As we drive our daily routes, we tend to trust our memory and navigate purely on instinct and muscle memory. When a storm hits, however, tried and true routes are not as reliable as usual, since we cannot fully understand the impact a storm will have on a familiar path. Most of us rely on a navigation system (i.e., Google Maps) as we make plans to travel. Whether it is across town or across the world, we depend on accurate data to navigate to our desired destination. Without even realizing it, we literally become “Data Driven” by following the navigation system.
As we enter spring, our travel might be disrupted by human factors such as road construction. Similarly, the Federal Reserve is disrupting traffic throughout the economic highways of the country. The Fed continues to increase interest rates at speeds not seen in a generation. With over a decade of near 0% interest rates, credit unions are facing a new economic climate that many of their employees have not experienced before.
As interest rates quickly climb, a dramatic shift has occurred. While mortgages are drying up, members continue to borrow at a rapid pace, causing a liquidity crunch. These are just a couple of factors credit unions need to consider when navigating their credit union through this economic weather.
What Does Your Credit Union Need to Navigate Rising Rates?
Understanding how to navigate through a change in weather requires state-of-the-art, well-maintained tools/equipment. From satellites and weather instruments collecting data, all the way to the Google Maps app on your phone, data is being collected, updated in real-time and presented to the user with a simple display. Predictive analytics (including artificial intelligence and machine learning) enrich the data to predict traffic, weather and many other factors to recommend the best possible route.
In order for your credit union to take full advantage of analytics and navigate the rising rates environment, it needs the right data from all relevant sources. All the data needs to be gathered in one place and integrated in a strategic way to make the end results easy to consume for your business users who can drive the analytics outputs to improve the credit union. Furthermore, enriching the data with predictive analytics will empower your employees to recommend the best possible route for the optimal financial health of your members and the credit union as a whole.
Where Should Your Credit Union Go?
Before you start driving and following the navigation system, you need to know where your credit union wants to go. In order thrive in this rising rate environment, credit union should be driving toward:
Improved Liquidity
The competition for deposits has heated up with some banks offering higher than 3.75% on a basic savings account. Credit unions need to gather more deposits while keeping their members’ existing deposits.
Example of analytics navigation toward improved liquidity:
- Identify all members that have a $5,000 balance in their certificates and are maturing in the next 90 days. Reach out to them and keep them engaged with the credit union to roll their certificates over (or keep it in another CU product).
- Develop tiered money market accounts by analyzing savings or checking accounts balances. Look at members that have more than $10,000 in savings and offer a money market product with a higher rate. As other institutions are increasing their rates, your credit union will need to be proactive to give these members preferred rates to keep more money at the credit union.
- Determine members that have their loan payments to the CU coming from another financial institution. Incentivize them to bring their deposit account into the credit union.
- Develop incentives to use recurring direct deposit (RDC) for depositing checks and give points/rewards for using it. Gamification is the name of the game!
Price Based on Relationship with Members
Having all your data in once place enables you to “see” your members. In the past, credit unions were able to give members special rates/promotions based on the relationship they had with the credit union as they frequently visited a branch and discussed their financial needs in person. Now, with the increased number of members and digital channels being preferred, credit unions need to leverage their analytics to price their products.
Example of analytics navigation toward relationship-based pricing:
- Analyze all members that have been with the credit union for 11+ years. Using predictive analytics, add the future value of the members. Reach out to the members predicted to be the most profitable in the future.
- Build out a program based on member profitability and reward members for having multiple products with the credit union.
Enhance Member Experience
Experience is critical as a new generation of members has grown up with companies that give them excellent experiences through their smart phone. Giving members tailored offerings on their digital banking app is essential to showing members you know them and what they need for their financial health, especially during this period of rising rates.
Example of analytics navigation toward enhanced member experience:
- Predict the next best product for your members and build specific marketing campaigns centered around each product.
- Look at members’ preferred mobile devices and tailor an iPhone giveaway for members that use RDC for depositing a certain amount of money.
- Analyze merchants that members frequent. Market a gift card to members to their favorite merchant if they maintain a deposit balance of more than $10,000.
Credit unions have been through many different economic environments and are in a great position to thrive through this recent change in the economic weather. Analytics tools, alongside the wisdom of credit union leaders, will help credit unions navigate this recent storm and continue to be a safe haven for improving the financial health of their members.
Want to go deeper? Check out Trellance’s webinar on this topic that explores each step of the journey and shows a live-action demo of using an analytics platform to navigate a credit union through the rising rate environment.
Nate Wentzlaff is the senior director of product manager at Trellance.
