THE mailbag

Q. Reader Question: We have made significant investments on the back end and data solutions, but I lack confidence in our human systems; that is, our front-line employees' ability to use that data to drive deeper relationships. Short of starting over with a new staff, what can we do? Reader Question: We have made significant investments on the back end and data solutions, but I lack confidence in our human systems;...

Barb Lowman, SVP of Fiserv Account Processing Solutions.

Starting over with a new staff is obviously not the ideal solution, as onboarding and the learning curve will heavily impact member service and satisfaction. Your strongest opportunity to drive a deeper relationship is in leveraging your core processing solution, which should provide an intuitive, easy-to-navigate solution where data is displayed in a manner so your tellers can understand and utilize it to improve member engagement and drive cross sales.


A robust cross sales module will automatically qualify members for specific products, services, or bundled offerings, based on business rules and logic running n the background (that they don't even need to have knowledge of or understand). Your investment on the back-end in data solutions should enable your core processing system to mine data from a credit report and automatically run through those business rules and logic in the background to identify opportunities to refinance an existing loan a member has with a competitor, or position a product or service they don't currently utilize, making their relationship with the credit union more “sticky.” Strong cross-sales modules also provide key selling points and value propositions with speaking points to simplify the sales process for the teller, and boost their confidence.

In essence, you should focus your training efforts on polishing employees sales skills to create a true sales culture in rely on your investment in technology to automate the process of identifying key opportunities, eliminating the need for your employees to interpret the data to qualify an opportunity.



I’ve read in both and on a CEO message board some discussion of potential problems in the rush to sign on with Apple Pay, particularly whether we all took enough time to do third-party due-diligence, and whether there are some unforeseen compliance issues ahead that we may not be prepared for. Can anyone offer some direction?

I’ve read in both and on a CEO message board some discussion of potential problems in the rush to sign on with Apple Pay, particularly...

Bill Prichard, Senior Manager, Public Relations and Corporate Communications, CO-OP Financial Services.

Yes, Apple Pay is Durbin compliant.  However because each PIN network is in a different state of readiness, each credit union will need to contact their legal counsel as it relates to compliance issues such as Reg II. It is generally safest to ensure that all transaction types have two unaffiliated networks available.

Apple Pay transaction routing, like contactless or traditional mag stripe routing, is determined by the merchant.  Assuming your PIN network is ready and certified with the network and issuer processor, merchants will be able to choose that network, just as they do today.


Question: Our credit union is one of those operating in what you often hear called a ‘saturated’ market, i.e., a branch on every corner. I feel our growth has been competitive, but not overwhelming. But I feel we’re really not getting much of our current members’ business. In looking at branch/member profitability, can someone give us an idea of how long a good, thorough review of this kind of data ought to really take us? And could we get a heads up on what data we might be overlooking or not considering? Thank you.

Question: Our credit union is one of those operating in what you often hear called a ‘saturated’ market, i.e., a branch on every corner. I feel our...

Bill Handel, Vice President of Research and Product Development, Raddon Financial Group.

Profitability analysis will provide you with insight but may not adequately answer your question.  The more useful view is your share of your member’s wallet.  This is an analysis that compares what deposit and loan accounts and balances your members have with you versus what they have elsewhere.  What they have with you is easy to know, but what they have elsewhere is a little more difficult to determine, but it can be estimated. 

In our work with credit unions, we use our national consumer research studies to determine the product and balance use patterns of various demographic groups in the U.S.  We then look at a client’s demographic mix and on that basis construct a “full wallet” – that is, what we estimate is their members’ full deposit and loan balances at all institutions.  Once this estimate is completed, determining the share of wallet is simple – compare what your members have with you against the full wallet.

Our analysis shows that the typical credit union controls approximately 30% of the deposit wallet of their members and 25% of the loan wallet.  That means that 70% of the members deposits are at other financial institutions and 75% of loans are elsewhere.  The top performers will achieve share of wallet of approximately 45% or more.  There are differences demographically – most credit unions control a smaller part of their younger members’ wallets – and differences by product – auto loan share of wallet is often over 50%.

If the share of wallet is below 20%, your growth emphasis should be on existing members.  If, on the other hand, share of wallet is in the high 30% range or higher, this suggests that the growth priority should be new members. Assessing share of wallet by product and segment also helps to determine in which segments and products to focus your marketing efforts.


We’re experiencing: the double-edged sword of social media when it comes to data breaches. Members are commenting on our Facebook page and Twitter accounts about worries about the security of their cards; and that just leads to more comments. Should we be thinking more about a block-and-reissue strategy (not our first choice) so we can move quickly in the event of what seems like an inevitable future breach? Do you know of anyone with some good “head-off-the-crisis” communication materials?  Thanks.

We’re experiencing: the double-edged sword of social media when it comes to data breaches. Members are commenting on our Facebook page and Twitter...

Karen Postma, AVP of Fraud Operations for payments processor The Members Group (TMG), Des Moines. Iowa.

There are two key aspects to a credit union’s breach response strategy today: Loss mitigation and PR/communications.

When considering your reissue strategy, cardholder impact is a critical consideration. Fortunately for credit unions, this comes naturally. Protecting the credit union IS protecting the member. One does not have to take priority over another.

The fraud rings operating in our country today are becoming extremely precise on where and how they commit payment fraud to emulate actual cardholder spending patterns. The heightened difficulty of detecting fraud makes a mass reissue tempting, even given the cardholder impact.

Interestingly, there has been a shift in consumer attitudes about having their cards replaced. In fact, some of The Members Group’s (TMG’s) credit union clients report getting requests for reissues from their cardholders. Members have heard news of a major breach within the systems of a brand they do business with, and they WANT the reissue.

In cases like this, it becomes the credit union’s job to educate cardholders on the nuances of data breaches (not all cards used at a breached merchant will necessarily experience fraud). It’s also a great opportunity to inspire confidence in the credit union by sharing how fraud is detected and stopped. Consumers today are more interested in this “peak behind the curtain” than ever before.

At the end of the day, it comes down to an analysis of the likely impact to your portfolio balanced with the reissue tolerance of your cardholder base. There is no way you can reissue after every breach. 

In terms of communications materials, absolutely ask your payments processor. TMG, for instance, offers its credit union clients cardholder service scripts, e-mail templates and other communications tools to help them educate cardholders quickly and accurately.


Question: I’m glad this is anonymous, because I’m going to have to admit to some confusion over student lending. Yes, there is a market for CUs, or no, the federal government owns this business now? And then there are all the horror stories about students overwhelmed with debt, including a story I just heard on NPR, which seems counter to why our CU was created. Can I get some real direction here? We’re looking for loans, obviously, but not for any trouble.


Jim Holt, Chief Revenue Officer, CU Student Choice, Washington.

When looking at the issue of higher education and student debt, let’s first remember that college remains one of the best investments an individual can make in his/her future.  The Bureau of Labor reports that unemployment rates for a college graduate are 4.5 percentage points lowerthan those with only a high school education (4.9% compared to 9.4%). And, the college grad will earn more than $1-million more over his/her lifetime! Believe me, with two sons in college, I need to keep reminding myself of these stats given the high cost of education.

Holt Jim

Jim Holt, CU Student Choice

As far as student debt is concerned, many stories lack transparency and can be misleading. The Federal Reserve Bank of St. Louis explains that close to 70% of student loan borrowers have less than $25,000 in debt while 3.6% have greater than $100,000.  “The average debt level is skewed by a small percentage of borrowers with a large amount of debt: 3.6% borrow more than $100,000, likely for expensive degrees, for example, in medicine or law.”

In regards to private student loans, it’s important to realize that they comprise just a small portion ($93B) of the $1-trillion student loan market. They are meant to fill the gap after other lower-cost sources of financial aid have been exhausted and are an important funding component for millions of American families. Overall performance of this asset is vastly superior to federal student loans (due in large part to stringent underwriting criteria). In fact, according to Moody’s, private student loan default rates “dropped to 3.4% in the fourth-quarter 2013, down from 4.5% in the fourth-quarter 2012”.

Responsibly managed private student lending is an excellent opportunity for credit unions to offer a strong-performing program that serves young members during a key point in their financial lives, leads to long-term growth with this important demographic, and positively impacts the bottom line.


Aswin Rajappa, SVP-Marketing, Lendkey Technologies, New York

With the passage of the Health Care and Education Reconciliation Act in 2010, financial institutions were no longer able to serve as intermediaries between the government and borrowers for federally guaranteed student loans. But the demand for student loans continues to increase and at the same time education costs are rising.

Students and their families have come to rely on private student loans to fill the gap between educational costs not covered by savings or government guaranteed loans. Private student loans are strong assets and are performing well.

Rajappa Aswin

Aswin Rajappa

Private student loans are vastly different from federally guaranteed loans.  They have low delinquency ratios because of tight underwriting and most have co-signers. MeasureOne, a San Francisco research firm that follows the student loan market, found that 92% of undergraduate private student loans have a co-signer. According to MeasureOne, of the $1.1 trillion in student loan debt, only about 7.8% or about $92 billion is in private student loans. So this represents an untapped market that is ready to grow.

Private student loans are also a means of reaching young borrowers, especially Generation Y—the future of lending.  These loans offer credit unions a way to reinforce their role in the community by providing funds for college, as well as being a source of education for one of the important financial decisions in young peoples’ lives.

A recent study by the Brookings Institute sifted through two decades of data that tracked educational debt levels and incomes of young households between 1989 and 2010. The authors conclude in their new paper that despite the widely held belief that households with student loan debt are growing worse over time, their findings reveal no support of this narrative as the monthly payment for student loan debt has also stayed close to the same or a bit less over the past two decades. The median borrower has consistently spent three to four percent of their monthly income on student loan payments since 1992.

Another compelling finding was that the media reports of those students with student loan debt of $100,000 or more were rare. In 2010, 7% of households had debt balances of more than $50,000 while only 2% of young households owed more than $100,000 on student loans, according to the authors of the report.

There are additional ways to participate in this market. Private student loan consolidations are offered post-graduation after students typically have established credit. Loan participation networks, like, diversify risk and allow small credit unions to participate through fractional ownership in a large pool of private student loans.

Private student loans are part of the calculus that helps to finance a college education along with federally guaranteed loans and savings. There are few better investments to make in the rebuilding of the United States than investing in our children and providing a vehicle for a college education.


We’ve been pretty active in advocacy and political fundraising among our members and employees. At a recent all-staff meeting we discussed the pending fall elections and gave our boilerplate remarks on the importance of raising money and supporting candidates. Yada, yada. But it was apparent that a few (maybe more than a few) staff have developed funding fatigue, and want to know what difference it makes, especially since it appears all the incumbents in a do-nothing Congress are likely to be re-elected? Have an answer, because I don’t. 

We’ve been pretty active in advocacy and political fundraising among our members and employees. At a recent all-staff meeting we discussed the pend...

From Dan Berger, President of NAFCU, Arlington, Va.

Political advocacy is a marathon, not a sprint, and progress may seem slow at times. We understand your frustration, but we urge you to keep up the fight because much of what occurs in Washington is laying the groundwork for future action through networking and relationship-building.

Picture a wall. You push against the wall, and it doesn’t budge. There are other forces on the other side of that wall pushing against you. The fact that the wall doesn’t move in itself can be a victory. But if the forces on the other side lose momentum, we need to be pushing at that very moment. And that’s how it works sometimes. At the drop of a hat, opportunities arise. Those that are active, consistent and dedicated win out.  And always remember, you must be in the game in order to win the game. 

We greatly appreciate the grassroots and fundraising done by our members because it is extremely important not just for the survival of the credit union industry but to create an environment for which to thrive.


We are a proudly independent, $90-million Midwest CU that has been approached in the past by larger CUs seeking to merge us in, and we have rejected the overtures. Now, ironically, we see $22M CU in our market with strong capital but which has stagnated, with consistent, ongoing, poor performance. I’d like to approach them about a potential partnership. Do you have someone with some tips on how to dance this dance?

We are a proudly independent, $90-million Midwest CU that has been approached in the past by larger CUs seeking to merge us in, and we have rejecte...

From Jim This, President, The Paragon Group, Olympia, Wash.

A few years ago there was a credit union CEO who came up to all his peers at league meetings and other gatherings and started the conversation with the question, “Are you ready to merge yet?”  While he may have believed he was self-assured or clever, most of his peers thought he was a pain.  In fact, many would duck around the corner when they saw him coming.

Since most CEOs are aware that merger conversations are part of doing business today, what’s the best way to initiate a conversation without looking like Pac Man?  Here are five best practices that work.

First: asking about a possible merger should not be the first topic of conversation between two CEOs.  One of the cornerstones of a good merger is trust between the parties.  If a CEO appears predatory it can set a bad tone.

Second: the CEO of a credit union making the approach for a merger discussion needs to do her/his homework.  There are a number of things to research:

* The financial condition of the credit unions

* Whether the two cultures would blend easily

* What services are currently offered

* The anticipated tenure of the current CEO

* What will happen to the staff of the merging credit union

Third: develop your case.  Think about why the other credit union might want to merge with you.  Be ready to explain why you want to merge and why you chose them. Create a value proposition that will make sense for the merging credit union, not just yours.

Fourth: be honest and personal.  Call the CEO of the potential merger credit union and ask if he/she would like to have a conversation about merger.  Assure the CEO that you won’t apply a hard sell.  Couch it as an exploratory conversation.  Don’t come in with all the details laid out – a merger works better as a joint venture, not a take-over.  Be prepared for the person to say no, but try not to close the door forever.

And finally: remember the sensitivities of the merging CEO (and the board).  In most cases this has been their passion for many years.  Merger can often feel like failure.  Approaching it as a logical, prudent next step for the members and staff will help make the transition.

Oh and by the way, the CEO pest – his credit union was merged into another several years ago.


For an economy that is supposed to be booming, even locally, we’re continuing to struggle with loan volume with a LTS ratio that is sub 50%. This has led to numerous meeting with our lending staff, been a bullet point at our last three board meetings, and has drawn comment from our examiner. So, I get this question is broad, but we’re open to direction: are there any lending strategies other CUs are finding particularly successful right now?

For an economy that is supposed to be booming, even locally, we’re continuing to struggle with loan volume with a LTS ratio that is sub 50%. This h...

From Bill Vogeney, chief lending officer and EVP with Ent FCU, and chair of the CUNA Lending Council

There are a lot of factors that could be driving your 50% LTS ratio. Today’s economic recovery is very uneven across the country plus competition for loans is fierce. Here are some questions your credit union can answer to diagnose your lending challenge.

* Does the strategic planning at the board/executive level adequately address lending? The strategic planning process needs to be pushed down to the manager level in order to properly address lending issues.  Every two years, my lending managers meet to renew our SWOT analysis (strengths, weaknesses, opportunities threats) that ultimately drives projects.

* Do you understand your business model? Do you generate volume from trying to be the lowest rate in town? (Hint: that’s not a sustainable strategy.) Do you have a strong sales culture that generates volume? Do you rely on “great service?”

* How targeted are your lending tactics? It’s not enough to say “we need to make more car loans.” New or used? Longer terms or shorter terms? If you have an indirect program, what’s your value proposition other than simply “buying paper?”

* Have you adequately addressed “friction points” when it comes to your loan process? How convenient is it to borrow from you? Do you utilize electronic signatures to close loans? Do you leverage credit bureau pre-screening to offer pre-qualified loans?

* Have you tracked your approval ratio and closing ratio? How does it compare to other credit unions in your area? What about the credit distribution of your applicants—are you attracting the right borrowers?

My credit union is having a banner year in lending. Very little of our success is due to things we’ve done this year. Most of our success is due to the planning we’ve done since 2010. If you’re going to grow your loan portfolio, you’ll need to work smarter than ever.

From Bob Schroeder, Vice President, Lending Solutions, Inc., Elgin, Ill.

Why are some credit unions struggling in lending?  Is it because CU members are flush with cash and therefore do not have a need for loans?  Our experience is there are loan opportunities all around us.  Do you have payday lenders, title lenders and drive and pay car lots prospering in your community?  Can you not provide a better service than these modern-day pirates?

Schroeder Bob

Bob Schroeder, Lending Solutions

Lending Solutions Consulting Inc. (LSCI) travels around the country reviewing credit union loan portfolios.  We find conservative loan policies are limiting loan opportunities. We also find lenders rushing through their day making loan denial decisions in ten minutes or less.  Did we calculate how much revenue we are losing by denying the loan?  Did we get the entire story from the member before we turned down the loan?  We believe we can structure a loan for 70% of the loan denials we review. The key is finding the member’s motivation and conducting a thorough loan interview that gets the entire story.  

If you have not changed your policies and underwriting to meet today’s changing environment it will be difficult for you to succeed.  How do you make the needed changes?  We recommend you start by reviewing your loan policies and pricing. Change your policies and remove barriers to lending.  Review your loans and turndowns.  Are you filling orders or providing financial solutions? Your members come up with financial solutions they feel are in their best interest.  Your team of well-trained professionals should be able to come up with a better financial solution for your member. 


Is there a protocol surrounding a credit union approaching a mutual s&l regarding an acquisition. We’ve not done a merger previously, not even with another credit union, but there is a mutual in our market that we believe would be a good fit for a merger. Suggestions on how to proceed?

Is there a protocol surrounding a credit union approaching a mutual s&l regarding an acquisition. We’ve not done a merger previously, not even with...

From Mike Bell, attorney, Howard & Howard, Royal Oak, Mich.

First and foremost, congratulations on thinking about a key non-organic growth strategy!  Personally, I feel it is the strongest growth strategy for credit unions today.  There are forces inside and outside our industry that have aligned to make this very advantageous.

While there is not a set protocol, there are a number of best practices to keep in mind.  It is important to manage your time and costs when looking at M&A.  People often think about costs relating to outside vendors and service providers but overlook the “cost” of time spent internally. Always be mindful of the great amount of time consumed by M&A transactions when evaluating such opportunities.  The best way to control this is to engage in a step-by-step process.

Best practices to employ include controlling the amount of information available to target institutions and being efficient.  This is done through various written agreements and by following steps appropriate for each stage of the process. In the majority of cases, I recommend having an outside party contact prospective targets to gauge interest prior to revealing your identity.  If there is interest, then identity should be revealed in conjunction with the execution of a confidentiality agreement. 

Once that is established, a discussion of monetary and overall culture matters should follow.  If there is still interest, then you should enter into a letter of intent (LOI).  After the LOI you should complete full and final due diligence.  The final step entails entering into a definitive agreement.