Earlier this week we discussed the obstacles Financial Institutions face to stay competitive and profitable. We continue this conversation today about how one FI, CoastHills Credit Union, overcame the challenges.
Like most FIs experiencing growth, CoastHills stays focused on its priorities. According to Mayhew, the credit union’s priorities are embodied in a relatively simple mission statement. “Our mission statement reads, ‘Making a difference in our neighbor’s lives,’” he says. “And it means just what it says. From the top down, we strive to do what we can to help our co-workers, members, community and business partners. Our objectives at the highest level are to be the leader in our area; for banking needs, lending, employment opportunities, member service and experience.”
Meeting the objectives that are a natural outgrowth of this mission statement requires continual planning, something CoastHills undertakes at regular intervals, especially in its Card Services division. “In Card Services, we meet with senior leadership to discuss where we have been and where we want to go,” Mayhew says. “We set out fairly large goals we have determined will have the biggest and best impact on the various metrics we choose to measure. We then conduct strategic planning sessions to identify just how we can get there.”
This focused planning goes a long way toward helping the credit union overcome obstacles and distractions. Recently, the Card Services unit at CoastHills was asked by its leadership to perform a line review with two specific purposes. The first was aimed at reducing card limits where necessary; the second was a general rate review prepared for in accordance with 2009’s Credit Card Accountability, Responsibility and Disclosure Act the Card Act. “I proposed we utilize a validated income estimator to review for line increases as well,” Mayhew says. “We knew there were some serious questions on the validation of the model, so we did an exhaustive audit on the data by comparing the estimates to the income on the original applications over the last 9-12 months.” What did they discover? According to Mayhew, “We found a very high matching correlation up to 85%, and a statistically acceptable variance up to 95%. We then developed an income matrix that layered some other factors (BK score, DTI, DQ history, etc.) to help us determine risk appropriate limit increases. Ever since our first line increase campaign, we have seen significant steady growth with negligible increase in DQ rates.”
As with most businesses, marketing is key at CoastHills. A key to its marketing plan revolves around differentiating itself from the competition. How does CoastHills accomplish this in an industry where much of what they do is commodity-based? Mayhew considers the question thoughtfully before responding: “We do a great job of keeping the communication of the benefits of our products out on the front lines. We incent our Member Service Officers for almost everything they do relative to credit cards. We remind, cajole, intimate, talk and shout about our products both internally and externally. I believe some competitors don’t have a handle on what goes on up front on a daily basis, but we have made it an ongoing point of emphasis.”
At Coast Hills, much of their marketing revolves around solving a particular problem or setting a specific objective, sometimes using reverse engineering.
Still, success is not without its challenges, especially on the Card Services side of the business. When asked to name the biggest competitor or usage challenge facing the business currently, Mayhew named two key obstacles that many in this industry share: competition and fraud. In terms of competition, Mayhew had this to say: “Travel and heavy cash-back cards erode some of our business. We really don’t want to play in those sand boxes anyway, so we try to stay focused on our strengths. No fees, low rates and generous rewards.”
As for fraud, CoastHills feels the same pain many FIs do in this area. “It has had significant impact,” says Mayhew. “Aside from the actual fraud losses being well over budget, there is the additional challenge of eroded business from members who can’t use their cards for a period of time, and then use other methods to pay, perhaps jeopardizing our current top of wallet status.” Dealing with the impacts of fraud revolves around staying proactive in deploying anti-fraud tactics and tools. “We employ proprietary debit card fraud tracking at the cardholder level to identify CPPs and then instead of completely blocking, we restrict debit cards to PIN only for those breaches,” he says. Once a CPP is confirmed, Card Services reaches out to the affected merchant to discuss the issue and offer suggestions on what may be happening.
“We also rely heavily on Falcon 6 for our credit product and are currently fast tracking EMV,” says Mayhew. “Finally, we offer instant issue on both debit and credit to help ease the pain of blocked cards, going to great lengths such as opening branches after hours and weekends to allow members to get cards and taking the opportunity to turn a negative into a positive.” These extended hours also provide many opportunities for cross-selling other credit union products and services such as auto loans and mortgages.
Making these opportunities develop requires a diligent and consistent focus on marketing, something many FIs struggle to do. For CoastHills, marketing is really a matter of focus. “Marketing can be a mystery, especially when you can’t specifically attribute success or failure to a campaign,” says Mayhew. “In the past we would come up with what we thought were great products, turned it over to marketing and viola – nothing. As we move away from traditional channels, it becomes more important to spend advertising dollars wisely. By engaging stakeholders, we now collaborate more on all aspects of marketing. We still invest some heavy marketing dollars in this product, since it is, simply put, our best performer right now. However, from ad verbiage to delivery channels even to design and layout, Card Services stays deeply involved.” In an effort to fuel new growth, CoastHills also placed a priority on reaching beyond its current member base. “We did some targeted campaigns in our field of membership, identifying and pre-qualifying revolvers, transactors and rate hoppers,” he says. “We then designed custom offers that specifically targeted each group.
Growth is really a matter of choice, driven by research, information and conviction. “For us, growth was a simple product profitability decision,” Mayhew says. “Our team looked at some projections, some ‘what ifs?’ for interchange and interest, and found that if we could grow the portfolio in a big but intelligent way, we would be adding much more to the bottom line than many other products combined. Intelligence is the key part. Our underwriters and analysts were drilled on understanding how to view unsecured personal loans and LOCs versus credit card risk. They also trained on looking very hard at relationships versus simple scores. We never just throw dollars at something. Our team demands numbers and projections and everyone is held accountable for the successes and failures.”
Does it work? In terms of the return on investment CoastHills enjoys, it does. “Our Card Services offering is the undisputed and unchallenged champion of the credit union,” Mayhew says. “It is consistently recognized as one of the best if not the best performing product the past 24 months.”
Of course, working with partners who understand the business and the challenges it faces in conducting its business, also helps. “FIS works hand in hand with us as a partner to ensure we have all the tools we need to execute our vision,” says Mayhew. “They have a suite of products and services that can help the startup, the “buyer-backer” or the financial institution that may be having some decent success and just wants to tweak its plan to maximize the results.”
For CoastHills Credit Union, growth is a theme that pops up in almost every aspect of its business: growth for its members, growth for its partners and growth for the credit union itself. In the end, the lesson learned from CoastHills is two-fold: first, growth will not come to those who are afraid to take an honest look at that they are doing today and commit to changing what must be changed; second, growth will come to those who are unafraid to do something different tomorrow- market differently, lend differently, acquire differently- than they did today in order to achieve more results.