Ohio CUs set sights on business accounts

COLUMBUS, Ohio – Ohio CUs are putting together a member business services guide to assist CUs that want to expand their services to businesses. The Member Business Services Task Force of the OCUL Service Corp. was established earlier this year. “We’re responding to credit unions feeling the need to get into business services to support small business needs,” said David Fearing, chief operating officer of the service corporation. “Larger financial institutions are moving away from smaller and medium-sized businesses.” The task force was organized early last summer and began to research the member business service opportunities available to credit unions and to develop a plan to help the service corporation with the Ohio Credit Union League (OCUL) support interested credit unions. The task force also looked into how member business services were being handled in other areas. In its first report to OCUL’s membership, the task force described its preliminary research as suggesting that the area of member business services represents major growth, service and earnings opportunity for Ohio credit unions. “We think there is a significant amount of business out there,” said Rose Bartolomucci, CEO of Kent CU of Kent, Ohio, and chair of the task force. “We service members who have businesses right now.” Bartolomucci’s report cautioned that “a robust MBS strategy will involve change of major proportions; the MBS opportunity requires long-term commitment, an evolutionary approach and a learning culture.” While Fearing said that “few credit unions in Ohio” now offer member business services, CUs elsewhere have not ignored business accounts. According to the December 2000 CUNA Yearbook Survey, 31.9% of credit unions surveyed offer business checking accounts. The Ohio league also looked at statistics which show that businesses in the so-called “SOHO” market – small office/home office businesses, prize personal service and that inattentive service is the primary reason such business owners switch their primary financial institution allegiance. One result of the task force effort will be an “MBS (Member Business Services) Guide for Ohio Credit Unions.” The guide will offer elemental information about which business entities are eligible for business services under the various credit union charters, a thorough discussion of the forms and tax documentation required of businesses to establish accounts and use ancillary services such as overdraft line of credit, the required regulatory disclosures and pricing. While business services often start with a business checking account with the expectation that a loan or line of credit would follow, the Ohio task force identified a number of other services credit unions contemplating a jump into business services should consider. Among the most important services the task force identified were merchant card processing, cash management services, employee retirement and insurance programs and payroll processing. Among the key issues is deciding which is the best models for credit unions to follow to get into business services. Fearing said the task force is researching a variety of options, including various ways of partnering with vendors, multi-credit union service organizations and insurance companies such as CUNA Mutual Group. Fearing said another important issue the task force is investigating is the pricing of services. Though the task force found that most credit unions need only tweak their existing checking account services to offer accounts to businesses, most credit unions that offer business member checking accounts seriously underprice the accounts, since higher check volume incurs higher processing costs than “natural person” accounts. One pioneering model the Ohio task force looked at was Citizens Equity First Credit Union (CEFCU), a $2.2 billion state-chartered credit union in Peoria, Ill. Eldon Arnold, CEFCU’s president and chief executive, said his CU got into the member business service business in 1995 when its savings account deposits boomed. “Our ability to bring in savings has been greater than our ability to get loans out,” Arnold said. “We saw (member business services) as a possible avenue for loan growth and it has worked out.” Arnold said business lending has required a level of expertise that he didn’t have on staff. “Mortgage lending is one of the most complex lending products we had,” before the CU got into business lending. To compare business lending to mortgage lending, he said, “multiply the difficulty several times.” He said it took a while to find the right person to handle business lending – someone who knew business lending and was comfortable in the credit union culture. “We went through several (loan originators) before we got someone to stick,” he said. – [email protected]