smartsolutions Credit Union
an educational guide for credit union products and services | 2010
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Start growing your business by advertising in CENTERPOINT, the official magazine for the Massachusetts Credit Union League, Inc., the Credit Union Association of Rhode Island and the New Hampshire Credit Union League. Your message will reach the most influential New England credit unions decision makers. Call today and ask about our package discounts.
FOR MORE INFORMATION Contact Advertising at 617.896.5344 or email custompubs@thewarrengroup.com
CUDL Win s Summit Awa
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ur complete guide for credit unions across the country offers a comprehensive look at the challenges that credit unions face, including attracting new members, retaining current members and navigating a complicated regulatory
environment. From the strategies to woo members away from big banks, to the best ways to enhance and regulate your online presence, to best practices for your employees, contributors to this magazine know how to help you make the most of your credit union. Experts from a variety of fields have contributed articles to keep you informed about a wide range of issues and problems plaguing credit unions, and recommend specific solutions to those problems. Within these pages, you will find answers to help with both the day-to-day and long-term success of your credit union. Feel free to contact our contributors and advertisers for additional details on the products and services featured in this year’s issue of Smart Solutions.
Feature Story
The Status Quo Was Not an Option 12
By Christina P. O’Neill
Our cover story focuses on the reconstruction of the corporate credit union system. Sweeping changes for both the corporates and their member credit unions are upon us. We visited one of the ten Town Hall Meetings the NCUA held across the nation to inform credit union leadership about the new order. The industry’s mission is to fix problems from within, without impacting consumers in any way.
Positioning 4 The Case for Convenience By Nathan Rogers
Technology 16 Saving Green by Going Green By Michael Pennell
5 For Better Member Service, Go Remote!
18 Delivering Online Banking Service That’s Always On By Robert Johnson
6 Why Your Retirement Plan is Most Likely in Trouble By Nathan Rogers 8
20 ROI: It’s In Our DNA By Michael Rawlins
Insurance Deposit Caps Removed for Mass. Credit Unions By Dan Murphy
10 Member Business Lending Insurance Essentials By Rick Slater
©2010 The Warren Group Inc. All rights reserved. The Warren Group is a trademark of The Warren Group Inc. No part of this publication may be reproduced in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without written permission from the publisher. Advertising, editorial and production inquiries should be directed to: The Warren Group, 280 Summer Street, Boston, MA 02210. Call 800-356-8805.
19 Increase Service Levels and Deepen Penetration with Menu-Selling By Stephanie Lutz
Lending 30 Private Student Loans as an Opportunity for Financial Literacy By Walter Balmas
Timothy M. Warren Chairman
Vincent Michael Valvo Group Publisher & Editor in Chief
Christina P. O’Neill Custom Publications Editor
Timothy M. Warren Jr. CEO & Publisher
George Chateauneuf Publishing Division Sales Manager
Cassidy Norton Murphy Associate Editor
David B. Lovins President
Emily Torres Advertising, Marketing & Events Coordinator
John Bottini Creative Director
Jeffrey E. Lewis Controller/Dir. of Operations
Richard Ofsthun Advertising Account Manager
Scott Ellison Senior Graphic Designer
Smart Solutions 2010 | 3
Positioning
The Case for Convenience: The Most Solvable Barrier to Membership Growth B y N at h a n Ro g e rs
I
hate my bank! I think I’m going to look for a new one.” This comment came from Tony came on the heels of a long story about a battle over an undeserved fee from his bank. Tony is a successful executive chef in charge of managing multiple restaurants, so handling a checkbook is second nature to him. “Why don’t you switch to a credit union?” I said. His reply: “I would love to, but I need something more accessible. I can’t always travel to just one location.” Nathan W. Rogers is vice president of marketing at FSCC (Financial Service Centers Cooperative), an international company dedicated to connectivity, continuity and convenience through shared branching. For more information about FSCC, visit www.fscc.com.
4 | Smart Solutions 2010
How many times have I heard that one over the years? Even though credit unions consistently come out over banks in almost every category that consumers value (see chart), they continue to lose in the one category most consumers use to choose a financial institution: convenience. The study “Why Choose a Credit Union? – An Ethnographic Study of Member Behaviors,” published in 2007 by the Filene Research Institute, said this: “Consumers mention branch location and convenience as key decision-making drivers.” Results in the CUNA 2009/2010 National Member Survey support those findings as well. Can we really blame them? Do you still sit down at a diner and spend 20 minutes shooting the breeze with Flo when you want a cup of coffee, or do you hit the drive-thru at the nearest Starbucks? Do you still drive to Blockbuster to rent a movie, or do you have Netflix bring it to you? Do you still pull out a map to get to where you’re going, or do you let your GPS do it for you? Our continuing search for convenience is reaching all corners of our lives – including banking. You know that your members (current and potential) are searching for convenience, but how do you as a local credit union reach all the places they may need financial services? Where they live? Where they work? Where they travel? The answer to those questions can be found in two words – shared branching. Well within the reach of credit unions large and small, shared branching is a showcase for the cooperative difference of credit unions. Shared branching now includes over 6,400 locations in all 50 states and two U.S. territories, as well as on or near military bases in five foreign countries. There is not a continued on page 9
For Better Member Service, Go Remote!
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hen it comes to ensuring the growth of your credit union, now more than ever, the tools needed to achieve success extend far beyond the branch. Remote services allow you to serve your members better, whether they are online or across the country. The ability to offer members the remote services and convenience they need depends greatly on the flexibility of your core processing platform. “Having an open environment that allows for easy and thorough integration of desired third party solutions and services is key to a credit union’s ability to offer members the remote services they have come to expect from their financial institution,” said Fred Barber, account executive for Synergent. Consumers, as well as credit unions, are very interested in mobile banking. “People are constantly on the go, and mobile banking provides another means of remote access to their financial institution and their accounts,” he said. E-alerts are another solution that provides an instant connection to account information. “Members now have another means of receiving an alert when a condition on their account triggers a notification,” he said. “Alerts can be sent to their email service or to their mobile phone. More than providing a connection, this service also meets the needs of busy members who are overloaded with information, as it only sends them the information they want, in whatever electronic format they choose. As a service bureau owned by credit unions, and serving only credit unions, Synergent has provided comprehensive solutions through the synergy of its four divisions since 1971. A subsidiary of the Maine Credit Union League, Synergent provides credit unions with technology services, card services and check processing and support services, as well as a new Direct Marketing Services division, dedicated to helping credit unions develop deeper member relationships through targeted communications. For more information about Synergent, visit www.synergentcorp.com or call 1-800-341-0180.
In addition to online services, being able to have physical access to one’s account, and cash, is extremely important. The ability for members to access ATMs in their state and throughout the country allows credit unions to compete with banks that offer widespread ATM access. The continued growth of the Shared Branch Network also has significant benefits for credit unions and members. “In today’s economic climate, the opportunity to save travel time, effort and fuel through accessing a nearby shared branching location is extremely valuable to credit union members,” Barber explained. “With over 4,000 locations, shared branching is one more way credit unions can provide members with the services they need, while saving them time and money.” Beyond account access, remote products for electronic check capture, such as member and merchant capture systems, give members the ability to deposit checks from their home or office at any time. “These products allow credit unions to offer convenience at many different levels. This not only attracts new members, but can have a big impact on member retention,” said Jean DeStefano, account executive for Synergent’s Payment Services.. She said that member capture is a particularly exciting new remote services product that is already generating great interest from credit unions. “Members can save time and travel by depositing checks from the comfort of their home, while being confident that their money and account information is safe and secure,” she said. As new technology provides opportunities for members to access the credit union with minimal personal interaction, making a connection can be difficult. Erica Vachon, senior credit union service representative for Synergent Direct Marketing Services, explained that an effective way to ensure that your messages reach and engage your members is through personalized marketing. “When implementing a personalized campaign, it is important to first determine your goals, choosing an audience carefully and offering a product or service that makes sense for them,” she said. Asking members to opt-in to email marketing messages is another way to ensure that you are sending the right message to the right member, such as offering e-alerts to a member with home banking. Using this method to market remote services is a simple and direct way to attract and retain members, demonstrating how your credit union is keeping up with technology, and your members. While credit unions work to stay competitive in a technologically advanced marketplace, with increased pressures associated with competing with other financial institutions, providing and promoting a comprehensive remote services offering can be the key to continued credit union success. n Smart Solutions 2010 | 5
Positioning
Why Your Retirement Plan is Most Likely in Trouble
O
ver the last 10 years, it has been difficult to feel good about any 401(k) plan. The investment markets have had a volatile decade and returns have been negative, or minimal, at best. As a retirement plan provider, the Credit Union Employees’ Retirement Association (CUERA) has seen all sorts of issues with 401(k) plans, ranging from poor service from the provider, investment menus with too little choice or too much choice, excessive fees and low participation, to errors in calculating eligibility, vesting and contribution amounts to outright lack of a plan document. We call a mechanic when we notice a loud rattle or a strange smell coming from our car, as these are signs of a potential problem. As a result, we gather resources to identify and fix the problem. However, what about the lingering problems we do not know about? What kind of maintenance checks can you, as a plan sponsor, perform to identify these small issues and avoid bigger problems that may result in heavy fines and legal fees to fix them? This is written for 401(k) plan sponsors who believe their plans have no issues. Much like your car, it might be about to break down, you just have no way of telling because the signs are not obvious. In the case of your 401(k) plan, you may be exposed to a significant form of operational failure that could lead to losing the tax favored status of your plan.
The Credit Union Employees’ Retirement Association (CUERA), formed in 1954, was created under authority granted by the Commonwealth of Massachusetts for the purpose of enabling member credit unions to provide retirement plan services for their employees. Currently, CUERA provides administrative and consulting services for 401(k), 457, Money Purchase and Defined Benefit retirement plans for credit unions and plan participants. To learn more about CUERA, please visit www.cuera.org or call 888-548-1817.
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We believe five basic characteristics will be found in a wellexecuted 401(k) plan: 1. The plan offers every eligible employee the opportunity to save as much as they want in accordance with applicable regulations, thus maximizing their retirement saving accumulations. 2. The plan offers enough investment options and support services to accommodate every type of investor and user. 3. The plan protects the participant’s ability to accumulate money by keeping the fees paid to run the plan at a reasonable and transparent level. 4. The investment managers, based on their experience, process and philosophy, are expected to perform close to, or in excess of, their benchmark targets and in the top of their peer group. 5. The operation of the plan follows the written document and said document is written in compliance with all current tax and labor laws. 401(k) plans are regulated by the IRS tax code and ERISA, whose rules are too numerous and complicated for any entity to ensure perfect compliance. So, even if you are confident that items 1 through 4 are fulfilled, how can you be sure you are compliant with IRS and ERISA requirements? More than 15 years ago, the IRS was seeing so many errors while auditing retirement plans that voluntary correction programs were created to help plan sponsors avoid plan disqualification. This program was so successful that the Department of Labor began a similar program for fiduciary violations. From 2006 to 2008, the number of plans filing for voluntary correction rulings with the IRS rose “nearly 60 percent,” according to the Treasury Department. With so many “professionals” looking over plans, why is the number of plans that are making these mistakes and not following the rules increasing? The bottom line is that the plan document is the instruction manual for the plan and provides plan sponsors, record keepers,
IS YOUR RETIREMENT PLAN MEETING YOUR EXPECTATIONS? Does Your 401(k) or Money Purchase Plan Deliver the Following: consultants and auditors with details specific to the plan in order to ensure accurate operation. How many of us have read our car’s owner’s manual from cover to cover? Not reading the plan document when operating or reviewing the plan can result in violations, which may incur significant fines. To that end, even the plan with the best service model, investment options and fee structure can become tainted and exposed to the potential for disqualification; a loss of confidence to those involved with the plan can resonate. When operational or plan document errors are uncovered, clients are hard pressed to understand why they happen. Plan record keepers are very good at setting up systems to manage the many nuances of a retirement plan. However, those systems have to be programmed and monitored by people who may misinterpret a plan provision or miscode the system. As an employer, your finance, human resources and payroll departments may be making their own interpretations of how the plan should be operated. For example, when your staff members request salary feeds for the provider, what definition of salary are they using? Who decides how the match is calculated? Does the payroll vendor read the plan document or did you send them “your” version of how the match is calculated? While the provider may have competent professionals working on the plan, they may not be as focused on the details as you would be. 401(k) plans should be monitored by experienced, seasoned professionals using a checklist of common issues and mistakes to be avoided. Like bringing your car to the mechanic for an oil change and routine service, maintenance is required for a 401(k) plan to run properly and to ensure that it will continue to get you where you need to go! Before you end up paying penalty fees to the IRS or DOL, you may want to run your plan through a series of reviews to be sure it really is running smoothly. n
Investment Flexibility, Ongoing Participant Education, Easy Account Access & World Class Service. If not, learn about our services by visiting www.cuera.org or calling 1.888.547.1817
Credit Union Employees’ Retirement Association Providing Retirement Plan Administration and Consulting Services to Member Credit Unions Since 1954
Smart Solutions 2010 | 7
Insurance
Deposit Caps Removed for Mass. Credit Unions
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B y D a n M u rp h y
ov. Deval Patrick recently signed legislation into law that affects the shares and deposits at Massachusetts credit unions. Senate Bill 468 is now Chapter 284 of the Acts of 2010, and has an effective date of Nov. 7, 2010. The bill removes deposit caps for Massachusetts chartered credit unions. Massachusetts has a unique policy requiring all state-chartered financial institutions to be fully insured. All state-chartered credit unions and banks in Massachusetts must carry federal insurance up to $250,000. In order to accept deposits over this amount, statechartered institutions must also carry excess deposit insurance, insuring all deposits above $250,000.
Excess share insurance options Excess share insurance offers the highest level of coverage available without any direct cost to members. Two companies offer excess insurance in Massachusetts for savings and cooperative banks, and the Massachusetts Credit Union Share Insurance Corporation (MSIC) offers it for credit unions. The difference is that MSIC also offers this added protection to federally-chartered credit unions based in Massachusetts. As of Nov. 7, 2010, MSIC provides full insurance to all MSIC member credit unions. Prior to the enactment of this new legislation, MSIC was only able to offer insurance up to specific deposit limits set by Massachusetts law. This change will enhance MSIC’s ability to protect the shares and deposits of Massachusetts consumers. When you supplement NCUA insurance with MSIC excess share insurance, you take advantage of one of the easiest and most powerful member benefits available to credit unions. Credit unions that are seeking a strategic advantage in the marketplace are turning to membership in MSIC. By doing so they are able to deliver value directly to their members, further enhancing their credit union’s impact. To know that their funds are fully insured is important for consumers in today’s uncertain economy. Consumers are shifting their savings to fully insured community-based financial institutions. Attracting and keeping these shares and deposits, allows credit unions to lend and create earnings. For more information about MSIC, visit www.MSIC.org, or call Dan Murphy at 508-898-9856. 8 | Smart Solutions 2010
About MSIC Insuring 98 credit unions in Massachusetts, MSIC has 74 statechartered and 24 federally-chartered members. The reach and strength of these members is evident in that 19 of the top 25 credit unions in Massachusetts are members of MSIC. Credit unions seeking a growth strategy are turning to MSIC to help them grow their market share. MSIC insures $548.6 million in Massachusetts consumer shares and deposits. Membership in MSIC is not for everyone. Each year MSIC accepts only a select few credit unions through their rigorous membership process. Those credit unions accepted as members go through an exacting application process. In the past, membership was a costly endeavor for many credit unions. However, because the NCUA now insures share and deposit accounts up to $250,000, the cost of membership is far lower than ever before. MSIC was the first insurance company in the nation to provide deposit insurance protection to credit union members. It was established by a special Act of the Massachusetts Legislature in 1961. A member-owned, nonprofit organization, MSIC’s mission is to promote and strengthen the credit union movement by providing excess share and deposit insurance and associated services for credit unions and their members while preserving the integrity of the insurance fund. “No consumer has ever lost a penny of their savings in an MSIC insured credit union,” says Michael Hanson, president and CEO of MSIC and a former Massachusetts Commissioner of Banks. MSIC played a critical role in Massachusetts during the banking crisis of the late 1980s and early 1990s. It provided several Massachusetts-based credit unions with the required capital to obtain federal insurance, allowing them to continue to operate independently rather than being merged or liquidated. In addition, MSIC provided staff at critical times throughout the crisis. MSIC paid members and depositors of Massachusetts credit unions $49 million and no one in the Commonwealth lost, or was denied access to, their savings. To support the credit union movement, MSIC has developed several tools for credit unions to use to strengthen their operations. Most notable is the Custom Performance Report, which is utilized by more than 700 credit unions nationwide. It allows credit unions to compare their financial results to fully customizable peer groups in order to help them evaluate their institution’s performance. n
The Case for Convenience continued from page 4
single bank in the U.S. with branches in all 50 states! If you’ve never considered shared branching or if you’ve considered it in the past and decided to postpone participation, now might be a good time to take a look at what shared branching has to offer. When considering shared branching it’s important to consider the following factors: Choose the right shared branching provider for your credit union and your members. CU Service Centers Network, Inc., the national shared branching network, is owned and controlled by more than one network. These networks have cooperated to provide full, national access. However, some networks limit in-network pricing to just one state, so make sure to do your homework if you are looking for national access. Make sure your network provides a way for members to find all 6,400 locations. While most of the participating networks provide access to all participating locations, only one, FSCC, provides branch locator tools that include all U.S. locations. You can try this tool at www.cuswirl.com. 24/7 kiosk locations help members who want extended hours and can save you money. One of the CU Service Centers Network owners, FSCC, is the network behind shared branching at select 7-Eleven stores via the Vcom self-service units. The transaction fees at these units are lower than traditional shared branching and can combine some transactions to lower costs even further. Make sure you choose a network that passes on these lower fees to your credit union. Are shared call center services included? Make sure you choose a network that gives you this option in the basic shared branching package. It’s a great addition to your disaster recovery and business continuity plan. After hearing my friend Tony’s objections about convenience, I quickly let him know how shared branching can give him access to thousands of credit union branches nationwide. I told him to visit CULookUp. com where he could find a list of credit unions nearby and see if they participate in shared branching before making a choice. He was very excited – and I’m sure your members will be too. n Smart Solutions 2010 | 9
Insurance
Member Business Lending Insurance Essentials B y R i c k S l at e r
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he National Credit Union Administration and state examiners will scrutinize your member business loans for compliance to written regulations to determine the safety and soundness of your portfolio. An important area that examiners rarely visit and lenders often overlook is the type and quality of insurance protection, if any, the member has in place to safeguard assets, or the viability of the business itself in the event of a fire, accident, lawsuit, etc. Typically, lenders require insurance only on real estate unless a government guaranty program, such as the U.S. Small Business Administration, requires additional business hazard insurance. In Rick Slater is chief operating officer at Northeast Member Business Services, LLC, a Keene, New Hampshire-based CUSO providing member business lending support for credit unions throughout the northeast United States. Please take a look at Northeast’s advertisement in this issue.
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reality, all businesses should have insurance that protects the lender from loss against non-operational perils. Executed loan documents routinely require insurance to be obtained and maintained, with the provision that an insurance certificate be provided annually by the member. This leaves the type and amount up to the lender, and without specific requirements in the commitment letter, the business member will naturally gravitate to the lowest cost coverage, often with very limited coverage, exposing both the lender and member to risk of loss. For example, a lender funding a loan on a one- to four-unit family investment property requires an insurance binder at closing. Upon receipt of the binder, the lender should examine the form of the coverage. If, in the case of the one- to four-unit property, the member has purchased the basic form of dwelling insurance – that is, only fire, lightning and internal explosions are covered causes of loss – frequent causes of building damage, such as vandalism, damage due to weight of ice and snow, freezing and many other perils are not covered. The prudent lender will require at least broad form insurance, which
“There is a common myth that if there is no
real estate involved in the transaction, there is no need to specify or require insurance coverage.”
covers many more perils than the basic form. This creates a high level of service for the member who, for a reasonable increase in the premium, should realize the lender is looking out for the member’s best interest. A year later, when the same member or his or her agent sends in the annual insurance certificate, either the loan officer or loan servicing staff must review the certificate to verify coverage has not degraded. At the same time, the lender should be verified as mortgagee. Like the dwelling case, insurance coverage for commercial property should be specified to be broad form, not basic, and should be reviewed annually to ensure coverage continuity. There is a common myth that if there is no real estate involved in the transaction, there is no need to specify or require insurance coverage. Nothing could be
further from the truth. An argument could be made that insurance is more important when lending to service companies or other businesses that do not own the real estate from which they operate. If your member’s business that is open to the public, such as a restaurant, requiring commercial liability insurance, through either a commercial general liability policy, or business owner’s policy for smaller businesses, is a good practice. These policies protect the business from suits for bodily injury and property damage to persons other than the insured, while providing coverage for slander or libel, as well as modest medical payment to others. No financial ratio, covenant, or industry analysis the lender conjures up in the underwriting analysis will protect the member from a lawsuit, frivolous or not. Regardless of how well the member runs the business, the
cost of defending against a lawsuit and a punitive settlement could quickly end the business, ruining the member and exposing the lender to loss. The question for the credit union lender, and/or a CUSO if used for member business lending support, is what insurance to require, then how to do so without intruding on the member’s right to operate the business or being non-competitive. At Northeast Member Business Services (Northeast), we decided to act proactively with our credit unions, and are working to ensure their business members obtain the necessary property and casualty insurance protection. In this article, I’ve touched only the surface of this important topic. Our CUSO’s goal is to reduce our credit unions’ exposure to loss, while providing lenders the tools to create a higher quality experience for the business member. n
Smart Solutions 2010 | 11 ®
Feature STory
The
Status Quo
Option Was Not an
The Fate of the Corporate Credit Union System is in Members’ Hands
The Fate of the Corporate Credit Union
By Christina P. O’Neill The sign posted at the October 8 Town Hall Meeting of the National Credit Union Administration read, “No consumer will be harmed from these actions.” It evoked the disclaimer at the end of an action movie, the one about no animals being harmed in the making of the movie. The NCUA’s informational Town Hall Meetings – such as this one, in Boston – may not be the stuff of cinema, but they are high drama for the century-old credit union movement. The industry is in the midst of an unprecedented regulatory overhaul which includes conservatorship of five of the nation’s 27 corporate credit unions, in addition to a public relations campaign to convince federally-chartered credit unions and their 90 million consumer-members that the system is safe, sound and insured. Meanwhile, the future of the 22 remaining corporate credit unions, which provide services for the nation’s 7,950 federally-chartered consumer credit unions and their 90 million members, is in the hands of the leadership of those credit unions, many of whom are not happy about the need for them to recapitalize the system. The NCUA has held ten meetings across the country to inform member credit unions of its strategy to mend the system without disruption to consumers, without seeking taxpayer help, without depleting the National Credit Union Share Insurance Fund (NCUSIF) and without selling distressed assets at prices that would further deepen the industry’s losses.
Stop the bleeding
n
System is in Members’ Hands
The five corporate credit unions now in NCUA conservatorship took excessive positions in private-label mortgagebacked securities – a measure that industry critics such as former NCUA corporate inspector Edward Albright says they never should have done. Before the housing bust, those securities were easy to borrow against, but as their value plummeted, so did the corporates’ liquidity. NCUA estimates that the five corporates in conservatorship held 90 percent of the nonperforming assets that have resulted in 98.6 percent of the losses to the industry thus far. The NCUA has isolated the nonperforming assets in an Asset Management Estate, which will be securitized and sold as bonds, with the full faith and credit of the government behind them. The good news: the bleeding has been contained. The bad news: the patient needs a big, big transfusion. The NCUA has put the failed corporates’ performing assets into continued on page 14 Smart Solutions 2010 | 13
The Status QUo continued from page 13
“bridge” banks, with a planned life of two years, during which natural person credit unions must decide whether to charter a new corporate, buy the shares of the bridge banks (which will not be recapitalized after their two-year life), or get their services from CUSOs. The bridge banks assumed the “good” assets, while the “bad” assets will be securitized and sold as bonds, with the full faith and credit of the federal government behind them. But don’t call it a bailout. After a September 25 front page story in the weekend version of The Wall Street Journal headlined “Credit Unions Bailed Out,” the NCUA vigorously refuted the notion that taxpayers would pick up the tab for the damaged system. Instead, the NCUA is set to announce estimates at its November 2010 board meeting of premium assessments for credit unions of 25 to 40 basis points to fund the insurance and stabilization funds combined, in each of the next two years.
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At the NCUA Town Hall Meeting in Boston, credit union management focused on the assessments, which they said come when credit unions across the country are struggling due to the poor economy. “No one has come to my office and said they are glad credit unions didn’t take money from the government,” said one attendee. “Meanwhile, there are a lot of credit unions in [financial] trouble because of what they are paying to the corporates.” The NCUA’s decision was to front-load the premium assessments to pay into the stabilization fund, making higher payments in 2011 and 2012 than in the years after that. “We didn’t want the whole world to have moved on from the financial crisis and all of a sudden, credit unions start to bleed,” said Melinda Love, NCUA’s director of examinations and insurance. As bitter a pill as the premium assessments are, NCUA leadership stressed that it’s best to keep the credit union industry’s troubles within the industry, rather than seeking direct government help, which might lead to a re-assessment of the credit union industry’s tax-exempt status.
Leveling the playing field Many issues are up for re-assessment. The NCUA’s new rules for corporates – the final version of which is due in late 2010 – contain requirements that corporates present a “value proposition” – i.e., a business plan – to their member credit unions, laying out the reasons why members should stay with them. The rule also limits the investment vehicles corporates can buy, and limits exposure to a single obligor from the 50 percent it was before, to 25 percent. The rules also call for corporate credit union boards to be made up of upper-level management – CEOs, CFOs and COOs – and they now have a six-year term limit. Compensation must be reported annually. “Golden parachutes” will be prohibited for executives of corporate credit unions that are undercapitalized or have a bad CAMEL rating. If a corporate cannot meet capital requirements in the future, their member credit unions will be allowed to find another corporate. On the credit union side, the NCUA wants credit unions to stick to one corporate, rather than rate-shopping among
several. The NCUA wants consumer credit unions to make membership capital contributions to their designated corporates based on a percentage of assets, otherwise the risk is not proportionately shared by large, mid-sized and small credit unions. NCUA’s Director of the Applications Section, Office of General Counsel, Paul Peterson, says the agency must regulate closely enough to prevent unacceptable risk, but not to impose restrictions on corporate credit unions that hinder their ability to raise capital or provide services. He noted that if the new regulations had been in effect in 2007, it would have been impossible for corporate credit unions to take on bad risk. “The status quo was not an option,” said NCUA Board member Christiane “Gigi” Hyland at the October 8 Town Meeting – a sentiment that has been repeated by NCUA leadership repeatedly since the reform efforts began. The nation’s credit unions face a long, hard slog in the years it will take to recapitalize the system. n Christina P. O’Neill is custom publications editor at The Warren Group, publisher of Smart Solutions.
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Smart Solutions 2010 | 15
Technology
Saving Green by Going Green B y M i c h a e l Pe nn e ll
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redit unions face many challenges in the fast-paced, electronic world that is the twenty-first century. Gone are the days of carbon paper, #10 envelopes and snail mail. Today, the speed of business is faster than our next thought, and when “it absolutely, positively, must be there overnight,” isn’t nearly fast enough. Now, your competitive edge includes reducing your carbon footprint through email and encrypted document delivery. How do you embrace and promote your environmental responsibility while saving time and money? For credit unions and their board of directors, this answer is simple – use technology to consolidate communication, increase productivity and reduce paper waste. CUboardroom, by the award-winning web development CUSO SmartSource Solutions, LLC, has emerged as the credit union industry’s choice for online board communication and collaboration. CUboardroom gains its edge from its developers – former credit union employees, well-versed in the unique needs of credit unions. Michael Pennell is the executive director of SmartSource Solutions, LLC. Contact him at 866-932-3385 ext. 402, or mikep@smartsourcesolutions.org.
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When it comes to their clients, the “it takes one to serve one” adage underscores every website design and technology product delivered, and CUboardroom is no exception. CUboardroom makes it simple to securely distribute board and committee information, schedule meetings, hold online votes and discussions, and encourage communication between board members via private messaging. An intuitive interface, expandable storage capacity and organizational control of content maximize board and committee usage. When asked about the advantages of CUboardroom, Lynn Knox, SmartSource’s director of sales said, that “technology should either save time or save money, and with CUboardroom we were able to accomplish both, while greatly improving board and committee relations. Efficiency and reductions to our clients’ bottom lines remain a priority of system design.” Credit unions eager to reduce their carbon footprints are designing green branches, converting to paperless operations, recycling… and utilizing CUboardroom. Case in point is St. Mary’s Bank in Manchester, New Hampshire, proud to be the first natural-person credit union in the United States, and one of CUboardroom’s first users. Anne Canty, assistant vice president at the credit union, recalls moving from courier delivery to email delivery of board packages in 1999. While e-mail delivery was more efficient, as reporting requirements grew, downloading became very time-consuming for their eight board
members, and in 2003 St. Mary’s chose CUboardroom. “CUboardroom gave us a website where board packages could be posted for the directors to access at their convenience, and opening the document did not take as long,” says Canty. “The site also gave us a place to archive past board packages and post other information that directors need access to such as credit union policies and audit reports.” Canty said the transition to CUboardroom was smooth. “Board members are provided with an overview of the site during their orientation. Now our supervisory and board committees use the site, too.” When asked how other credit unions could benefit from CUboardroom, Canty said, “I would recommend CUboardroom to credit unions that are looking for an electronic method of providing information to their board members. The site gives them
one place to access information they need about the credit union.” A similar story comes from a New England corporate credit union. Janet Ciszek, manager of corporate relations for Connecticut-based Constitution Corporate FCU, has been a CUboardroom user since it launched in 2002. When the organization’s board packages reached 150 to 200 pages per month, Corporate looked to electronically produce the packages in order to reduce time, effort and costs. It also sought to reduce the amount of documents their board had to open and review prior to the board meetings. With CUboardroom, Ciszek says there is a reduction in man hours and overtime. “It used to take two, full-time administrative assistants two to three days to produce board packages from start to finish. Now, it only takes one admin approximately two hours to complete the package, upload and notify the users,” she said.
Ciszek said mailing/shipping charges have been eliminated. “By eliminating overnight shipping charges, we have saved approximately $6,000 annually.” A significant reduction in supplies and equipment maintenance has also been realized. “We no longer need to order skids of copy paper, binders or window-report covers, tab dividers or plastic spines. The number of service calls to fix copier jams, adjust poor image quality or deliver new toner cartridges has also been reduced.” Corporate reduced the amount of hard copy record storage as well. “It is no longer necessary to store hard copies of board packages at the corporate or at the board members’ homes, eliminating the uncertainty of proper destruction and disposal of official records,” Ciszek said. As we evaluate the impact of our environmental decisions today, CUboardroom is one more way we can ensure a greener tomorrow. n
Smart Solutions 2010 | 17
Technology
Delivering Online Banking Service That’s Always On B y Rob e rt J o h nson
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nline banking services enhance value to members and strengthen member relations, including deposits and lending services. By offering these services, credit unions are in the 24-7 banking business. If your online banking services are unreliable, member satisfaction may decline, resulting in defection to your competitors. So keeping these online services running and available around the clock is a top priority. What do you have in place to ensure this? Due to financial resource and staffing constraints, many credit unions may struggle to keep online banking services running well around the clock. The IT team is effective with keeping core and branch banking and critical communications systems, like email, the call center, etc., running well when the branches are open, but what about after hours? What happens when a problem arises then? If the answer is that someone gets an alert on their mobile phone and must get to the office, that’s a risky situation that may become untenable over time. Let’s take a look at the alternatives. Assuming a credit union has skilled IT people, effective processes to monitor and respond to problems, and monitoring technology in place today, it can hire more people for aroundthe-clock coverage. But this will take time and be costly. Adding another IT professional will cost about $75,000 annually (salary and benefits), and you’ll probably need more than just one more. If IT uses a tool that monitors a single function, like network devices, the branch network could be fine, but a key application such as online banking could be down. The credit union would want to upgrade to a monitoring tool that monitors multiple Robert Johnson, director of product marketing at Atrion Networking Corporation, is responsible for market analysis, developing new products and co-leading the company’s managed services business line. He is a veteran of the IT industry, having held executive strategy and marketing positions with CGI Inc., Deloitte Consulting and Digital Equipment Corp. He can be reached at 401-825-4336 or rjohnson@atrion.net.
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elements, including applications. Investing in such tools can be expensive to purchase and maintain. Or it could contract with a service provider for coverage after hours and on weekends. The process is very quick, and the cost is considerably less than the alternative above. In addition to being competent to monitor and solve problems, the service provider must be reliable and responsive to a credit unions’ needs. The provider must have an operations center, staffed around the clock by employees with strong technical expertise and communication skills. They’ll need to be financially viable, since the credit union will probably want to be able to rely on them longterm, and it will want a provider with experience in the credit union and banking space. Atrion Networking Corp. can help with your service and management needs. We have many credit union and other financial clients across New England who use our maxtime services to keep an expert, experienced eye on their key applications and underlying equipment at all times. Our clients benefit because the maxtime services identify and address performance anomalies before they turn into problems that result in unplanned downtime. Using advanced technologies and proven processes, we quickly correlate anomalies, resulting in reduced system downtime and increased productivity. In addition to looking at the infrastructure, we simulate what your members will experience. Several times per hour, we log in as a user; check balances; transfer funds between checking and savings account and bring up a check image, all of which validates that the application is working properly and as a user would experience it. When Atrion detects a problem, we follow a predefined procedure and work together with your IT team towards resolution, when appropriate. This gives you the coverage you need after hours and on weekends, at a cost considerably lower than adding in-house coverage. You need your online banking services to be “always on” for your members, and want to make the smart, low risk choice for doing so. Atrion and our maxtime services give you the around-the-clock coverage, and complements what your IT team does daily to keep online banking services always on. n
Increase Service Levels and Deepen Penetration with Menu-Selling
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B y S t e p h a n i e Lu t z
t’s no secret credit unions put their members first, but how can they provide out-of-this-world service to members who don’t have time to visit a branch to apply for a loan or prefer to do so online? Providing the same high level of service online as in the branch is a challenge for credit unions. Much of the discussion about reaching online members centers on Gen-Y, but in reality, other members are also venturing online to apply for loans and conduct business. Menu-selling is an up-and-coming tool for reaching out and educating online members of all generations who are applying for a new loan. The premise of menu-selling is simple. Members fill in their basic information (or a system that works with the data processor pre-fills the fields) and indicate the type of loan they are looking for. The menu then offers a variety of options based on the loan payment and add-on protection the credit union offers. For example, the menu could include an option with credit life and disability protection, another with GAP, and yet another with credit insurance and GAP together. Even coverage types that have been notoriously difficult to quote in the past, such as debt protection, can be easily displayed to members through menu-selling. In these cases, each debt protection package is displayed as an option on the menu screen, with brief descriptions of each product for the members to choose from. The price of each package is calculated and clearly displayed for members just as it would be for other insurance products.
Stephanie Lutz is a management analyst for CRI Solutions, providing financial and technology solutions for credit unions since 1973. Working exclusively with the credit union community, the company provides credit insurance, debt protection, GAP, auto warranties and customized lending and workflow solutions.
In some cases, a menu-selling tool can go even further to educate members by showing them the value in the products being offered. Member-facing informational tips can include data and facts regarding the percentage of people who need disability coverage over the course of their career or how many bankruptcies are medically related. For example, did you know that, on average, employers pay only 40 to 60 percent of an employee’s salary for long-term disability? Your members might not be aware of that information either, but could be with menu-selling’s informational aids. Having these options presented clearly on one screen, with product descriptions and transparent monthly payments, empowers members to make an educated decision on which menu selection will best fit their needs and highlights additional services the credit union provides. It’s as if the member has a member service representative at home guiding them through the process. In addition to the personal feel a menu-selling presentation provides members, it also helps credit unions protect more members and penetrate deeper with non-interest income opportunities. In fact, insurance penetration rates for CRI Solutions’ Internet loan application are higher than the overall credit union penetration in more than 80 percent of its online accounts. CRI Solutions’ online loan origination engine, Interlend, has been enhancing members’ online experience through menu-selling for more than two years. Interlend’s ability to communicate with client data processors, in addition to its clear payment and protection presentation, and informational aids gives members a simple, seamless and pain-free way to deepen their relationship with the credit union. It’s a win-win situation, with enhanced service levels for members and increased non-interest income for the credit union. More income for the credit union means more stability and services for their members, and who doesn’t want that? n Smart Solutions 2010 | 19
Technology
ROI: It’s In Our DNA
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B y M i c h a e l R awl i ns
hoosing a new core system is arguably one of the biggest decisions a financial institution makes, and the list of considerations that accompanies the decision is extensive. What features and functionality do we need? How can this system help us grow our business? Will the vendor and product continue to deliver and innovate for the next five to 10 years? And the list goes on. But perhaps the biggest consideration of all is, what can we expect in terms of return on investment? Open Solutions doesn’t shy away from this question. We hear it from prospects every day, and that’s why we undertook a market research study in 2009 to gauge the return on investment (ROI) our clients achieved after converting to DNA – our flagship core solution – from various legacy systems. Ten overall market study findings were identified to quantify the tangible results of converting to DNA. Of these, study participants further identified IT, servicing and workflow efficiencies as the three key areas resulting in demonstrable results. Most financial institutions expressed a hard dollar ROI related to being able to make informed staffing decisions, some citing instances of reallocating and crosstraining staff. This reduces the amount of employee specialization required to support the system. These financial institutions benefit greatly from a highly parameterized and modern platform, allowing them an elevated degree of flexibility to consolidate and implement customization. By reducing the number of existing internal support systems, financial institutions can provide faster and tighter integration, which adds up to a reduced cost of operation.
Banks and credit unions interested in learning more about DNA and Open Solutions, as well as the proof points that can help assess qualitative results and quantitative savings, can order the white paper that documents the market research study. E-mail communications@ opensolutions.com to request a copy. Please include “DNA ROI” in the subject line.
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We also asked research firm Raddon Financial Group (RFG) to provide us with industry averages in several key performance areas against which to measure our findings. Our analysis of that data revealed that credit unions using DNA: • Recognize more revenue per household • Earn more non-interest income per household • Generate stronger household relationships • Enjoy more commercial lending success Regardless of asset size, DNA clients show a significantly higher loan-to-deposit ratio than other institutions. The ability of a strong core system to facilitate the lending process allows an institution to more strategically deploy its assets into higher-yielding loans. DNA clients demonstrate significantly higher levels of revenue per household – a result of a more robust relationship with members and better sources of non-interest income, which becomes critically important in a low rate environment. DNA clients demonstrate an ability to generate significantly higher levels of non-interest income thanks to additional capabilities in product design and more flexibility in service charge routines. Based on RFG’s data, we find that DNA clients also demonstrate significantly stronger relationships with members, a natural extension of the flexible person-centric core model allowing more complete focus on member attributes, needs and opportunities. DNA is an open architecture, enterprise processing application that uses a relational database and runs core processing and frontline operations for credit unions, banks and other financial service providers, globally, and on a single platform. That means that no matter what your mission or location, your credit union can take advantage of extensive multi-lingual, multi-currency, memberfocused and commercial benefits inherent in Open Solutions’ DNA core technology. In addition to the cross-market benefits, this newest iteration in core technology:
DNA Clients are More Successful More success in lending
More revenue per household
Loans to Deposits
Operating Revenue per Household
$676 66.7%
77.2%
61.5%
Under $300M
72.8%
$438
Over $300M
Over $300M
Stronger household relationships
Non -Interest Income per Household
$185
$323
Under $300M
Non-interest income per household
$637
Deposits and Loans per Household
$22,190
$171
$21,094
$14,803
$92
$10,818 $42
Under $300M
DNA Clients
Over $300M
Under $300M
Over $300M
More commercial lending success Business Loans as a % of Total Loans
6.7%
Industry Avg 3.2%
As of 03/31/2010
5.8%
3.4%
Under $300M
Over $300M
• Improves workflows using wizards, designed for intuitive usability and improved performance efficiency. • Is the most powerful person-centric data model available within core Processing, exceeding the requirements of your credit union’s “member first” service philosophy. • Has the flexibility to help you bring new financial products to market more quickly. • Is a proven solution already successfully supporting hundreds of financial institutions. These results are borne out through the aforementioned research study. Open Solutions interviewed nine financial institutions that were part of a 2009 project to move all U.S.-based clients to this new technology without imposing any additional license or data conversion costs. These and the other 400-plus financial institutions operating on DNA are enjoying quantifiable benefits derived from using this innovative technology. n
Smart Solutions 2010 | 21
LENDING
Private Student Loans as an Opportunity for Financial Literacy
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B y Wa lt e r B a lm a s
ith a dense concentration of high-cost colleges and universities in the region, New England students are among the most frequent users of private student loans in the country, readily using such loans to augment federal grants and loans to help finance their education. As most private student loan borrowing is among undergraduates, this becomes a crash course in financial literacy and planning for many students. For a good percentage of these students, feeling overwhelmed and ultimately deferring the need to understand the myriad terms and conditions associated with their private student loan debt becomes the unfortunate course of action. While the barrage of new federal disclosure requirements has resulted in some uniformity on how such financing is disclosed, simply mailing yet another piece of paper to the consumer without introducing a counseling mechanism to explain what’s mailed is just not enough. If you’re thinking about starting a private student loan program at your credit union, don’t stop at ironing out the economics of the asset class or the exercise of how to operationally support such financing programs. As nonprofit financial cooperatives with a mission to assist members to become better educated consumers of financial services, here’s an opportunity to tailor your private student loan program to addresses the financial trepidations of the young men and women who take out these loans and the moms and dads that cosign for them. Private student loans are often touted as the ultimate “sticky” product that helps expand credit union membership among the youth demographic. With repayment terms stretching out as long as 15 years, private student loans ensure a financial relationship Walter Balmas, under contract to Access To Money Inc. (ATM), is a Los Angeles-based higher education financial services consultant with close to 20 years of student loan product development experience and domain expertise in student financial services and federal financial aid practice, policy and regulations. To reach Balmas, please contact Mike Kerans, vice president of sales at ATM, at 973-647-4387. ATM is one of the largest outsourcing services providers and non-bank operators of ATMs in the United States. 22 | Smart Solutions 2010
between your credit union and your borrower that positively affects your bottom line. Much has been said about cross-selling other credit union services and products to these young borrowers, but not enough has been discussed about financial literacy opportunities. Consider this scenario: You just approved a private student loan for a 19-year-old, co-signed by his parents. You noticed during the course of underwriting this loan that the student has either no credit file or score, or worse, the student’s short credit history is poor. While the fact that his parents co-signed this loan pretty much safeguards the overall long-term performance of this debt, here you have an opportunity to start counseling the student on how best to start becoming a more financially-savvy consumer. What better way to make that sticky effect a really positive experience for that student? Perhaps a conversation about credit card debt is in order, or an exercise in personal budgeting. On a larger scale, such opportunities for financial literacy education could be deployed virtually on your website, using a host of web applications that customize counseling to the particular financial literacy and planning goals of your member – all triggered by that private student loan relationship you just established. Strategically, wrapping your private student loan program with a financial literacy component further solidifies a member relationship. As that young member succeeds through college and enters the workforce, your continued efforts to educate them and optimize how they handle their private student loan and overall consumer debt through the years will only serve to reinforce in their mind that your credit union has all the banking services they will ever need. The ultimate impact on the bottom line of such a strategy is that this, after all is said and done, is an effective and pro-active delinquency mitigation strategy that will improve the overall repayment performance of your private student loan and overall consumer loan portfolio over time. For all you sales gurus out there, think about all the debt consolidation and optimization opportunities such a consumer education strategy will provide. And for the credit union movement in general, one more valuable point of differentiation between us and the big banks. n
Managing your members’ data isn’t just important,
it’s your lifeline.
At Synergent, we are committed to supporting credit unions, and only credit unions. As a provider of the Episys ® core processing platform in a service bureau environment, Synergent has the technology to help your credit union grow. From providing the latest in remote services and payment systems to marketing support,
Synergent keeps your credit union connected. Technology Services | Marketing Support | Payment Systems For more information: Fred Barber, Account Executive fbarber@synergentcorp.com 1-800-341-0180, ext. 593 Episys is powered by Symitar, a wholly-owned subsidiary of Jack Henry & Associates.
www.synergentcorp.com