Wisdom From Real Solutions: Don't Pull Back-Reach Out

Credit union leaders around the country have been wrestling over how their institutions should react to the overall economic downturn the nation has been struggling through. One overall approach some have taken has been to reach out as their competitors have pulled back, according to some credit union CEOs who have used this recession to find new members and strengthen their bottom lines. The credit unions CEOs are among nearly 800 who are committed to provide REAL Solutions-offering more than two dozen products, services and strategies that have proven effective reaching millions of members with low wages. The NCUA’s mid-year Call Reports reveal that REAL Solutions credit unions are growing membership and loans faster than other credit unions. Yet REAL Solutions credit unions’ delinquencies and charge-offs are lower. This is clear evidence that reaching out during a recession can be a sound business strategy. One thing some of the CEOs working with Real Solutions have found is that, while counterintuitive, it’s been better for them to increase rather than cut their marketing budgets. “During economic downturns, credit unions often reduce their marketing budget to reduce expenses,” said Laida Garcia, CEO of Florida Central Credit Union in Tampa. “However, well-capitalized credit unions interested in growth will not only want to maintain their marketing budget, but actually increase their marketing budgets.” Rather than mass marketing, Garcia recommends more efficient targeting. “Product pricing and target marketing are keys to match the right products to the right audiences.” For example, Garcia points out, “Many banks are finding it necessary to cut down on lending and reduce credit lines on home equity products and credit cards. In addition, banks are increasing credit card fees while raising interest rates on credit cards and other loans. All of these factors, plus a lot of bank failures, are making many consumers uneasy. This opens the door for credit unions to capture that part of the market.” To get the most bang for your new marketing bucks, Garcia concludes, “Be sure to track your results. Once you attract members’ attention, work on deepening their relationships. This lessens the chance of losing members to competitors.” With an average savings balance under $4,000, Florida Central CU offers several products and services to attract low-wage consumers. Another approach that runs counter to many current assumptions is to reach out to younger communities now. “Look across the country; credit unions seem to be losing out with Gen X and Gen Y,” said Mary Cunningham, CEO of USA Federal Credit Union in San Diego. “Credit unions are not replacing older members with enough young blood.” Graying membership “was of great concern to our credit union,” Cunningham added. “We had a brand that was appealing very much to an aging demographic. Our average member age was 53.” So USA FCU rebranded itself. “Our new brand is edgier and bolder; it seems to resonate well with youth,” Cunningham said. “We’ve changed from traditional marketing to using blogs, Twitter, Facebook, and hip-hop radio stations. We’re appealing to the younger demographic.” As a result, over the last year, USA FCU has signed 4,500 new members with an average age of 35. “They love the technology we’re using,” Cunningham said. “They love the convenience of using the credit union remotely.” Younger members are also proving to be efficient. “As these new members come in,” Cunningham explained, “they’re setting up checking accounts, money market accounts and core deposits that result in lower costs to us. Yet we are building deeper and more meaningful long-term relationships with them. It really helps our credit union all the way around.” Credit unions should use this recession as a learning experience, Cunningham said. “You learn more in adversity than you do in good times. I believe it is very important for you to look for new market opportunities; look for unique ways of serving your members while going through a recession.” A third successful approach has been to reach out to consumers disenchanted with banks. At the Brewery Credit Union in inner city Milwaukee, CEO Jim Schrimpf said “it’s the best time to expand because banks in our market are hunkering down. Banks are cutting away their marginal customers. For us, this is a great opportunity because we serve the working poor and modest-income families that banks don’t want to serve.” Most of Brewery CU’s members are minorities with modest means. The $31 million credit union has not only increased its marketing budget. Schrimpf has hired a full-time marketing employee. “Conventional wisdom is to cut personnel and reduce expenses,” he acknowledged. “But cutting the marketing budget is the worst thing to do. We are active participants in organizations that service the central city. Being involved, we get good buzz in the community. People come to us when they have problems. We try to solve them.” Schrimpf advises credit unions to “go for the gold. This recession may be the best time over the next 60 years to aggressively pursue opportunities to pick up such strong membership growth.” Even small credit unions can offer a myriad of REAL Solutions to help low-wage consumers grow savings and build assets that provide shelter in an economic storm. What more credit union leaders may need to do is change some of their thinking during this downtime and talk to some other credit union CEOs who found this recession a time not to pull back but to keep reaching out.