By Doug Wadsworth
Is Your Boat Sinking?
I grew up as an Alaskan commercial fisherman. Boats have safety systems to pump out seawater that leaks in: bilge pumps. They keep you from sinking, unless there are too many small leaks, eventually they can’t keep up and you are headed for the sea floor. Your credit union is similar… if you outsource too many tasks (paying $$$ for each little one), eventually your profit will be insufficient to keep you afloat.
Stop Buying Shiny Things!
Perhaps your credit union was pressured into outsourcing something by a regulatory examiner, or you were lured by flashing lights and fancy tech jargon at a trade show? They probably convinced you that their offering would drive your membership and profitability. Or perhaps you were simply overwhelmed and needed to offload some duties? Individually those third-party fees may not amount to much, but together they will eventually sink your credit union. Usually (not always) those shiny baubles, aren’t worth it, and you can maintain sufficient regulatory compliance doing almost everything yourself, in-house.
What To Outsource, What To DIY?
Obviously, there are certain tasks worth outsourcing, which depend on your own capabilities and whether your credit union can comfortably afford it. Here are some commonly outsourced areas that I would suggest are usually an epic waste of money:
DIY Staff Training
I have several old educational staff training DVDs I have been using for 18 years now, because the topics are still relevant (BSA, giving friendly service, money laundering, etc.). I also purchased 20 or so paper “Star” training manuals from CUNA about 13 years ago. My employees read those and take written “open book” tests on paper. Yes, in-house… on paper, so I can avoid paying expensive online subscription fees. Sure, we occasionally purchase a new webinar, but usually employee training should cost almost nothing if do it yourself, internally.
Director Orientation & Training
What does the regulation say, exactly? That your board members must receive some kind of ‘initial’ financial training when they take a position on the board… once. You don’t have to hire an expensive third-party trainer! Twelve years ago I wrote up a single-page worksheet with common financial terms and health ratios. I give it to new board members and we discuss it briefly (documented in minutes). Done. Regulation satisfied. Free.
DIY Employee BSA Training
Push back if regulators pressure you to hire a third party for BSA training. Sure, that makes examinations easier for them (they can check that box without reviewing your internal training materials), but it isn’t necessary and hurts your bottom line! The BSA is a time-waster with ZERO impact on your profitability or members. So, fulfill the most basic, simple and shortest interpretation of the regulation, wasting as little money on it as possible! When I hire a new employee, I have them watch some dusty old BSA training DVDs, we chat about them for a minute, and they sign off that training was received. What about ongoing training for staff? I typed up a couple simple BSA quizzes, and we do those in a staff meeting twice per year (noted in minutes). For annual official training, I have a BSA training handout I give to my directors every year, and we note in the board meeting minutes when they all “feel” sufficiently trained. Voila, done for the year. Cost: Free-Ninety-Free.
Vendor Management Isn’t Heart Surgery
Once per year we are supposed to review our “vital” vendor partners. How do I define which are vital? As narrowly as possible! I made a three-page “New Vendor Due Diligence” form that I complete on new vendors, but if we can recover quickly if that vendor fails (or if we can easily find a replacement). I don’t consider them vital, so, I only fill out the first couple questions on my form. Which of my vendor partners are truly vital? Pretty much only our card processor and core data processor, and those are large industry-standard companies with hundreds of credit union clients, so my “review” is super easy (because if the big CUs are still using them, I can reasonably trust they annual reviews they are doing). This has worked for examiners so far. I also put a single page “cheat sheet” at the front of this Vendor Due Diligence binder, listing the dates that important business contracts expire (as well as the advance notice needed). I put those dates in my calendar, and Vendor Management and Due Diligence is done. No third-party costs, and it only takes me about 15 minutes per year.
Biennial Account Verification Isn’t Rocket Surgery
There is an antiquated, redundant regulation requiring you to “audit” all account holders once every two years, directing them to contact your supervisory committee by paper mail if there are any errors on their account statement. Examiners often suggest you pay some third-party CPA to do it, resulting in a complicated and expensive formal audit and reconciliation. Ummm, no. If you look at the actual regulation (not their lengthy “best practice” recommendation), it is short, simple and vague - just how we like it. Put the little required notification sentence on your statement (for free), document when the mailing goes to all your members (with the number of mailings) and justify/reconcile any “no-mail” accounts that didn’t receive it. Going overboard on time and expense to “over-comply” with this antiquated and redundant regulation, is another waste of time and money.
Employee Retirement Benefit Plans
My predecessor CEO was paying for a complex third-party 401k employee benefit program. The annual administration cost was more than the combined amount all employees were contributing during an entire year- crazy! Did you know there is a free employee retirement program you can give your employees, with virtually zero paperwork or administration? It is called a SEP IRA, or “simplified employee pension.” First, choose the retirement pension (like 5% or 10% of wages, the same for everyone) to start on their one-year anniversary. Then you give them the SEP IRA information sheet (a free 4-page handout from the IRS website). Last, you make a little employee SEP IRA account for the employee in your core system. Every payday you drop that money into their SEP account when you do payroll. If the employee withdraws it early (instead of saving it until retirement age) they pay a tax penalty and report it on their own taxes, but that is on them (not you). You don’t have to file any special paperwork or pay a third party for administration, ever. Free, fast and easy.
Online Account Opening Costs HOW Much?
It has become table stakes to offer online account opening, but as a small credit union, how many legitimate accounts are actually opened this way, and how much is that costing you, per new member? I despise complicated, expensive third-party integrations. If you can sufficiently mitigate the new account fraud risk yourself at a fraction of the cost, do that instead. We use our native core for accepting membership applications online, and we don’t pay for third-party ID verification, we do it ourselves. How? We inspect the uploaded photo ID, we pull a Chexsystems report (even just for savings, which does cost $15 per account or so), and we do a public internet records search on their address (so we can tell if they are really local or detect red flags). Then, we talk to them on the phone and collect their “other bank” debit card (verifying a matching name), to make their initial share deposit. If there are any red flags during that process, we require them to come in person, or we just decline. We are satisfied with our internal risk mitigation process, and we save SO MUCH MONEY.
In-House Advertising
Stop paying expensive third parties to develop generic marketing materials. You don’t need glossy ads with “rando” fake models to effectively promote your little credit union. With intuitive and easy new online design tools (like Canva) you can do it yourself. You probably have an employee who is already good at social media and taking pictures and making videos and reels… use them! Homemade amateur promotional materials will probably get more attention than glossy generic ones. Note: beware that younger generations despise AI generated imagery, but that can help with the verbiage. Besides, as a small credit union, where do most of your loans and new accounts come from? Not from your traditional advertising, that’s for sure.
Force-Place Insurance (CPI)
You know the drill: Somebody cancelled or didn’t renew their car insurance, your credit union force-placed it, then the annoyed member walked in (or calls) all angry, and it turns out they had insurance all along, so you scramble to reverse the charge and refund them, your reputation in tatters. Also you have to track and update your accounts with updated insurance notes, and upload copies to the CPI company, over and over and over and over. Since you are a small credit union you probably pay a steep price compared to big institutions (because you can’t provide sufficient volume). Your bond insurance probably offers a “blanket” policy to cover cars that get wrecked without insurance. Sure, there is a $3,000 deductible or something… but, the policy premium is probably only $5,000 per year, and it is pretty rare to actually get left holding the bag on an uninsured wrecked car. How much time and money are you spending the way you do it now?
Security Camera Contracts
Security camera system technology has become simple and intuitive, requiring almost zero ongoing maintenance. Additionally, they are often wireless, making them easier than ever. Thousands of normal “non-techie” homeowners are purchasing and installing personal systems themselves, every day. Why are you paying some third-party a hefty subscription or maintenance fee to run yours? I have never paid a third party to manage our security camera system. Perhaps you are scared you will mess something up, and not have important footage when vitally needed? If that happened, what would the actual cost likely be? Consider how many hours of footage you are accumulating, and how rare it is that something “vital” needs to be retained. Consider that just a few decades ago, camera systems were virtually non-existent and horribly low quality, and yes, those credit unions survived. How much are you paying again?
Core Processor Integration Insanity
There are an endless variety of third-party software services you can integrate into your core. Sure, they add “bells and whistles,” but as a small credit union, is there really sufficient value to justify the steep cost, in both money and effort? That third-party integration is usually going to be more complicated, expensive and “buggy,” than you anticipated. If your core needs tons of integrations just to offer basic services, or if they keep “sunsetting” necessary modules and features (requiring expensive new integrations and conversions), you should strongly consider switching to a more powerful core which offers more natively programmed features. Below are some examples of third-party integrations which I think should be avoided, if possible:
Big Data/CRM Envy
It’s the hot topic at all the conferences: Do you have a fancy system to parse your membership data? Do you have a fancy technical dashboard tracking your member demographics, product usage, loans and allowing you to narrowly target member lists for promotions? As a small credit union (with small membership), it’s probably an epic waste of money. You just don’t have the volume of members to justify the cost, consider the response ratios by the time you filter down your target marketing efforts… single digits. Major overkill for a small credit union.
What SHOULD You Outsource?
If you have a decent core processor (I have been very happy with mine for 15 years now), they often natively build in the modules you truly need, without requiring complicated third-party contracts and integrations. You might not get all the bells and whistles of the giant software companies… but how expensive are those fancy features, compared to the actual benefit? Obviously, you need to hire some outside partners, like your core data processor, electronic document signing, merchant services, and perhaps ALM or CECL… things like that. However, if you want to keep expenses under control (so your boat doesn’t sink), there should be very few, and even fewer for regulatory compliance. Don’t let regulators pressure you into paying expensive third parties for things you are allowed to do yourself, at a fraction of the cost!
This article is an adaptation from a chapter of Keep it Simple, CEO, a DIY Profitability Guidebook for Small Credit Unions, written by Doug Wadsworth and published on Amazon. Wadsworth is CEO of Tri-CU Credit Union in Kennewick, Wash. and the president of a new non-profit advocacy group for small credit unions, the Endangered Small Credit Union Defense. He can be reached at Doug@Tri-CU.com or on LinkedIn here.