NEW YORK -- Credit union conference breakout sessions and industry blogs often provide examples of institutions that have made strong connections with their target market. These credit unions, banks and other entities are so in-tune with their audiences, they don't just provide service, they create entire business models around their markets' unique needs.

It's safe to say most credit unions would love to provide service to that degree of exclusivity, but initiating that change is easier said than done. Where does a time- and cash-strapped credit union begin?

Doug Williams is vice president of business development for Trabian, a credit union Web development firm that works with industry innovation heavyweights like the Filene Research Institute and Seattle-based Verity Credit Union. Trabian also operates a busy innovation-themed blog, Open Source CU, which features regular contributors like Filene's George Hofheimer and Ben Rogers and Currency Marketing's Tim McAlpine.

The New York City-based Williams spends his days traveling and interacting with credit union clients who have money to invest in innovation and branding. But he's been on the other side of the fence, too, working as an employee at two credit unions.

In other words, he understands the reality of a day in the nonprofit trenches.

"They tend to be a bit understaffed, employees are generally paid less than what they would get at a bank, and it takes real dedication to the cause just to make it through the day sometimes, and that's some of what's going on here," Williams said.

Additionally, credit unions care about their employees and work to develop them into industry leaders, which is commendable, he said, but has a myopic downside.

The solution? Build innovation into the business plan, valuing new ways to serve members as much as superior service or safe and sound assets. For example, Web search engine Google requires employees to set aside part of a day each week strictly for innovation, regardless of whether it has to do with search engines. The result? The firm's iconic practice of creating new logo artwork each day came from an employee, who spent his innovation time doodling.

Credit unions can also leverage a current overabundance of MBA graduates, Williams said, and pick up a well-educated and creative employee for less. Or, if it's youth you're after, bring in a cheap or unpaid college intern.

"MTV used interns to grow their brand for free in the 1980s, it was a brilliant strategy," he said.

Credit unions also fail to promote their cooperative business structure, even though it attracts young consumers and can't be copied by banks.

"We've worked with Filene researching this, and the coveted 18 to 24 market really does care about the structure of credit unions," Williams said. "They want to be a part of a organization that returns profits to their communities. There's a real market need for it, and it's just not being communicated."

Ultimately, branding and innovation must strike a chord with members. Williams said he's a big fan of $489 million San Francisco Fire Credit Union, which focuses intently on its core group of firefighters, despite having a community charter.

"They have four firefighters that they hire on as part-time staff to do business development--talk about knowing your target market," Williams said.

Williams said SF Fire leverages the "cool" factor of firefighters and never waivers from its firefighter-centric marketing. The strategy not only works with firefighters, but also with the community members who admire them.

"Granted, if you serve the Social Security Administration, it's not as cool as firefighters, but the bottom line is that they understand that they're a firefighter credit union," Williams said. "Most credit unions try to hit the entire tri-state area, rather than refocus efforts on the group that helped them grow to where they are now."

What if your field of membership isn't cool like firefighters? What if the majority of them have terrible credit? In fact, what if your members have the worst credit in the country?

That's what Wayne Vann, president/CEO of $597 Navy Army Federal Credit Union, is up against. The Corpus Christi-based credit union has a community charter in the military town, which also has the dubious honor of ranking last in the country in credit scores.

Vann said roughly half of his portfolio loans are C and D paper; however, the credit union has some of the lowest delinquency and charge-off rates in the country. Delinquent loans to total loans logged in at 0.35% for second quarter 2008, and net charge-offs weren't much worse, only 0.41%. And the credit union is profitable, too, posting a 2.02% ROA last quarter.

Vann doesn't rely on technology or MTV interns for his success, though.

"If I was to summarize, we understand our audience, and we understand the risk, so we train our lenders to cope with that," he said.

Continuing, Vann said he trains his loan officers to take a retail approach, developing the application with the member and learning enough about the individual situation to make a solid credit decision. Even though his credit union is large enough to afford, and could probably gain some efficiency from, automated loan decisioning, Vann said he prefers to trust his lending staff instead, especially since most of his front-line people have been with the organization since he took over as CEO 19 years ago.

"We don't sugar coat it. They know they've got bad credit, and we're not afraid to deny them," Vann said. "And if we approve the loan, that's not the end of it. We stack the marbles on our side of the table and talk to them about their credit, the future of the loan, and the fact that we expect them to repay us. We make that very clear. They will repay us."

Located in South Texas, Corpus Christi has a large Mexican-American population, and Vann said he leverages the clannish culture to his advantage.

"If you get into that family mix and take care of one or two people very well, they'll not only refer everybody in the family to you, they're very respectful of that relationship and won't let you down if they refer someone to you," Vann said, adding that if a family member goes past due on a loan and is unresponsive to collection activity, a quick call to the referring family member usually does the trick.

Vann said the credit risk is easily managed on his balance sheet because people with bad credit aren't rate sensitive. He said he's far from the highest rate in town, but he does charge enough to cover any potential losses. And members with bad financial habits are also big fee producers. These two revenue streams allow the credit union to maintain a high loan ratio, Vann said, and also keep about half of the credit union's deposits in expensive term share accounts, which members prefer.

"Ninety-four percent of my money is in loans, and yield is pretty good," Vann said. "Yeah, I'll get my rear end paddled on some, but if you look at the history, it's manageable. We make loans. That's the business we're in."

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