Time for Data Amplification

January 2018: Vol. 41 No 1
by Stephanie Schwenn Sebring

Tap into a treasure trove of member information.

man manipulates a table full of data

Credit unions have at their fingertips a treasure trove of member data points—from transactional data, purchase history, bill-pay info to social media posts. The trick is finding this data, then aligning it with defined corporate goals. Cutting through to core objectives is the first step. Next is organizing your resources to collect and interpret the data­—for a myriad of reasons. Here we examine how data can impact lending, CECL, debit and credit usage, and managing marketing and even environmental sustainability.

The list of analytics projects is long, says Greg Nolder, VP/analytics for $650 million Denali Federal Credit Union, Anchorage, Alaska, and typically, a CU’s human bandwidth isn’t enough to address every point. “This makes it critical to collaborate and determine your objectives first, and that the data aligns with the goals of your organization. Narrow your priorities, then take a tactical approach, so each goal becomes a project management process.” This includes project proposal, approval and milestone tracking.

Use Data to Grow Loans

Data has vastly improved the lending cycle, from the speed of loan approval and intuitive offers to highly targeted pricing. “By utilizing decision data, 95 percent of automated loan decisions (system-approved) are funded an astounding 95 percent of the time,” says Michael Cochrum, VP/analytics and advisory services at CUES Supplier member CU Direct, Ontario, Calif. “But if a member must wait five minutes for that same decision, the loan will be funded only 65 percent of the time.”

It’s a telling statistic; today’s consumer expects an immediate response and gratification. “Let your data provide it,” he adds. “Use data to rewrite the decision rules to prevent losing easy loan dollars or keep your member from waiting.”

For example, a lender refers applications for manual underwriting where loan-to-value exceeds its guidelines. If the borrower qualifies for the loan amount requested, the application can be approved, and a stipulation added for the maximum LTV. Here, the lender can make credit decisions as separate process decisions.

Another benefit: Automated decisions can often be less risky than those manually underwritten because they’re more consistent and unaffected by extraneous information. They also save on resources and can lower costs by increasing the number of loans funded per underwriter and shifting future investments to less expensive technology solutions rather than additional human resources. CU Direct’s Lending 360 loan origination system platform and the company’s Lending Insights loan portfolio management system can both automate the lending decision and process workflows, provide business intelligence reporting and help lenders identify loans with a propensity for future loss.

“As loan volume increases, you’ll still need sufficient staff to disburse,” says Michael Cochrum. “But you’ll be able to align your resources more appropriately.”

Price Loans More Effectively

Using collective performance portfolio data, credit unions can tap into compelling data that goes well beyond credit scores­—to pinpoint more accurate loan pricing.

“Two people can have identical credit scores at the time of loan approval and get the same price for the loan,” explains Cochrum. “But there is a difference in the probability of default based on other factors. When you identify these factors, you gain a clearer picture.”

Variables can include the ratio of debt to income, revolving credit ratios and LTV. Extending the parameters in how you approve and price a loan enables approval of more loans and lowers portfolio risk. Ultimately, you gain a refined and much more robust risk-based pricing system.

Review Credit Score Migration

Reassessing a loan’s risk at different stages and developing migration and collection strategies based on an ever-changing environment is an equally important analysis.

“Members are continually migrating up or down [risk-wise] within the portfolio. Very few stay where they started,” adds Cochrum. “Assessing a range of data can impact underwriting and reduce charge-offs. It can also empower your staff to intervene earlier (if a loan is moving downwards) and in more helpful ways.”

He notes that in such variable rate scenarios as credit cards, CUs could change the rate based on a change in credit score. Also, in revolving credit scenarios, they could increase or decrease the available credit limit.

Dialing down to the granular data helps maximize profits and reduce risk—while cataloging data on a wider scale from a broader group of members gives clarity. “But if you’re not charging enough for riskier loans or simply looking at your portfolio from the surface, you risk your portfolio’s profitability,” says Cochrum.

2020 CECL Assessments

Preparing for the new Current Expected Credit Loss allowance methodology could prove challenging. CECL will require a more sophisticated modeling technique to predict loan and lease losses than what’s traditionally used by CUs. This mandatory standard employs a forward-looking forecast of credit losses rather than a historical “moving average.” The amount and complexity of data required to drive these forecasts will escalate as CUs transition to the methodology, and new technologies for data warehousing and approaches to forecasting will become crucial.
 
“In theory, CUs could be required to hold 50 to up to 300 percent more in reserves under the new regulations,” explains Nolder. “At Denali, our response has been to form Deep Future Analytics, a CUSO dedicated to developing refined predictive analytics for loan portfolio management and optimization, including CECL allowance calculations.”

The Deep Future Analytics CECL calculation is robust, adds Nolder, incorporating lifecycle, vintage quality, seasonality and economic scenarios to identify a highly accurate figure.

For data collection, organization, storage and retrieval, Denali FCU uses the OnApproach M360 data warehouse. OnApproach is another CUSO, with 14 owners, including 11 CUs and one league. Its newest technology, written to the CUFX standard enables data pooling between CUs and vendors. This credit union-centric, standards-driven data ecosystem will enable new and improved solutions for CUs directly and with system partners.

Dissect Card Portfolios

“There are many more pieces to the data puzzle than you realize,” says David Ross, vice president of PSCU’s Advisors Plus Predictive Analytics, a CUES Supplier member, St. Petersburg, Fla. His role is to leverage industry analytics and benchmarking statistics alongside PSCU-specific transactional data.

Ross advises dissecting your data in several ways. For example, he advises CUs not only to monitor balances in ongoing credit or debit card campaigns, but also to continue to evaluate portfolio performance in subsequent months. Understanding the lift in your members’ spend by uncovering the underlying changes in their transactions is key. Did the average purchase amount increase? Did the type of merchant where the member shops change? Did the member use the card more frequently?

This knowledge can be leveraged to drive incremental improvements in interchange income. And by tracking what messages impact which members, an iterative process using data-based analytics can facilitate more refined targeting in future campaigns.

“Data can also be used to study your card portfolios more intuitively,” says Ross. “Specifically, why do members philosophically choose to use debit or credit? Is it because they don’t want to carry debt? Such techniques as clustering analysis can help you identify groups of members who have similar purchasing preferences and motivations. Once you know what drives the behavior of a group, you only need to identify which group a member belongs to in order to know what is behind that person’s decisions and if an offer to that member will cause spend to go up.”

Data techniques, such as “survival analysis,” which analyzes the expected duration of time until one or more events happen, can help CUs predict what their members are going to do next with their cards. For example, CUs can detect those at risk of becoming a detractor (unhappy or likely to complain) or of closing the card and leaving.

Data insight can and does impact the member experience. Your goal is to ensure that it is a positive one.

“Consider a member who has been traveling for a period, then attempts to check into a hotel but is over his or her limit,” suggests Ross. “By understanding the circumstance and looking at variables, for example, on-time payments and spending patterns, you may decide to approve the transaction—saving the member frustration or embarrassment. Data can help you to build the story to see if approving the transaction makes sense and results in a better outcome.”

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Making Marketing Platforms Hum

HubSpot is a primary tool used by Denali FCU for tracking marketing response and member views across channels, including Facebook, Twitter and email. Along with Google Analytics, HubSpot provides in-depth analysis of viewer behavior—how and when a member acts on an offer or specific message.

“For example, a member may receive an email about a CD offer, see a similar ad on the CU’s website, followed by a Facebook ad,” explains Keith Fernandez, VP/corporate development. “After three views, the member finally clicks on the Facebook ad. HubSpot directs that lead to the marketing department, and we can then direct it to our outbound call center. We then monitor the member’s final action if it occurs within the channels HubSpot supports.”

The CU has successfully integrated HubSpot tools into email campaigns as well. “We use it to collect information on individuals interested in our services—primarily for our business services and investment services departments and providing relevant leads,” says Fernandez.

He notes that it takes time to absorb the capabilities of HubSpot and the CU is still moving towards more prolific usage and sales goal implementation.

The CU is also revamping its three websites (one for consumer banking, one for business banking and one for investment services) to incorporate more inbound marketing strategies.

“Goals include the transition of each site into an effective sales branch,” adds Fernandez. “We’re also adding tools so that members can research information and we can track their steps.

“Our previous websites, written by a local web developer, didn’t allow us to track viewing patterns adequately,” continues Fernandez. “As changes occurred in the digital realm, we lost the ability to monitor key information, such as site traffic, landing page performance, etc. The transformation of our content management system from the older web design to the universally known WordPress now enables us to track many more data points and trends.”

“We look at the typical metrics,” says Ian Skinner, digital marketing strategist at Denali FCU, “including email opens and clicks, landing page views and form submissions. We also track every message that uses the HubSpot tool in some way. These range from security alerts and product updates to newsletters. Best practices include studying reports weekly, examining email and landing page performance as well as form submission activity.”

“The best use of HubSpot for us is the tracking of viewer patterns,” adds Fernandez. “If a member receives an email about an auto loan, we can follow the member’s interest (using a response mechanism within the email, which leaves a cookie on the member’s computer), and subsequently, track whether the member goes to our website to view rates or auto loan information.”

HubSpot’s digital tracking system will evolve into a collaborative, more powerful sales tool. “By tracking the member’s digital footprint, we’ll know when the member is interested in a product and if there is an opportunity to make a ‘warm’ follow-up sales call,” adds Fernandez.

The use of HubSpot’s digital tracking system will continue to evolve for Denali FCU. The CU plans to expand its lead-generation capabilities and inbound marketing competency with new website improvements.

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A Small CU’s Data Culture  

It’s unusual for a CU with just $81 million in assets to have a full-time data analyst. Cassidy Cochrum holds this role at Ohio Healthcare FCU, Columbus, and believes data should play an essential role in operations no matter your CU’s asset size or number of members. (Like father, like daughter: CU Direct's Michael Cochrum is her dad!)

The CU also works with OnApproach, using its M360 software for predictive analyses, strategic dashboards and flexible reporting for the CU’s business units. The CUSO encompasses 50 CUs that collaborate on formulas, software products and pools of member data for predictive analyses.

Leaders also see a variety of reports on demand, such as loan origination opportunities and aspects of portfolio performance. Weekly, they review risk management reports, including delinquent accounts and accounts not onboarded correctly. Monthly, they analyze the loan pipeline—the number and types of loans closed, dollars disbursed and overall portfolio performance. Accounting uses month-end reports, monitoring items such as net worth concentration and GL performance compared to budget.

“When tracking loan statistics, we look for the outliers, such as a spike in loan volume or a concentration of dollars by loan type, and we build strategies around the data,” explains Cassidy Cochrum. “For example, we noticed our risk concentration for E paper loans had been declining over time. While some might see this as positive, we suspected that perhaps we were underserving members with E paper grades. Now we’re planning to review this group’s transactional data to see if they’re using payday lenders. If so, we can highlight our partnership with Accel Members Financial Counseling or offer products that would better suit them financially.”

No matter your goals, grasping your data’s historical perspective and garnering appropriate intelligence enables you to craft and implement more thoughtful strategies—throughout the marketing plan.

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Sustainability Goals

$4.9 billion United Nations Federal Credit Union, New York, aspires for a positive impact on environmental and resource conservation, and it uses data to help reach these goals.

With sustainability as a core value, staff members have an opportunity to shine with the CU’s Global Sustainability Program. Consisting of 40 United Nations FCU employees (who volunteered to be part of the program), the GSP team is responsible for setting goals, implementing strategies and communicating results. Nine executive advisory committee members also guide and support action planning and goal completion, using data as the foundation. The result is a rigorous sustainability plan.

The primary goal is to achieve and sustain carbon neutrality using these strategies:

  • mitigate 100 percent of greenhouse gas emissions;
  • reduce paper use by 25 percent;
  • ensure 70 percent of paper used is certified sustainable; and
  • reduce energy use by 7 percent in operationally controlled buildings (in some leased facilities, the CU cannot control energy use).

A secondary goal is to demonstrate sustainable business practices by:

  • implementing travel guidelines that suggest employees should use energy-efficient modes of travel—such as train versus plane, if possible—and stay in green hotels when on business travel;
  • launching purchasing guidelines to ensure the products and services the CU purchases align with sustainability goals. Vendors are asked about their sustainability practices, and whether their products and services meet specific sustainable product guidelines (for example, if the product is certified to be more energy-efficient or made from recycled materials); and developing and launching green products.

A final goal is to be transparent and inspire others by producing an annual sustainability report.

It can’t be overstated the role analytics play in this effort.

“We hold ourselves to a high standard for measuring and mitigating carbon emissions,” says Pamela Agnone, SVP/retail services for the CU and the executive sponsor of the UNFCU Global Sustainability Program, adding that United Nations FCU’s report was the culmination of extensive analysis, benchmarking and sound business decisions.

“Inspired by our board of directors’ vision and our members’ humanitarian purpose, we want to share ideas and strategy on sustainability with credit unions in the U.S. and abroad to (ultimately) have a collective, positive impact on the world.”

Determining Baselines

The CU established three categories for baseline analysis based on 2015 usage—greenhouse gas emissions for carbon neutrality, paper reduction and energy reduction.

“At the onset, we measured how many metric tons of CO2 we were emitting across all 12 locations,” explains Jill Guzzo, United Nations FCU’s manager/marketing research and analytics. “Next, using mathematical formulas, we established targets for electric usage reduction that are appropriate to our facilities and have a meaningful impact on reducing our carbon footprint. Then, we offset our emissions” using renewable energy credits from suppliers certified by Green-e.  
 
UNFCU purchased credits from US-wind power production partners along with verified carbon offsets to mitigate all GHG emissions from energy use and business travel.

The CU also hired sustainability consulting firm, Kosmenko & Co., Boulder, Colo., to assist with the program’s roadmap and energy offset selections.

“It can be complicated working with vendors to purchase reliable offsets for carbon neutrality, and make decisions on what to include in your GHG inventory,” explains Guzzo. “Our facilities and real estate department worked diligently on achieving LEED (Leadership in Energy and Environmental Design) gold and silver certifications for our headquarters in Long Island City, N.Y., and branch in Washington, D.C. With our consultant and internal experts, we structured the program and purchased the appropriate offsets.”
Measuring Sustainability

To create the baseline GHG inventory, Guzzo and her in-house facilities and real estate colleagues collected data for the CU’s gas, oil, electric and steam usage and delivered it to Kosmenko. The CU’s business and IT analysts also gathered business travel data for inclusion in the GHG accounting process.

Once the GHG baseline was complete, Agnone and the executive advisory committee recommended achieving carbon neutrality for 2016 emissions by making performance improvements in energy efficiency and using offsets for the remaining usage.

The benchmark for paper usage was a more challenging and voluminous metric to analyze. The CU measured the copy paper used at all offices, as well as stationery and business cards, third-party statement paper and marketing collateral. GSP team members across six departments gathered paper-use data and ensured green paper sources were used.

“The baseline data took the better part of 2016 to complete,” explains Guzzo. “It also required an aggregated analysis and modeling to ensure the reduction goals were feasible.”

Getting Started

If you’re considering a similar project, it’s imperative to understand and define your CU’s goals first, stresses Guzzo. “What aspects of sustainability are important? Do you have the capacity (or resources) to achieve your goals? Are your goals statistically measurable?”

Next, set your timeline. Map a path for how you will obtain the data. Hire a consultant to guide you—one who understands the industry’s best practices, can work with offset suppliers and knows the procurement process.

Determine key spend categories and start with good analyses. “Start with your vision and have your data get you to your vision,” adds Guzzo. “Your executive team will be the visionaries, but the data analysts will enable you to reach your goals.”

United Nations FCU’s efforts coalesced into a unique and inspiring GSP initiative, with results published in its 2016 Sustainability Report, available publicly. “The report brings the data to life,” concludes Guzzo. “We look forward to achieving our five-year goals while serving an ever-growing membership base.”

Stephanie Schwenn Sebring established and managed the marketing departments for three CUs before launching her business. As owner of Fab Prose & Professional Writing, she assists CUs, industry suppliers and any company wanting great content and a clear brand voice. Follow her on Twitter@fabprose.