CO-OP Financial Services Blog: Insight Vault

(Note from Bill Prichard, Public Relations Manager: On May 14, CO-OP issued the statement below regarding the Durbin Interchange Amendment. We welcome your comments on this important industry issue. Please leave a comment via the icon at the bottom of the text).

On May 13 the “Durbin Interchange Amendment” (#3989) to S. 3217 (Restoring American Financial Stability Act) was passed by the U.S. Senate. The U.S. House of Representatives had previously passed a similar bill that does not contain an interchange amendment. The bills will go to a House/Senate conference committee to resolve differences. We hope through the conference committee process the interchange amendment can be deleted. We also hope that Rep. Barney Frank makes good on his promise to us at the CUNA Government Affairs Conference that there would not be interchange legislation this year.

Sen. Durbin’s amendment requires the Federal Reserve Board to regulate signature and PIN debit interchange for issuers and payment card networks with more than $10 billion in assets. That means most credit union cards will be unregulated. Normally we would view that as positive. In this case, however, it will likely make credit union-issued cards the most expensive cards for merchants to accept. This opens the door for merchants to exercise other provisions of the amendment to provide selective discounts, set transaction minimums and maximums, and provide discounts for other payment types. At the last minute, language was added to prohibit differentiation of discounts between issuers; however, the entire provision is unclear. Bottom line, the biggest winners will be the large merchants and the biggest losers will be consumers, many of which are your members.

We are further evaluating the amendment to assess its immediate and long-term impact. We cannot fully quantify the financial effect at this point.

At CO-OP, we will continue our efforts to support CUNA, Electronic Payments Coalition, Electronic Funds Transfer Association and other organizations in the opposition to this legislation. There is something you can do also. We encourage you to visit CUNA’s Web site at www.cuna.org and the sites of your state leagues to keep up with the issue and take the grassroots actions they recommend.

Working together, it is our goal to protect your interchange revenue stream and maintain a level playing field for credit unions in the payment card market.

We are so lucky to be part of such a collaborative industry that shares ideas and successes. I truly enjoy working for an organization that is involved with and supports credit unions. I’m always looking for ways to learn of emerging trends, improve my skills and knowledge. I’ve put together a few of the tricks I’ve picked up along the way to enhance a career in the credit union industry:

• Social networking – follow what is going on in the industry through the growing number of blogs and Web sites that provide opportunities for a free flowing exchange of ideas on our industry. Of course, Insight Vault is a favorite, but I may be a little biased! Others include www.cugrow.com and www.cuchatup.net. CO-OP is also on Twitter, so is Credit Union Times and many others. There is rich information out there; it just takes some simple investigation and online navigation.
• Network within national credit union-related associations such as CUNA and NAFCU, as well as the local chapters of your state and regional associations. Get involved!
• How often do you read our trade magazines? There is timely information and thought provoking ideas in industry-related publications such as Credit Union Journal and Credit Union Times.
• Take advantage of any training and educational opportunity your organization is offering you, whether it be in-house training, webinars or something through your state league or other institutions. It is important to always continue learning and keep your knowledge and skills up to date. There are often events that are free if your credit union has budget constraints, so always be on the lookout for those (such as CO-OP’s THINK Conference, which has been free for the past two years). I have been lucky to experience and graduate from Western CUNA Management School myself and feel it is a very worthy program.

I would be remiss if I did not also mention some of the ways you can enhance your career as it relates to job searching and interviewing within the credit union industry:

• No matter what industry or job you are searching for you always want to keep your resume current and up to date. It is also very important that on whatever Web site or social networking site where you may be sharing your knowledge, education and employment history, make sure all information there matches what is on your resume.
• When an interview is scheduled, it is important that you have done research on the company you are interviewing with and come prepared with questions regarding the position you are interviewing for and questions regarding the organization.
• Use social networking sites to keep up on job opportunities. This is a good way to brand yourself and network with other industry-related professionals. You may never know what opportunities arise. Some of the sites CO-OP uses for recruiting include LinkedIn, Twitter and, occasionally, Facebook.  LinkedIn is often used to post positions on their board and various industry-related groups can also be found there, such as Credit Union Network and Credit Union Professionals Network.
• Of course, do not neglect your own professional discipline and participate in the associations, events and resources available through your professional societies.

By following these tips, you can help all of us take the credit union movement into a healthy future, and you can continue to thrive in this wonderful industry.

“Usage Analytics” is a rather technical term that simply means knowing how your members currently use their cards. For years, broad statistics like “60 percent of our checking account holders have cards and 50 percent use them” was about as far down as we were able to drill. We knew that there were lots of accounts still without cards and those that had them had a high percentage of people that were not using them. The benefits of increasing card activation and use and the associated income gains created by that usage demanded some action to motivate a change. The Usage Analytics program from CO-OP Financial Services is called CO-OP Revelation and it’s a tool the credit union can use to motivate change in cardholder behavior.

A card transaction generates a lot of information in addition to the transfer of funds messages. In the fraction of a second it takes to verify the card and transaction, we learn how much money is spent, the merchant or ATM location name, the time of purchase, the day of the purchase, whether it was a cash withdraw or a direct purchase, whether it was PIN or signature validation, and the general merchant category. On an individual transaction basis, this data helps to resolve individual card-holder issues if there is a problem with a transaction. But, taking the information and analyzing it in the scale of the entire cardbase reveals a lot more.

Employing Usage Analytics, we learn about our member’s favorite merchants which in turn helps determine what premiums are most motivating, whether we are trying to promote greater card usage or the adoption of a new non-card product or service. We now know the percentage of transactions that are happening in signature debit, PIN debit and ATMs. This enables us to easily track change as we market to our members month by month. And, we can more easily compare our card performance against our peers to determine how much potential might be out there that we are missing.

CO-OP Revelation can be upgraded to become even more powerful by linking the usage data with individual cardholder records. The system allows us to define certain behavioral characteristics. For example, we can identify the behavior “low signature card use.” We discover that 20 percent of our cardbase is only using the card five times per month for signature purchase when our stats show that the average monthly use is 13 times. We can then tie the usage data to the cardholder record generating a complete list of names and contact information for the entire 20 percent that falls into that behavior category. Now we know who we need to reach and we know the behavior. With this information, we focus the message to the behavior while narrowing the number of members we need to reach with that message; a more effective campaign at a reduced cost! This is precisely what makes CO-OP Revelation Usage Analytics Plus, the enhanced version, worth the investment. More specific knowledge means a better understanding of cardholders and more intelligent and economical marketing planning and execution.

CO-OP Revelation lends itself to more than increased marketing effectiveness. Any usage behavior can be identified and tracked. Fraud trend identification and resolution has been a discovered benefit of the program and is used actively by the CO-OP Card Member Security Group and several large clients. The greatest win from gaining familiarity with the program is the uses the credit union dreams up for itself. CO-OP Revelation is a programmable tool. We provide useful outputs immediately so that you can put it to work right away but it does not stop there. CO-OP Financial Services offers the learning tools to make CO-OP Revelation an integral part of knowing your membership more deeply. As competition increases and providing the appropriate services becomes more imperative, knowing matters.

CO-OP Financial Services provides the tools, counsel and leadership to help you and your members prosper.  So, we define success by your credit union’s prosperity.

This means we must strike a balance between reinvesting in the access and convenience products and services your members expect from their primary financial institution, and distribute a healthy patronage payout to shareholders at the close of each fiscal year.  It is because of our loyal membership and their active feedback that we can appropriately address both the service and financial needs of our shareholders.

It is my pleasure to inform our shareholders that CO-OP Financial Services is announcing a patronage pool of $22.2 million for 2009 with a cash disbursement to its member credit union shareholders of $12.2 million, increases of 12 percent each compared to the previous year.  Net income for 2009 totaled $24.2 million, also a 12 percent increase.

CO-OP was founded by credit unions in 1981, which means we are nearing our 30th year of serving you.  Today, CO-OP connects credit union members to their accounts through five main business lines – network services, payment processing, e-commerce solutions, CO-OP Shared Branching and call center services.  Together with you, we remain a strong community connected to millions of people and places around the country – more than 3,000 member credit unions, 26 million cardholders, 28,000 surcharge-free ATMs (9,000 of which are deposit-taking), 4,000 shared branch locations, plus more than 160 million monthly transactions.  Credit unions and CO-OP truly make a team that can compete with any national bank and win.

We’ve made a significant investment in CO-OP Network to provide ATM locations in recognizable retail stores like 7-Eleven, Costco and Walgreens.  In November 2009, we announced a contract renewal with Cardtronics, Inc., the operator of the retail ATMs, that will keep ATMs in these stores as part of CO-OP Network for at least five more years.  Approximately 5,500 ATMs in 7-Eleven stores are covered under the contract renewal, about 2,200 of which are deposit taking.  In addition, about 340 ATMs in Costco membership warehouses and about 670 ATMs in Walgreens drug stores also are covered under the agreement with Cardtronics.

Because we cover credit union card fees and member surcharges, we’ve saved our members approximately $43 million in 2009.

It is an honor to be able to once again pay out a patronage dividend to our shareholders.  Caring for credit unions the way they care for their members is what CO-OP is all about.  We were created by the credit union movement and we will always be “Of You.  For You.”  Thank you again for the opportunity to serve you and we welcome your comments, questions and suggestions via the icon below.

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.

CO-OP’s motto is “Of you. For you,” which speaks to our singular purpose to help you help your credit union members. At CUNA’s Government Affairs Conference, taking place Feb. 21-25, 2010, in Washington, D.C., the “For you” portion of our motto could also mean great prizes when you visit us at Booth 309.

At five separate stations in our booth we will be featuring displays on:

• Network Services – CO-OP Network is the premier CO-OP solution for member access, convenience and member connection to their credit unions.
• Payment Processing – CO-OP Debit is designed to meet every debit program need; CO-OP ATM allows you to comprehensively manage an ATM portfolio.
• E-Commerce Solutions – Advanced technology at your disposal, including CO-OP Check Imaging products and CO-OP Mobile.
• CO-OP Shared Branching – The convenience of full-service branches, virtually anywhere.
• Call Center Services – Discover 24/7 member support with the new CO-OP Member Center, offering LoanLink and Member Services.

All five displays feature fun games for you to play and an opportunity to win a prize. When you visit booth 309, pick up a play pass and have the CO-OP staff member at each display station mark the appropriate box. Visit all five stations and you will win a gift and be entered to win an Amazon Kindle e-book reader.

If you are staying through Wednesday night, Feb. 24, join us for the Gala Reception and Dance, sponsored by CO-OP Financial Services.

Another outstanding opportunity to gather together early in 2010 is THINK ’10 Conference in Scottdale, Ariz., April 18-21, which we also sponsor. This conference has always been about bringing you top-flight speakers who can bring actionable tips from the experience of their own industries, and make them easily applicable to the credit union movement.  Please go immediately to www.co-opthink.org to register – it’s free to credit unions!

I hope to see you at both conferences!