These days, the press is not painting the rosiest picture of the relationship between the banking and credit union industries. Far from it. In fact, we’re seeing something more like a couple of ticked off hockey players who forgot to take their meds and started high-sticking each other at center ice.
I must start this piece by “outing” Cornerstone – we work for banks and credit unions. We’ll do the same types of jobs for each. Sometimes we talk to both on the same day. That’s right – we’re bi-industrial. Whew. It feels good to go public.
If you examine the relationship between the operations and technology staff in the two industries, the picture is much different. While lawyers and lobbyists square off with bite and bluster in Washington, these folks are at the same conferences, using the same products in many cases, and have taken an entirely pragmatic attitude towards the entire relationship – a smart idea is always welcome, and they will steal one and share one with anybody as long as it improves things back at their shops.
What is interesting to me is that when it comes to use of systems and delivery, banks and credit unions each have distinct strengths and capabilities the other could learn from.
The systems designed for each reflect these strengths. Banks have what I would call a “back to front” system design. Systems written for commercial banks had to support more complex products and pricing, more detailed credit analysis, soft and hard fees with account analysis, combined retail/business relationship analysis, and large volumes. Much of the early development focus was in the back-end loan/deposit/GL accounting capabilities these required. Branch, loan, and other delivery systems were usually separate systems interfaced to the back end and were developed later and, in many cases, still have not been deployed – many bank tellers still use green screens.
Credit unions come from a retail background, and the products and systems needed to support them were simpler – no account analysis, multiple payment streams, etc. Much of the early focus in these systems was front-end delivery. In fact, most systems still have the branch and call center front ends written on the same platform as the back end, with much tighter integration and a lot of focus on workflow. I think of this as “front to back” design.
This difference even shows up in system demos. The first question a bank usually asks is, “How do I set up a product on your system that has these features?” – back first. The first question a credit union asks is, “How does a branch open an account on your system?” – front first.
This does not apply just to systems. Processes, staff, and organization structure all reflect this difference to some extent.
Virtually everybody we talk to asks how they might learn about best practices that can help them improve sales, service, and efficiency. Well, if everybody can put down the hockey sticks and (in some cases) swallow their pride for a few minutes, we at Cornerstone will share some ideas across charters. Here are a few best practice ideas from good banks and credit unions:
1. The fast and simple consumer loan process
Best practice credit unions have done a great job of getting simple consumer loan applications funded almost real time. Branch or call center employees can get the basic information, get a score, decision well over 50 percent of the applications, and have the money in members’ checking accounts before they leave. Loans that need underwriter review are transferred immediately and can be decisioned while the borrower waits. Additional advances to existing loans require only a phone call. In many cases, more than 50 percent of loan applications come through the Internet with decisioning and conditional approval in front of the borrower as fast as the branch can do it. Some of the most productive loan origination groups we see are small to mid-size credit unions, simply because they are so fast and simple in their execution (and, yes, their credit quality is fine).
2. Integration of documents and images with workflow
In the better credit union systems, the image of the check is one click in account history (branch or Internet banking). The picture of the driver’s license or signature or both present automatically to the teller as soon as a transaction starts. Receipts for cash back, teller tickets, deposited checks and other forms are either completed on-line or imaged and can be seen in history. They can be accessed (one click) in the teller journal and account history. The benefits for research and service are very clear, and the key is that employees or members never have to leave the transaction screen to access the images.
3. The simple, non-ACH payroll process
For smaller business owners who do not have or cannot afford ACH/payroll services, credit union systems have a pretty elegant solution. A file of employee names and payroll amounts is created in the system, the employer sends one check, or ACH transfer, or authorizes an internal transfer. The employee checks for changes quickly, edits any amounts if necessary, and posts. It is a nice, cost-effective solution for the small business owner, and I have often wondered why bank systems don’t do the same, particularly when those same employees show up in line to cash checks.
Three Things Credit Unions Can Learn from the “Back to Front” Approach of Banks
1. Using systems to help manage the combined personal/business relationships
Leading banks have done a great job linking personal and business relationships and showing both banking and non-banking relationships. Larger, more profitable relationships are assigned to a personal banker who oversees successful management. Bank CIF file capabilities have been expanded significantly to support this. The result of this effort has been a real mining of opportunities for commercial and wealth management relationships that form the core of profits at many high-performing banks.
2. Credit exception tracking on business loans
As loan terms grow more complicated, collateral gets more complex, and documentation required by examiners increases, the opportunity for errors and accompanying losses is very real. Best practice banks have done a terrific job using systems and very focused processes to ensure loan quality. Major exceptions to loans are tracked by an employee at the enterprise level (not on a yellow post-it under a load of paper) to see when they are corrected, and an exception list is published (to everybody) if they are not. This focus on loan quality, combined with a strong underwriting culture, is one of the keys to strong performance in good banks.
3. The power of the “regional president” role
One thing strong banks have done well is recognize that when a commercial banking and/or wealth management strategy is being executed in several geographic areas, one of the keys to success is having a strong daily local management presence. The regional president role is vital to this (often, this person was the president of an acquired bank). This position has credit, pricing, relationship management, and marketing authority and accountability. In many cases, this person is the “brand,” by name, in a market area and embodies the local, community attitude that banks want to project. Done right, it is a very powerful position that boosts business growth and profits better than any CRM system or image campaign. (Sorry, marketing readers. No offense meant.)
The next time you’re at a conference and find yourself next to somebody on the “other team,” take some time to ask about some of this. You just might end up with a good idea to take home.
And, despite all the noise in Washington, good ideas are good ideas.