Electronic Lending: A Database For the Future

The Birth of the Member Information File

CU*BASE has always had a Member Information File, which was called the “Member Profile.” It was designed to build a picture of the member and their spouse that could give the credit union a full idea of the member's financial position, banking service trends, and underwriting statistics. This database also had a loose connection to family members, and contained the first attempt at maintaining demographic data on the member. The system had several weaknesses, which has lead to its replacement in Phase Two of the CU*BASE lending software.

Growing Pains

To understand the next step in the growth of the member information file, we must go back and review the evolution in the credit union's view of its membership base.

The First Step

First, credit unions concentrated on the idea of being a primary financial institution to the individual member. Credit unions focused on creating individual products (account types) that tied as many of the member's base banking services to the credit union as possible. This lead to credit unions becoming transaction-oriented instead of focusing on low-volume savings and loan activities.

During this period, CU*BASE developed the concept of up to 999 account types per member, with the ability to offer up to 99 different savings, 99 different certificate, and 99 different loan products. These products were soft-coded and allowed credit unions to design their own product line that they could market and promote to the members as unique. However, in terms of the analysis of the member's needs and activities, they were still separate.

Step Two

Second, credit unions began to realize that a member's activity should be viewed globally (in aggregate under one membership number), and that trying to convince the member to bank in a mold of the credit union's choice was not as effective as encouraging the member to increase his or her banking volume with the credit union by giving the member a choice of products and services. Electronic transactions and exceptions required that the credit union be able to electronically link member sub-accounts together to better automate and prevent the credit union from losing money in negative EFT situations. The member was now being viewed as an aggregate saver, aggregate borrower, and/or net saver or borrower.

In response, CU*BASE fee programs were developed so that fees could be waived if a member was an active participant in the credit union. For example, fees could be waived based on participation in special service offerings, the volume of funds in sub-accounts, or even based on demographics such as age.

Fee structures once meant for the entire membership, and therefore difficult to justify as cost-effective and necessary, became directed at the member who chose to bank in a certain mode. These new features gave the member the power to avoid fees. Thus, the idea of a minimum balance waiver was expanded to other creative options to avoid fees, while still allowing the credit union to market the idea of a credit union as a “no fee” institution for participating members.

Overdraft protection was changed to look at all electronic debit services and expanded to allow movement both ways to cover shares, and even line of credit loans. The member was sold on the fact that the credit union could electronically protect any account based upon his desired configuration of EFT activity. Overdraft protection configurations were specific to the member and then added to the debit card concept to ensure that an electronic debit was consistent with the service offered by a share draft.

It was also during this step that the member information system called the Profile was originally developed. It was the first time that CU*BASE looked at the member beyond the credit union to analyze the member's participation with the credit union versus other institutions. It was the first pass at a database internal to the credit union that could be used interactively with the member to help identify credit union opportunities and anticipate member needs. It concentrated marketing internally based on improving existing member relationships, as opposed to expanding just through new members.

The Next Step

Currently, credit unions are focusing not just on the single membership and its attached sub-accounts as a unit, but they are expanding the idea to the entire family unit, and the memberships and accounts that they control. Thus, the idea of using the household unit was born. Not only is the idea effective from the marketing point of view, but also from the standpoint of the expense associated with the rising cost of member communications, promotions, and efforts wasted because of duplication within a household.

The CU*BASE Household Database is important in developing pre-approved projects, encouraging young people within a member's family to participate, and in understanding the member's ability to purchase and participate in credit union services.

$images\illustration1_shg.gif$

The Next Generation: CU*BASE Household Database

The CU*BASE Household Database lets you build a profile on an individual member first, and then link that record with other individuals in the same household unit—whether members or non-members. When the database is fully utilized, the credit union can select members based on individual preferences, preferences as a married couple, or as an entire family or household unit. This new product takes Relationship Management to a new level.

Unlike the Profile system, the CU*BASE Household Database allows the data to be entered through multiple service systems. Therefore, the credit union can focus the collection of data by encouraging every member interactive service to promote the system and the input of data.

Mailing promotions, loan interviews, and member service sales opportunities will give the credit union multiple chances to collect data.

The Household Database system is interactive with all CU*BASE member service functions and is included in the following processes:

$images\illustration2_shg.gif$

Since the system is interactive with current processes, the data is even more valuable than the data analyzed by external systems that only analyze the results of your database. CU*BASE Household is part of your complete centralized database.

The Member Household concept allows each individual to be identified by a household number, household member designation, and relationship description.

Household Number

Sequential number used to link individual members, non-members, and even business accounts as a single unit.

Member Designation

Single-character code used to identify the relationship of the person to the household unit:

H Head of household

S Spouse of the head of household

I Individual person in household

O Other member of the household unit (most often used for business accounts or additional member accounts)

Head of Household

Selected by the member as the key address for the family unit. This designation will be used by future CU*BASE products that will identify the head of household as the only communication point given for selected member communications.

What the Household Database Means to Lending

With the CU*BASE Household Database and Lending system, credit unions can move from the traditional manual systems for underwriting and performance tracking to an electronic service platform.

Electronic lending requires that we look at the lending process from the point of the interview, and maybe just as important, from the time the individual becomes a member. When does your credit union begin “selling” loans? Do you sell loans? From the moment you establish a member relationship, hopefully you are developing a database of information that is leading to your selling services right up to and through the loan interview, and continuing until all of the member's banking service needs have been met.

Lost Opportunities

Credit union leaders continue to miss opportunities with members by only training their staff for what appears to the staff and the member as a series of unrelated service points.

THE SCENE: The Member Services Desk

MEMBER: “Hello. I'd like to become a member of your credit union.”

MEMBER SERVICE REP: “Welcome to the credit union. Let me get you signed up as quickly as possible. The place is really busy today...take these brochures so that you can come back later. You will need to deposit $5.00 for a membership today.”

THE SCENE: A Teller Window

TELLER: “Hi! What can we do for you today?”

THE SCENE: A Loan Officer's Office

MEMBER: “I'm here to apply for a loan.”

LOAN OFFICER: “Hello. What kind of loan did you have in mind? Fill out this application and we will get to it in a moment.”

THE SCENE: The Member Service Desk

MEMBER SERVICE REP: “Oh, I am sorry to hear that you are closing your account. Have a nice day!”

Too often we teach people that to be effective we must get the member in and out quickly, without understanding that every contact is a chance to re-sell the credit union, collect a piece of information that might mean a new service for the member in the future, or correct some misunderstanding that the member has about our credit union.

Take a look at these same scenarios, this time using some CU*BASE tools:

THE SCENE: The Member Services Desk

MEMBER: “Hello. I'd like to become a member of your credit union.”

MEMBER SERVICE REP: “Welcome to the credit union. We are excited about you becoming a member. Let me tell you about some of our services...” The employee would use the following services:

Inquire on the member's reason for choosing the credit union and record it using a New Member Reason Code

Define the member's SEG/Sponsor affiliation

Offer a member service survey

Start the member's Cross-Sales Tracking list

Inquire on the member's family and household, enroll in a household or give an over-the-counter household information sheet.

THE SCENE: A Teller Window

TELLER: “Hi! What can we do for you today? Oh, I see you work at ABC company (using the SEG display). I noticed you don't have our ATM card yet. Are you interested? (Uses the Plastics file identifier, completes the cross-selling task list).
“I was reviewing your member survey results (using the member survey tool) and it says you are interested in saving for your children's future education cost. We have some excellent certificate products. Could I set you up with one of our high yield certificates? I see you are not enrolled in our automatic loan application service. Would you like a household information form?”

THE SCENE: A Loan Officer's Office

MEMBER: “I'm here to apply for a loan.”

LOAN OFFICER: “Welcome to the credit union. I have been hoping to hear from you since we enrolled you in our automatic loan application network. I hope you received the flyers we sent out on the student loan program and home equity programs that you requested in your member survey. What kind of loan were you thinking about today? Well, let's review your application right here on the terminal. No, there is no need for you to fill out any forms. Next time, if you don't have the time to come down, do not hesitate to call. You are a preferred loan member now and all of the application information is stored here and ready to go.”

THE SCENE: The Member Service Desk

MEMBER SERVICE REP: “Oh, I am sorry to hear that you need to close your account. What prompts this change? Well you know we have several services to overcome these issues.” (Administers an exit survey and assigns a Closed Account Reason Code for why the member left the credit union.)

While each of these situations may sound unrelated, each contact was recorded to a central database and communicated to the entire staff through the CU*BASE Inquiry and Phone services systems. Meanwhile, behind the scenes the marketing and management teams are evaluating the data for the development of marketing campaigns and new products.

REMEMBER: The collection of data is a planned event, and its value to everyone must be clear if the credit union is to trust its validity.

What Can an Electronic Platform Do For You?

CU*BASE allows lending management to choose from a selection of parameters to pre-define the loan interview process, and lead loan interviewers through an interview by setting up specific defaults for each loan product.

The loan process includes a feature selection list for central access to multiple functions, from an inquiry of previously-denied loans, to a summary of the member's current outstanding loans.
Complete denial processing with the ability to produce a printed denial notice form including the following features:

Complete inquiry function with the ability to print a duplicate form on request.
The ability to configure up to 9 distinct credit reporting agencies to be printed on the form when citing the agency report as one of the reasons for the denial.
The ability to configure the credit union's effective federal agency to print as part of the Federal Equal Opportunity Act section of the denial form.

A system for online tracking of credit card applications with both an approval and denial system. This product allows the card to be immediately communicated to the front line by using the Plastic/OTB file setup screens.

Using the Household Database to Generate Loans

The Household Database is designed to be used interactively by many credit union departments and therefore is a great communication tool. However, it will take time and management to develop it correctly.

What departments will be responsible for gathering information?

What tools will they use (loan interview, paper request, member service direct input)?

How are joint debts and assets to be entered into the system? For which member...husband? wife?

Can we mass-issue household designations?

Do we immediately enter everyone into a household?

What benefits are we counting on besides electronic lending forms? Will we follow through?

All of these questions need to be answered before you begin entering data. Many credit unions will start over more than once with the process. How is your current database?

Database Management and Compliance

Who is going to make sure that the database is managed and compliant with policy?

Bad data is sometimes worse than no data at all. If only a portion of your team complies with the new standards, then all of the information may be suspect. Many times credit union leaders assume that the process is being complied with only to find that either through training, employee communication, or the evaluation of the process, things somehow got off track. Make sure that your team picks someone to ensure that the system fits and continues to be a positive influence.