Superior service delivery and finding ways to intuitively meet the consumer’s financial needs is more important than ever as 15 of the world's largest banks’ credit ratings have been slashed.
Last Thursday, credit ratings for heavy hitters like Goldman Sachs, Morgan Stanley, JPMorgan Chase, Bank of America and Citigroup were reduced as rating agency Moody’s Investor Services believed that while some improvements had been made, core trading businesses remained weak.
Last February Moody’s put the banks on notice with the most recent downgrade putting an additional strain on the system. According to The New York Times, Bank of America’s rating was reduced to a Baa2, which means that their creditworthiness is at the lower end of the investment grade, just two levels above junk. Morgan Stanley dropped to Baa1 (three levels above junk) and Goldman dropped to A3, four levels above junk.
News of the recent downgrades will have a ripple effect throughout the financial world as consumers may find it harder to get a bank loan and could end up paying more for basic products and services.
The downgrades couldn’t have come at a worse time for banks as they grapple with the onslaught of new regulations, which has resulted in reduced income.
"Banks are going to figure out a way to extract revenue from the customer in any way, shape or form," Stanley J.G. Crouch, chief investment officer at money manager Aegis Capital told the Associated Press.
And while credit unions are not in the direct line of fire, the downgrade impacts nearly ever consumer.
“Based on current interest rates, return on yield from credit union investments, the continually contracting income margin, the ever increasing expense of regulatory reform, and the minimal amount financial institutions can earn in overnight funds, I think to say that there is going to be no impact to fees is a promise that cannot be kept,” says Brian Warfel, EVP of Retail Delivery and Branding for Power Financial Credit Union ($500, Pembroke Pines, FL).
“It is impossible to continuously add expense to the balance sheet in the form of additional products, services, and technology without offsetting those expenses in some manner,” he continues. “That's not to say there needs to be a huge fee schedule with charges for every possible transaction, but at some point there has to be a fee structure that offsets more expensive channels or for accounts that do minimal business with the institution. We also continually watch the cost of services compared to the overall cost/return structure of our operation. Services/products that do not have wide adoption will ultimately be discontinued or offset by a fee.”
As Banks Scramble for Fee Increases, Credit Unions Bolster Service
With bank service already quickly eroding as corners are being cut and fees are piling up, disillusioned consumers are turning to a credit union.
What many new members find is an entirely new approach to the financial relationship, often one that resembles more of a consultative partnership.
“The consultative approach drives an institution to become full service for the benefit of the membership,” explains Ted Bangert, VP/Business Lending for Highmark Federal Credit Union ($84 million, Rapid City, SD). “Highmark Federal Credit Union has taken steps to increase its value to its community by adding product offerings to become a one-stop shop for most financial services. Highmark has added highly competitive mortgage offerings, full-line insurance products, commercial lending and financial investment advisory and brokerage access. This has all been done to strengthen our value to the member and, in turn, our relationship with the member.”
Warfel says that actively seeking referrals from satisfied members has contributed to Power Financial’s success. “We are a heavy referral shop. We are constantly asking our members to bring us referrals for new members. We found that this has been a very effective way for us to gain new members. We would rather pay a referral incentive to an existing member for a new member then spend a lot of money on a newspaper ad that may reach a few prospects.”
“We also talk a lot about consumers in our organization,” Warfel adds. “Consumers have a lot of choices today to conduct their financial affairs from online banks to mega banks to community banks to credit unions. All of those consumers are prospects for all of those financial entities. The key to our success has been to get an existing member referral and then apply our level of service to that relationship which has earned us a satisfaction rating of 93%!”
Other credit unions like Greater TEXAS Federal Credit Union/Aggieland Credit Union ($500 million, Austin, TX) find that competition has created a more proactive environment, where credit unions can’t sit on the sidelines in terms of service delivery. “With so much competition in the financial industry, credit unions can no longer afford to wait for members to come to them and tell them what they need,” says Brandy Logan, Marketing Director. “Credit unions are now needing to be proactive, not only in the products they offer, but also in the way these products are presented to current and potential members. The industry has changed to meet the consumers needs. Credit unions now have to compete even more with the national banks. By offering products and services that are in demand, credit unions are able to remain competitive and also to differentiate themselves from each other.”
Standing Apart from the Banks Through Relationship Building
Warfel agrees that relationship building by meeting the member’s specific needs, and not trying to continuously compete on price alone may be the best strategy.
“I can't speak for all credit unions, but I think as a business you need to figure out how you are going to differentiate yourself from the competition and then you need to quickly figure out your growth and retention strategy,” he says. “Those businesses whose whole model revolves around the lowest price, will always be competing on price and it is a very difficult strategy since there will always be another business that will undercut you and it is very difficult to change that strategy if you can no longer compete on price alone.”
He says that a lot of credit unions are still involved in the lowest price game, as opposed to a competitive pricing strategy with an excellent service delivery model. “The key for our future success is to create an organization that recognizes opportunities at every interaction, has the human resource talent to match that opportunity to a consumer's expressed need, and get the relationship,” he says.
Building and solidifying the relationship is one of the best ways to differentiate yourself in a competitive market instead of being an order taker, says Angie Krogol, SVP/ Member Services at Co-op Services Credit Union ($408 million, Livonia, MI). “Anyone can be an order taker at the credit union,” she says. “An order taker simply interacts with a member or potential member and processes transactions or accepts requests for additional products and services. No real skills are needed.”
“At Co-op Services Credit Union, we wanted to do more than be order takers,” Krogol says. “We wanted to create a relationship with our members and we wanted to be our members’ primary financial institution. We wanted our members to think of us first whenever it came to a financial need. It was our goal to improve our members’ financial lives by listening to what members had to say, identifying their needs and offering them products and services to meet those needs. And, we wanted to make sure that we were offering them the right products and services.”
CAP COM Federal Credit Union ($960 million, Albany, NY) uses it’s Financial Checkups as one way to ensure products and services are the right fit. “We were one of the first credit unions in the country to promote what we call Financial Checkups,” explains Paula A. Stopera, President/CEO. “During an in-branch Financial Checkup, we take a look at a member's full financial picture and recommend ways to save. Our outstanding staff training allows employees to provide solutions for members and not simply be order takers. Like a visit to the doctor, we want our Financial Checkups to deliver long-lasting solutions for continued wellness or recovery.”
More and more credit unions are becoming experts at pinpointing the ideal long lasting solution to meet the member’s need. “Our representatives are being trained in the art of cross-selling other credit union services to our members,” Bangert says. “Highmark tracks referrals made to others in the organization to ensure follow up is maintained and to understand our level of success with the program. Highmark uses data mining of its core system in order to develop targeted marketing.”
Most importantly, numerous credit union executives agree that having a conversation with the member is the backbone to service excellence. “We are always trying to inspire our members to have a conversation with us,” Stopera says. “At that point, it gets back to our great service, staff training and financial tools that truly help improve lives.”
As banks try to recover from the recent credit downgrade, more consumers look for a credit union to fulfill their entire financial relationship.