Vice President of Sales,
Credit Union Resources, Inc
The kids are back in school. They will be eating Halloween candy in 66 days – and opening Christmas presents in 120 days! I don’t know about you, but for me, every year seems to fly by a little faster than the one before. It seems that we just started 2015 and now we are over hallway through the third quarter. This time of the year is the most popular for credit union conducting their strategic planning sessions. We review the successes (and sometimes not-so-successful attempts) of the past and make plans for the future. There is much information to be gathered and considered in preparation for this important process. One of the most valuable strategic planning resources available to credit unions is CUNA’s Environmental Scan. The 2015-16 edition has been released. This report provides insight into the many areas affecting the strategic planning process. It gives data and analysis of the topics that must be considered in preparing for the future. The following is a brief overview of the top trends identified in this year’s report.
A Mobile Ecosystem
Young members grew up digital and expect to use this technology in the future – for nearly everything. A mobile ecosystem will enable members to move their money via their devices in a variety of ways, such as online bill pay, person-to-person payments, and mobile deposits. Growth of these payments streams isn’t slowing down. E-commerce payments in general will grow 15% year-over-year, and person-to-person payments will increase nearly 50%. Last year alone mobile payments grew nearly 70%.
Apple’s digital wallet solution, announced in September, 2014 will be seen as a watershed moment in the payments world. It could signal widespread adoption of mobile point-of-sale payments, expected to increase exponentially in the next five years. Within months of Apple Pay’s arrival, Google revamped its wallet and also released Android Pay.
As credit unions battle for their cards to be “top of device” and “top of wallet,” consumers and merchants will decide the payment methods they prefer and which technologies win out. Consumers focus on what is in their cart and how fast they can receive service. Merchants want more sales and lower expenses. Credit unions must develop payment systems strategies to maximize their success.
The Improving Economy
Expect the momentum from 2014’s rosy economic results – positive job growth, low inflation, an improved housing market – to continue through 2016. Members’ balance sheets are improving as well.
Credit unions should prepare for even stronger loan growth, which should offset the impact of these rising rates.
CUNA economist Mike Schenk says to look to what’s on the horizon:
- Improving credit risk. Credit quality will improve modestly this year and next. The improving job market and fast loan growth will push delinquencies down from 0.85% at the start of this year to an average of 0.75% in 2016. Net charge-offs also will decline.
- Higher liquidity risk. Loan-to-savings ratios continued to rise last year, finishing the year at 75%. CUNA’s baseline forecast expects this ratio to approach 85% by year end 2016.
Millennials and the CU Brand
Credit unions continue to have a “millennial” problem. They’re your future savers and borrowers – but 71% have little or no knowledge of credit unions. The good news is that millennials also distrust banks. For more than a century, credit unions have fought hard for the underserved by putting people first. Take the same approach with this group. Identify their needs, and work on building trusting relationships with them.
High-Performing Leadership Teams
Payroll is a mission-critical investment. Employee engagement remains low, and many managers spend their time focusing on issues not critical to the organization’s success. By continually identifying and developing star employees, credit unions can create a powerful team. This is one approach that will improve productivity and provide a critical competitive advantage.
Credit unions are beginning to expand and increase their use of the ever-increasing volume of available data. That’s due to the rapid expansion of mobile computing and wireless networks. Available data includes transactional data credit unions have through their core systems, as well as social media and other public information. Credit unions are using this information to manage, decipher, and react to consumer behavior.
CUNA’s Member Activation Program reveals that involving members in advocacy can lead to increased member loyalty and higher wallet share.
Credit union members in focus groups tell CUNA it is their credit union’s responsibility to inform them – as owners of their cooperative – of legislative and regulatory issues that affect the institution’s success.
The research shows lawmakers that millions of members – who also represent voters and constituents – will fight on credit unions’ behalf if issues such as taxation, the excessive regulatory burden, and expensive merchant data breaches threaten the credit union value proposition.
That’s the one word dominating examiners’ thinking. With interest rates expected to rise soon, examiners want to see how you’ll respond. They’ll be focusing on what NCUA refers to as “indicators of complexity,” referring to the types of businesses you engage in.
Credit unions can read more about examiners’ priorities in evaluating safety and soundness by reviewing NCUA’s annual Letter to Credit Unions No. 15-CU-01. And pay close attention to the agency’s final rule on risk-based capital, expected later this year.
Expect to see the same amount of disruption to your credit union’s lending processes as the industry has seen with payments. PayPal now offers consumer lines of credit to buyers and sellers on eBay – and directly to consumers at Home Depot stores. It’s a growing trend where loans are processed and approved quickly, when and where members want them.
Use your proprietary member data to voluntarily disrupt your loan processes, or risk being disrupted by current competitors or new, nontraditional lenders. Also identify barriers in your credit union’s lending processes and ways to make loans more convenient for member who need them.
Cyberthreats and IT Security
More data breaches seem inevitable. Stay vigilant and look for new system vulnerabilities and increasingly sophisticated malware. Strengthen your information security position with increased agility and faster reaction times to emerging threats.
Keep in mind that regulators don’t believe financial institutions are doing enough to protect data and recover from intrusions. As a result, NCUA will “redouble efforts” to ensure credit unions have comprehensive information systems policies and procedures.
Planning is an exciting process for credit unions. This is where we discuss and decide on important strategies that will determine our success. Be prepared with the best information available. Your credit union’s future depends on it!
Source: 2015-16 Environmental Scan - www.cuna.org/escan