Coronavirus Impact Mitigation: CU Engage Discusses Credit Union Projections

LAST UPDATED: 4/21/2020

Pre-Pandemic: Then & now

The Novel Coronavirus and resulting disease COVID-19 took some of us in United States by surprise. The resulting response by credit unions has showcased responsiveness, versatility, and innovation to members in remotely enabling key member-facing and some operational functions. Right now, credit union employees and their members are united through the shared experience of balancing home and work responsibilities in unexpected ways. Employees and members alike are adjusting to virtual tools for work, school, exercise, and entertainment. One of the most stressful impacts to a crisis like this one is risks to financial security.

Credit unions are doubling down on member-facing services, financial assistance, and valuable advice. CUs are running promotions for Skip-A-Pays, offering 0% balance transfers, reduced loan rates, promoting small business loans, and freezing interest on accounts during this time. Also top of mind is taking care of employees, as credit unions are deeply committed to keeping their teams employed throughout the pandemic.

 Pandemic Response: What’s next?

Like credit unions and their members, our strategic consultants are adjusting to changes as well. CU Engage is planning for the potential consequences on their areas of expertise. We are specifically looking at impacts in the areas of Payments, Account Processing and Member Servicing technologies, vendor relationships and responsiveness as well as Strategic Planning and Industry Advisory Services.

Based on research, market and technology knowledge, our team has compiled the results of our risk mitigation brainstorming sessions. Because our credit union clients are likely also going through crisis management and risk assessments, we wanted to share our thoughts with you. At the right time, we will work with clients to adjust strategies, technology investment and negotiate winning outcomes with current or future vendors.

Pandemic Impact on Payments

What we have seen in the Payments market:

Member service and risk mitigation:

Members expect to rely on their Credit Unions through crisis situations. Credit Unions, while focusing on Member service, are also watchful for potential loss.  CUs are improving loyalty by reminding members they are part of a cooperative. We are seeing offers of free Skip-A-Payment (interest still accrues but no payment is required and does not hurt credit). There is also an uptick in converting balances to a signature loan to consolidate and reduce monthly payments. Credit Unions are minimizing potential for loss while showing support and value.

Spend:

Overall spend volumes are down. Brick-and-mortar locations are likely closed. Grocery store spending and online shopping has increased, but not enough to offset the decrease in spend volume. “Panic-spending” is also slowing down. credit union members are getting used to the new temporary, and credit unions have started to see a stabilization of the new spend volumes. Visa and Mastercard is reporting on their spend volumes, check with your point of contact to request the reports.

Stimulus Checks:

As stimulus checks begin to hit accounts, members are logging into online banking and mobile apps, and calling in to their credit unions to check on the status of their check. Credit unions are seeing an influx of call volumes by up to 40-50% increase.

What to expect in the Payments market:

Anticipate some losses with credit cards and other open lines of credit like HELOCs. You will see a decline in travel-related transactions with a resulting loss in interchange revenue. Spikes are occurring in grocery and home improvement merchant activity. Transaction volume peaks for critical supply purchases will offset some loss in higher rate interchange transactions. Members will spend the remainder of the year with adjusted spending habits including lower travel, avoiding public places like movie theatres and restaurants. We expect to see continued higher volume in online spend. There will continue to be a transition from traditional cash transactions to electronic. Members will be more interested in contactless options than ever before as it allows for a low-touch shopping experience and less time spent at the Point of Sale (POS). If you are not already offering contactless cards to your portfolio to help your membership feel safe and keep your card top-of-wallet, contact us to get an unbiased overview of options for your size, your member base and card strategy. Personal Teller Machines (PTMs) and Interactive Teller Machines (ITMs) are more relevant now as well. As stimulus checks hit accounts, expect not only an increase in call volumes, but fraudsters as well.

How to prepare your credit union for new Payments patterns:

Leverage the data you have at the credit union by pulling reports to look at direct deposit and specifically payroll changes. A few examples of new member patterns our team has analyzed:

• Who had direct deposits coming in but now they have stopped?
• Who has higher than normal purchases on cards for MCC associated with grocery stores and fast food?

The answers are in the data. The benefit of this analysis will identify the population that may overextend themselves. Compare this information to your existing loan loss projections as part of your risk due diligence. For no-cost assessments and recommendations, we’re here to help – contact us.

Stimulus Check Preperation:

• Anticipate managing exceptions for members who need help accessing their stimulus money. This can be for many reasons, common ones we are seeing:
  • “Shell” or Proxy account numbers due to filing taxes through Turbo Tax, H&R, etc.
  • Member provided debit number instead of account number.
• Consider proactively marketing a hold message directing members to your website to fill out a digital web form to be contacted within 24 hours.

While many CUs have less available credit line than banks as a percentage of the overall credit line, knowing where you stand and how much higher you can afford to go is important. A few other suggestions on credit cards that may take a little longer to roll out but are worth considering:

• Rewards for the use of contactless payments (offer statement credit as part of a drawing) – of course, you need to have contactless as an option.
• Rewards for the new “COVID normal” spending habits with increased rewards for “essential” business related transactions.
• Rewards Double/triple points for small businesses such as restaurants and beauty retailers once COVID-19 restrictions are limited that are solely for statement credits. This will help small businesses recoup from all the restrictions and help reduce the cardholders’ monthly statements on credit cards.
• Considering the cost to offer cash back as a reward on the merchandise reward programs.
• Focusing CU efforts where possible to support or donate funds to local organizations to further emphasize the CUs important role in the community and shout it from the rooftops so all members know.
• Educating your members now on best practices for avoiding fraud.

​Pandemic Impact on Loans

What we’ve seen in the Lending market:

As jobs and business are impacted, there has been an increase in loan applications, hardship loans, and refinance requests. Adjustments due to the recent interest rate changes are prevalent at most institutions.

Credit Unions have a chance to differentiate themselves from even the largest institutions with how quickly they can fund their loans. Marketing messaging about the number of paychecks protected within the credit union industry will go a long way in differentiating against that of the large banks who have much more red tape and incumbered legacy systems.

What to expect in the Lending market:

With an increase expected in the months to come, institutions on the leading edge are looking at capacity and technology to handle both increased applications and an increase in delinquencies to their existing portfolio.

Deposits are beginning to pick up as the government assistance checks are deposited, but transaction counts may still be slow to ramp back up to pre-pandemic values. Credit unions should consider loan specials and whether loans could help carry through the lull of decreased spending. By accessing some of the direct deposit and spend data mentioned earlier, credit unions will be able to better understand the impact of the particular membership they serve to not be completely surprised at the member level.

How to prepare your credit union for new Lending patterns:

Be thorough in your analysis of loan risk and members propensity for delinquency and default during COVID-19. A few key example areas our team has identified:

• Review unemployment detail at the credit union level.
• Analyze those jobs markets that are more at risk of slow or stagnant return to segment these out.
• Outreach to these members on a one-on-one basis to better understand their current situation.
• Consider the organizations credit unions can bring together in your community to try to mitigate employment issues.

Pandemic Impact on Digital and Technology:

There is good news regarding Digital and Technology response:

Greater adoption of contactless transactions like contactless credit cards and Apple Pay and the increased importance of digital presence. While initial adoption to new technology is often slow, throughput is being tested. Members are requiring complex transactions in real time without human intervention. The threat of branches going away has hit the industry in a very unexpected way. Vendor response time and outages are impacting member experience directly.

What to expect in Digital Banking and Technology:

Credit unions are finding that perceived quick hit customizations within their digital platforms will be met with long lead times and in some cases an inability to deliver.  Vendors too are overwhelmed with requests as credit unions are scrambling to improve the member’s digital experience.

How to prepare your credit union for new Digital and Technology patterns:

Now is the time to uncover lesser known features of your admin platforms to get creative on meeting new member demands. Begin with assigning ownership of back-end admin platforms. These owners should serve as the experts in that admin platform and find ways to accommodate both internal and external customers. A strong quick-hit example our team has identified:

• Many digital platforms can create custom forms. Something like this can be utilized to take loan modification requests as opposed to asking the vendor to build something custom or inundate call centers with requests.

Overall Impact and Planning:

While strategic planning is revisited, workforces and member experiences go digital and pandemic response is tested, CU Engage is here to support our credit unions supporting their members. There are several ways our services can help you respond to changing goals. Our strategic consulting team will guide you through vendor evaluations, negotiation, and technology assessments. When your board asks you how you will adjust to the changing financial landscape, CU Engage is the partner you can trust to navigate vendor relationships, technology investments and changes in member servicing channels.

Contributors

This post represents a compilation of reaction, brainstorming and research of CU Engage based on the industry experience of our strategic consultants and founders. This article is not intended to directly influence strategic direction without benefit of a situational evaluation. For more information, please email us at info@engagefi.com.