Service Delivery Strategies
Base yours on members’ needs, not trendy technology.
ATM equipment photos courtesy of Diebold®, a CUNA Strategic Services alliance partner
• All member touch points are links that tie members to your credit union.
• RDC is a game-changer, with strong appeal for small businesses.
• Board focus: Develop product and service delivery strategies that keep the members you have and attract the members you want.
Weaving your credit union into members’ lives and businesses requires more than one product or delivery method. Each opportunity to reach members—whether in person or with technology—represents another link that ties them to your credit union.
Will you create ties that bind or leave members floating free to search for options from other providers? Your credit union’s delivery strategies can make the difference.
A ‘fast follower’
OnPoint Community Credit Union, Portland, Ore., bases its payment strategy on being a “fast follower” of trends with staying power, according to CEO Rob Stuart. The $2.8 billion asset credit union began offering mobile banking in 2009 because it quickly became an essential product in the West Coast market where JPMorgan Chase’s purchase of Washington Mutual in late 2008 intensified competition.
The credit union currently is exploring other mobile banking enhancements, including “tap and go” and deposit capabilities; online banking, including bill payment and presentment; and prepaid and reloadable cards. “Everything is on the table at this point,” says Stuart, adding it’s important to consider members’ preferences and competitors’ strategies when developing delivery strategies.
OnPoint Community is committed to its branch strategy. It plans to add six to eight branches a year for the foreseeable future to its existing 19-branch network. The new branches will vary in size and appearance, based on location and the needs of local members. Stuart and other experts expect many branches built in the near future to have smaller footprints than older facilities.
The strategy, he says, emphasizes both access to services and sticky relationships, which led the credit union to launch its own credit card portfolio in 2008. The credit union had issued more than 40,000 cards by the beginning of fourth-quarter 2010.
“We see the credit card and debit relationship growing and becoming more important over time,” Stuart says. “As human behavior changes, access becomes more important. And both a debit and a credit relationship offer access.” You can’t rent a car, reserve a hotel room, or buy an app for an iPhone without having a debit or credit card, he notes.
It’s quite possible, he adds, that younger members will consider your credit union’s access points as important as the products themselves.
Next: RDC: a game changer
RDC: a game changer
Cash and checks are tried-and-true payment strategies that members are unlikely to abandon anytime soon, although usage will continue to decline gradually over time.
But credit unions can find better ways to manage cash and checks, starting with remote deposit capture (RDC) capabilities that let members make remote deposits using scanners or digital cameras connected to computers or smart phones.
RDC has tremendous appeal for small businesses—a market that offers significant growth potential for credit unions, according to Scott Burwell, senior solutions manager for Jack Henry & Associates. Small-business owners are pressed for time, he says, especially the 40% who also have other full-time jobs, and deposit checks only once or twice a week. “RDC is a big plus for them,” Burwell says.
Small businesses with high check volume might select auto-feed scanners, like RDM’s ConnectTM scanner, which captures up to 30 checks a minute and costs less than $400, according to David Lant, director of strategic alliances at RDM Corp. But many businesses and consumers will be able to use RDC with smart phones and scanners they already own.
That’s changing the landscape by letting credit unions reach out much further, Lant says.
Branches will streamline check-handling by moving image capture capabilities from the back room to the front line, where tellers and member service representatives are using cash dispensers and cash recyclers for greater efficiency and security.
A larger segment of ATMs will be equipped to do more than dispense cash, by offering advanced functions that might even replace branches in some locations, says Milton King, sales director for the ISA Group at ProfitStars, a division of Jack Henry & Associates. The growth of branches might slow as credit unions examine advanced-function ATMs and other options with lower price tags.
“The definition of a branch is changing,” King notes, adding that a branch can be a traditional branch, a kiosk, an advanced-function ATM, or even a member’s dining room table.
Next: Value-conscious members
Member preferences are changing, too. The Great Recession produced frugal members who focus on value. This gives credit unions a competitive advantage.
“Today’s consumer is different than the prerecession consumer,” says John Ainsworth, group head of U.S. markets for MasterCard. “Our research shows there are definite changes in attitudes and behaviors that will affect their spending.”
Value-conscious consumers still go out to dinner, for example, but forego dessert or take other steps to pare the tab, he says. As a result, average credit card balances continue to decline. Consumers also want more control over their spending, which makes personal financial management (PFM) tools a valuable product addition.
PFM tools added to online and mobile banking can help members monitor spending and balances in relationship to their budgets and goals. MasterCard, for example, recently launched “Money Manager”—a financial management portal for debit cards that lets cardholders track spending by categories and compare it to their budgets.
“It’s a megatrend,” Ainsworth says. “Consumers want to control their spending, but they also want to know where they’re spending.” Other experts predict developers will add PFM tools to mobile banking as smart phones start to function as debit devices.
The demand for greater payment speed and convenience continues, particularly among young consumers, says Burwell. Where young adults once carried cash and sometimes checks, they’re now more likely to carry debit cards and cell phones. The trend could influence adoption of contactless payments, which remain limited by merchant acceptance.
New preferences, new strategies
Ainsworth says changing consumer preferences mean credit unions should base decisions on core member needs and how they affect account usage, rather than on members’ payment behaviors or card levels.
For example, members who migrate from using ATMs and cash to using debit cards at the point-of-sale tend to have higher daily balances in their checking accounts, which is a revenue opportunity for credit unions. Credit unions need to understand members at the core relationship level, and then use that knowledge to develop their strategies for products and services, Ainsworth says.
Card strategies and loyalty programs will evolve. MasterCard’s “InControl” product, introduced by Citibank in 2010, lets consumers designate in advance whether certain purchases should be debit or credit transactions. A consumer might stipulate that all purchases under $100 and all grocery store purchases are debit transactions, for example, while all purchases at home-improvement stores and all purchases over $100 are credit transactions.
Linking debit and credit rewards is likely to appeal to many members, says Ainsworth. Instead of earning points for gift certificates or products, cardholders might experience special offers from merchants that want to build loyalty and reward past purchases.
Your credit union needs a well-defined strategy as trends reshape your marketplace, he says. The biggest mistake is to not have a payment strategy and to be “caught flat-footed” as changes occur.
Next: Integrated channels
Members are likely to continue to use multiple channels to interact with their credit unions, rather than migrating to only one approach, says Michael Pratt, chief marketing officer at Panini, a CUNA Strategic Services alliance provider. The member who uses online banking to pay bills, for example, still might prefer to visit a branch to make deposits.
Credit unions must integrate these channels to create a seamless experience, says Pratt. And customer relationship management can reach members with relevant offers for products and services, regardless of the channel used.
Collecting information that analyzes relationships across channels will be vital to success, he adds. Credit unions must develop payment strategies that attract the desirable members of the future while understanding the cost per transaction for each channel.
“In your analysis, be honest and ask yourself whether the demographic composition you have is the one you want,” Pratt urges. Attracting the desired demographic might require rethinking service delivery strategies. Make sure you have the appropriate blend of branches and technology to keep your members close to your credit union, he advises.
At all costs, avoid complacency.
“The mobility of today’s members and the infinite choices available means you can’t assume members are staying put,” he says. You must anticipate their needs to create connections with staying power.
COMPLEX MIX OF PAYMENTS IS HERE TO STAY
If cash is the currency king, then its death has been predicted in vain for years, says Ben Rogers, research director, Filene Research Institute. Its brother—the check—also stubbornly refuses to relinquish its prominent place in family finances.
But the past two decades have seen a rapid rise in credit and debit card use, according to a Filene report, “Debit or credit: either, both, neither, or how much?” Specifically, the number of credit card transactions per U.S. resident grew from fewer than 20 in 1990 to more than 80 by the mid-2000s—or from once every three weeks to once every four days. The number of debit card transactions per U.S. resident grew even faster, from one in 1990 to 118 in 2009—or from once every year to once every three days.
“The new payment mix is more about market share than about which payment dominates or will dominate,” says Rogers. “Credit unions care deeply about whether consumers use debit and credit cards. Cards tie consumers to their financial institutions and are among the few revenue centers credit unions can influence.”
Debit cards are in use in 71% of American households, but only 19% of consumer households use them as a primary payment method, according to the report. This research indicates as income and net worth increase, so does credit card use. This might be the vestige of a system of loose credit and attractive credit card rewards.
But if the new credit card rules substantially limit the rewards companies offer to cardholders, debit use could catch up. If not, the economic advantages of nonrevolving credit card use could keep credit cards at the top of the payment heap for middle- to high-income consumers. Credit cards are a mature product, entrenched but unlikely to surge ever again.
The Filene report illuminates the often irrational ways consumers choose payment methods. But what might be perfectly rational reasons for using a credit card (interest-free loans for nonrevolvers and generous rewards) might not account for those who use debit to control spending or to avoid the dangers of revolving debt. New overdraft regulations could also make debit simpler and more attractive for everyday users.
And as ever-more sophisticated and niche payment systems (virtual currencies, social payments, ACH iterations) emerge, credit unions will need to pay attention to consumer demands and trends. “It’s entirely possible that 10 years from now, our cell phone-transacting children will stare blankly as we talk about choosing between credit and debit cards,” says Rogers.
Rather than predicting the imminent demise of this or that payment method, though, the Filene research encourages credit unions to recognize that a complex mix of payments—each attuned to the context and convenience of the purchase—is here to stay.
LINKING TO OUTSIDE ACCOUNTS
Credit unions are looking beyond members’ checking accounts to offer new options for electronic loan payments, according to Brad Young, chief operating officer, SWBC.
In 2010, the company expects to process more than $500 million in loan payments originating from members’ accounts outside the credit union.
SWBC introduced this service in 2006 to facilitate collection efforts on delinquent loan accounts. Members can use the Web, interactive voice response telephone systems, or credit union call centers to initiate payments from outside accounts. The delinquent loans often are linked to indirect auto lending.
Young says the approximately 300 credit unions using the SWBC service often offer the outside payment option to members who aren’t delinquent on loans. Credit unions typically charged fees as high as $15 when the service was introduced, but the fee gradually decreased to about $5 at most credit unions.
Some offer it for free, which Young sees as a growing trend. Instead of seeking fee income, Young says these credit unions “want the relationship and they want their payments made. They want to be first in that stack of bills.”