George Hodges post on CUES Skybox
I had the opportunity to speak with a number of credit union CEOs and board chairs at CUES Symposium in Bonita Springs earlier this month. The dominant theme was liquidity and the absence of lending opportunities. Unfortunately that’s not a problem most credit unions have any control over at the moment, so it begs the question: Are there other immediate opportunities to grow revenue and expand your member relationships outside of lending?
If any of the following scenarios fits your credit union, the answer is probably yes.
- You recently completed a segmentation analysis of your member base and identified that 35 percent are not profitable because their only product is a low-balance checking or savings account.
- You serve a major university or large military base, but don’t seem to have a good product fit for the student population or enlisted personnel.
- You have a youth/young adult strategic initiative, but don’t yet have a strong mobile/card-based product to support it.
- You have an underserved designation with a working class population that is different from your current suburban, mass-affluent member base.
What each of these scenarios has in common is a large number of what the regulators call “underbanked” members. According to the FDIC, this represents 23 percent of the U.S. population, totaling 60 million adults.
If you do a segmentation analysis of your member base, these are typically the members who only have a single savings or checking account with an average balance of less than $1,500 and are not an immediate lending opportunity.
At first glance, this is your least desirable group of members for profitability and growth. But looks can be deceiving.
If you only value their current account relationship, you are losing money on these members, right? The deposit value of their low balance does not offset the cost of providing them a free account, and they do not generate any other revenue.
However, if you were to spend a “day in the life” with these same members, you would find that they make two or three visits every month to another financial services provider to cash their paychecks, pay bills, send money to family members, and purchase reloadable prepaid cards (to avoid overdrafts in their account). This monthly, reoccurring behavior represents an average of $30 per month in non-interest fee income that these “unprofitable” members are paying another provider!
So who is taking away your member’s transactions, $360 a year in revenue, and relationship potential? A few years ago, the answer would be check cashing stores and payday lenders. Now, the list includes Wal-Mart, Kroger, Rite-Aid, and an increasing number of large banks.
If you don’t think that serving the underbanked has become mainstream, here are some compelling statistics. Reloadable prepaid debit cards are the fastest growing financial services product, and the two most recent IPOs in the financial services industry were Green Dot and Netspend, the No. 1 and No. 2 providers of prepaid cards respectively. Or, if you are in the southeastern U.S., just stop by a Regions Bank branch and check out NOW Banking, which makes all these services available right at the teller line!
What these large non-financial retailers and banks have figured out is that by bundling “alternative financial services” and using outsourced technology and risk management providers, you can convert previously unprofitable members into a profitable growth segment, save them money, and expand your relationship for future growth.
So, as you look beyond lending, you may find a golden opportunity to expand your services to existing members and create a new revenue channel at the same time.
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