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What CUs should do with deposit influx from BTD
MADISON, Wis. (12/13/11)--New members garnered from Bank Transfer Day (BTD) activities present a golden opportunity for credit unions to capture the attention of young people, according to a Credit Union National Association (CUNA) economist.

"What matters is what we do with them and to make them feel like they made a good decision," Mike Schenk, CUNA vice president of economics and statistics, told News Now.

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BTD activities likely garnered 450,000 net new members (new members minus attrition--those who move or closed accounts) in September and October, according to CUNA estimates.  Despite the original CUNA estimate being revised, the bottom line is there were unusually high numbers of people joining credit unions, Schenk said.

"The numbers are large, but not overwhelming," he added. "For most credit unions, they are unlikely to cause significant bottom-line challenges. There are some credit unions, however, which will have to spend a lot more time thinking about the financial impacts."

That's because people are joining credit unions and bringing their deposits, which is causing relatively fast growth in the asset base. "Because these new members have brought over deposits and not loans, yet, and because overall loan demand is quite low, the money is going into low-earning, short-term investments and not loans," Schenk said.

That means earnings growth is not keeping up with asset growth and that places downward pressure on net-worth ratios for some credit unions. "Therefore, credit unions have to really focus on delivering high-quality service, to put their best foot forward and make it obvious to these members that they made the right decision," Schenk explained.

"When that becomes more obvious to new members, they will bring their entire book of business--including new loans--to credit unions," he added.

The overarching idea for credit unions is to provide good service, Schenk said. "And it would obviously be useful and important for credit unions to market to new members the idea of refinancing their existing loans at the credit union," he added. "Credit unions should make the credit union difference--the financial and nonfinancial benefits--obvious and cross-sell the products that the members haven't brought over."

Because social media were a driving force behind the BTD movement, it seems reasonable to conclude that a disproportionate number of the new members are young, Schenk said.

"This is good because our research shows young people generally don't know a lot about credit unions, and this [BTD] could help change that," he explained. According to a 2011 CUNA Survey of Potential Members, 67% of general consumers and 97% of those aged 18-24 are not familiar with credit unions, and that compares with 60% of the general public in 2006. See the chart.

"[The migration of new, young members to credit unions] also is a good situation because young people tend to want to borrow, and credit unions need to issue more loans," Schenk said.

"In the long run, a demographic shift toward young people as members would help credit unions financially because loans are the financial life-blood of depository institutions," Schenk concluded.


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