1. Listen to your members. Two of the top reasons credit unions gave in a recent CUNA survey for making the move into business services were to offer more services to members (57%) and because members had asked for them (54%), says Pat Keefe, CUNA vice president of communications and media outreach.
It’s a natural transition, says Steve Harkins, president/CEO at $208 million asset SC Telco Federal Credit Union, Greenville, S.C. “Many of our members are small-business owners. It’s natural for them to want business services from us.”
Business services are on track to roll out next year at $137 million asset Icon Credit Union, Boise, Idaho. “Member needs are driving the types of services we’ll deliver and how we’ll deliver them,” says Connie Miller, president/CEO. “They want connections, local service, and technology tools that minimize employee downtime.”
Erie (Pa.) Federal Credit Union—winner of CUNA’s 2009 Credit Union Excellence in Lending award for business lending—laid out a three-year strategic plan to grow its business services.
But connecting with members took the $327 million asset credit union down an unexpected and highly rewarding path, says Denise Kaczmarek, senior vice president of lending. “One of our member businesses lost its main source for customer financing. Now 21 merchants send us their customers, and we’ve closed nearly half a million dollars in loans for them since 2009.”
2. Evaluate the competition. Conduct a formal analysis of your market. Are your competitors local, regional, or national? What types of business services and capabilities do they offer, especially in the area of technology? While $83 million asset First Bristol (Conn.) Federal Credit Union doesn’t currently offer business services, it’s considering them.
“A couple of area community banks were just sold to larger national and regional banks,” says Mark Cornacchio, president/CEO. “It’s still a competitive environment, but for the first time we think we might be in a position to make some inroads.”
3. Decide how to gain needed expertise. Business services require more due diligence, analysis, and monitoring, and an understanding of a host of regulatory issues.
“We have in-house training to help staff gain the core competencies, but we did hire people from the banking world to lay the original foundation,” says Wayne Paton, vice president of commercial banking and wealth management at $3.1 billion asset Ent Federal Credit Union, Colorado Springs, Colo.
Using a credit union service organization (CUSO) has been more cost-effective for $585 million asset Tropical Financial Credit Union in Miramar, Fla. “Replicating what they can offer us internally would be extremely expensive,” says Richard Helber, president/CEO.
“We originally used a national CUSO, but quickly decided it made more sense to form our own regional one (Innovative Business Solutions) so we could have more control, personal service, and local knowledge,” says SC Telco Federal’s Harkins.
Some credit unions choose to work with service companies that can handle everything from loan underwriting and servicing to merchant processing, payroll, and member websites.
“We make it easy for credit unions to reach out to this market by providing a ‘one-stop shop’ for your member businesses,” says Barry Sloane, president/CEO of The Small Business Authority. “A partnership with our company can allow you to provide business services with minimal staff commitment.” The Small Business Authority is powered by Newtek Business Services Inc., a CUNA Strategic Services alliance provider.
“Be methodical, and reach out to get the help you need,” says Icon’s Miller. The credit union is sending its vice president of lending to a five-week business lending school run by the Northwest Credit Union Association. Icon staff also are attending regular seminars, connecting with regulators, talking with other credit unions, and investigating services available through CUSOs.
“We’re looking at our underwriting, determining what kind of ongoing analysis we’ll need to monitor our risk, and evaluating various technologies—like remote deposit capture—and the risks they hold,” says Miller.
4. Evaluate your technology capabilities. Take a close look at your processing systems and member-facing online tools. Can your core system accommodate member businesses’ lending and deposit/cash management needs, and deliver the risk analysis tools you need? Are your online service offerings competitive?
Most member businesses will expect online bill payment and banking, and assistance with payroll and cash management. Remote deposit capture is also growing in popularity.
“We brought in business owners and asked them what they’d want to see in an online business platform and took it from there,” says Gregg Cawlfield, director of business banking at Ent Federal. “Tiered authority was especially popular,” giving different users at the business access to different functions within the system.
It’s important to be able to integrate existing systems with your credit union’s online banking platform, credit unions agree. “We wanted member businesses to rely on us for their ‘whole ball of wax,’ so we had to wait until we had a core processing system in place that could handle it,” says Kaczmarek.
On the hardware side, Erie Federal added two “fast branch” machines for businesses that need to make late-night deposits. The machines can count bills, accept cash deposits, take bulk deposits of checks, and provide check images on the receipt. And they’re open 24/7.
5. Start small. “One of the most common mistakes is jumping into large loans,” says Paton. Credit unions do better starting with loans less than $50,000, he explains. “They’re similar to consumer loans and you can deliver a needed service without betting the farm.”
“We don’t have the resources to do things like complicated treasury transactions,” adds Harkins. “We’ve found that most of our business members are looking for things like checking and deposit accounts, a place to handle their payroll, equipment financing, lines of credit, and maybe a credit card.”
“Credit unions shouldn’t be afraid to find their niche,” agrees Miller. “Don’t go in too many directions and don’t try to be all things to all businesses.”
Next: Keep it local