Frank Koechlein, Feb 1, 2019
It seems there is a growing divide between the strong financial performance of larger credit unions versus the continuing poor performance of smaller ones. While the 529 largest credit unions are showing a strong 8% growth year over year, the 1,565 smallest CUs (less than $10 million in assets) saw their losses nearly double in the 4QTR17 to $3.4 million. These smaller CUs represent only 1.2% of total members, but they account for 28% of the 5,689 credit unions operating at the end of 2017.
Small credit unions represent the grass roots of the credit union movement. With strong personal ties to their community, credit unions put people first. While they are not mandated to do good works, as banks are, by the Community Reinvestment Act, credit unions serve their communities to strengthen the connection with members and improve the quality of life for those in need of financial services.
This long history of serving the financial needs of local communities has been supported by CU staff building strong relationships with their members. This is sustained by branches being staffed by people from the community who are able to personally meet with members to discuss their unique financial needs. The president and senior leadership team are typically active in the community, and employees are involved in many local organizations. So why are these small institutions not able to identify and profitable service, defined local communities?
The shrinking number of small credit unions in part is a reflection of the marketing struggles they are facing in the data-driven digital age. Serving consumers in today’s digital world can be difficult, particularly when you might never have the opportunity to discuss someone’s financial challenges face to face. Gaining an understanding of your member’s financial needs should happen on their terms — service delivery channels that include mobile, phone, SMS, face to face and branches.
Given this increasing complexity, how do credit unions continue their tradition of strengthening connections with members in their “community to improve the quality of life in a world dominated by digital (i.e., non-personal) interactions?
The short answer is the leadership of these smaller institutions need to “stick to the basics.” This means smaller credit unions need to develop a systematic digital process for understanding their member’s financial needs and service delivery preferences. In the old days, this was done with a handshake and a smile… in person. These days, you need to be looking at aggregated member data.
Uncovering the needs and expectations of today’s digital consumers requires new skill sets. In lieu of face-to-face interactions, credit unions need to begin collecting and using more of their own proprietary data, as well as, third-party sources. A database that is properly constructed and managed helps the institution more effectively define and target unique member segments; which in turn leads to more appropriate messaging and more relevant product/service offers. In other words, more effective, more personal digital/remote marketing.
Consider the experience of one smaller community focused institution. We installed a new member database, which was appended with third-party data. The real transformation came as they began to outline goals and put together a marketing plan for the upcoming year. The primary marketing objective was to improve the success rate of their onboarding and cross-selling efforts. CRM activities were organized by segment, and cross-sell programs leveraged predictive indexes for next-best-product for each segment. Similarly, the marketing strategy and media plan was organized around these segments.
These changes might not seem that earth shattering, but in fact it has fundamentally changed the way this institution looks at everything — from marketing strategy and metrics to budgets and benchmarks. Strategy discussions now focus on the progression of both messages and product offers for specific segments (and sub-segments). Member’s preferences determine the appropriate media mix, as well as, the frequency of communications. Test cells are established for back-end analyses to determine what additional products could/should be cross-sold.
Bottom line? In a data-driven economy, credit unions need to rethink how they go about defining “community” and determining how they will service their community’s members. They should still tap the same basic customer-focused, relationship-building skills they have always used… just augmented with new digital tools and member data.