CO-OP Financial Services Blog: Insight Vault

Until April 15, 2010, credit unions have an opportunity to comment on NCUA’s “Field of Membership” rule. The agency hopes to streamline its admittedly cumbersome, ambiguous rule for obtaining a community charter. Some of the ambiguity can be traced back to 1998, when Congress passed H.R. 1151, the Credit Union Membership Access Act, which included a requirement that community credit unions be “local.”

While you’re considering whether to weigh in during this comment period, I would challenge you to also consider what it takes for a credit union to truly benefit from being granted a community charter. Whether you’re one of the many shops that have made this move in the last decade or you’re just now taking the plunge, a few concepts ring true:

• It’s an opportunity, not a gold rush: Since the start of the financial crisis in 2007, 205 banks and 33 credit unions have failed. Much has been said about what this shake-up will mean for the survivors. While it’s true that the flurry of bank closures has damaged consumers’ trust level for banks, competition for a share of their financial services wallet remains fierce. Especially in densely-populated metropolitan areas, it takes a sound strategy to thrive.
• Access and convenience rule: Financial guru Suze Orman has had some great things to say about credit unions lately, but she cites the smaller size of credit unions’ ATM networks as a downside (check out Suze Orman on Credit Unions). Of course, as a reader of CO-OP Financial Services’ Insight Vault, you’re savvier than that. You know that you can serve a community well by tapping into CO-OP Network, the nationwide network of 28,000 surcharge-free ATMs, many of them deposit taking, and 4,000 CO-OP Shared Branching locations.

Regardless of what happens with the NCUA rule on the field of membership issue, one thing is certain: Credit unions play an important role in providing affordable financial services to more than 90 million Americans, and CO-OP Financial Services is proud to be a part of this ongoing success story.

Lost among CARD, CCFFA (Interchange), FAROCA (Overdraft), CFPA and all of the other regulatory and legislative alphabet soup that we all face is a little publicized court case that could impact us all. Several years ago the American Federation of the Blind assisted in a suit seeking that U.S. currency have features added that make denominations distinguishable by those individuals that are visually impaired. The court found in the Federation’s favor and instructed Treasury that as each note is redesigned a feature be added. The $1 note is exempted from this ruling. As a matter of public policy, this makes sense. Virtually every other country in the world has provided some means for the visually impaired to distinguish the denominations of their currency. Recently Treasury announced that it will not appeal the ruling.

The $100 note was already in redesign and will not be impacted in the current cycle. Treasury intends to seek comment later this year on design features and will incorporate the features into the next note redesigned. The two most commonly discussed features are changing the size of the notes or adding a brail feature to the note.

• Changing the size of the note by denomination would be fairly dramatic. It would impact ATM’s and their associated canisters/dispensers as well as virtually every cash register, cash drawer and other piece of cash handling equipment in the U.S. The ATM manufacturers should be well positioned since they dispense notes of varying sizes in many other countries using much of the same equipment in use in the U.S. There would likely be a need for upgrades and adjustments on ATM’s. Retailers and teller/vault operations would face more significant and expensive challenges.

• Adding a brail feature should be less disruptive. The challenge will be creating a feature that does not impact automated counters and dispensers yet is durable over the life of the note. Undoubtedly some adjustment or upgrade of existing teller, vault and ATM equipment may be needed. Given the sheer volume of such equipment, even testing will be an expensive proposition.

CO-OP Financial Services is monitoring this initiative closely, will comment to Treasury in coordination with you and other credit union advocates, and above all will keep you informed of requirements as they evolve. Our goal will be to support the public policy position but encourage implementation that lessens impact and costs to credit unions. Depending on the feature added, CO-OP intends to work with the ATM vendors to coordinate and aggregate for purposes of a credit union system implementation. On this issue, as with other payments related topics, CO-OP intends to provide leadership in guarding the interests of our member credit unions.

How many times have you wanted the newest and latest technologies for your personal use? Even though we know that technology changes rapidly, we still want the latest cell phone (e.g., iPhone 3GS, Nexus One), LED HDTV or Microsoft operating system (e.g., Windows 7).  We are even willing to pay the high costs to be the first with the latest technology and the ability to flaunt it among our friends. This behavior includes the credit union industry.

In order for credit unions to maintain a competitive edge, attract new members, retain its current members and attract/retain talented personnel, credit unions want the latest technology to deliver quality services (e.g., ATMs that capture electronic images of checks, and the ability for members to access their share account via a mobile phone, allowing members to perform the same level of service remotely and on the go) or streamline its processes to reduce costs.

From a personal perspective, I generally ask myself these questions before making a purchase/investment:

• Is this a want or a need?
• Am I willing to pay this amount and do I have sufficient funds to make this investment?
• Am I willing to settle for some other items that may not have all the bells and whistles, but will meet my current and near term needs (e.g., next three to five years)?
• What is the resale value, if any?

Also, based on my finance background, I will perform a detailed analysis to determine the financial impact to my personal finances. This thought process is no different from what businesses do (e.g., a return on investment, ROI, analysis) before investing in new technologies.

It is important, especially during these difficult economic times, to consistently prepare a ROI to ensure your limited resources are optimally utilized. For those that do not have a finance background, below are some items to consider when you analyze a ROI developed by your finance department.

• Will this help us retain our clients (e.g., members)? If we do not have this technology, would our member leave and take their business to another financial institution? Has the potential loss in revenue been considered if this investment is not undertaken? How about reputational loss?
• Will the new technology provide a new revenue stream or streamline the delivery of a new or existing service? Are the revenue assumptions realistic and is the sales team committed to assumptions and their achievement?
• Will this technology streamline a process and make it scalable? If it does, was the savings in headcount included in the ROI?
• Will the features of the new technology be used immediately? If these features will not be used immediately, should the investment be deferred until such time these features will be used immediately?
• Has the impact to purchase or internally develop the new technology been considered and analyzed? If it will be internally developed, have the costs of internal resources been included in the ROI?
• Have all costs been included, such as:
  • Sales commissions
  • Implementation costs – utilization of internal/external resources
  • Ongoing maintenance costs (e.g., IT department)
  • Vendor management
  • If the new technology will be purchased, has the vendor due diligence been completed?
  • Have business continuity and disaster recovery costs been considered if this technology is deemed to be critical?
  • Were other technologies with similar features and functions considered?  Why were they not chosen?

As shown, the most critical components in analyzing a ROI for new technologies is understanding what’s important to your members, getting the team vested in success and asking questions until you are satisfied that an effective decision can be made.