Carpe DiemRoyal Cole

Financial Institution Services President

Living in a Post-Durbin World

• Overview of Credit Unions in Current Financial Environment

• Steps to Success

• Opportunities for Growth Post-Durbin

• Emerging Marketplace

• Implications for Credit Unions

• Conclusions

Flow of Today’s Discussion

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Overview

Improving Signs Will Accelerate Credit Unions’ Growth Opportunities

Consumer sentiment is up

Unemployment is moving downward (although slowly)

Consumers report higher satisfaction level with Credit Unions

Once-in-a-lifetime growth opportunity for Credit Unions

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Consumer Confidence Index(The Conference Board)

6%

8%

10%

12%

14%

16%

18%Total Unemployed & Underemployed Rate

Unemployment Underemployment

29%

30%

31%

32%

33%

34%

35%

36%

37%

38%

39%

2,300

2,350

2,400

2,450

2,500

2,550

2,600

% R

evol

ving

Deb

t

Tota

l Deb

t (bi

llion

s)

Total Debt vs. % Revolving Debt

Total Debt % Revolving Debt

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Overview

6

Overview

According to J.D. Power and Associates, 9.6% of customers switched their primary banking relationship during the past year.

The main reasons…

Fees and Poor Service

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Overview

Overview

Gen Y:• In their 20’s and early 30’s• Familiar with new media and technology• Hyper-networked: rely on each other’s opinions• Credit Union satisfaction index at 83%

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Gen Y Satisfaction with Service: 2011 vs. 2010

Traditional Credit Union high member satisfaction level represents a leverage point in this environment

Large Banks experiencing negative press and organized consumer backlash post-Durbin

Momentum from Bank Transfer Day

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OverviewOpportunity to Grow Mind - and Market - Share

Negative Press Can Take Different Forms

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Unintended Consequences Post- Durbin

Bob Marquette - Members 1st FCU, Mechanicsburg, PA

“Even though we are not at $10B in Assets (YET), the Durbin Amendment has impacted us in several ways. We are projecting an annual reduction of more than $500,000 in interchange income (mainly from card organization interchange modifications and merchant routing). And we were forced to add an unaffiliated secondary network.”

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Durbin Amendment Major Provisions

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SOURCE: Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010; McKinsey analysis

Durbin Amendment

Prepaid economics

▪ Prepaid cards are exempt from debit interchange regulation unless

▪ Issuers can charge cardholders overdraft fees or a fee for the first in-network ATM withdrawal per month

Network exclusivity

▪ Debit card issuers must issue cards that allow authorization via more than one network operator

▪ Network agreements cannot restrict merchant’s routing of debit authorizations

▪ Merchants can discount based on method of payment; prohibits discrimination by network or issuer

▪ Merchants may set a $10 minimum for credit card purchases; prohibits discrimination by network or issuer

Merchant steering

Debit inter-change rate

▪ Fed to set debit interchange for issuers with $10B+ in assets

▪ Takes effect 12 months from enactment

Impact of Durbin Amendment• The amendment is supposed to provide consumers with greater

benefits and lower costs, but we have yet to see that happen• Most banks have eliminated or reduced debit card rewards

programs.• Looking at new account fees to offset lost debit card revenues.

• According to a recent Ipsos Public Affairs survey, just 7% of respondents believe most retailers are passing their savings on to consumers.

• Total loss of revenue is estimated at $8B; for small ticket items the merchant is actually disadvantaged due to flat rate pricing.• In the 4th quarter of 2011 interchange revenue fell by 26% to

$6.2B• The amendment also requires two unaffiliated payment

networks for each debit card (for pin and signature).

Credit Union

Strengths

Member Satisfaction

Low Fees

Mobile Apps

Appealing to Young People

Overview

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Play to Win

Overview• The landscape is shifting, particularly with

younger consumersCore ConsumersEmerging Consumers

• Credit unions have built a solid platform of strategic assets for growth

Phenomenal brand equityReal performance, not just empty words

• What got you here won’t get you there

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Steps to Success

Steps to Success

Know the Competitive Environment

Incent the Right Behaviors

Segment Your Customers; Turning Data Into Action

Understand Your Portfolio

Drive MarketShare Growth

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Understand Your Portfolio

Develop Card Groups• Any available

demographic or performance information:

Last activityHigh/Low usersTransaction type Account type - Card or Checking Branch locations VIP And many more….

• TAKE ACTION!

Develop Card Groups• Any available

demographic or performance information:

Last activityHigh/Low usersTransaction type Account type - Card or Checking Branch locations VIP And many more….

• TAKE ACTION!

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TAKE ACTION!

Segment Your Customers

Benchmark Performance• Control Group• Prior to Campaign• During Campaign• Post Campaign

Benchmark Performance• Control Group• Prior to Campaign• During Campaign• Post Campaign

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Turning Data into Action

“There has been a shift in the nature of added value - it’s now leaning toward analytics and data visualization, and the ability to turn data into action.”

—From Enterprise Data Management Trade Association

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Turning Data into Action

Have a 360º lens into your portfolio

Incent desired behaviors

Identify member behaviors you want to modify

Incorporate external AND internal data

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Analyze Your Portfolio (Credit, Debit and Prepaid):

Deep Dive Into Portfolio

Identify Potentially Profitable Members

Test and Learn

Incent the Right

Behaviors

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Incenting the Right BehaviorsUnderstand Which Members / Relationships Have the Highest Potential:

Gaining Market Share

Unauthorized Charges (86%),

Unexpected Fees (84%),

Being Charged by Store for Payment Method (80%),

Being Declined (77%)

From the Vantiv/Mercator Insight Series Research, February 2012

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OpportunityConsumer Worst Fears:

Opportunities for Growth Post-Durbin

Products and

innovation

Big Bank Fees

Gen Y

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Opportunities for Growth Post-Durbin

• Market players are jockeying to take advantage of the new market environment

Too soon to pick winners and losers

• Brand assets position Credit Unions perfectly to be winners

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Opportunities for Growth Attract New Members

• Branch• Web• Direct Marketing• Call Center

• Branch• Web• Direct Marketing• Call Center

TraditionalChannelsTraditionalChannels

• Mobile• Text• Social Media• Email

• Mobile• Text• Social Media• Email

EmergingChannelsEmergingChannels

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Attract New Members

Opportunities for Growth

• Credit• Auto Loans• Small Business Services

• Credit• Auto Loans• Small Business Services

TraditionalChannelsTraditionalChannels

• Prepaid• Debit Rewards• Personal Financial Mgmt• Mobile Banking

• Prepaid• Debit Rewards• Personal Financial Mgmt• Mobile Banking

EmergingChannelsEmergingChannels

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Opportunities for Growth

“The goal is to get members in when they’re young and make sure they’re satisfied with the two most basic products—checking and savings accounts. Then, through continued education, we can be there when they’re ready for, say, a mortgage.”

—Jenn Cloud, Vantage Credit Union’s Young & Free Spokesperson

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Opportunities for Growth –Consumers and Small Business

Develop Acquisition Strategies

Be local: Leverage

institutional strength at

the grassroots

level

Learn about their

concerns and become a

trusted advisor

Develop leading edge

product offerings

Strengthen relationship; communicate

trust and reliability

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Emerging Trends

Emerging PlayersCompetition

• Prepaid Cards• Web Banking• Green Dot• On-line Banks

• Prepaid Cards• Web Banking• Green Dot• On-line Banks

Today’s ChannelsToday’s

Channels

• PayPal• Facebook• Google• Apple

• PayPal• Facebook• Google• Apple

New Entrants

New Entrants

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Implications

Implications

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Be Prepared for Change:• Look over the horizon

Anticipate changeDrive strategies to adapt and growUse analytics to focus on the future

• Evolve your member baseGrow profitable membersIdentify and attract new profitable members

• Seek new solutions for growthNew opportunities require new approachesEvolve solution mix with new partners

ImplicationsBe Prepared for Change:

Have you built mobile technologies and social media into your future growth strategies?

How about…• Prepaid• Data Rewards• Personal Financial Management• Mobile Banking

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Conclusions

Conclusions

Entice younger consumers to become members

Invest in Mobile

Remember the Steps to Success (Understand your Portfolio, Segment Your Customers, Know the CompetitiveEnvironment, and Gain Market Share)

Don’t forget Small Businesses

Don’t ignore the new product landscape and new entrants

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Carpe Diem: