16 June 2008

The Savings/Member Ratio

Forum Solutions' Doug True wrote an interesting post on OpenSourceCU today about some credit unions' palpable complacency and unwillingness to take risks in product/service offerings.

"Folks, we can’t offer “free’er” checking. In my opinion, there is too much cookie cutter product offerings that are copied and launched with very little thought on what your members want or how they will see the new offering as relevant. Too many times a credit union simply just buys a new product from a vendor and launches it – differentiation is almost non-existent from the beginning and if it does exist it quickly disappears." - Doug True

When the industry's idea of innovation and collaboration is a "best practices" mentality, it's no wonder many credit unions struggle finding a discernible, relevant role in the financial services marketplace. Fear, reasonable or not, is the major factor here. Fear of regulators. Fear of losing one's job. Fear of rocking the archaic boat that has been too cozy for too long.

As not-for-profit cooperatives, I believe our biggest issue has been our success metrics. If members, assets, net income, number of branches, deposits, loans, capital/assets ratio and number of transactions continue to be our primary measurements, I believe we're doing our charters a huge disservice. "Grow or go away"?!? Says who? Honestly, that bugs the hell out of me.

How's this for an idea? Why don't we define success by the amount of money we save the average member? The savings/member ratio. And by savings, I certainly don't mean deposits. Calculate real value that your credit union is delivering to members. Consider your deposit rates compared to the competition. Look at comparative loan rates. How about fee income? Isn't this what we're in business to do? Aren't we supposed to be saving members money?

Listen, I'll be the first to admit that being responsible stewards of members' assets is an irrevocable charge - and I'm not suggesting we fall anything short of that. What I'm suggesting is that growth for growth's sake is not beneficial to members. I'm suggesting that most of our current metrics are too easy to manipulate to the detriment of our memberships. I'm suggesting that big successes require big risks.

I'm suggesting we start being credit unions again, not bank wanna-be's.


Anthony Demangone said...

Great post. I agree. NCUA does not want credit unions to be risk-averse. Rather - their guidance is that credit unions simply need to identity, measure and manage the risk in their operations. (My grocery store does this. They have certain "bonus items, and at the end of your receipt - they tell you how much you saved. For that purchase, and year to date. It is pretty effective.)

Dan Veasey said...

Thanks Matt! I'm just the kind of obsessive compulsive math geek who's not going to be able to sleep until I come up with a formula for this!!!!

Seriously, this was great. I've tried to work on stats like that before but more "important" things came up and it got put off. And good point Anthony about managing risk instead of avoiding it altogether.

Andy said...

Great post Matt,

And to continue Anthony's train of thought, there is a difference between "managing" risk and "fearing" risk. Risk is where the opportunity is, and if you fear even dipping your toes into the waters of risk how will you ever be able to swim? There are so many innovative startups, banks, and a few credit unions who are getting used to the water. Listen to them, listen to your members, find out where the sharks are and avoid them, but the fear of those sharks shouldn't stop any credit union from at least giving it the old college try.

Tony Mannor said...


Right on! I had a conference call earlier this week where I talked about coming up with some sort of Karma score for credit union members. Members/Customers need to have a tangible benefit to credit union membership. They need more proof than the warm fuzzies.

I am not a mathematician by any stretch, but I think there is enough data out there that a fee comparison and rate comparison with your market could be applied, averaged and then added to the individual score of the member (how many times they get a wire transfer or overdraft) based on their services or accounts.

This also would go a long way for creating multiple service accounts.

Noodle this. Log into your online banking page and see a box in the corner that says "Hey Matt, Want to save $500 bucks this year? Signing up for our Checking Trifecta account (direct deposit, visa card and checking account) could save you $500 in overdraft fees, interest and checks!"

Or something to that effect.

The technology is out there - just need someone to ask someone to write the code.

Good call amigo!