MIAMISBURG, Ohio—One CU that used high interest checking to jumpstart growth says that product alone won’t cut it anymore.
The $325-million River Valley CU believes it takes relationship pricing tied to checking, as well as a more aggressive approach and the ability to show value in order for growth to continue.
“The days of allowing members to have a couple services with you and cherry picking the better services have to go away,” said CEO John Bowen. “It’s not so much a matter of choice from our end, it’s a matter of survival. We can’t afford to keep those unprofitable accounts.”
In 2007, with River Valley picking up a few more members than it was losing each month, the credit union introduced High Interest Checking. The account paid 4.5% APY on the first $15,000 and the CU’s basic checking rate on funds above that total. To get the higher rate, members had to perform the typical tasks for high-paying checking—12 debit transactions per month, make one direct deposit and take e-statements.
John Bowen
“The account really got the attention of the community,” said Bowen. “We brought in a lot of new business. It has increased our number of checking accounts, the average checking balance, debit card usage and the number of members who receive e-statements.”
Rapid Growth
Bowen said River Valley quickly moved from 7,000 checking accounts to more than 12,000, and checking penetration increased from below 50% to more than 60%. Bowen said the CU had projected that the additional expense incurred in the form of checking dividends would be more than offset by a rise in debit income—debit transactions have grown by 25%-35%—and from operational savings from having more members taking e-statements. Currently 60% of the membership receive paperless statements.
“This account did exactly what we wanted it to do,” said Bowen. “We wanted to increase the number of checking accounts and do that rapidly, and grow.”
The credit union boosted assets from $137 million in 2007 to $172 million in 2009, reaching $310 million by the end of 2014. In that same period, ROA went from 0.01% to 1.03%. And in the latest Callahan’s ranking, River Valley led the $250 million to $500 million peer group with a Return to Savers score of 95.32%, a Return to Borrowers score of 95.77%, and a Member Service Usage score of 97.37%.
But a couple years ago, Bowen said, growth leveled off and the credit union instituted a relationship pricing program to get additional business from the membership.
“We still had a number of members who did not use us for much more than check cashing,” said Bowen, who noted that the credit union’s loan and deposit rates are in the top half of the market. “So the relationship pricing program assesses a small monthly fee of $3.95 when members do not keep certain loan or deposit relationships.”
Fee?
To avoid the fee, members must have at least $10,000 on deposit, or take out a loan, or use the CU’s credit card.
Bowen said that it is simply time that the credit union ask for more of members’ business.
“And we are asking a little more forcefully than we used to,” he said.
The CEO said the relationship pricing program is increasing the number of products per member, however it needs to be adjusted to be more effective.
River Valley CU
“We want this program to work better for us,” he said. “We are revamping the checking account, and we are not sure exactly what we will do, but we want to tie High Interest Checking to our relationship pricing program. What we may do is waive relationship pricing for members who take the checking account.”
The recession, and its impact on rates, forced River Valley to eventually drop High Interest Checking’s rate down to 1.5% on balances up to $10,000, where it stands today.
No Attrition
But Bowen said the credit union dropped the rate slowly, much more slowly than rates fell during the economic collapse, and did not see attrition as a result of its strategy.
“Back in the day, we introduce High Interest Checking and rates almost immediately plummeted,” said Bowen. “We did not reduce the rate as rapidly as we could have, leaving it at 4.5% for a while. And when we started downward we went slowly. Sure, some members moved some of their money and the average balance in this portfolio fell, but from a net checking account standpoint, we have been fine. And we still have sizeable balances—this account is still doing what we need it to do.”
Now River Valley may ask the account to do even more, if it becomes tied to relationship pricing.
“Member loyalty is still there, but it’s not the same as it used to be,” said Bowen, who reiterated that the credit union today has to be more aggressive in asking for members’ business. “If you can attract members and show them value they will stay with you. But if you can’t show value, it’s going to be tough sledding.”