Move Members from the Showroom to Your Lobby

CUs concede it’s a challenge to turn ‘indirect’ members into PFI members.

April 24, 2013

CUs concede it’s a challenge to turn ‘indirect’ members into PFI members.

Indirect loans made up 56.7% of all credit union auto loans in 2012, according to CUNA’s economics & statistics department. That translates into lot of new members entering the credit union, perhaps many for the first time. How do credit unions onboard these new members and turn them into loyal members who use multiple products and services?

“It’s a challenge we all face,” admits Kendall Garrison, senior vice president for lending at $612 million asset Amplify Credit Union, Austin, Texas. The conversion rate for the industry is in the 1% to 1.5% range, Garrison points out.

Acquiring new members via the indirect channel can be a source of loan and membership growth. But the benefits are far greater if these new members sign up for and start using additional products and services, perhaps someday calling their credit union their primary financial institution (PFI).

“Indirect lending is like a doorway into the credit union,” says Jade Beckman, vice president of consumer lending for $3.4 billion asset Mountain America Credit Union, West Jordan, Utah. He says indirect lending serves two purposes for his credit union: It’s an opportunity to obtain new members and it strengthens the relationship between the dealership and the branch.

SIDEBAR:

Though some credit unions are seeing success, they admit it’s not easy to onboard these new members.

But developing an onboarding strategy will be huge as the auto industry continues its comeback. “Indirect lending has consistently picked up during the past few years along with the rest of the auto industry,” says Riley Williams, partner with Koger & Williams Cos. , Chattanooga, Tenn.—a company that advises credit unions on indirect lending programs.

Although credit union loans grew 4.8% overall last year, new auto loans increased 8.5% in 2012—the fastest growth since 2006. Used auto loans increased 7.9%.

The financial crisis led to a widespread distrust of many of the nation’s largest banks. As a result, some formerly loyal bank customers gave credit unions a try when they went car shopping, says Tony Boutelle, president/CEO of CU Direct Corp. And these new members who come through an indirect lending program can ultimately become loyal members.

“About 90% of auto loans are consummated at the dealership,” says Williams. “To be successful, you have to be in indirect lending.” About 80% of a credit union’s indirect loans come from new members, according to Williams.

Boutelle says one of the most important issues to many dealers is the speed of funding the loan. CUDL, owned by CU Direct Corp., provides technology to facilitate this process.

Realistic goals

Even without an aggressive onboarding program, credit unions should be able to get about 6% of new “indirect” members using additional products and services, according to Williams.

With a more aggressive approach, a credit union should be able to boost that figure to at least 20%, Williams says. To successfully convert indirect members, it’s also important for credit unions to have a culture—from top to bottom—that values cross-selling and onboarding, says Williams.

While credit unions want to add more members and gain a larger wallet share, Boutelle cautions credit unions to have realistic goals. Successful onboarding programs can expect to get between 10% and 25% of new members using additional products and services. Most credit unions see numbers way below that.

Sometimes even the most sophisticated marketing strategies won’t be enough to convince members to use more products and services, Boutelle adds. If a credit union doesn’t have a branch near an indirect member’s residence or workplace, it’s difficult for that credit union to gain additional business from those new members.

SIDEBAR:

Deposit accounts are a much tougher sell than credit accounts, Boutelle says, even though online banking has made physical proximity of a branch less of an issue. That’s because consumers are reluctant to switch what many consider to be a “sticky” financial relationship.

Boutelle recommends easing members into additional products and services, rather than trying to market everything at once.

“Keep the message simple,” he adds. “Many credit unions have had success by leading with a credit card offer first.”

A credit card or another nonauto loan offer is a natural extension because the credit union already has all the necessary information from the indirect auto loan application to make a credit decision on a different product. And the member can accept a new loan or credit card without consideration of the credit union’s branch location.

The auto loan application should provide additional marketing intelligence, according to Garrison. “In 2012, we put together an in-house soft ware team and tasked that team with building a data warehouse to determine the next best product for each member.”

NEXT: Follow-up strategies



Follow-up strategies

You can’t overemphasize the importance of consistent follow-up contacts in the onboarding process, says Keenan Bender, director of consumer lending for $850 million asset Meritrust Credit Union in Wichita, Kan.

Lori Gallegos, executive vice president and chief operating officer of $400 million asset First Credit Union in Chandler, Ariz., agrees. “We started an outbound calling program in late 2011 to tell people that we appreciate the loan and introduce them to other products and services,” she says.

First Credit Union introduced a new approach— marketing additional products and services based on the account level rather than the product level, Gallegos adds. Rather than sending the same message to all new members, the credit union markets differently to new members who’ve arrived through the indirect channel.

The combination of outbound calling and customized marketing approaches has improved the credit union’s average products per member from 2.5 to 3.2. That’s still below the 4.1 average for all members, but reflects significant progress toward the credit union’s goal of five products per member, Gallegos says.

Meritrust’s onboarding program improved after the credit union refined its outbound calling strategies, according to Bender.

Meritrust started onboarding campaigns three times in the past few years with little success, according to Bender. The marketing department handled earlier attempts entirely on its own. The newest campaign, however, relies on the strengths of a combined team from sales, member services, and marketing.

“Historically, sales has been a four-letter word in credit unions because we’ve been so focused on service and transactions,” Bender says.

But the changing face of financial services means that staff who have sales skills are more valuable than ever for credit unions, especially when it comes to onboarding members who’ve joined via the indirect channel.

Sonya Baer, a 15-year veteran at Meritrust, leads a team of four employees who call all new “indirect” members. Armed with data from the indirect loan application, Baer’s team welcomes the new credit union members, explores their other product and service needs, and helps them with additional loan or credit card applications.

The program has doubled the effectiveness of their onboarding efforts, and every fifth follow-up call has resulted in a new checking account, Bender says. This is impressive because people generally are reluctant to change checking accounts due to the automated bill payments they’ve set up.

“The opportunity is ripe for the picking,” he says. “Most people want someone to call them and ask about any questions they might have.”

People making these calls should have the proper skill set along with extensive knowledge of sales and member services, Bender adds. Employees who don’t possess these skills aren’t likely to fare as well.

The only cost of such a follow-up program is personnel, Bender says. The more staff he can assign to the program, the more he can grow the credit union’s membership base.

Automatic loan payments

Ent Federal Credit Union, Colorado Springs, Colo., uses follow-up calls to set up new members with automatic payments.

Simplifying the payment process is an important factor in future member relationships and in helping members stay current on their payments, says Bill Vogeney, executive vice president and chief lending officer for the $3.7 billion asset credit union: “A loan closed correctly is half collected.”

Ent Federal’s loan losses on auto loans (indirect and direct) are only 29 basis points, which is indicative of the credit union’s dedication to consistent underwriting. That consistency is the key to maintaining good relationships with dealers.

“Nothing gets a dealer more upset than not knowing which way the wind is blowing,” says Vogeney. “Many credit unions had to pull back dramatically with their credit policies in 2009, making it that much more difficult to rebuild business when the economy started to recover.

“If the dealers’ finance managers have been burned once, they’ll wait until the credit union starts doing silly stuff to regain their business, which restarts the entire bad cycle.”

Other credit unions are having onboarding success by offering incentives, such as a $25 fuel card to come into the branch to discuss products and services, according to CU Direct Corp.’s Boutelle. But he suggests you keep your incentives modest and offer them only to small groups of members at the outset.

Claire Ippoliti, chief lending officer for $410 million asset People First Federal Credit Union, Allentown, Pa., considers the first 60 days of the onboarding process the time to build and strengthen personal relationships.

“We want to distinguish ourselves,” she explains. “We don’t want to be seen as just another financial institution offering products and services.”

Ippoliti determined it was too costly and time consuming to have different approaches for indirect members and other new members, so marketing efforts are the same for both groups.

The credit union follows up the approval of indirect loans with a phone call and a welcome gift. It also uses demographic information from its auto loan applications to determine which follow-up postcard message to send new members.

The credit union sends new members a survey, which they can complete and turn in at the branch to receive another small promotional item. After the initial 60-day relationship building period, the credit union targets new members with specific products and services designed for their needs.

Using this approach, the credit union has seen a 4.2% increase in services per new-member household, according to Ippoliti.