Bouncing Back After the Recession

CUs’ top planning strategies include proactive lending and mobile banking.

June 27, 2013

CUs’ top planning strategies include proactive lending and mobile banking.

It’s time for credit unions to move out of a defensive, recessionary mindset and think proactively about loan growth, membership growth, and new products and services, according to the newly released 2013-2014 CUNA Environmental Scan (E-Scan) Report.

This new perspective involves loan life cycle management/ remarketing, relationship pricing, portfolio “super-segmentation,” and a balance between sound credit-risk practices and aggressive marketing.

Another critical growth initiative: expanding your mobile services. It’s one way to extend your credit union’s products and services to more members, especially to Generation Y—your credit union’s future borrowers, the E-Scan reports.

INFOGRAPHIC:

10 Trends Impacting CUs

Monitor these trends as you create strategies and goals for your credit union’s future.



1. Mobile payments

Mobile payments are growing 68% annually—from $16 billion in 2010 to a projected $214 billion by 2015. Industry observers say this transaction type is the single greatest opportunity—and threat—for credit unions in the foreseeable future.

Mobile payments could be a game changer. Members used to come to credit unions to get cash and credit union-branded checks or plastic cards. But they won’t be coming to credit unions to get their mobile payment-branded devices. Mobile payments will be driven by access, not devices.

Don’t think mobile payments technology is just about payments. The technology provides a unique opportunity to increase your credit union’s overall franchise value by building a member relationship management database where your members are known and contactable before, during, and after each payment.

By aggregating services inside their own mobile apps, credit unions can benefit from increased spending and the opportunity to advertise, attract new members, better understand members’ needs, offer incentives, provide direct and complementary advertising from mobile app partners, and broker connections to business partners.

The strategic issue revolves around where you want this functionality to reside. Do you want it under your control in your own app, or under the control of retailers and unauthorized third parties who already have launched mobile payments strategies and continue to inject more resources into those initiatives?

“The one who enrolls is the one who controls,” says Richard Crone, CEO and founder of Crone Consulting and author of the E-Scan’s chapter on mobile payments.

NEXT:  Mobile banking



2. Mobile banking
 
Mobile banking has gone from cutting edge to mainstream faster than any other financial innovation. It’s quickly becoming a basic expectation, especially among younger consumers.
 
The number of U.S. consumers accessing bank accounts via mobile devices will nearly triple to 96 million by 2016, according to projections from Aite Group. And the number of mobile transactions will grow to 17 billion by 2015—nearly triple the total from just four years earlier, according to CEB TowerGroup.
 
It’s no longer sufficient to view your competition in terms of other credit unions and community banks. Your members expect your credit union to offer the products they see advertised by big banks—specifically mobile banking and payments capabilities.
 
If your credit union already offers these services, tell members and potential members about them.
 
Mobile bill payment, remote deposit capture, digital wallets, and person-to-person payments are on the verge of widespread availability. Soon, mobile devices will become the primary touch point with consumers. But there’s a downside, and it involves …
 
NEXT: Mobile malware


3. Mobile malware
 
With the proliferation of smartphones and the explosion of downloadable applications, it was only matter of time before malware targeted mobile devices significant numbers.
 
That time has arrived. The number of malicious Android apps will hit one million in 2013, according to estimates from TrendMicro.
 
Malware that provides unauthorized access to mobile devices, making it possible to install other malicious programs or steal personal data, is particularly troubling for financial institutions.
 
So are the dangerous Trojans that capture mobile banking login credentials. The Zeus-like ZitMo malware, for example, is infecting 10,000 to 20,000 Android smartphones per week.
 
Your credit union must invest more in mobile malware detection and prevention to keep pace with increasing threats. Tell members about your ongoing security efforts and teach them how to protect themselves from mobile malware.
 
NEXT: Lending rebound


4. Lending rebound
 
Credit union lending is expected to increase 5.5% in 2013 and 6.5% in 2014, according to CUNA economists.
 
Credit unions finally reported rising loan balances after three years of negligible or negative growth dropped average loan-to-share ratios to 68.6% as of year-end 2012—one of the lowest levels in 20 years. But lending is expected to pick up as the economy improves, consumer confidence rebounds, and household deleveraging declines.
 
Credit unions can expect growth in auto loans, credit cards, and purchase mortgage loans due to pent-up demand created by the recession.
 
A 3% to 5% increase in home prices during the next year should increase demand for second mortgages and home equity loans.
 
NEXT: Meager earnings


5. Meager earnings

Credit union earnings will be meager. Earnings as measured by return on assets are expected to decline from 0.84% in 2012 to about 0.75% in 2013 and 2014. A 10 basis point (bp) decline in net interest margins (from 2.9% in 2012 to 2.8% in 2013) will be partially off set by a 5 bp decline in loan loss provisions. For perspective, credit unions were earning a 5.3% spread 30 years ago.

To boost net interest margins, credit unions are searching for alternative assets and weighing their marginal risk (credit/interest rate) against their marginal return (additional yield on assets).

Area demographics—including population growth, median household income, local industries—and age trends also will influence margins.

Focusing on core deposits and their “stickiness” will increase your credit union’s opportunity for higher interest margins when short-term interest rates start to rise in 2015.

NEXT: Advocacy efforts



6. Advocacy efforts
 
CUNA has three major advocacy efforts currently under way: Don’t Tax My Credit Union, Unite for Good, and Plan to Win.
 
Unite for Good is a strategic vision designed to help all credit unions achieve shared goals. It’s a vision based on the shared values of collaboration, a member-centric focus, community involvement, and a dedication to consumers’ financial well-being.
 
The shared vision is: Americans choose credit unions as their best financial partner.
 
“We don’t want to be 7,000 credit unions with 7,000 scattered, diverse stories,” CUNA President/CEO Bill Cheney says. “We want to be 7,000 credit unions repeating one strong story 7,000 times. That results in effective, successful communication.”
 
To realize this vision, CUNA urges all credit unions to:
Visit uniteforgood.org for a checklist of action steps your credit union can take to realize these goals.
 
CUNA and the state leagues have been working on a Plan to Win for the past couple of years. Plan to Win is a comprehensive grassroots, political, legislative, and communications strategy designed to move all members of Congress to a position of stronger support for credit unions.
 
NEXT: Unbanked and underbanked


7. Unbanked and underbanked
 
Unbanked and underbanked consumers represent the last remaining “white space” in financial services—an uncharted territory where credit unions have a rare opportunity to serve an underserved market.
 
Approximately 68 million U.S. adults are either unbanked or underbanked. Revenue from serving these unbanked and underbanked consumers totaled $78 billion in 2011 and $85 billion in 2012.
 
During the past 20 years, an entire industry has emerged to fill the void left by traditional financial institutions. These alternative financial service providers or “fringe bankers” include check-cashing outlets, payday loan stores, and Internet payday lenders.
 
By charging exorbitant interest rates that can create a cycle of indebtedness, these profiteers act against the best interests of their customers under the veil of providing a helping hand at a time of need.

Credit unions can meet the underserved’s needs by offering appropriate services and building relationships.
 
A low-income designation, combined with a clear strategic plan, can enhance your ability to enter and serve low- to moderate-income markets. Tools that can help your credit union engage these consumers include check cashing, remittances, and bill pay. The path to asset building starts with a single transaction.
 
NEXT: Heavier compliance burden


8. Heavier compliance burden
 
The compliance burden will only get heavier in the coming year. In fact, 2013 will be busier than 2012, due to the onslaught of Consumer Financial Protection Bureau (CFPB) mortgage rules.
 
Your credit union should develop a compliance management system to address this overwhelming workload—the “new normal”—in an efficient way. The CFPB offers the most helpful guidance on creating a compliance management system, which consists of:
 
• Board of directors and management oversight, which will affect strategic planning;
 
• A compliance program that includes universal staff training and consistent monitoring;
 
• An overarching framework for responding to all consumer complaints; and
 
• Audit coverage of all compliance-related issues.
 
NEXT: CEO succession planning


9. CEO succession planning
 
CEO succession planning is becoming a priority as the economy recovers, retirement savings rebound, and more CEOs decide to retire.
 
Due to a lack of candidates with leadership skills in the current job market, credit unions without formal succession plans are finding themselves in an unenviable position as they scramble to find replacements for CEOs who leave without a lot of notice.
 
If your credit union has a succession plan (and twothirds do), review it to make sure it’s still relevant.
 
Succession planning is more than replacement planning. It’s a way to ensure the continuity of your credit union’s performance and culture.
 
Having the right leadership in place is crucial to your credit union’s success. Make sure your credit union is prepared to activate a formal succession plan that facilitates a smooth leadership transition.
 
NEXT: Gen Y’s low awareness levels


10. Gen Y’s low awareness levels
 
How successfully credit unions attract the 100 million members of Generation Y—people born between 1981 and 2000—will go a long way toward determining the movement’s future viability.
 
Credit unions must raise Gen Y’s awareness levels. CUNA’s research from April 2013 shows that nearly half (45%) of nonmembers ages 18 to 24 are “not at all familiar” with credit unions. Another 26% are “not very familiar,” and 20% are “somewhat familiar.” Only 8% are “very familiar.”

On the upside, credit unions’ not-for-profit, cooperative business model resonates with Gen Y. These consumers also value the financial guidance and advice available at branches. Credit unions must communicate their Gen Y approach to those prospective members via an effective social media strategy that employs Twitter, customized text messaging, blogs, and online social communities.
 
They also must connect with Gen Y’s most trusted financial advisers—their parents—using channels appropriate to that generation.