotal evidence
suggests that up to 30% of credit union staff time is dedicated to
dealing with compliance. Large credit unions have responded in a big
way: 97% of this asset class has at least one internal person dedicated
to compliance and 85% spend more than $10,000 on external
compliance resources each year.
Credit unions need to
put the infrastructure in
place to support an Omnichannel experience.
Members want to engage
at any point, through any
channel, wherever they
are in the journey, and
find all their updated
information.
Loan growth is important—but less so than it is to lower
asset segments. The lesser importance of loan growth is somewhat
surprising as it remains the engine of growth for the segment: 67%
of their income comes from lending and investments. These credit
unions are focusing lending efforts on first mortgages, auto lending,
and member business lending. A growing number of large credit
unions have gained a low-income credit union designation (there were
six in 2010 vs. 100+ in 2015), likely because it exempts them from the
business-lending cap. The biggest areas of focus for business lending
are real estate-secured loans.
Lending is becoming more virtual. Digital lending is popular
with this group—nearly half of all large credit unions (45%) transact
less than half of their consumer lending face-to-face —and they’re
committed to remote lending processes.
CUNA Mutual Group ■ 2015 Discovery Conference
SESSION BRIEF
Slide 34
Member channel preferences are driving strategy. In response
to member demand for digital, large credit unions either have, or soon
plan to, update their data processors and loan origination systems.
They’ve also enhanced their mobile and online solutions—especially in
the area of lending—and have reimagined the branch. Branches aren’t
going away, but they are likely to be smaller, be in new locations (for
instance, grocery stores), and leverage technology that optimizes
resources, e.g., interactive teller machines. This segment is more likely
to have staff universalists who can direct members to technology
options for transactions and engage them for more complex needs.
They rely heavily on non-interest income, know it’s under
threat, and are utilizing CUSOs to address this. Large credit
unions need their non-interest income: in fact, they’d have a negative
return on assets without it. Unfortunately, this income is extremely
vulnerable: the Consumer Financial Protection Bureau is taking a close
look at NSF/courtesy pay; the cap on debit card interchange is affecting
credit unions with over $10 billion in assets; mortgage-related fees
could drop precipitously if the housing market collapses; and merchants
are working to limit income from credit card interchange and fees.
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SESSION BRIEF
Slide 39
Slide 40
Slide 44
CUNA Mutual Group ■ 2015 Discovery Conference
SESSION BRIEF
Reducing operating expenses is critical and scale matters. The
financial services world is incredibly competitive, especially with the
growth of non-traditional players, many of whom don’t have the same
cost ratios as credit unions (Lending Club, for instance, has operating
expenses that are one-third those of the average financial institution).
Large credit unions are much better positioned to take advantage of
scale in this area.
Large credit unions can invest where needed and run their businesses
more efficiently than smaller credit unions are able to do. It’s been the
trend and will continue.
WHAT SHOULD CREDIT UNIONS DO NOW?
Because this conversation was directed to large credit unions, these
next steps are too.
Continue to focus on growing lending. It is the driver of the credit
union system and opportunities still exist to create new value among
members (e.g. member business lending).
Invest in technology. Utilize your capital to help upgrade your
infrastructure to allow your members to interact more easily with
you and allow your operations to become more efficient in how those
interactions are delivered.
Develop a member data strategy. Through the vast amounts of
member data you have access to, determine how best to utilize and
analyze that data to support offering new products and services to
your members and deepening the share of wallet.
CUNA Mutual Group ■ 2015 Discovery Conference
Large credit unions can
invest where needed and
run their businesses more
efficiently than smaller
credit unions are able to
do. It’s been the trend and
will continue.
43
SESSION BRIEF
Omni-Channel
What You Need to Know Now
MARK SIEVEWRIGHT
President, Credit Union Solutions, FiServ
OVERVIEW
Rapidly advancing technologies, evolving consumer expectations, and a changing
regulatory landscape are catalysts to a new era of disruptive innovation in financial
services. From big data to peer-to-peer lending, Main Street to Silicon Valley, FinTech
innovations have captured the attention and imagination of consumers and businesses, and
the current mainstream financial services providers who serve them. In the future, financial
services firms will be expected to provide a truly integrated and seamless customer
experience across all touch-points or channels. What are the implications for America’s
credit unions and how can they remain vital in this rapidly changing financial ecosystem?
WATCH THE VIDEO
ON-DEMAND THRU
JUNE 2016
45
© CUNA Mutual Group, 2015. All Rights Reserved.
SESSION BRIEF
KEY TAKEAWAYS
Digital is putting intense pressure on the financial services
business model. Credit unions have long had to deal with the impact
of banks, regulations, and difficult economic environments, but digital
has emerged as a new and increasingly disruptive challenge.
Digital has changed both consumer expectations of how financial
services should be delivered and the players themselves: technology
companies of every size and type are inserting themselves into the
financial services landscape. Payments and lending are two areas
where these companies have seen great success.
Slide 29
New players stand out for their ability to remove friction points
between consumers and financial services (e.g., faster mortgage
closings, loans to C and D paper, easier ways to move money overseas),
their agility, their lack of baggage (ranging from regulations to brick
and mortar facilities), and a fundamentally different business model.
Technology companies have made huge investments in the financial
sector and that’s likely to continue.
Consumers are comfortable getting their financial services
from non-financial companies. There is an increasing willingness to
use technology companies for financial services.
CUNA Mutual Group ■ 2015 Discovery Conference
SESSION BRIEF
Slide 25
Slide 30
Mobile is critical. This is true for a number of reasons. One is
increased popularity: by 2016, 50% of online banking will happen via
mobile. A second reason is loyalty. Studies show consumers and small
businesses that use mobile as their predominant channel for accessing
financial services are less likely to leave. And, third, mobile users aren’t
just more loyal; they also generate more revenue. A recent study by
Raddon Financial Group showed the highest-value members had one
critical thing in common: their likelihood to use mobile.
CUNA Mutual Group ■ 2015 Discovery Conference
You don’t want your
member services
representatives to be
one step behind
information that your
member already knows.
47
SESSION BRIEF
Slide 21
Average Fees
Non-Dig
0-18
19-30
31-40
41-50
51-60
61-70
Over 70
Online
Average Accounts
Mobile
$
0.12
$
1.07
$
1.60
$
2.71
$
5.31
$
8.53
$
3.48
$
7.47
$ 14.65
$
3.69
$
8.21
$ 15.77
$
2.91
$
6.88
$ 13.85
$
1.83
$
3.66
$
8.62
$
1.00
$
2.25
$
4.36
0-18
19-30
31-40
41-50
51-60
61-70
Over 70
Non-Dig
Online
1.58
1.79
1.93
1.78
1.94
2.15
1.84
2.10
2.25
1.92
2.21
2.29
2.03
2.32
2.45
2.12
2.38
2.53
2.26
2.46
2.43
Average Transactions
0-18
19-30
31-40
41-50
51-60
61-70
Over 70
Non-Dig
Online
Mobile
1.27
12.46
27.44
11.99
29.66
52.87
13.63
35.50
63.76
13.83
35.81
60.35
12.40
30.57
52.21
10.87
25.33
43.62
8.60
20.94
34.48
Mobile
Average Loans
0-18
19-30
31-40
41-50
51-60
61-70
Over 70
Non-Dig
Online
0.26
0.34
Mobile
0.56
0.41
0.41
0.63
0.62
0.58
0.71
0.69
0.66
0.77
0.68
0.71
0.89
0.62
0.68
0.91
0.49
0.75
0.94
Slide 23
Consumers expect and demand a seamless, Omni-channel
experience that puts them in control. Consumers want a degree
of knowledge, control, and immediacy they never had before and
expect to cross channels during a transaction with no interruption
of service or process. Other industries already deliver this service
experience—examples include flight updates via mobile, the Nest
thermostat (which learns and responds to a consumer’s heating and
cooling needs), and the Kindle Mayday customer service feature.
CUNA Mutual Group ■ 2015 Discovery Conference
SESSION BRIEF
Millennials are different. This critical target has different
expectations of its financial service providers and demands a digital
service experience. That said, they value trust and there is evidence
to suggest Millennials prefer to conduct some transactions with a
traditional provider.
The branch is being redefined. In the last 20 years, branches have
seen a huge dip in transactions. This doesn’t mean it’s time to shutter
facilities; it does mean it’s time to better understand how members
use them. Top credit union innovators are striking a balance between
high tech and high touch: using video technology to leverage staff
expertise across locations, installing self-service equipment for simple
transactions, and recognizing that members want personal assistance
for some (e.g., mortgages and investments).
The ability to move
money and move it simply
is going to become a
differentiator for credit
unions.
Payment tools are becoming service channels. The U.S. is in the
midst of a payments revolution. Today it’s chips embedded in plastic
cards and electronic devices (ala Apple Pay); a wide array of other
technology-driven payment options are being explored around the
world. This disruption is virtually guaranteed to continue.
WHAT SHOULD CREDIT UNIONS DO NOW?
Embrace data. The credit union difference is built on its “people
helping people” heritage. Credit unions have a wealth of data at their
disposal and must use it to better understand their members.
Deliver what members want. Respond to the member demands
data uncovers. These are likely to include seamless, Omni-channel
solutions that give members immediacy and control and tools that
simplify the movement of money. Be responsive to the needs and
perceptions of the vital Millennial segment.
Create technology partnerships. Financial service leaders like JP
Morgan Chase recognize it’s critical to partner with the “outsiders”
of Silicon Valley and credit unions must too. These partnerships give
credit unions an effective and affordable way to deliver valued services.
Focus on security. In a world where nearly every day seems to bring
a new story of a data hack, credit unions must focus on security and
compliance. New channels and payment options won’t be viable unless
the right security standards and controls are in place.
CUNA Mutual Group ■ 2015 Discovery Conference
49
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