How to Win and Keep Profitable Members in Today’s Environment (Credit Union Conference Presentation)
 

How to Win and Keep Profitable Members in Today’s Environment (Credit Union Conference Presentation)

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Let’s get back to the basics of banking: attracting the right profitable members and keeping them engaged. Credit unions of all sizes and types are assessing their existing deposit and retail ...

Let’s get back to the basics of banking: attracting the right profitable members and keeping them engaged. Credit unions of all sizes and types are assessing their existing deposit and retail strategies in order to ensure they are delivering value to members and earning non-interest or fee income through legitimate business models. In this 2011 NAFCU Annual Conference presentation you will discover the strategies that leading credit unions are employing to drive profitability in today’s environment and explore case studies of the top performers. Plus, learn best practices on retail account design, including how to attract new and profitable members.
Presented by Wayne Conte, Executive Vice President, Business Development and Strategic Marketing, Affinion Group

More info at http://www.nafcu.org/affinion

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How to Win and Keep Profitable Members in Today’s Environment (Credit Union Conference Presentation) How to Win and Keep Profitable Members in Today’s Environment (Credit Union Conference Presentation) Presentation Transcript

  • How to Win & Keep Profitable Members inTodays Environment National Association of Federal Credit Unions l www.nafcu.org
  • Industry UpdateAverage member profitability down at most institutions following crisis – Globally, average member profitability declined 5% to 15% since the crisisEfforts by institutions to restore member profitability face hurdles – 59% reported decreased loyalty – 63% say members are more price sensitive – 63% say members are „shopping around‟ more frequently – Greater willingness to move away from „poor‟ serviceTraditional profit recovery strategies – rate and fee increases, conventional cross-selling and organic growth – will not readily fix the problem. Many will struggle. – Consumers have broader expectations – Service demands have increasedJune 2010 Accenture study across 35 retail banking institutions National Association of Federal Credit Unions l www.nafcu.org 2
  • Legislation and regulation continue to be game-changing. We expect more regulation in the financial services sector in the near future.June 2010 Accenture study across 35 retail banking institutions National Association of Federal Credit Unions l www.nafcu.org 3 View slide
  • Next13 Billion Legislation. . .11 Billion ? Durbin Amendment 9 Billion 7 Billion 5 Billion Reg E 3 Billion 1 Billion National Association of Federal Credit Unions l www.nafcu.org View slide
  • Legal and regulatory developments promise to have a significant impact on Credit Union profitability• CARD Act: „Reasonable‟ penalty fees defined• Regulation E: NSF/Overdraft fees• Dodd-Frank Act: New Regulator• Durbin Amendment (part of Dodd-Frank Act): InterchangeThe Cost of Non-Compliance is Significant• Bank Secrecy Act• Regulation E (Electronic Fund Transfers Act)• Regulation Z (Truth in Lending Act – which also includes NCUA Truth in Savings Act and the CARD Act)• Regulation B (Equal Credit Opportunity Act)More to Come – Numerous Compliance Challenges for 2011 and beyond• Fair and Accurate Transaction Act (FACT Act) – risk-based pricing notices• New Privacy Regulations• Other Regulatory Issues on the Horizon National Association of Federal Credit Unions l www.nafcu.org 5
  • Regulatory environment threatens revenue sources Checking Account Revenues 2008*: $68.1B *2009 total and breakdown expected to show little change.Source: Novantas, qtd. in 12/23/09, “Consumer Fees: The Hits Keep Coming,” American Banker National Association of Federal Credit Unions l www.nafcu.org 6
  • Free Checking Profits are Dropping$218 Opt-In How do -$30 you replace $188 Interchange -$20 $68 of annual $168 Future Regs revenue? -$18 ($5.66/mo) $150 National Association of Federal Credit Unions l www.nafcu.org 7
  • Revenue pressures from legal and regulatorydevelopments were exacerbated by ongoing consumer behavior trends. National Association of Federal Credit Unions l www.nafcu.org 8
  • Members expect more from their financial institutions 39% 94%Don‟t want all of their accounts Believe trust is somewhat or in one place because they very important in choosing a FI. don’t trust financial companies.* 80% 64% Plan to permanently increase Want to learn more about the amount of money they managing their finances.** save.* *Members with $100K+ household income **Members age 18-24 Source: 5/10, “Seven Predictions for the Future of Banking,” Mintel Comperemedia (webinar) National Association of Federal Credit Unions l www.nafcu.org 9
  • Banks Making Satisfaction ComebackBank Industry customer satisfaction average improved four indexpoints due to improvement in product offerings and educating onvalue of these offerings.On a scale of 1000 throughout 2010: 790 782 780 779Small Banks improved from 779 to 782 770 764 760 Small Banks 759 Medium Banks 750Medium Banks improved from 759 to 764 746 Large Banks 740 741 730Large Banks improved 741 to 746 720 1 2J.D. Power & Associates May 2011 National Association of Federal Credit Unions l www.nafcu.org 10
  • New initiatives that Credit Union’s are doing to engage members and rebuild trust:• New embedded strategy with new benefits• Migrating from free to fee while marketing to acquire new members• Retain members by embedding more robust benefits for profitable accounts• Deploying mini bundles: cash back checking, cash trax checking, and achievement checking National Association of Federal Credit Unions l www.nafcu.org 11
  • Embedded Configurations “At a Glance”Benefits: Cash Back Checking Benefits: Cash Trax Checking Benefits: Achievement Checking• ID Theft Insurance • ID Theft Insurance • AD&D Insurance• Everywhere Cash Savings • Music Downloads & More • Common Carrier• Everyday Rebate Rewards • Everywhere Cash Savings • Destination Discounts • Coupon Book • Everywhere Cash SavingsCredit Union Provided Benefits Credit Union Provided Benefits Credit Union Provided Benefitsi.e. i.e. i.e.• Enrollment in E-Statements • Enrollment in E-Statements • Free order of checks• Online Bill Pay • Online Bill Pay • Safe Deposit Box discounts • Online Bill PayEstimated Revenue – Assuming 10K Estimated Revenue – Assuming 10K Estimated Revenue – Assuming 10KAccounts Accounts Accounts•Member charged $3 per month •Member charged $3 per month •Member charged $3 per monthgenerating ~ $20K monthly revenue generating ~ $20K monthly revenue generating ~ $20K monthly revenue National Association of Federal Credit Unions l www.nafcu.org 12
  • What all of this means Many national “brands” have disappeared – a few more could also falter. The winners will be those employing distinctive strategies and tactics that cost-effectively target, attract, and capture profitable deposit members. New products and differentiated acquisition strategies and tactics are essential. Fees are ok as long as they are not changed multiple times and are communicated and understood by the members National Association of Federal Credit Unions l www.nafcu.org 13
  • How are you handling… Current account structure? The cost of free checking? Number of members who opted-in? Increased branch operation costs? Personal performance pressures? National Association of Federal Credit Unions l www.nafcu.org 14
  • Decision Point Financial InstitutionsSTATUS QUO DECISION POINT INNOVATIONRISK VS. REWARD REWARD VS. RISK National Association of Federal Credit Unions l www.nafcu.org
  • Back to basics Embedded accounts that marry financial and non-financial products and services Non-financial products need to resonate with members Fee checking accounts that are behavior based with the ability to “buy down” the monthly fee Development of overlay strategies to compliment core account National Association of Federal Credit Unions l www.nafcu.org 16
  • The Decision Whether your choice is: 1. To keep Free Checking, or… 2. To eliminate/grandfather Free CheckingA member engaging account design allows FIs to provide increased value within theirDDA accounts, enhance the member relationship, drive profitable behaviors anddeliver incremental fee income. Improved Greater member tenured Satisfaction member relationships Deeper & more Heightened profitable frequency of member member relationship interaction s (increased LTV) Increased member Member Reduced operating acquisition Checking expenses National Association of Federal Credit Unions l www.nafcu.org 17
  • Drive Positive Behavior ChangeMembers have the opportunity to earn down their monthly feeby exhibiting these behaviors that are convenient for them andcost effective for you: Maintaining a minimum Going paperless with daily balance of $X electronic statements Having “X” signature- Enrolling in based transactions online bill pay Enrolling in Signing up for online banking direct deposit Simple Member Behavior Changes = Highly Engaged Members = Increased Retention & Profitability National Association of Federal Credit Unions l www.nafcu.org 18
  • Sample Account Behavior ScenariosScenario A: $6.00 monthly account fee, must meet all Scenario B: $8.00 monthly account fee, must meet all5 account qualifiers, then all debit transactions are 4 account qualifiers and entire monthly fee is creditedrewarded with a $0.25/swipe credit Signing up for Going paperless with Enrolling in Going paperless with direct deposit electronic statements online bill pay electronic statements Maintaining a minimum Enrolling in Signing up for Minimum of 15 debit daily balance of $100 online bill pay direct deposit card transactions Enrolling in $0.25 credit for every online banking debit card swipe Example Outcomes • 24 debit transactions = Full $6.00 credit to account (member paid nothing!) • 15 debit transactions = $3.75 credit to account = qualifier behaviors = buy down behaviors National Association of Federal Credit Unions l www.nafcu.org 19
  • More Sample ScenariosScenario C: $8.00 monthly account fee, must meet all Scenario D: $7.00 monthly account fee, must meet all3 account qualifiers, then all debit transactions OVER 4 account qualifiers and fee is reduced to $3.95 (partial$10 are rewarded with a $0.50/swipe credit reward vs. full fee waiver) Signing up for Going paperless with Maintaining a minimum Going paperless with direct deposit electronic statements daily balance of $250 electronic statements $0.50 credit for every Maintaining a minimum Signing up for Enrolling in debit card swipe OVER daily balance of $100 direct deposit online bill pay $10 Example Outcomes • 17 total debit transactions for the month, but only 8 of those were over $10 = $4.00 credit to account • 15 total debit transactions for the month, but only 3 of those were over $10 = $1.50 credit to account = qualifier behaviors = buy down behaviors National Association of Federal Credit Unions l www.nafcu.org 20
  • Consumer InsightsNational Association of Federal Credit Unions l www.nafcu.org 21
  • Background/Objectives Seeking to determine how effective its benefits are in motivating consumers to select a checking account Identify which of its benefits help ease the transition to fee-based checking Understand what behaviors/requirements consumers are willing to adopt in order to maintain free checking Determine which benefits have the greatest revenue potential Consumer based research is desired to determine the optimal combination of value added benefits and account requirements that has the greatest acceptance rate National Association of Federal Credit Unions l www.nafcu.org
  • Methodology Independent study was conducted by third party research firm, AMI National online interviews were conducted Interviews were divided into the following regions: Northeast Midwest South West Survey results were stratified by age, gender and Census Region to determine a final random and representative sample Discrete Choice Analysis was used to determine all of the “best groupings” of product benefits and financial behaviors Results represent optimal bundling strategies and can be used to make projections of consumer acceptance with a high degree of confidence (95% Confidence Level) National Association of Federal Credit Unions l www.nafcu.org
  • Category InterestConsumers continue to want/expect certain benefits from their financial institution Consumer Interest Index* ID Fraud Benefits Savings Benefits Credit Management Benefits *Function of (% Def/VL to Switch) x (Mean Score Rating) – Perfect Score = 500 (100% D/VL x 5.0 Mean Score) National Association of Federal Credit Unions l www.nafcu.org
  • Top Benefits Driving Acquisition Likely to Switch or Open an Account with… (Compared to 2010 Research) Individual Appeal % 1.5x % 1.3x % 1.4x % 1.5x  % 1.6x % 1.5x  % 1.4x % 1.1x % 1.1xResponses Based on a 5 Point Scale –Top2 Box = Definitely Would % N/ASwitch/Open and Likely WouldSwitch/Open National Association of Federal Credit Unions l www.nafcu.org
  • Best “3-Benefit” Bundle Everywhere Cash Everyday Rebate Payment Card SavingsSM Rewards Protection Nearly 1/3 of U.S. adults would select this bundle if offered as part of checking accountDiscrete Choice Conjoint Analysis determined best “3-benefit” bundle National Association of Federal Credit Unions l www.nafcu.org
  • Best “5-Benefit” BundleEverywhere Everyday Rebate Payment Card Daily Credit Credit ReportsCash SavingsSM Rewards Protection Monitoring and Scores Over 1/3 of U.S. adults would select this bundle if offered as part of checking account Discrete Choice Conjoint Analysis determined best “5-benefit” bundle National Association of Federal Credit Unions l www.nafcu.org
  • Consumers Accept Change Likely behavior acceptance to keep free checking % Definitely/Very Likely To Do In Order To Keep Free Checking… Consumers are willing to maintain certain behaviors to keep their account freeResponses Based on a 5 Point Scale –Top2 Box = Definitely Likely/Very Likely National Association of Federal Credit Unions l www.nafcu.org
  • Optimal Account Design Everywhere Everyday Payment Daily Credit Credit Bill Pay or Online Cash Rebate Card Monitoring Reports and Direct Banking SavingsSM Rewards Protection Scores Deposit Acceptance Five of the best product benefits bundled with the best two financial benefits will realize the highest consumer acceptance level nationwide 44% of U.S. adults would select the account above and pay a monthly fee if offered those account featuresDiscrete Choice Conjoint Analysis determined the best optimal bundle National Association of Federal Credit Unions l www.nafcu.org
  • Real Value to the Bottom LineIn addition to extensive revenue to our clients, value added services deliver increased tenure, deposits and overall lifetime value Average difference between free checking account and an enhanced, fee-based checking account with Affinion benefits Average Balance Tenure Lifetime Value Up to 2.5x 1.7x higher longer 2.3x higher Fee Account, with Product Benefits Free Checking $600 - 3 years $900 $480 per year Source: NetGain! data analysis, First Manhattan Consulting Group data analysis, Affinion Enhanced Checking client analysis National Association of Federal Credit Unions l www.nafcu.org
  • In Summary Consumers are willing to pay for value, but increased fees must equal increased value Consumers are accepting of certain behaviors in order to keep their account free Consumers prefer fees they can control Introduction of fees does not equal increased attrition  On average, FIs could expect ~13%* attrition when changing the core account structure (e.g. introducing a fee)  Attrition above includes: normal account attrition, FI closed the account, consumer closed the account (or converted to another) Understanding which combination of services drives purchase interest and retention is essential *Attrition rate varies based on brand affinity to the institution. National Association of Federal Credit Unions l www.nafcu.org
  • Case StudiesNational Association of Federal Credit Unions l www.nafcu.org 32
  • Checking Account Case Study- Moving From Free to Fee CheckingFI Business ResultsRegional bank with 1,300 locations in the • Bank has over 210,000 active customers inMidwest the identity theft program • Bank cross sells over 38% of all newNeed accounts into the identity theft programInitial need was to deliver an identity theftsolution to protect consumers and drive • Bank will generate $10.0 Million in net newretention and non-interest income while revenue this yearpositioning the bank as a market leaderEvolved into a more holistic strategy ofaddressing moving from “free to fee” checkingaccount strategies – the bank was no longergoing to offer free checking accountsSolutionDesign an identity theft product solution whichcould be embedded into the core checkingaccount for a nominal monthly feePosition bank as an industry leader andprovide a value-based fee message tocustomers National Association of Federal Credit Unions l www.nafcu.org 33
  • Credit Union Success Story – Fee Income / AcquisitionClient Data – Western CU• $620 Million in Assets Business Result:• Branches 20• Members 56,000  20% cross-sale ratio in the first two months (account launched in April)Need:To develop a brand new checking account designed  Nearly 20% of all new checking accountsto create a competitive advantage, drive non-interest have at least one value-added packageincome, and attract new members/accounts - all (year-end goal 50%)while providing a valuable product that memberswant and can design themselves.Solution:  Program is trending 100 brand newCreate 6 different “Packages” ranging from credit checking accounts / weekand identity theft services to travel and shoppingdiscounts and services.  “Credit Package” as been the most chosen of all package optionsLet members design their own account by choosingthe package(s) they want, for a nominal fee, to addto their account.  National media exposure: Forbes, Yahoo Finance, CNBCLeverage CU‟s strong sales culture as an opportunityto maximize revenue and program penetration. National Association of Federal Credit Unions l www.nafcu.org 34
  • Credit Union Success Story – Incremental Fee Income and Protection for MembersClient - Credit Union in SE• $1.9B in assets• 205,000 members Business Result:Client Need: • Credit Union launched the program withConcerned about the ongoing threat of identity an initial direct mail campaign totheft and wanted a comprehensive solution to offer 128,927 membersto members. • Initial mailing achieved a 1.84%Find alternative methods for incremental revenue response rate, equating toby generating a predictable, recurring fee income approximately $151,000+ in annualstream. incremental revenue for the Credit UnionAffinion Solution:Create a comprehensive, robust identity theft solution • Follow-up mailing was sent to 106,809designed to proactive mitigate fraud risk for members. Also members achieving a 1.03% responseprovide personalized resolution and insurance to members ratein the unlikely event fraud does occur. • Approximate current monthly revenue toOffer the solution in multiple distribution channels; in- the Credit Union based on all channelsbranch, online and via direct mail, so members can interact is $21,000/mowith the product in their preferred communication channels. • = $252,000+ in annual incrementalGive members the opportunity to try the product at no revenue for the Credit Unioncharge for 30 days with the opportunity to continue theprotection for a monthly charge of $9.95/month after thetrial period. 35 National Association of Federal Credit Unions l www.nafcu.org 35
  • Credit Union Success Story – Upgrading Benefits Business Result: • Since that time we have seen 30%Client - Credit Union in Midwest growth rate in the program• 10K Checking Accounts• 19,000 members • Currently we have • 1882 enrolled inClient Need: CheckMax/CheckMax PlusAffinion client since 2001 and program was strong Accountbut growth slowed in 2008. • 19% penetration rateIn 2009 Affinion facilitated consumer research onour CheckMax checking account program andrecommended changing the benefits andupgrading to newer benefitsAffinion Solution:In August 2009 we launched the revamped checkingaccount program utilizing our “Best Practices” includingnewer benefits, training, incentives, goal setting. 36 National Association of Federal Credit Unions l www.nafcu.org 36
  • ConclusionNational Association of Federal Credit Unions l www.nafcu.org 37
  • Re-designing accounts and acquiring profitable members can… Deliver deeper and more profitable member relationships (Increased ROI and LTV) Improve member satisfaction Lengthen tenured member relationships Heighten frequency of member interaction Reduce operating expenses Generate incremental fee income Increase member acquisition Offers that resonate to the member Communicate via the member preferred channel National Association of Federal Credit Unions l www.nafcu.org 38
  • Questions Thank You Wayne Conte wconte@affiniongroup.com (615) 764-2537 www.affiniongroup.com National Association of Federal Credit Unions l www.nafcu.org 39