As we celebrate the first anniversary of Bank Transfer Day on Nov. 5, we can start to analyze its long-term effects.
From a marketing and public relations standpoint, it was a success.
Credit unions are the beneficiaries of market momentum, thanks to all the positive publicity—not to mention the continued negative publicity banks are receiving.
The influx of deposits continues to put a strain on credit union balance sheets and income statements as the industry, overall, experiences a shrinking loan-to-share ratio.
For Bank Transfer Day to be considered a true long-term success, credit unions must convince new members to borrow. While consumer credit balances continue to slowly grow nationwide, credit unions are not yet part of that growth.
Who are these new members disenchanted by their previous banks? While it’s difficult to peg the group, a few assumptions can help us target lending efforts to benefit the membership, overall. It’s likely many of these new members fit into some or all of these categories:
Generation Y. Due to the use of social media to spread the word on Bank Transfer Day, it’s safe to assume a fair share of our new members belong to this generation.
Bruised credit. People most disenchanted with the big banks are arguably those who contributed to banks’ in-creased reliance on fee income. Consumers who’ve paid more than their fair share of insufficient funds and courtesy pay fees likely have below-average credit profiles.
No lending relationship. While a checking account adds to the “stickiness” of any account relationship, a loan relationship makes it that much tougher to switch. Unfortunately, I never saw one mention of “switching your loan” in any of the Bank Transfer Day publicity.
How can credit unions appeal to these new members? Start by helping them save money. Don’t encourage new debt; encourage debt reduction.
My credit union—Ent Federal Credit Union—has learned to leverage the deleveraging many consumers have initiated. Our marketing initiatives that encourage and provide incentives for members to pay off existing debts faster through new loans have been very successful. Promotions that seem to simply promote more debt have died a fast death.
Ent Federal plans to eliminate the term “debt consolidation” altogether. It implies the borrower has financial problems. “Consolidation” tends to attract consumers who are desperate and might not qualify for loans.
Instead, we’re considering terms such as “debt termination” or “liquidation loan.” Our most successful loan during the past two years has been our Mortgage Freedom loan—a 10- to 12-year refinanced mortgage with lim-ited costs.
Remember, saving money through lower fees is part of the reason Bank Transfer Day members came to you in the first place.
Once you’ve sold a loan, you must have efficient processes in place for closing it. Big banks have been trying to promote the benefits of their automation and technology, and there’s significant evidence many consumers are impressed with these cutting-edge solutions.
Most consumers are now used to the elegant simplicity of mobile banking. Make sure your loan process is as simple as possible—not only the technology, but also well-coordinated closings and simplified loan applications and approvals.
Product flexibility appears to be a key driver in reaching Gen Y. In an American Financial Services Association project, student teams from Wake Forest and the University of Arizona designed an auto loan product to appeal to Gen Y. Tailoring loan payments to consumers who might not have stable incomes raised Gen Yers’ perceived “val-ue” of the loans by as much as $500.
But loan flexibility is valued by all members—particularly after the Great Recession. Allowing loan payment flexibility reduces the number of loans that eventually default. Imagine the positive publicity if all credit unions agreed to provide this kind of service—without the fee.
BILL VOGENEYis executive vice president/chief lending officer at Ent Federal Credit Union, Colorado Springs, Colo., and incoming chair of the CUNA Lending Council. Contact him at 719-550-6580. For more information about CUNA Councils, visit cunacouncils.org.