april 2018 | volume 13 | issue 4 mapping the member journey€¦ · sales and advertising tim...

APRIL 2018 | VOLUME 13 | ISSUE 4

T H E C F O I S S U ETHE ONLY ALL-DIGITAL, ALL-BUSINESS RESOURCE FOR CREDIT UNIONS

Mapping the Member Journey ROB VANASCO

ALSO IN THIS ISSUE:

Rising Rates End of 2018 May Put Credit Union (CU)Earnings At Substantial Risk by Mark Wickard

C R E D I T U N I O N B U S I N E S S | A P R I L 2 0 1 8 | C U B U S I N E S S . C O M

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APRIL 2018 | VOLUME 13 | ISSUE 4TABLE OFCONTENTS

7 UP FRONT Title here Tim O’Hara

8 IN-BRANCH PRODUCT SALES The Secret to Selling is Asking the Right Questions Nick Brown

12 BRANCH STRATEGIES This Often-Overlooked Branch Challenge Can Cost You Chad Davis

15 MEMBER SERVICE MAPPING Mapping the Member Journey Rob Vanasco

18 FINANCIAL WELLNESS Financial Wellness Are You Missing a Growth Opportunity? Barabara Sanfillipo

22 INTEREST RATES Rising Rates End Of 2018 May Put Credit Union (Cu) Earnings At Substantial Risk Mark Wickard

25 ANALYTICS The Path from Descriptive to Predictive Analytics David Ross

29 MARKETING MATTERS Segmenting Your Remarketing Strategy Aaron Gregerson

32 CFO CURRENCY 3 Ways Rising Rates Affect Your Balance Sheet Michael Oravetz

35 CFO OUTLOOK Insights from the 2018 CFO Outlook Planning, and Profitability in Financial Institutions Ken Levey

41 BRANCH BUSINESS Brains at the Branch Three Psychology Insights Branch Teams Can Use Right Now Kaitlin Morrison

44 MEMBER DEVELOPMENT Credit Unions Need to Go With the Tide or Get Swept Up In It Paula Tompkins

THE ONLY ALL-DIGITAL, ALL-BUSINESS RESOURCE FOR CREDIT UNIONS

What does a

$24 subscription get?

• High Quality monthly magazine.• Website with 72 back issues• 700+ articles available

“On Demand”JUNE 2014 | VOLUME 9 | ISSUE 6 | $9.95

T H E B R A N C H B U S I N E S S T R A I N I N G I S S U E

The CU All Stars!

Paul Nunn (CU Training)

Emily More’ Hollis (CFO Currency)

Jennifer Anderson-Kapke (Compliance Update)

Keith Kelly (CU Mobile Mortgage)

James Collins (CU CEO)

Rex Johnson (Lending Solutions)

Laura Enock (CU Content)

Miriam De Dios (CU Outreach)

The Best Way

to Build Branches

is to Knock

Them Down

by James Collins

The Changing

Face of Business

Lendingby Laura Enock

Top row from left: Emily Moré Hollis, Paul Nunn, Jennifer Anderson-Kapke, Keith Kelly

Middle row: James Collins, Rex Johnson

Bottom row: Laura Enock, Miriam De Dios

MAY 2014 | VOLUME 9 | ISSUE 5 | $9.95

T H E E - C O M M E R C E I S S U E

Lending Tools for a New Generation of Homeowner: eMortgagesby Keith Kelly

Credit Unions Keeping Up With Banks for Mobile Banking Services by Roy W. Urrico

Products Per Household: What Does it Mean to Your Staff?by Jack Kelly

Credit Unions Keeping Up

https://creditunionbusiness.com/membership-account/membership-checkout/?level=6


ABOUT US

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SUBSCRIPTIONSCredit Union BUSINESS is published monthly (12 issues per year) by CU Business Magazine, Inc. A one-year Digital membership is $75/yrAn online membership form is available at www.cubusiness.com/register.

TEAMBUILDERhttps://creditunionbusiness.com/the-team-builder/

SALES AND ADVERTISINGTim O’Hara, [email protected] or 561-282-6015 #1

CONTACT INFORMATIONCredit Union BUSINESS MagazineP.O. Box 2223, Palm Beach, FL 33480(561) 282-6015 | (561) 588-7711 (fax)[email protected]

APRIL 2018 | VOLUME 13 | ISSUE 4

T H E C F O I S S U ETHE ONLY ALL-DIGITAL, ALL-BUSINESS RESOURCE FOR CREDIT UNIONS

Mapping the Member Journey ROB VANASCO

ALSO IN THIS ISSUE:

Rising Rates End of 2018 May Put Credit Union (CU)Earnings At Substantial Risk by Mark Wickard

PUBLISHING TEAMTim O’Hara, Editor & [email protected] Morrison, Editor, Branch [email protected] Kumar, Associate Publisher [email protected] Manzone, Designer

UP FRONTTim O’Hara

IN-BRANCH PRODUCT SALESNick Brown

BRANCH STRATEGIESChad Davis

MEMBER SERVICE MAPPINGRob Vanasco

FINANCIAL WELLNESSBarabara Sanfillipo

INTEREST RATESMark Wickard

ANALYTICSDavid Ross

MARKETING MATTERSAaron Gregerson

CFO CURRENCYMichael Oravetz

CFO OUTLOOKKen Levey

BRANCH BUSINESSKaitlin Morrison

MEMBER DEVELOPMENTPaula Tompkins

THE ONLY ALL-DIGITAL, ALL-BUSINESS RESOURCE FOR CREDIT UNIONS


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BY TIM O’HARAUP FRONT

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It’s a Win-Win!

Q 1 of 2018 really fl ew by, didn’t it? It seemed like a blur. Since January 1st, we’ve been at least twice as busy as we were in previous years by launching our new digital monthly, Branch BUSINESS,

to wide acclaim. We’re working on Volume One, Number 4 of that young publication simultaneously with this issue of Credit Union BUSINESS, which is also marked as Volume 13, Number 4. To add to the fun, we also changed the name and structure of our corporation, from a C-Corp to an LLC, and from C.U. Business Magazine, Inc., to a more expansive Banking BUSINESS Network, LLC. (or, more simply, BBN.)Now, we’re on the constant lookout for new subscribers to help us in our mission to help credit union executives run their businesses.And, to help with that mission, we’ve created a new animated video that introduces our new introductory pricing plan featuring a whopping 60% discount from our regular $75 annual subscription price. For only $24, you can become an esteemed subscriber to CUB with full access to our ever-growing website. Www.cubusiness also features many years of back issues and thousands of excellent articles to help successfully operate credit unions. It’s a win-win!

Please click on the subscribe button today to take advantage of this great price and great information source!Thanks for reading!Tim

What does a

$24 subscription get?

• High Quality monthly magazine.• Website with 72 back issues• 700+ articles available

“On Demand”JUNE 2014 | VOLUME 9 | ISSUE 6 | $9.95

T H E B R A N C H B U S I N E S S T R A I N I N G I S S U E

The CU All Stars!

Paul Nunn (CU Training)

Emily More’ Hollis (CFO Currency)

Jennifer Anderson-Kapke (Compliance Update)

Keith Kelly (CU Mobile Mortgage)

James Collins (CU CEO)

Rex Johnson (Lending Solutions)

Laura Enock (CU Content)

Miriam De Dios (CU Outreach)

The Best Way

to Build Branches

is to Knock

Them Down

by James Collins

The Changing

Face of Business

Lendingby Laura Enock

Top row from left: Emily Moré Hollis, Paul Nunn, Jennifer Anderson-Kapke, Keith Kelly

Middle row: James Collins, Rex Johnson

Bottom row: Laura Enock, Miriam De Dios

MAY 2014 | VOLUME 9 | ISSUE 5 | $9.95

T H E E - C O M M E R C E I S S U E

Lending Tools for a New Generation of Homeowner: eMortgagesby Keith Kelly

Credit Unions Keeping Up With Banks for Mobile Banking Services by Roy W. Urrico

Products Per Household: What Does it Mean to Your Staff?by Jack Kelly

Credit Unions Keeping Up



BY NICK BROWN

The Secret to Selling is Asking the Right Questions

IN-BRANCH PRODUCT SALES

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A few months ago, I went in to my credit union branch to deposit some checks into my business account. Like many credit union branches, behind the teller line were a few TV’s playing the standard

loop—the weather, then sports scores, some trivia and news, then an advertisement for the product or service the marketing team is promoting. The credit union was promoting their 401K-rollover. If you rolled over your 401K with them you would also get a large gift card. This quickly caught my eye because for the past two-plus years, I have been meaning to roll over a 401K from my previous employer. I thought to myself, “Cool, I can get a gift card for doing something I am already planning to do.” While the teller processed my deposit, I made a comment to her about the promotion. I believe I said something like “Oh, I see you are running a 401K-rollover promotion right now.” She responded by giving me some information about the promotion and then she asked me a question, “Have you ever met with one of our advisors?” It just so happens that I have met with their advisors many times but never about my 401K. In fact, I had worked with several of their advisors in the past and so I answered honestly, “Yes, I have.” She said okay, and went back to processing my transaction. I waited for a response that would continue the conversation, allow me to share that I had a 401K I wanted to roll over with them, but I could tell she wasn’t prepared for that answer. I walked out of the branch and went on with my day. Now, six months later, I still need to roll over my 401K.

I share this experience because I feel it is a great example of a worthy attempt to sell that failed. The reason it failed was because the wrong question was asked. The question asked was a closing question, and a request to take action before the teller even learned if I had a need. Not know if I had a need, she was unable to handle my response, she had no place to go except back to my transaction. If you’ve read my articles, taken my online training, or attended on of my sales training workshops, you know that the secret to consistent, predictable success in selling comes not from a statement or phrase; it comes from following a process which begins with asking great questions. That process is to:

• identify a need• start the conversation • learn more with questions• discuss product features, benefi ts, and advantages• ask to take the next step

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I call this sales process The Simple Offer. The Simple Offer is something that all credit union employees can follow to sell in just about any situation. It can be used at the teller line, at the loan officer desk, and over the phone in the contact center. It certainly can be used by your mortgage, investments, insurance, and business services teams as well to connect product and service solutions with member needs and capture the full member relationship. These steps in this sales process are sequential, meaning that they must be executed in order and none of them can be skipped. In the example above, you can see that the teller went from identifying a need to asking for a commitment to take the next step. Had the sales process been followed, the next step should have been to start the conversation by asking a great question to learn more about my need. An effective question that focuses on my need may have sounded something like this: “Do you have a 401K that needs to be rolled over?” With this question, the teller would have learned that I do have a 401K. She could have then asked a few questions to learn why the 401K hadn’t been rolled over yet and if I had a plan for the 401K already. These questions would have led me to conclude that setting

an appointment to meet with an investment advisor next best step. When asked to make that commitment, I would have said yes. Here is how that conversation may have sounded using the simple offer:

Me: “Oh, I see you are running a 401K rollover promotion…”

Teller: “Yes. If you meet with an advisor by the end of the month to discuss a 401K rollover, we will give you a gift card. Do you have a 401K that needs to be rolled over?”

Me: “Yes. I’ve needed to roll over a 401K for the last two years.”

Teller: “Is there a reason you have been waiting these two years to rollover your 401K?”

Me: “No. I just keep putting it off.”Teller: “So what is your plan then for your 401K?”Me: “Actually, my plan was to roll it over with you

guys. I just haven’t made the appointment yet.”Teller: “It may have been a good thing that you

waited. Now, we can help you to rollover your 401k and give you a gift card.”

Me: “That’s a good point.”And the sales conversation would have continued to ask for and get a commitment from me to move to the next step. In the hypothetical conversation above, the sales discussion was able to continue because the right question was asked at the right time. That question did a few things. First, it invited me to share. Second, that invitation revealed the need that I had. And third, it opened a natural conversation flow and allowed the teller to ask additional questions, which were much more personal. The Simple Offer works because it taps into the same process we all go through to make buying decisions. Sales guru, Jeffrey Gitomer has a saying that “People don’t like to be sold, but they love to buy.” The most successful sales people understand this principle. They see themselves as a partner in the buying process.



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Nick Brown Consulting, established and founded by Nick Brown in 2015, is a credit union–specific sales training group dedicated to bringing a proactive sales approach to every credit union. Nick Brown Consulting accomplishes this aim by providing sales consulting

and training to enhance branch sales, outbound sales and lending center sales. With an emphasis on lending and cross-sales, Nick’s goal is empowering credit unions to add value in the life of every member in every interaction. Engage Nick Brown directly at 801-860-5807 or [email protected]. Ask about his credit union–specific workshops and online sales training, featured at www.nickbrownconsulting.com.

They ask questions to identify and understand the need and then utilize their knowledge and experience to guide their members to the products and services that best fi ll those needs. A critical skill for any credit union salesperson to poses is the ability to ask great questions. Be sure to include training on asking question as part of any sales program and even in the operational training courses your credit union offers. When coaching sales employees, their questions they ask should be the primary focus.

http://salescu.com/


BY CHAD DAVIS

This Often-Overlooked Branch Challenge Can Cost You

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BRANCH STRATEGIES

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F rom member service issues, to incremental loan growth, and everything in-between-- there is never a shortage of challenges in the branch environment. Out of all these, adhering to complex HR laws governing

branch employee wages, benefi ts, and scheduling, is the one that many times can be most easily overlooked. For fi nancial institutions that rely on manual recordkeeping to track branch employees’ hours and duties, these regulations pose the potential for high-priced compliance headaches and may contribute to operational ineffi ciencies. A proven tactic around those risks is to automate everyday processes and documentation related to staffi ng and scheduling. By deploying labor analytics, credit unions can head off HR regulatory challenges and uncover a wealth of data to steer workforce strategies. A new white paper from Kronos, “Solving the Workforce Compliance Challenge,” spells out the benefi ts of technology solutions in navigating away from compliance pitfalls and toward staff deployment that is simultaneously more cost effective and supportive of strategic initiatives.

Regulatory vigilance requiredThe Fair Labor Standards Act (FLSA) was signed into law 80 years ago to establish requirements for minimum wages and overtime. But continual updates through the decades—most recently widening the defi nition of employees covered by overtime regulations—makes compliance an ongoing struggle. Two other federal laws, the Affordable Care Act and Family and Medical Leave Act, also set out strict requirements for accurate and consistent records of employee work schedules to determine which staff members must be offered healthcare and job-protected leave benefi ts. And if the fi ne print of those laws is not enough to keep HR administrators busy, state and local wage and workforce statutes may apply additional restrictions. Oversight and enforcement of these regulations has increased in recent years, and the penalties imposed for violations can be stiff: The U.S. Department of Labor reports that 79 percent of its agency-initiated investigations in 2015 found wage violations. Over the following year, the DOL’s Wage and Hour Division, which oversees enforcement of FLSA regulations on minimum wage, overtime, recordkeeping and youth employment, identifi ed $266 million in back wages due to more than 280,000 employees. To comply with this maze of regulations, credit unions must maintain accurate and complete records of the hours their branch employees work, the duties they perform, and the wages they are paid. As the white paper notes, “error-prone manual processes increase the likelihood of inconsistencies that could lead to employee grievances.”



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BRANCH STRATEGIES

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Beyond compliance to competitive advantageIn many financial institutions, the data on hours worked and duties performed comes from a myriad of sources—from different business units, managers, and back-office and branch locations. Some employees may work in multiple locations, such as mortgage or business loan officers who meet with borrowers in different branches and member service representatives whose assignments vary based on transaction volume and PTO schedules. Add to that complexity the need to track the work schedules of staff who meet with members in remote locations or represent their credit unions in the community in evening and weekend events.

Bringing this data together in labor analytic systems can reduce the burden for satisfying regulatory requirements and make the job of preparing for compliance audits much easier. On a broader scale, technology solutions can support strategic planning and implementation from the C-suite to frontline

managers, offering valuable business intelligence to monitor operations, answer complex questions, predict outcomes, and test initiatives. These capabilities provide a comprehensive view of how a credit union is deploying its human capital in support of strategic objectives. Labor analytics enable managers to make more informed decisions on where to make adjustments to improve performance and provide a common and repeatable method of communication between layers of management, across departments, and throughout the branch network. For example, if one branch develops an efficient staff scheduling model that delivers timely member service and exceeds sales goals, other offices can identify and

emulate those effective labor deployment practices, make course corrections more nimbly, and measure their progress toward achieving similar results. Automating workforce data collection can help widen the view of employees across the organization. As the white paper notes, HR leaders can turn their attention to improving employee engagement and retention and “take on a more strategic leadership role in driving achievement of key corporate goals through workforce optimization.” And managers can collect more information about staff deployment without burdening their employees with manual recordkeeping duties so they can focus instead on doing their jobs—delivering value to members. In short, a modern workforce management system can help minimize compliance risk through automation, centralization, and consistency and achieve goals that may seem to be at cross-purposes—increasing member service levels, enhancing employee engagement, reducing labor costs, and ultimately enhancing revenue production.


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BRANCH STRATEGIES

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Chad Davis is senior industry marketing manager, Financial Services Practice Group, Kronos, which is a leading provider of workforce management and human capital management cloud solutions. Kronos’s industry-centric workforce applications are purpose-built for financial institutions of all sizes. Chad can be reached at [email protected].

https://www.kronos.com/resources?industry=banking


BY ROB VANASCO

Mapping the Member Journey

MEMBER SERVICEMAPPING

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E very credit union knows it needs to innovate. It is no secret that more and more members are demanding a digital experience in order to accomplish tasks faster and easier, or that self-service is the future and a digital

marketing strategy needs to include mobile and voice. But fi guring out exactly what a digital marketing strategy should look like is easier said than done. There is a broad landscape out there, and it can be overwhelming, not to mention there is the price tag to consider. Credit unions have to balance what is best for the member with the technical capabilities of their IT teams and cost to the bottom line. All these considerations can bring progress to a standstill. Instead of acting, waiting for a cheaper, more obvious solution to come along may seem like the easier path forward. Meanwhile, opportunities to gain new members and improve the experience of existing members are missed, one after another. What, then, is the biggest obstacle blocking the path to digital transformation? While a variety of factors – including time, money and resources – are partially responsible, the biggest culprit is “the why.” Defi ning the reason behind change creates a sense of urgency that is not present without it. So how do we fi nd the why?

It starts with the member.

Defi ning the WhyRecently, I had the opportunity to meet with a credit union and discuss how it was planning to improve its alerts and controls offerings. Instead of talking about a long list of alerts and how controls might help save money, and what it all might look like on web and mobile, we spent a good portion of our time talking about its members.

Walking into the meeting, I thought I had a basic understanding of the credit union’s members. I fi gured they looked a lot like members from other credit unions I have visited, made up of a mix of age ranges and job titles, maybe leaning more toward mid-level fi nancial institution and tech employees or healthcare professionals. I could not have been more wrong. It turns out this credit union serves lower-income residents of its community. Most members are in their 40s or older. They primarily work in jobs that keep them on their feet or using their hands. They work a wide range of shifts and many times are unable to get into a branch during business hours. Many of them have very little knowledge regarding fi nances and take their fi nancial advice from people in the same income bracket. They live paycheck to paycheck, have high utilization rates on their credit cards, and struggle just to make the minimum payment each month. These members do not have the latest iPhone, or an Alexa or Google Home device. They work as much as they can just to keep their heads above water and do not have time to learn new things. Why do these members care about alerts and controls on their plastics? In short, the credit union members being discussed were vastly different from everyone sitting in the meeting discussing their future experience. We had to get out of our own heads and step into that of the member.

Creating a PersonaTo step into the life of a member, we took what we knew and distilled it down to a single person. We gave her a name (Genie), a job and a backstory. We defi ned


MEMBER SERVICE MAPPING

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what motivates her, what challenges she faces on a daily basis, and what her goals are.

This persona gave us a clear view of who we were designing a solution for and helped facilitate the conversation around her journey. And by creating something Genie could actually use – something user-friendly that took little time to access, learn and update – we were accommodating the needs of the target member base on which the credit union is focusing its future efforts.

The Current JourneyThe next step was to walk through the credit union’s current alerts offerings from the perspective of our persona. Once we had the process mapped out, we talked about the journey, specifically what our fictional member might be thinking and feeling along the way.

The group decided Genie might be overwhelmed, confused and excited about first learning of the product. We talked about some frustration with the enrollment process as she might start to feel stupid or annoyed with her ability, or inability, to figure out how to get started. When it came time to actually set alerts, we felt Genie might have some anxiety or concern about whether or not she did it right – there was currently nothing to tell her that she successfully set an alert and no assurance it would work as advertised. When receiving alerts, we thought Genie would feel a mixture of relief, panic, confusion and stress.

The Future JourneyAfter mapping the current state, we wiped the board clean and started over with the same high-level steps: learn, enroll, set, manage and receive.

We imagined a world where resources, money and time were no object, and we walked Genie through the steps again, taking every measure to meet her needs and do what was best for her, without worrying about anyone or anything else.

What we came up with was a set of ideas and

steps that take Genie’s financial knowledge, her need for assistance, her time, and her challenges into consideration. Our focus became, “How do we help Genie help herself?” We discussed that while Genie may want someone to set controls and alerts for her, what she really needs is a basic understanding of the importance of alerts and controls and the ability to set and manage them on her own time. So, while Genie’s credit union will make every effort to provide the information she needs in the branch, over the phone, on the web or through social media, its ultimate goal is to guide Genie toward self-service.

The Journey Leads to the WhyGoing into this exercise, the credit union knew it wanted to move toward self-service and offer controls and alerts via web and mobile channels. While the findings did not reveal any insight that ran contrary to that initial goal, what it did uncover was why it was so important. Beyond dollars and cents, beyond trends and competitive analysis, the exercise gave purpose to improving a product. The principles identified will carry the credit union through the challenging days of product development and be a guiding light when making decisions about the details of product enhancement. No matter what, the credit union can always look back and ask, “What’s best for Genie?” What’s best for your members? Why?

As a UX Product Designer, Rob Vanasco is passionate about creating experiences that help people accomplish financial tasks faster and with less stress.

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BY BARBARA SANFILIPPO

Financial WellnessAre You Missing a Growth Opportunity?

FINANCIAL WELLNESS

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I magine this scene: As members walk into your branch or call in for help, your staff has been trained to think, “I wonder what pain, dream or goal this person has today and for the future? My job as a fi nancial coach is to fi nd out.” Imagine

how this would radically change the conversation, create loyalty and impact share of wallet. In case you haven’t noticed, there’s a growing movement in the fi nancial services industry to improve members’ fi nancial health—not just sell them something. Not only is this a higher level of service but in the digital age, we predict improving consumers’ fi nancial well-being will be essential to differentiate your credit union and create a competitive advantage.

Doctors Improve Physical Health – We Must Improve Financial HealthI had an “aha moment” while sitting in the waiting area for a doctor appointment. My doctor’s job is to ask really good questions, diagnose my ailment and offer the best remedy to restore my health. She’s a health partner in my life journey and I take her advice most of the time. It’s really that simple. Then I thought, “So why is there a scarcity of credit unions that place a priority on the simple concept of helping members improve their fi nancial health?” You may be thinking, “But we give fi nancial advice all day every day.” To that we quote Ron Shevlin from Cornerstone Advisors: “Too often, what we try to pass off as advice is nothing more than marketing offers. In other words, the ‘advice’ is what’s good for the bank, and not necessarily the member. Are we really

helping our struggling members by giving them pay day loans, credit cards, and consolidating debt without also providing a plan to achieve fi nancial stability?”

Consumers Want You to Help Them Improve Their Financial HealthA Gallup survey of 11,809 adults clearly demonstrated that. “consumers want their bank or credit union to improve their fi nancial well-being, not just sell them products.” Some other key fi ndings include:

• When members and customers strongly agreed their banks looked out for their fi nancial well-being, about 84% were fully engaged and none were actively disengaged.

• Financial institutions that take the time to address fi nancial health saw strong consumer confi dence.

• Unfortunately, only one in four respondents strongly agreed their bank or credit union looks out for their fi nancial well-being (sounds like opportunity to us!).


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FINANCIAL WELLNESS

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Why do we undermine the member relationship by focusing our staff on pushing products and getting a sale instead of diagnosing what stands between members and their financial health? They’d be just as likely to purchase products (or even more so) if they saw we had a genuine interest in helping them better manage their finances.

Financial Wellness Offers a Great Opportunity to Improve the Member Experience, Enhance Engagement and Increase Revenue GenerationYou certainly are aware that financial anxiety is at an all-time high. Here are some grim stats from research by Dave Ramsay’s organization:

• 70% are living paycheck to paycheck• 24% of pay is spent on non-mortgage debt such as

credit cards• 64% don’t have enough cash to cover one month’s

mortgage cost or groceries• 56% of Gen X workers (age 36-49) say they’ll need

$1-2 million to retire comfortably yet they have an average savings of $70,000

People represented by the above percentages need more than just isolated products without further guidance. They need a financial partner. The numbers illustrate the need. Here’s the want:

• Millennials are actively seeking financial advice and need help building credit, saving and managing finances

• SEGs and business owners are looking for financial education for employees

• Boomers and seniors are concerned about income protection and many are looking for help

Is Your Staff Diagnosing for Financial Wellness or Just Selling Isolated Products?Face it; your members don’t want your products! They want to alleviate a pain, reach a goal or enjoy financial peace. Read this finding again: The Gallup

study clearly demonstrates that consumers want you to improve their financial well-being, not just sell them products. Our job is not simply to sell a product but diagnose correctly. Unfortunately many of your staff is thinking “what can I sell this person today.” Here’s what we see all too often:

• Most of us are stuck in the old, tired sales training model of transactional product-selling. Our staff is trained to listen for a cue so they can quickly discuss product features and benefits. Unfortunately they are not skilled or comfortable in uncovering financial anxieties, goals and dreams and proactively managing the relationship.

• Monthly product goals and incentives encourage short-term sales, the wrong behaviors and a very underwhelming or repelling member experience. As a result, there is no emotional connection. Emotional motivators are the key to stir your members to take action.

• Your marketing slogan or brand promise claims, “we help you achieve financial security and reach your dreams.” However, that’s not what people are experiencing.


FINANCIAL WELLNESS

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Is It Time to Change Your Direction? Here’s What You Can DoWith strategic planning coming up this fall, we challenge you to rethink and redefine your sales model. Does it support your philosophy and branding? Are your employees highly engaged and feel they make a difference in the lives of your members? Are you missing out on the growth opportunities improving financial health offers your credit union? If changing course is under consideration, here are some actions items to consider.1. Be sure to include an objective in your strategic

plan that your credit union is advancing beyond a transactional, product selling model to a relationship-advice model. In fact, consider playing down or removing the term “sales culture” and replace it with a member relationship-building culture or MRM – member relationship management.

2. Elevate the role of branch employees. Create a team of elite financial coaches armed with interactive tools and skilled in engaging members to discuss budgets, goals, pains and dreams. Your MSRs and financial service representatives don’t need to be licensed. However, they do need to enjoy educating, guiding and discussing basic money management principles.

In a recent Financial Coach training for a credit union, I was quite pleased to see how excited and receptive their staff was to this educational approach. They were proud of their enhanced role and relieved it wasn’t about pushing products. In fact, a few days after the onsite program Jaclyn sent me the following email. Clearly, she provided a highly differentiated and engaging experience for this member.

Barb, I was just meeting with a member and we went over her money values survey, monthly budget and the financial wheel. SHE IS PUMPED about saving money, fulfilling her dream of buying a new house and

creating financial stability for her family! She is going to go home, fill out the budget with her husband and is coming back for more coaching with me. She said, “I didn’t know a credit union did this stuff and I had no idea of any of this. Thank you so much.” It makes me so happy to help a family this way.3. Remember, technology doesn’t build relationships

– your people do! Examine your existing sales training to determine if it focuses on transactional product selling and product pushing. Decide to invest in relationship management and financial coaching training instead.

4. Take a hard look at your current incentive plan as it may be driving the wrong behaviors. Ultimately you want to grow share of wallet with each member over time. In addition, be sure to recognize key activities such as pre-call planning and entering life events, anxieties, goals and dreams in the member profile in your CRM. In fact, consistent profiling and recording of member financial goals and progress is an expectation.

5. Educate your leadership team and board on the benefits of a relationship-driven approach combined with financial health and education. Many clients find our white papers and blog posts valuable as advance reading before strategic planning.

At High Definition Banking® we believe if you want your credit union to thrive and be relevant in the lives of your members, you must be genuinely committed to improving their financial health and well-being. In doing so you will have a loyal following that considers you their financial partner. Bottom line, it’s time to turn your retail staff into financial educators and coaches!


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Barbara Sanfi lippo, CPS, CPAE is an award-winning motivational speaker, coach and member relationship consultant. Barb is passionate about creating inspired employees and leadership committed to making a difference in the lives of their members. She partners with progressive credit unions to instill a structured, sustainable relationship management process to accelerate growth and focus on the fi nancial health of members. Engage Barb directly for your Annual Staff Event at 858-674-5500, ext 101 or [email protected]. For consulting and training, visit www.highdefi nitionbanking.com and view her speaker demo video at www.highdefpeople.com.



Rising RatesEnd of 2018 may put Credit Union (CU) earnings at substantial riskThe Problem: There is a False Sense of Security in 1Q 2018 which could be masking a substantial risk to earnings by the end of 4Q 2018 caused by 3-4 potential short term rate increases this year.

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What to do now? In this piece, we will discuss..

Why a False Sense of SecurityThe BackgroundRemember 2007-08 the so-called “Great Recession?” As an industry, CU’s withstood the failure of U.S. Central C.U. and Wescorp FCU – But it was put on the backs of natural person CU’s to “bail out”/fund the failure of these two one- time iconic institutions.2007-08 saw the FOMC move into a “zero interest rate policy” – keeping its fed funds target rate at 0-0.25% - from Dec. 2008 until Dec. 2015 when it finally raised the rate initially by 25 BPS. The result of this was to affect the entire rate structure – not just short term rates.How did this affect CU’s? We saw a great shift downwards in rates on the asset side of our balance sheet. As older assets (loans and investments) came off the books, we reinvested them at lower and lower

rates – which led to unwanted margin compression and earnings challenges. Meanwhile, other legislative measures such as Dodd-Frank cut into a CU’s ability to earn fee income. Some margin relief came in the form of paying less and less to our savers until our overall share rate structure “mimicked” the fed’s zero interest rate policy.But overall, margin compression had become a reality…so where are we now? Now, we’ve seen that the FOMC has been raising the Fed Funds rate since Dec. 2015. It has gone from 0%-0.25% to 1.50%-1.75% as of late March 2018. As a result of this, most recently, CU’s have been able to see a lift in earning power on the asset side of the balance sheet:• Short term cash is higher• Maturing investments have been rolled over into

higher rate bonds and/or loans as the 10 year also climbed from 2.07% in Sept. 2017 to almost 3.00% in late Feb. 2018.

• Loan Dollars have rolled off and have been replaced at higher yields.

This has/will create a temporary false sense of securityWhy? Because the share/deposit side of our balance sheet has yet to reprice and we are moving into a headwind of 3-4 more rate increases in 2018. Why should this cause concern if the FOMC raises rates 3 times in 2018?


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Answer: Because the real level of short term money market rates could exceed 2% by the end of 2018 – and liquidity may become tighter for CU’s as C.U. depositors awaken from their 0% interest rate slumber and begin to shop for higher savings rates from money market funds (think Schwab and Fidelity), Banks and even other CU’s in your local market.

This, of course is known as disintermediation – it hasn’t been an issue in a long time for CU’s as most CU’s have been awash with liquidity during 2008-2015/16. This will be a significant issue by 4Q 2018 after the FOMC has raised rates 3-4 times.

But what about now? CU’s should experience a temporary earnings lift (relief /euphoria?) and possibly come to the mistaken conclusion that: “we do better (profitability/ NIM) in a rising rate environment.” While this will be true in the short term, it will not be the case by the end of 2018.

If profitability/NIM seems to be better short term, how can I protect my margin (NIM) in light of the FOMC Raising rates 3-4 times potentially in 2018?It is a classic ALM/Net Interest Income (NII happenstance which provides a “false positive” (false sense of security earnings-wise)

Conclusion:This scenario has a strong likelihood of playing out in 2018 so that if no alternative measures are taken – CU earnings in 4Q 2018 could be at substantial risk because rates must be raised on our most rate sensitive deposits… and if the 80%/20% Rule follows where 80% of the deposits are controlled by 20% of the members,

then things will be challenging at best in 4Q 2018. Even a small increase on a large amount of deposit dollars will squeeze NIM. How Can I Protect My Margin (NIM) in 2018?We must protect / maintain (increase?) NIM - And there are 3 primary ways to do that as pressures mount:

1. Lower my cost of funds (COF) – clearly not an option when rates are rising, plus most CU’s already have their structure of rates (shares/share drafts/MMA’s/CD’s) in the “zero interest rate” framework; i.e., set as low as possible

2. Change my asset mix a. Lengthen assets/earn higher yield – not a great alternative for all CU’s depending on liquidity, IRR/NEV and certainly capital dependent (strong / weak?) b. Change to floating rate assets (investments and loans or loan participations). I would submit that this is – most likely – one of the best options a CU can consider in 2018

3. Grow the Balance Sheet a. Decrease reliance on non-core funding dependency – shift from chasing retail deposits (“CD specials”) b. Wholesale funding/FHLB Funding or issue CD’s through broker or CD Network c. Wholesale funding result in cheaper COF for more rate sensitive or volatile liabilities

NOTE: We suggest discussing alternatives in detail on a monthly strategy call, as we do with all clients of our group.


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Why in 2018, as much as 80-90% of CU’s investment portfolios will underperform in this expected rising rate environment in 2018?The reason for this statistic is very simple: Most CU portfolios contain 80-90% fixed rate investments. In a rising rate environment, not only do these assets not reprice but they become a drag on earnings as rates increase and they are stuck at increasingly unattractive lower rates. What could make this even worse? Fixed rate investments quickly fall away from their book value as rates rise and cannot be liquidated without a substantial loss. Our clients have been re-allocating their investments towards floating rate coupons since 2013-14. We will continue to be proactive with these floating rate strategies throughout 2018 in light of 3-4 expected FOMC rate hikes. It is not too late to reallocate your investment mix from fixed to a meaningful floating rate percentage. The results of this strategy which our clients have been reporting, has indeed been gratifying and will benefit by 75BPS-100BPS more this calendar year, as floating rate holdings reset. It still does not make financial sense to buy a fixed rate bond at this juncture, when the comparative yields are as good/better than what can be acquired on a floating basis. So if we are – on the date of purchase – as good/ better than what can be acquired in a fixed rate MBS/CMO, we will be better off with further short term rate increases during 2018.CAVEAT: Agency arm MBS which reprice as little as one year and as long as five years, will not get the job done in this rate environment.

What to do now?First and foremost, we need to think differently, because market conditions (i.e., rising rates) demand it.Margins should temporarily improve, but depending on the number, magnitude and pace of 3-4 rate increases–margins will should come under pressure, possibly under siege by 1Q 2019. We recommend looking at both asset (floating rate investments and loans/loan participations) and

liability strategies (such as wholesale funding through FHLB or brokered CD’s vs chasing retail deposits). This can be done through “what-ifs” on most ALM models.Conclusion: There is definitely a “false sense of security” that is emerging or will emerge with respect to CU earnings in 1Q 2018. Until the real market effects of 3-4 rate increase begin to kick in and the deposit rates of CU’s come under pressure in 4Q 2018, this false sense of security will continue! All Credit Unions have the same tools… bonds that are in their Investment Universe (permissible).

So why do some Credit Unions do better?We believe Education is the key to helping make a critical difference in your Credit Unions Portfolio. We will touch on these ideas during our clients’ monthly scheduled strategy calls, as well as upcoming webinars and educational forums available to all CUs.

Credit Union Investment Strategy Groupof Oppenheimer & Co. Inc.Request your complimentary Portfolio Evaluation today. Call (844) 616-4431 or email us at [email protected]

This article was written by Mark Wickard, a Financial Advisor with Oppenheimer & Co. Inc. who can be reached at (517) 333-7762. This article is not and is under no circumstances to be construed as an offer to sell or buy any securities. The information set forth herein has been derived from sources believed to be reliable and does not purport to be a complete analysis of market segments discussed. Opinions expressed herein are subject to change without notice. Additional information is available upon request. Oppenheimer & Co. Inc., nor any of its employees or affiliates, does not provide legal or tax advice. However, your Oppenheimer Financial Advisor will work with clients, their attorneys and their tax professionals to help ensure all of their needs are met and properly executed. Oppenheimer & Co. Inc. Transacts Business on All Principal Exchanges and Member SIPC. Office of Supervisory Jurisdiction:Oppenheimer & Co. Inc. • 1400 Abbott Road, Suite 140 • East Lansing, MI 48823 • (517) 333-7760


BY DAVID ROSS

The Path from Descriptive to Predictive Analytics

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I will never forget the time I received an escalation call from a member whose card had been declined for fraud prevention while checking into a hotel in Paris. She was furious about what transpired, and her main argument was that we should have

known it was really her using the card. Why? Because two months prior, she had purchased airline tickets on that same card. And the airline in question? It was not United, American or Delta – it was Air France. She exclaimed, “Is it really that unusual for someone to buy an Air France ticket and then two months later try to check into a hotel in Paris? You knew that it was me!” It was diffi cult to disagree with her, as it should have been easy to predict the airline and hotel transactions were related. That was her expectation as a member 10 years ago in 2008 when that conversation took place. My team and I have seen member expectations continue to grow in the decade since. After years spent partnering with credit unions across the country, my team has found the best approach to knowing and serving members better is through the use of Predictive Analytics. Predictive Analytics, as the name suggests, can help credit unions determine the probability that something is going to occur in the future. This is very different from traditional reporting, which details what has already transpired in the past, and is often referred to as Descriptive Analytics. To be clear, a credit union needs solid Descriptive Analytics as a foundation before progressing on to the predictive space. It is crucial to understand items such as how a portfolio has performed year over year, where members are transacting, how often a card is used,

what interchange was received, how much interest income was generated, and what the total outstanding balance is. A credit union should regularly review reports and dashboards to evaluate KPIs, trending and other key metrics around the aforementioned items. If not available internally, a credit union’s card processor might have this information available. Digesting it is important not just to measure how well the portfolio has been managed, but also to identify potential areas of opportunity. For instance, a graph showing a steeper trend line for fraud losses versus peer groups could mean that a more conservative risk approach should be considered. But while valuable, such an analysis is not predictive in nature – it remains based on Descriptive Analytics.


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Predictive Analytics employs a mathematical approach to forecast outcomesPredictive Analytics by comparison is built on statistical data modeling, and probably the best-known predictive model in the credit union world is the credit score. Just as the credit score is used to assess the probability that a loan will be repaid, other predictive models can be built for a variety of use cases. For instance, a predictive model can be built to identify members who are likely to attrite. Similarly, a predictive model could be built to determine which members might be on the verge of becoming detractors, allowing the credit union to intercede before there is any impact to net promoter score (NPS). These are two powerful examples that leverage data to know the member better, and it is imperative to know the member better because that is the expectation today.

Cost and complexity are obstacles that need to be overcomeMoving from Descriptive to Predictive Analytics can present a challenge for many credit unions. To begin, detailed granular-level information is required. Even when a credit union has captured this type of data in a data warehouse, it still needs to deploy a statistical modeling platform with enough capacity and computational power to work with that data. It is also

possible that changes to the data warehouse design will be required to support Predictive Analytics. Once these items have been addressed, there is the need to have a human resource familiar with the techniques required for predictive analysis. Quite often this requires hiring a data scientist, a position that currently commands a six-figure salary in the marketplace. Plus, in 2018, multiple publications have estimated a shortage of over 100,000 data scientists in the U.S., making the talent that much more difficult to find. Significant resources and costs are clearly involved, making the path to Predictive Analytics somewhat difficult to traverse.Partnering with a subject-matter expert can be a more efficient approachAs an alternative, a credit union might seek out a vendor or CUSO (Credit Union Service Organization) to assist with the transition to Predictive Analytics. This is a very practical approach, but credit unions should carefully evaluate with whom they partner, as there are several pitfalls that might be encountered. One important question to ask is how will the potential partner get the data needed to build the predictive models? If data needs to be sent outside the credit union, how frequently does it need to be transmitted, and is PCI/PII compliance in place? Another question to ask is who is responsible for the analytics, as some

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vendors provide a data platform only, leaving the analysis to credit union staff. Be careful to understand the actual capabilities the partner is offering – are they providing reports (Descriptive) or are they building models (Predictive)? Finally, ask what happens with the final output. Going back to the attrition model example, would the credit union simply receive a list of members likely to close their accounts? Would it be a scored list? What is the next step that should be taken? Taking this proactive approach will help ensure the selected partner is best aligned to meet the credit union’s needs.

Once a credit union fully embraces Predictive Analytics, it will have insight into the membership that facilitates providing a level of service that exceeds even today’s high level of expectations. Members want to feel as if their credit union truly knows them at the individual level. With Predictive Analytics, credit unions can leverage their data to accomplish just

that. Credit unions can know why the member has not activated a card, why a previously active card went dormant, or even when and where the member is likely to be traveling – something that personally would have come in handy back in 2008.

David Ross has spent the past 19 years working in a wide variety of data science and analytic roles. Most recently, he was responsible for global fraud analytics strategy and execution at Citi, a position that required working with

countries around the world to implement best-in-class analytics tools. David is currently leading the initiative to develop models for Predictive Analytics at PSCU.

pscu.com844.367.7728







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Visit us at GAC Booth 310 to learn more.




BY AARON GREGERSON

Segmenting Your Remarketing Strategy

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I f you were to ask an internet-savvy consumer directly, you might get the impression that remarketing will hurt your campaign’s potential. After all, “Banner ads don’t work.” However, when asking digital marketing experts, every one

of them will whole-heartedly tell you, without a doubt, that remarketing works. Remarketing is one of the most effi cient and effective tools that digital marketers have in their tool kits to generate brand awareness and reinforce product marketing.

By the NumbersAccording to CMO.com, not only does remarketing work, but most consumers, who like the idea of ads being directly targeted at them, also see it as a positive thing.

• 30% of consumers have a positive or very positive reaction to retargeted (remarketed) ads.

• Only 11% of consumers feel negatively about remarketed ads.

• Remarketing can boost ad response by up to 400%.• Remarketing ads tend to enjoy higher average click-

through rates than their banner ad counterparts.

The fact of the matter is that the representation of products and site visits in remarketing ads changes consumer behavior. As marketers, there is an understanding that message repetition and frequency is key to successfully converting a new consumer to your product or brand. Remarketing is the digital equivalent of being able to run a national television ad campaign during the Super Bowl – without the enormous cost tied to running those spots. What’s more, the audience is highly targeted.

In fi nancial services, remarketing is even more critical to success than in the Amazon or Zappos retail world. Financial consumers will take longer to consider a decision before becoming a new member or purchasing a new fi nancial product. Therefore, repetition and recall are the foundations of a dialogue that eventually brings that consumer back to your credit union.

Strategizing Your RemarketingYour credit union’s remarketing, similar to your entire digital plan, also needs a strategy. Remarketing strategy has the ability to be as simple or as complex as your credit union needs. In the past, it was perfectly acceptable to create one remarketing campaign based on total site views. But today’s consumers desire a more personal touch. As digital marketers, there is a need to create personalized marketing experiences in order to generate more conversions.

This means more refi ned remarketing techniques. Remarketing works by giving you the ability to track your credit union website visitors. The visitor of your site, by way of having a tracking cookie placed on their web browsers or device, can then be tagged for remarketing. Those cookies correspond to remarketing code and serve up the relevant advertisements when your website visitor then goes on to visit other websites or social media. If you have ever shopped on sites such as Amazon or Zappos, you are likely to have experienced remarketing fi rst-hand. Both of those online retailers have a strong remarketing strategy. As online-only retailers, they have to. Not only does Amazon and


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Zappos, for example, remarket to you in order to pull you back to their websites, but they also remarket the specific products that you were looking at while on their site.

Categorizing Your RemarketingYour credit union can take the same concept and scale it appropriately to develop a remarketing strategy that is relevant to your website visitors. Creating a remarketing strategy like this allows the credit union to present the most relevant ad possible to the visitors of specific pages on your website.

For example, if someone visits your Checking Accounts page, they should begin to see remarketing ads for your checking account when they use other sites or social media. If you integrate the rates of credit union accounts within product pages, and they scrolled to that viewing area, visitors can then be served ads relating to the rate on the account.

Typically, remarketing strategy is categorized into one of three executable options. There are then sub-strategies within each category to ensure relevant and accurate ad placement. The categories of remarketing strategy correspond to the marketing buyer’s journey. For simplicity, the journey will be kept to a four-step process of Awareness, Consideration, Conversion and New Member by which people come to your credit union.

Broad RemarketingThis remarketing strategy is used primarily in the “Awareness” phase of the buyer’s journey. Visitors are tagged for remarketing when entering through a landing page separate from your website or with a global site tag for use in large rebranding/brand awareness campaigns. This strategy requires fewer specific ads to be created and is targeted at gaining returning visitors of the page or site. Broad remarketing:

• Generates awareness through broad placement of remarketing ads.

• Is helpful in brand recall and recognition.• Is typically a pay-for-impression (or view)

campaign.

Path RemarketingThis type of remarketing strategy is typically used in the “Consideration” phase of the buyer’s journey. Users enter your website or landing page through either organic searches or referral links from emails, inter-site content or other websites. From there, the visitor views a specific page (or pages) on your site. Remarketing ads are triggered based on the pages visited, content seen, or products viewed. Path remarketing:

• Creates a customized, relevant approach to remarketing ads.

• Is helpful in consumer recall for specific products.• Helps in completing call to action elements.

Non-Complete RemarketingThis remarketing strategy is typically used at the end of the “Consideration” phase of the buyer’s journey to move the user toward “Conversion.” Visitors typically enter a page on your website or a landing page through organic searches or paid advertisements. Within that page, there is at least one call to action element that is left uncompleted. The call to action can be anything ranging from an application link click or filling out a form. If there is more than one call to action on the page, each can coordinate to remarketing ads that will be relevant. The remarketing ads target the visitor to bring them back to the page and get a conversion on the call to action. Non-complete remarketing:

• Is targeted at specific actions not taken.• Is helpful when reaching consumers at the end of

the buyer’s journey.• Is typically a pay-per-click campaign.


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These remarketing strategies typically work in conjunction with one another, fueling the credit union digital marketing engine that converts mere website visitors into new members. Campaign objectives and the overall measurement of ROI will fuel which strategy you are likely to move on first. The key is to understand which tactic belongs where and ensure that visitors are remarketed in a relevant way.It is important to remember that a good remarketing strategy cannot stand on its own without a great digital marketing strategy base to build from. Often an afterthought, remarketing needs to be at the forefront of the credit union digital campaign development. With proven success in driving conversions, it is a critical component to the success of the brand’s digital marketing.

Aaron Gregerson is the Chief Digital Officerfor MarketMatch, a full-service marketing consulting firm that provides energizing expertise, ideas and strategic marketing

thinking for credit unions. Aaron brings over 12 years of financial marketing and business development experience to the industry. Aaron focuses on digital marketing, strategic planning and promotion, branding and market segmentation with his clients to help grow credit unions in meaningful ways.

http://marketmatch.com/


BY MICHAEL ORAVETZ

3 Ways Rising Rates Affect Your Balance Sheet

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S ince the turn of the calendar year, fi nancial markets have experienced signifi cant change. After severe fl attening at the end of 2017, swap and treasury securities have sold off in anticipation of a rate hike by the Federal Reserve in March, and potentially two to three more throughout 2018. The 2/10-year treasury spread has rebounded to 61 bps following a decade-long low of 50 bps in early January. As of March 12th, the 2- and 10-year yields sit at 2.26% and 2.87%, respectively.

Economic sentiments remain largely optimistic as higher growth and infl ationary expectations persist, commonly associated with higher interest rates and steepening yield curves.

Figure 1The rise in long-end yields has pushed mortgage rates higher. At December month-end, the national average offering rate for a 30-year fi xed mortgage was 4.08%; as of March 9th, that rate had increased to 4.41%. Despite the rise in rates, 2017 was the strongest year in credit union history for mortgage volume. Over $174 billion in 1st mortgages were granted (originated) in 2017, on the heels of a then-record $172 billion in 2016.

Figure 2 illustrates the changes that the CU industry has experienced. First, the composition of the typical credit union balance sheet is evolving. No question, credit unions play a large role in consumer lending. Short duration assets such as auto loans are a fl agship credit union product; indirect auto lending, for example, has grown in popularity, even as relatively high credit costs and punitive dealer fees plague marginal return. However, focusing exclusively on consumer lending can often hamstring an institution from meeting the ever-evolving needs of the member. The recent low-rate environment has catered to mortgage borrowers, and credit unions have been happy to oblige, opting to fund an increasing number of more profi table, longer duration assets.


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Figure 2As rates rise, though, every institution should remain cognizant of the potential effects to the balance sheet, particularly for those with high concentrations of mortgage loans. Compared to consumer loans, mortgages have signifi cantly more interest rate risk. Let’s examine three metrics that help demonstrate these differences: economic value sensitivity, economic capital ratio, and earnings-at-risk.

First, mortgage loans have “optionality” – cash fl ows that strongly rely on the path of interest rates. A mortgage prepayment option is not unlike a call option on a bond; when interest rates decrease, the borrower has the right to “call” the note (payoff the outstanding balance of the loan). This allows the borrower to “buy” the mortgage from the lender at par, even if the economic value of the loan is substantially above par. For the lender, this will reduce their economic value sensitivity exposure as cash fl ows contract and average lives shorten; practitioners refer to this as the convexity effect. Contrarily, as rates increase, prepayments will slow, since the borrower does not face an economic incentive to prepay. This will cause cash fl ow and duration extension, longer average loan lives, and shorter deposit average lives, creating increased sensitivity to interest rate changes. In comparison, auto loans face little interest rate risk as short duration assets with no optionality. In fact, auto prepayments have been observed to be tied more strongly to loan age, rather than changes in interest rates. Second, economic capital, measured as net economic value (NEV), will also be affected by changes in interest rates. The magnitude and direction

of the change will be determined by the construction of the balance sheet. This can be measured by the duration gap, which demonstrates whether the depository is asset-sensitive or liability-sensitive. Many institutions are liability-sensitive, meaning that relative to liabilities, assets will reprice over a longer timeframe. As we touched on earlier, under periods of economic growth, yield curves generally steepen as long-end rates increase more rapidly than short-end rates. This will not only exacerbate liability-sensitivity, but will also lead to reduced mortgage valuations, all else equal. However, rising rates also can offer a benefi t to the institution, derived from the depository franchise. Ultimately, the impact to the value of the fi rm will depend on the interaction between the asset and liability base. Lastly, rising interest rates also affect profi tability and earnings volatility. As average lives extend for mortgage loans, this means cash fl ows extend to a longer horizon. Thus, institutions already displaying a liability-sensitive earnings-at-risk profi le should expect increased income volatility. Asset-sensitive institutions will experience an increase to income volatility, as well, but will put them closer to an interest rate-neutral profi le.


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As credit unions continue to expand products to meet member demands, it is important to ensure balance sheet risk is managed. A rising rate environment should not deter an institution from meeting the demands of the marketplace. Whether it be through various hedging strategies, secondary marketing efforts, or even whole loan trades, every institution can succeed as rates rise. Opportunities lie along the entire yield curve, and credit unions must have the capabilities to pursue them.

Michael Oravetz Associate, ALM Strategy Group ALM First Financial Advisors, LLC

https://www.almfirst.com/


BY KEN LEVEY

Insights from the 2018 CFO OutlookPlanning, and Profitability in Financial Institutions

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T o identify current performance management trends and priorities—and their implications in fi nancial institutions—Kaufman Hall conducts an annual survey of CFOs and other senior fi nance

professionals. Executives from more than 100 credit unions, banks, and other fi nancial services institutions participated in the most recent survey, whose fi ndings, implications, and recommendations appear in our 2018 CFO Outlook survey report, Performance Management Trends and Priorities in Financial Institutions. This article explores select fi ndings related to budgeting, planning, and profi tability. As you read this, think about priorities and progress in your organization and how they compare with those of institutions represented in these fi ndings.

The Road to Better Budgeting and Planning The CFO Outlook survey report revealed valuable insights around the length of budgeting cycles, rolling forecasting, and ways to enhance budgeting to support strategic initiatives.

Shorter Budget Cycles AllowTime for Value-Added AnalysisIn our 2018 survey, 39 percent of respondents said their annual budgeting process takes more than three months to complete (with some reporting up to six months), and a comparable 40 percent said their budget cycles do not allow adequate time for value-added analysis that can inform strategic decisions.

A signifi cant contributing factor to long budget cycles is the continued reliance on spreadsheets for budgeting: 24 percent of respondents reported that spreadsheets were the primary budgeting tool used by their institution. Data processing with spreadsheets tends to be ineffi cient, error-prone, and time-consuming, requiring corrections, verifi cations, and other adjustments.

In contrast, a strategic budgeting process, fully integrated with the institution’s fi nancial and strategic planning efforts, can and should take only two to three months to complete. Following best practices for the planning process, such as creating accountability for and alignment with strategic plans, and using modern technology, can help many institutions shorten budgeting timeframes to free up time and resources for additional analysis.


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Rolling Forecasting Increases Accuracy and AgilityOur survey found that 42 percent of respondents use rolling forecasts to complement their annual budgeting process, and another 34 percent have plans to implement rolling forecasts in the near future. Two percent of respondents felt that traditional budgeting processes weren’t needed any more, as they have replaced them with rolling forecasts.

Institutions that successfully use rolling forecasts commonly perform fi ve functions:

• Select the forecast horizon that fi ts the organization, with three to fi ve years being typical

• Implement a driver-based planning model that incorporates the critical operational data and drivers that infl uence fi nancial outcomes

• Retain prior-period forecasts for back testing to improve predictive accuracy

• Ensure the institution makes the cultural shift from traditional annual budgeting and forecasting to rolling forecasts

• Leverage technology to support the forecasting process, integrating with operational data sources, enabling collaboration, managing workfl ow, and storing past forecasts

The improved accuracy and agility provided through rolling forecasts can give fi nance leaders higher confi dence when making decisions and investments to refl ect evolving changes in business trends.

Enhanced Budgeting Supports Better Decision Making The survey asked participants about items and initiatives included in their institution’s budget. Responses were as follows (with multiple responses allowed):

The fi nance team’s skill in managing performance is directly dependent upon its ability to effectively quantify proposed business strategies through its planning and budgeting process. Budgets should therefore include a wide range of planning and analytic initiatives. Based on survey results, three areas within budgeting showed opportunity for improvement: multi-scenario analysis, cash fl ow planning, and forecasted funds transfer pricing (FTP).

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Multi-Scenario AnalysisOnly 41 percent of responding institutions use multi-scenario analysis as part of their budgeting process.

With increased volatility in today’s operating environment, institutions that can quickly model multiple scenarios will be better prepared to intelligently adjust their strategy based on changing conditions. To better predict financial outcomes and support the right initiatives, institutions should consider these action items:

• Identify the key factors that define the market, such as interest rates, consumer behavior, market conditions, and product innovation

• Agree on the baseline/“most likely” scenario• Develop targets, strategies, and plans• Craft relevant scenarios that describe a range of

potential operating environments• Test alternative scenarios to identify their impact

on plans and budgets• Identify early warning triggers and corresponding

tolerance ranges for each scenario• Make adjustments as necessary when triggers are

activatedRunning stress scenarios and forecasts as part of an iterative process—taking into account the impact of pressures on shares/deposits, loans, and credit—enables financial institutions to assess the effect of potential changes before finalizing the budget. The finance team can then establish appropriate targets and formulate mitigation plans for likely scenarios.

Cash Flow PlanningThe 2018 survey also indicated that only 49 percent of respondents include cash flow-based planning in their budgeting process. This practice lets financial institutions amortize individual customer records into cash flows and aggregate them in any dimension. Critical steps to the process include leveraging core transaction system data, completing the balance sheet

plan, and ensuring the institution makes an appropriate cultural shift to this new methodology. The addition of cash flow planning will result in much higher precision with regard to balance, net interest income, and margin projections; increased accountability for line-of-business stakeholders; improved focus on incremental new business; stronger “What if?” scenario modeling; greater insight into performance; and inclusion of forecasted FTP, as described next.

Forecasted FTPThe final area identified for budgeting enhancement is the addition of forecasted FTP. Of survey respondents, only 50 percent currently include it in their budgeting process. Adding FTP forecasting allows finance teams to more accurately predict actual performance (predictive analysis), including the expected net interest margin (spread) and income (dollars) by initiative and segment. Forecasted FTP can also be used to improve prescriptive analysis, helping finance leaders to identify the best outcomes and how those results will be achieved. Analyzing the actual results compared with the budgeted results from a net interest margin perspective can enable leaders to:

• Evaluate the relative value of strategic initiative options

• Create a standard measure across markets and between teams

• Remove the impact of the interest rate environment from goal setting

Improving and Leveraging Profitability AnalysisKaufman Hall’s 2018 CFO Outlook survey revealed important findings around profitability analysis, including the need to understand profitability across dimensions, strategies to improve profitability

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measurement, and the value in leveraging profi tability metrics to inform incentive compensation.

Understanding Profi tability Across DimensionsProfi tability is at the heart of any fi nancial institution’s long- and short-term strategy. It is concerning to see that only 16 percent of survey respondents say they have a clear understanding of the profi tability of their products, members/customers, and channels. Notably, this is lower than last year’s survey, when 22 percent of respondents indicated they had a clear understanding of profi tability across these dimensions.

Further, while more than 88 percent of this year’s survey respondents say it is important to monitor member/customer, product, channel, and offi cer dimensions of profi tability, only 45-55 percent actually monitor these specifi c dimensions at their institution. Without such monitoring, fi nance leaders will not have the data required to gain understanding of profi tability dimensions.

Clearly, there is work to be done. An improved understanding of both costs and net interest margin will yield a more accurate and complete picture of profi tability.

Understanding CostsOnly 40 percent of respondents allocate costs to products, members/customers, or their institution (using a driver-based, percentage-based, or activity-based approach), while 53 percent say they would apply an activity-based approach to improve cost allocation.

By allocating costs to the institution’s departments, members/customers, and products, executives will improve visibility into the profi tability of each dimension.To better understand costs, institutions use a variety of cost accounting methodologies. In 2017, Kaufman Hall conducted a profi tability survey jointly with the Association for Management Information in Financial Services (AMIfs, now part of the Financial Managers Society [FMS]). In that study, the most common methodologies used were:

• Driver-based (69 percent), such as number of accounts opened and outstanding balances

• Member/customer account transaction volumes (51 percent), such as number of shares/deposits and loan advances

The use of solid data represents best practice for establishing costs to enhance profi tability analysis.

Employing FTPSurvey responses indicated a troubling decrease in the use of FTP to more accurately measure net interest margin. Last year, our survey indicated that 74 percent


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of respondents used FTP in their profi tability process (either an instrument level-based approach or a simple pooled approach), and 9 percent planned to use it. This year, only 65 percent are currently using some form of FTP analysis in their profi tability process, and 12 percent have plans to adopt FTP.

The goal of FTP is to accurately and rationally measure the cost or credit of funds in support of profi tability measurement, margin measurement, product pricing, and decentralized decision making.FTP helps organizations answer questions such as:

• Which loan products are profi table?• Which branches are losing money?• Are shares/deposits profi table?• Which members/customers are profi table?

Kaufman Hall recommends an instrument-level (“matched term”) approach. The inclusion of a transfer pricing methodology radically changes the understanding of the makeup of net interest margin and how the institution’s activities have contributed to it.

Leveraging Profi tability Analytics to Improve Incentive CompensationProfi tability analytics also support transparent and well-designed incentive compensation programs. While 42 percent of survey respondents include profi tability as a metric in calculating employee incentive compensation, 36 percent do not currently include that metric, but would like to do so, and the remaining 22 percent have no plans to consider a profi tability metric.

Incentive compensation most often is tied to loan and share/deposit volumes and metrics associated with volume growth, such as number of referrals or accounts opened. It is critical to factor in profi tability, rewarding contributions to profi table growth rather than just increased business.

Data and tools already available as part of high-quality enterprise performance management systems can be leveraged for development and management of profi tability-based incentive compensation programs.

For the full 2018 CFO Outlook survey fi ndings, read the report, and feel free to reach out to me with questions at [email protected].

CFO OUTLOOK


BY KAITLIN MORRISON

Brains at the BranchThree Psychology Insights Branch Teams Can Use Right Now

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G et ready to hack your brain. Neuroscientists and psychologists are learning some pretty amazing things about how our minds work, and this research has some great lessons for branch managers, loan

offi cers, member services representatives and others at your branch. Since branches are fundamentally about people, knowing how our brains work can help branch managers do better. As any manager knows, working with people can occasionally be confusing and messy--use these three psychology and neuroscience fi ndings to help you navigate the “people side” of banking. Whether you’re a branch manager or a teller, you probably spend a great deal of your time interacting with the public and with your coworkers. In this article, I’d like to share three highlights of recent fi ndings in brain science, along with suggestions for how these ideas may help your branch.

Insight #1: With the rise of AI, what’s humanity’s strongest asset? It’s creativity and problem-solving. Branches need these skills to work WITH technology and withstand the pull of automation. Much has already been said about the rise of automation in branches. For many people in the banking world, automation is legitimately scary. It’s true that the industry’s changed rapidly and continues to do so. Interestingly, though, automation can actually increase employment and opportunities. There’s decent evidence to suggest that the ATM did ultimately grow

branches and lead to more hiring, for instance.

According to the economist James Besson’s research, the rise of the ATM made bank branches more cost effective than before and allowed banks and credit unions to open more branches. In turn, this resulted in increased employment within the banking industry itself. As it turns out, after 2000 the number of member services representatives began increasing by two percent each year.

Technology can replace human workers in areas and tasks that are highly routine, but it doesn’t do as good of a job as people when it comes to strategic thinking and problem solving. Computers seem to do best when paired with people, in other words. For your team (and your branch itself) to stay relevant, it helps to play to the unique strengths of


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the human brain. Focus on problem-solving for your customers and helping them in ways their smartphones or ATM legitimately can’t. This way, technology can be a valued team member at your branch instead of an enemy.

If you work at a branch in any capacity, your best bet to succeed alongside automation is to become that indispensable resource and source of support to your customers.

Insight #2: There’s a reason your convincing argument may not sound convincing to others. Figuring out how to communicate your ideas is more about your listener than it is about finding the right evidence. Ever had a conversation with a coworker without actually communicating? Maybe the evidence you gave for your idea sounded convincing to you, but it fell flat with your audience. Researchers are finding scientific support for the idea that different psychological values can shape how we hear someone else’s argument. Much of this research focuses-in on differences in political views, but these insights may also be applicable in our daily lives. According to one recent Business Insider piece, for instance, scientists have observed at least 11 psychological differences between people who hold liberal and conservative views. Conservatives and liberals may be using different areas of their brains and have different cognitive strengths. Smart, complex people of every political perspective may be seeing different pieces of evidence as convincing. America’s increasing political polarization may be, at least in part, a result of communication failure, rather than a cause of it. How you fundamentally view your environment and surroundings may very well determine how you believe and act. From there, these factors can determine what you hear when someone tries to communicate with you.

Of course, to many managers this isn’t surprising news. People are motivated by different things and have different backgrounds shaping their perspectives--knowing YOUR team requires more than just a basic familiarity with human nature. While it’s definitely a bad idea to quiz your teammates on their political views, it’s essential to get to know your coworkers and direct reports as people. Then, you can find out how to communicate AND be understood.

Insight #3: A growth mindset, where you believe in your own capacity to grow and improve, can be a strong ally. Many people, it turns out, believe that their abilities are fixed and natural. In other words, they think more practice and hard work won’t be enough to bring them more success. Unfortunately, there’s good evidence that this particular belief is self-defeating. Carol Dweck, a psychologist at Stanford University, wrote a book outlining a basic premise that seems to work much better. In Mindset: The New Psychology of Success, Dweck talks about the evidence for the value of growth mindsets--believing that you can grow and improve your abilities over time through added effort. She points to key examples of students, workers, athletes, and everyday people practicing resilience and accomplishing more. In your branch, believing in your team and your coworkers (as well as yourself!) can go a long way to improving your own performance as an organization. Some people readily rise to the occasion whenever tougher demands are placed on them, for instance, and these individuals thrive under high expectations. Giving other people the gift of your confidence in their capabilities may help your team feel better about their work and become more willing to invest substantial effort.


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Your Brain at the BranchWe’re just starting to think about what this all means for managers and coworkers. Because we don’t have defi nitive answers yet to many of our most pressing questions about human interaction, It helps to stay skeptical when you see science headlines that claim to solve all of your professional problems. This includes what psychology tells us. Still, these ideas can provide a valuable starting point for refl ection on what helps us thrive at work. The next time you’re in a conversation with a coworker, manager, direct report or customer, stop and think about their perspective while taking the time to listen.

Think not just about your message, but also about how your listener will receive it. Think about how you can promote growth,

Kaitlin is the Editorial Director of Credit Union BUSINESS Magazine and Branch BUSINESS Magazine. She lives in the Pacifi c Northwest. In addition to her work at CUB and BB, she writes about credit

unions, marketing, business operations and more. You can reach her at [email protected] and read more of her writing at www.kaitlinmorrison.com.



BY PAULA TOMPKINS

Credit Unions Need to Go With the Tide or Get Swept Up In It

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A s we all know, credit unions are one of the last bastions of the local community, now that the local hardware and bookstore have gone the way of the pay phone. So what’s keeping credit unions

in the game? By their very nature, credit unions are the non-profi t neighborhood bank that has the interest of the community at their core. That means fees are usually lower and quality of service is higher than that of the big banks. The Credit Union National Association (CUNA) found that the number of members throughout the country grew to 110 million in 2017, a record high. One reason: credit union members tend to be more satisfi ed with the quality of their service. The American Customer Satisfaction Index Finance and Insurance Report for 2017 found that credit unions beat banks, with customers rating their overall satisfaction at a score of 82 out of 100, one point greater than the banking average. This usually translates into credit union member loyalty. One recent study found that 93% of community bank customers and credit union members say they trust their institution, whereas one out of three megabank customers don’t trust their own bank. So if we have all that going for us, why are our members being wooed—and in some cases, won—by bigger banks that are muscling into our neighborhoods and challenging our base?First, big banks are—well—big. They have massive marketing resources—online, in print, in the media—

social and otherwise. It’s hard to ignore their messaging. Big banks have ATMs and branches everywhere. They have online and mobile banking. They have links to credit cards and incentives to use those cards. And they offer attractive rewards for using their mortgage and loan departments.And it’s working.A recent study of people looking to fi nance a major purchase (like a home or car) found that over 50 percent of those surveyed went with a different institution than their primary bank because an enticing offer was presented elsewhere.So how do credit unions fi ght back?We go with what we know, and adapt where we don’t. What do we know?1. We know our members. Our communities.

Because, literally, we grew up with them. Community Choice Credit Union headquartered in Farmington Hills, Mich., was started by neighbors in a Redford Township community who pooled $5 each into a bowl which any neighbor could


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borrow from when the need arose. As a state-wide bank, Community Choice Credit Union has not shed its roots and continues to give back enormously to the community. Community Choice rightfully touts their products and services while reminding members of a charitable program they’re sponsoring or a scholarship they’re offering. All credit unions would be well-advised to do what Community Choice does: remind their members and neighbors how they were founded and how they’re staying true to their roots.

2. We’re not-for-profit. We have members, not customers. What does that mean? Typically it translates into higher rates for savings accounts and lower rates for mortgages, car loans, etc. In other words, the money we save by being not-for-profit is passed along to our members and communities—not our marketing departments! Here are some examples:

Community restoration and awareness—Head to the Sigsbee Playground in Grand Rapids, Mich., and you’ll find a marvelous story of a playground in need of upgrading and the credit union that came in to help fund it. The Lake Michigan Credit Union help fund, build and maintain this community playground by partnering with other local organizations and sending out volunteers to set up the equipment and clean it up. The result: the neighborhood notices, families come together, and Lake Michigan Credit Union is thriving by showing how they invest back in the community (and not professional sports). Lake Michigan Credit Union posted a short video about this endeavor and their name was consistently seen and associated with the playground every time a child and a parent visited. The media exposure from local news stations brilliantly put the credit union into countless homes without the cost of advertising.

Financial Literacy – Roughly 70 percent of Americans are financially illiterate and 52 percent of Millennials suffer from financial stress. Nuvision Credit Union in Huntington Beach, Calif., has recognized the importance of financial education and recently developed a program to bring financial literacy into public schools to ensure students know their options when it comes to investing, savings and credit. Along with this program, which has started funding financial literacy in schools, Nuvision Credit Union rewards students with scholarships. This provides young men and women with a community banking experience built on trust.

Community Giving—Financial institutions of all sizes give to charity. But a credit union has the unique ability to address the immediate charitable needs of the community on a most personal level, offering donations to local organizations in need—organizations they know personally—to help them and win members’ hearts. The Bowater Credit Union in Calhoun, Tenn., asks its members to nominate their favorite nonprofit as part of a Pay It Forward program first implemented in 2010. The recent recipient, and first of five winners for 2018, is the Charleston/Calhoun Hiwassee Historical Society which received a $1,000 award. This is just one of many ways that Bowater Credit Union shows


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the community that they truly care and listen to the needs of its 18,000 members. It’s hard to imagine a medium-sized bank, let alone a major bank, taking interest in a local historical society but Bowater Credit Union consistently proves its commitment to helping its neighborhood. Donating $1,000 to a local cause goes far in exposure and appreciation. It’s not always the dollar amount, but rather, the thought that counts.What don’t we know? Where can we do better?Whether we like it or not, fi nancial technology is changing our landscape. Big banks (like Bank of America) are adding hundreds of new branches, to “think global, act local,” and some large banks have no branches at all. Without a brick-and-mortar presence and with fewer faces to pay, those banks can devote all of their resources to marketing and servicing their offerings:

- online and mobile banking for up-to-the-second checking and savings activity

- online links to investing services- online fi nancial planning services- individualized “microsites” for each and every

memberWhy can’t we?If the CO-OP ATM network includes almost 30,000 surcharge-free cash machines and more than 5,000 shared branches around the country, why can’t we build on that base? With 110 million members (something to build on with integrated tech services), credit unions have a large, loyal and powerful base that would be attractive to fi nancial tech developers. If we focus our efforts and resources we could offer online and mobile banking capabilities, links to investing and planning services—and developers that cost-effectively create individualized microsites for each member, as well as cross-marketing and onboarding programs. The technology is there if we choose to use it. And the more it develops, the more accessible it becomes, the more the costs drop. Think of what it cost you to buy your fi rst PC or printer. What do they cost now?

In short, to maintain the “local” advantage (and our history), credit unions can “fl ip the script” on the big guys by acting local—and global—at the same time!At the end of the day, it’s not just about lowering fees, offering better rates or convenience, or even knowing your members by their fi rst names that makes the difference. Everything we do should tell our members that, not only are we there for them—we’re keeping up with them. We see what’s happening and we’re adapting to it. We can offer the same services the biggest guys do—at competitive rates and savings—and still greet you by your fi rst name when we see you at the local branch or the supermarket. And when those big banks merge with even bigger banks—with names and faces we no longer recognize—who’ll be there for our members?We will. Because we’ll beat the big guys at their own game-without losing our identity or souls.Bank on it.

Paula Tompkins is CEO and founder of ChannelNet, LLC. She is also a member of the company’s Board of Directors. Paula is a strategic visionary with a deep understanding of

marketing and technology. Her over 30 year career has established her as a leader in digital marketing, as well as in sales and service in omnichannel environments that include brick and mortar, online, mobile, call centers and social media. She is a recognized authority on leveraging digital technologies to acquire, cross-sell and retain customers. Paula currently holds 2 U.S. Patents.


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april 2018 | volume 13 | issue 4 mapping the member journey€¦ · sales and advertising tim...

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