CUs Grow Business
The migration to community charters was the catalyst for the growing sophistication of business development.
Business development is coming into its own. Ten years ago, only a handful of credit unions had business development departments, and they were usually part of the marketing function.
Five years ago, business development began breaking away from marketing, but credit unions converting to community charters say they were unsure about the role of business development.
Today, business development is becoming a key strategy as credit unions pursue competitive advantages and a larger market share. “Business development is starting to become bigger than—or just as important as—marketing,” says Sandi Carangi, vice president of business development for $328 million asset Erie (Pa.) Federal Credit Union.
• Business development is becoming a key strategy as CUs pursue a competitive advantage and increased market share.
• Community charters don’t create personal relationships. That’s the job of business development.
• Board focus: Personal relationships with internal decision makers at potential SEGs can seal the deal.
In many ways, the credit union migration to community charters was the catalyst for the growing sophistication of business development, according to “The Traveling Branch: Business Development’s Evolution,” a white paper from the CUNA Marketing and Business Development Council. Credit unions expected tremendous growth once their fields of membership (FOM) opened to communities.
It didn’t happen. Credit unions were forced to look at prospective business partners and find creative ways to meet their needs. For many credit unions, says Carangi (the council’s 2010 Business Development Professional of the Year), that was the beginning of something really good.
When the Credit Union Membership Access Act was passed in 1998, some in the credit union industry wrote off the importance of select employee group (SEG) relationships to the growth of credit unions. The number of community credit unions increased more than 100% to about 900 between 1998 and 2002, according to the Woodstock Institute. If a SEG was already located in the community covered by a credit union’s charter, what was the point of courting it? Those employees were already eligible for membership.
Neglecting SEGs, though, is unwise, says John Godwin, vice president of business development/strategic alliances for Municipal Employees Credit Union of Baltimore Inc. (MECU). “You should still be going out and forming these partnerships,” he says. “SEG marketing should be a part of any credit union’s marketing portfolio.”
Community charters provide opportunities for expansion, he says. They don’t create personal relationships, and they don’t create the momentum consumers need to switch financial institutions. That’s the job of business development.
Credit unions like $1.1 billion asset MECU, with successful business development strategies, haven’t abandoned their SEG expansion efforts. Instead, they’re using their community charters as tools to expand their people networks and forge new relationships. Godwin participates in a community leadership program that has proven invaluable to his credit union’s SEG development efforts.
“I’ve always said if I could have one thing, it would be that connection to internal decision makers. When we meet with or call people to discuss partnerships, they often tell us they have to check with the boss,” he says, adding that he is now in a community leadership program withthe boss.
MECU has more than 800 SEGs and continues to pursue them regularly. In June, the credit union relaunched a direct-mail campaign that successfully brought on 16 new SEGs in fourth-quarter 2009. The campaign, which the credit union plans to continue through 2010, emphasizes the opportunity to offer more benefits with fewer SEG resources. It touts MECU’s team of full-time employees, who “work for free.”
A direct-mail piece includes a Visa gift card, which activates when recipients respond to the mailing. Companies that commit to MECU can receive up to $50. Those that call to be removed from the mailing list get $10, which establishes personal contact and helps the credit union to scrub the list.
As with most direct-mail campaigns, most responses come from uninterested parties, says Godwin. MECU then asks these prospective SEGs what would change their minds. This helps establish contact with a live person at a local business that might become a SEG down the road, if not immediately.
Merchant indirect lending
Erie Federal takes a different approach, because the needs of companies in its FOM are different. Like MECU, Erie Federal was a SEG-based credit union that converted to a community charter about six years ago. Instead of focusing on becoming an employee benefit for area businesses, Erie Federal promotes the financial services it can provide to boost each potential SEG’s bottom line.
“Business development has taken on a whole different dynamic,” says Carangi. “I used to be calling on SEGs and telling them employees can open accounts. Now, businesses are saying they want something that will benefit them.”
Some might consider Erie Federal a textbook example of how being in the right place at the right time isn’t always enough to make your business grow and prosper. After the credit union converted to a community charter, it began offering business loans. At the same time, a community bank in town that had supported small businesses in the area for years was acquired by a large bank that wanted very little to do with those small businesses.
Erie Federal offered business loans, but not business services. Without that complete package, businesses were reluctant to enter into a relationship with the credit union for loans or affinity partnerships. Carangi advocated for, and got the green light to develop, a package of business services.
“I did a lot of research with local companies so we could develop a package of services that really met their needs, and it worked. We opened 200 business accounts in 18 months, and our business loans grew from $275,000 to $8 million,” she says.
In April 2009, Erie Federal came to the aid of its affinity partners again with a merchant indirect lending program. Businesses were having problems selling their products because of the economic downturn and because their customers were being denied financing.
With the new indirect program, merchants have Erie Federal loan applications on site and send them to the credit union when customers request financing. The credit union isn’t the first to offer this type of program for its business customers, says Carangi, but it’s one of only a handful in the U.S., and the only credit union in Pennsylvania to do so.
Erie Federal has 18 merchant indirect lending partners and no delinquencies in either the merchant program or its business lending portfolio.
“We didn’t change our business lending policy at all. We just started offering a product that met the needs of our affinity partners,” says Carangi. Some of the businesses were paying another lender 3% to 5% on each customer loan. Then, the customer was paying 21%. “Our rates are as low as 5.75%, and we don’t charge the merchant anything,” she says.
Carangi promotes Erie Federal’s business services in two local business magazines, and attends about 24 trade events a year. Her department is separate from the credit union’s marketing department, and part of her job is marketing for business development.
Marketing and business development are separate departments at MECU, too. Godwin works with the credit union’s marketing department but also uses a third-party marketing source that specializes in business development marketing.
The separation of the marketing and business development functions at many credit unions might indicate they’re realizing the competitive advantage of personal relationships. As technology creates more touch points for businesses to promote themselves, it’s becoming more difficult for advertisers to break through the marketing clutter.
Ironically, personal contact is a way for credit unions to differentiate themselves from their competitors. Even at credit unions where marketing and business development are in one department, each function is clearly distinct.
UniWyo Federal Credit Union, Laramie, Wyo., was chartered 55 years ago to serve University of Wyoming employees, spouses, and families. In the 1980s, the $180 million asset credit union moved off campus. It moved again in 2004, into a new building about a half mile off campus. But it wasn’t enough to compete with a bank that had a branch in the campus’s main building.
“It really hurt our relationship,” says Nathan Capron, UniWyo Federal marketing specialist. The credit union moved back on campus in 2007, and began focusing its efforts on establishing relationships. “That’s where we focus most of our business-development efforts,” he says. “We walk through most of the larger buildings, stick our heads in offices, and talk to people we know. We attend freshman new-hire orientations. And this year, we started a brown bag lunch series that attracts 60 to 100 people every time. All of this is really making a difference.”
UniWyo Federal added university students to its FOM this year, and began offering its Fool Proof financial literacy program on campus. Students enrolled in Fool Proof take modules online. Advisers can log in to see students’ grades and track their progress.
The credit union also conducts its own financial literacy classes, now requested by university staff members. In a community of 27,000 people—and where UniWyo Federal competes against three other credit unions and about 10 banks—the credit union and the on-campus bank, combined, hold 60% of the deposit and lending market share.
The credit union is more proactive than the bank, says Capron, “and it’s been going very well for us. The bank spends its money on signage and they give a lot of money to the university, but we interact with the members.”
Since moving back on campus, UniWyo Federal’s assets have increased more than $42 million.
Not a one-person job
Like most business development professionals, Capron can’t build relationships effectively on his own. It takes a village, he says. Business development departments still are small. The growing trend, agree business development professionals, is to get other front-line departments on board to help manage forged relationships.
“The loan department is pretty crucial to our success,” Capron says. “When we go out, we’ll take several of our loan officers. Our loan staff is excellent at really understanding people’s lives. It’s to the point now where people recognize us when they see us in local stores.”
At Erie Federal, Carangi has one full-time business development coordinator, who helps with financial literacy outreach, and a college intern to help with day-to-day tasks. A business loan officer reports to both lending and business development. That person accompanies business development on visits to prospective business affinity partners. Once a company is on board, branch managers become business-relationship managers.
Even billion-dollar MECU runs a tight ship. Its business development staff includes a vice president, a director, and two business development specialists. MECU also works with a third-party business development company, PFP, to help court its SEGs. “PFP has a SEG marketing department that’s absolutely amazing,” says Godwin. “They call on our ambassadors, attend site visits, and promote the credit union. They did nearly 500 site visits last year. Without PFP, it just doesn’t happen.”
MECU branch personnel also are required to do four site visits per month. Last year, site visits resulted in 1,900 new members, about 1,000 new checking accounts, and 25,000 potential new members.
While the job description of a business development specialist hasn’t changed much in the past decade, what has changed is how and where duties are executed, agree the professionals.
Like marketers, business development professionals are expected to find unique ways to serve companies in their FOMs. Those who succeed bring competitive advantage to their credit unions, while crafting blueprints for future growth and success.
1 2010-2011 Credit Union Environmental Scan: buy.cuna.org, enter 29436 in the product finder.
2. CUNA Marketing & Business Development Council: cunamarketingcouncil.org.
3. CUNA Schools and Conferences: training.cuna.org, enter “business development” in the event finder.
♦ PFP, Orange, Conn.: 800-990-4737 or pfpservices.com.