4 minutes
Finding new revenue sources is strategically important to credit unions. The convergence of margin compression, downward pressure on debit interchange and overdraft income, and a slowly recovering economy are forcing the industry to rethink and develop effective revenue growth strategies.
Jim Burson and Vincent Hui, senior directors for Cornerstone Advisors, Inc., a CUES Supplier member and strategic partner based in Scottsdale, Ariz., focused on the execution of several strategies during a CUES Webinar, “Hitting Revenue Growth out of the Park.”
Organic Growth
Growth rates have slowed dramatically for credit unions since 2009. According to The Cornerstone Report: Benchmarks & Best Practices for CUs, credit unions are averaging 2.5 products per household, representing stagnant growth in that area.
New accounts per day are also stagnant, but when compared to banks, credit unions are doing well. Credit unions are averaging two new accounts per day per branch; banks are averaging one.
“As credit unions we’re out-performing the banks in attracting new retail checking accounts; our challenge really is to grow the depth of those relationships as we get those primary financial services households,” said Burson.
“We as an industry have done very well when it comes to member experience,” he continued. “We have an NPS® (Net Promoter Score) that’s on par with the Amazons and Apples of the world. “But those high NPS scores are not translating into depth of relationship for new revenue.”
While onboarding and member experience must meet member expectations to see organic growth, Burson pointed to Cornerstone’s data on where credit union staff spend their time. Half of branch managers/supervisors are focused on revenue–new accounts, business development and loan origination–and the rest of their time is on administrative matters.
“Some of our best sales people are only doing revenue growth 50 percent of the time. As branch behavior changes, we would expect this number to increase and we need to figure out how to free up time for them to be more focused on revenue generation,” he explained.
Mergers
During the first six months of 2014, 123 mergers were approved by the National Credit Union Administration. But the reasons for mergers are starting to change.
“A lot of merger discussions now are around field of membership expansion and the need to get scale,” Burson reported. Credit unions are focused on mergers as an opportunity to become more flexible to meet member expectations with products and services.
“A lot of it is around how one plus one can equal greater than three. Just by combining two entities and not doing anything about it is really, quite candidly, a waste of resources,” he said. The opportunity lies in creating a greater value to members through a merger; not just combining credit unions. Through products, merging credit unions can benefit from complementary product offerings. Better pricing may also be an option, due to flexibility that comes with a stronger balance sheet.
Also, “a merger, as an event, is a powerful instance of change that can drive changes in behavior,” Burson noted. Example: If a sales culture is implemented at another time, no significant event is driving the change; a merger creates that impetuous for change to improve the credit union’s culture.
CUSOs
“What we really need to think about here is what are the overall revenue opportunities,” Hui said. Developing a credit union service organization requires a significant investment, and without a revenue growth play, the risk may outweigh the reward.
Despite years of focus, investments, insurance and CUSOs account for 10 percent of credit union fee income. But CUSOs that enhance offerings beyond the core business provide both growth and diversification opportunities.
CUSO investments to support income from such activities as insurance, wealth management and business services (e.g., payroll processing) can allow a credit union to buy or build new and deeper relationships. A good relationship between a credit union and a CUSO can result in literally hundreds of opportunities each year to cross-sell fee-based services.
Hui explained, however, that the risk appetite of management and the board must be carefully considered to ensure market entry expectations are understood and challenges mitigated. Partnerships, compensation structures and referral relationships with the core credit union are all essential to success.
