UNION Tracker™

FEBRUARY 2018 CREDIT UNION Tracker™

AMIDST GROWING COMPETITION, Credit Unions Turn to Data

FEATURE STORY p. 6 FAIRWINDS Credit Union takes its NAFCU explores how the new tax How Seaboard Federal Credit Union uses data to partnership with the Orlando Magic law will impact the credit union target products and services toward members in into overtime market ― p. 13 ― p. 15 need CREDIT UNION Tracker™

TABLE OF CONTENTS

What’s Inside A series of recent developments from around the credit union market could significantly impact the 03 lending solutions offered by CUs

Feature Story Amidst Growing Competition, Credit Unions Turn to Data 06 Kyle Casburn, CEO and president of Seaboard Federal Credit Union in Bucksport, Maine, explains how the organization uses data to target its financial products to members based on their specific needs

News and Trends 10 Notable headlines on the top trends impacting the credit union space

About 16 Information on PYMNTS.com and CO-OP Financial Services

ACKNOWLEDGEMENT The Credit Union Tracker™ is powered by CO-OP Financial Services, and PYMNTS is grateful for the company’s support and insight. PYMNTS.com retains full editorial control over the report’s methodology and content.

ased on developments in the past few weeks, Housing Administration (FHA), Veterans Affairs (VA) and credit unions (CUs) appear to be stepping up their the United States Department of Agriculture (USDA). efforts in the lending arena. B In addition, an Illinois-based CU recently took its lending Several recently upgraded their digital mortgage services, capabilities to the next level. Land of Lincoln Credit thanks to an alliance between client-owned FinTech COCC Union (LLCU) has secured approval to operate as a Small and cloud-based mortgage platform Ellie Mae. Under the Business Administration (SBA)-certified lender, enabling agreement, COCC will provide Ellie Mae’s Encompass it to expand its business loan offerings. LLCU sought solution to its CU and bank members. Encompass SBA approval after hearing from members who needed provides a digital mortgage experience allowing credit financial tools to improve cash flows and expansion union members to help borrowers lower origination costs efforts. Business loans currently comprise 15 percent of and closing times. its portfolio.

Meanwhile, a trio of credit unions from around the U.S. Around the credit union market recently made its own efforts to improve mortgage CUs in New Jersey are taking measures to protect lending services for members. Oregon-based Castparts members against fraud. With one in five older Americans Employees Federal Credit Union, Kentucky-based Cove falling victim to financial scams each year, technology Federal Credit Union and Indiana-based Partners 1st solutions provider EverSafe recently announced a Credit Union partnered with myCUmortgage, a credit partnership with a subsidiary of the New Jersey Credit union service organization (CUSO) owned by Wright-Patt Union League (NJCUL), the NJCUL Services Corporation. Credit Union. Under the agreement, myCUmortgage will The partnership will offer credit union members access to help the trio with both traditional home and government- fraud protection services like identity theft monitoring and backed lending programs like those from the Federal dark web scanning, among others.

In regulatory news, a major CUSO has voiced support postgame meet-and-greets with players, behind-the- for a recently updated CU cybersecurity framework. The scenes tours of the Amway Center, ticket discounts and National Institute of Standards and Technology (NIST) more. improved its cybersecurity standards in December 2017, placing higher emphasis on external data sources when The credit union data plan considering risk management. NAFCU had advocated In the financial services industry, it pays to be in the for the changes, arguing that an organization’s maturity know. For credit unions, that means knowing what level should be risk-based and aligned with cost-benefit their members need and pitching financial products analysis, not reliant on a one-size-fits-all cybersecurity specifically to meet those needs, thus opening new strategy. avenues to improve member services.

Other CU developments are helping members improve In the February Tracker feature story (p. 6), Kyle Casburn, engagement with an NBA basketball team. Florida- CEO and president of Seaboard Federal Credit Union in based FAIRWINDS Credit Union recently expanded upon Bucksport, Maine, discusses how his financial institution its existing relationship with the Orlando Magic. Under is doing just that — tapping data tools to connect the partnership, the Orlando Magic’s mobile app will members with appropriate, targeted financial products. offer special promotions for FAIRWINDS members, like

Credit union loan delinquency rate as of November 2017, a slight drop from the 0.82 percent reported a year Percentage of Idaho earlier residents who are credit union members

Percentage increase in credit union loan balances, as reported in November 9.6% 2017 55% 0.8%

10.7% 417,000 5,806 Increase in year-over- year credit union lending in Georgia as of Number of active credit September 2017, its fourth unions in the U.S. as of consecutive growth year November 2017, nine Number of members fewer than in October added by credit unions in 2017 November 2017

To get that data “ in a real-time environment is challenging.

― KYLE CASBURN, ” Seaboard FCU’s CEO and president

When it comes to competing in the financial services A data-driven road map industry, it helps to be in the know. For credit unions, The CU market faces intense competition, not only from that means having access to data-driven insights and traditional banks but also from newer FinTech players. In actionable tools that could help them stay ahead of the such a competitive landscape, access to such knowledge curve. and data could be key to an FI’s success. But data is not always easily accessible, which can hinder a credit Seaboard Federal Credit Union of Bucksport, Maine, is union’s ability to address its members’ needs. one such player, and it is using data insights to pinpoint financial products like auto loans and mortgages to better “To get that data in a real-time environment is serve its customers. challenging,” Casburn admitted.

In a recent interview, Kyle Casburn, Seaboard FCU’s CEO The challenge lies in the fact that Seaboard FCU does and president, told PYMNTS about how the CU is putting not handle its credit card processing services in-house, data tools to work and which other FinTech innovations he explained. Multiple parties and interfaces are involved could impact credit unions’ operations. — including mobile, credit card processing and banking vendors — making relevant data a bit elusive.

To cut down on troubling data blind spots like these, a car, we’re getting that [relevant information] to you in Seaboard FCU has been well-served by turning to its core a channel that’s easily accessible for you,” Casburn said, processing service provider. It helps the CU analyze and “[and] at a time and in a way that’s simple for you.” collect data to better serve its members, particularly by highlighting opportunities to reach out with offers on In other words, access to data can highlight opportunities more affordable financial products like mortgages, credit credit unions might have overlooked, enabling them cards and debit cards. to offer members additional financial services and encourage them to take advantage.

A consistent credit union experience According to Casburn, one of Seaboard FCU’s top Data analytics is driving priorities is to deliver the “holy grail” of financial services to its members: a streamlined, omnichannel experience. us to get the right offer The CU wants to offer its members an experience that constantly feels the same across all its channels. at the right time to the “Whether you’re logging in on a desktop, laptop or right member. smartphone, we want the template to look the same,” he noted. “We don’t want to say, ‘You can’t do that on a tablet, but you can do it on home banking.’”

Tapping data, targeting members Delivering a consistent experience will also become One of the reasons Seaboard FCU has sought to invest increasingly important as credit unions seek to recruit in analytics and data insights is to more effectively more smartphone-savvy millennials into their membership pitch financial products to its members. Without these ranks. To appeal to such members, Seaboard FCU is also insights, the CU is forced to rely on launching wide- considering expanding its peer-to-peer (P2P) offerings. ranging campaigns. While these efforts could reach some This would provide younger financial consumers with the members, they largely go ignored by others. types of tech innovations they have become comfortable using from providers like PayPal, Venmo and Zelle. “Data analytics is driving us to get the right offer at the right time to the right member,” Casburn said. “The days of But P2P services are not solely appealing to millennials, mass media and blanket approach [are] long gone.” Casburn said. Baby boomer members are just as tech- savvy, and they want the same innovations, too. A recent The right data insights, he added, can help the credit survey found approximately 40 percent of baby boomers union promote specific products — such as auto loan are using smartphone apps and websites as their primary recapture services — to members that may need them. means of interaction with their FIs. Another report found “We want to be able to take data that we have on our core 60.7 percent of them own a smartphone. and use that to make sure that if you’re in the market for

In other words, smartphone usage is poised to grow While innovative technology might be in high demand, among multiple generations. Credit unions that are slow Casburn believes CUs will have an advantage over banks to offer mobile-first solutions — including P2P transfers — in the event of a technical glitch or snafu, thanks to their will risk alienating a growing base of customers. long-standing relationships with members.

“When you’re in a digital environment, everything is good Keeping members in focus until you have a need or a hiccup in your situation,” he Seaboard FCU pairs its commitment to adopting explained. “Everybody has that in their life, and then you’re technology that helps address member needs with an going to need a relationship. You’re not going to need a underlying approach to service. call center, a help center or a chatbot.” That approach is often a more vital asset when it comes Having a strong set of data tools available to determine to retaining members and in distinguishing the CU from what members want — and what they may want down the other FIs. According to Casburn, Seaboard FCU’s business road — could help credit unions build upon those existing philosophy is what helps distinguish it and other credit relationships. It might also put them in a stronger position unions from their digital banking rivals. to address their members’ current and future needs. “Digital banks are [purely] transaction-driven versus relationship-driven,” he said.

virtual session on March 6, 2018. Individuals will then EMBRACING vote for the top five finalists.

INNOVATIONS Priya Dozier, PSCU’s vice president of digital solutions Getting credit unions ready for the voice- and innovation, recently told PYMNTS the CUSO sees the activated future PYMNTS Amazon Alexa Challenge as an opportunity to An influential CUSO is working to encourage its credit help member organizations become more comfortable union members to embrace what virtual assistants can with voice-activated technology, and help them overcome bring to their organizations. Payment Systems for Credit any tech-related hesitations. Its participation in the Unions (PSCU) is participating in the PYMNTS Voice challenge builds off a 2017 partnership with students at Challenge with Amazon Alexa, a competition to create the University of South Florida, through which a group new Alexa voice-activated skills. The teams will unveil was given access to a speaking system to explore their prototypes, explain their efforts and receive feedback potential use cases for Alexa using the CUSO’s existing from a panel of payments experts in a PYMNTS-hosted infrastructure.

CU RateReset, CU Strategic Planning partner on to financial protection services, including personalized strategic planning solutions financial and identity theft monitoring, dark web scanning While some credit unions consider voice-activated services, a consolidated family dashboard and protection technology’s potential, others are focused on helping with services specifically geared toward senior members. strategic planning efforts. Financial product acquisition A press release announcing the partnership noted and retention software provider CU RateReset has approximately one in five older Americans fall victim to announced a collaboration with CU Strategic Planning, financial scams each year. EverSafe’s solutions track a credit union-specific firm that works with CUs to offer suspicious activity to keep CU members safe, like unusual consulting, strategic planning and grant writing services. charges, spending pattern changes and identity theft, According to a news release, the latter plans to work among others. with the former on strategic planning efforts, including securing community development financial institution COCC, Ellie Mae partner to upgrade digital (CFDI) designations, joint credit union innovations and mortgages digital transformation solutions. CU RateReset’s services Other CU players have joined forces to bring changes to include both reset solutions enabling members to reset the credit union mortgage market. Client-owned FinTech existing financial products without refinancing and those COCC recently partnered with cloud-based mortgage that help CUs recapture member loans from other FIs, platform Ellie Mae. Under the agreement, COCC will offer among others. Ellie Mae’s all-in-one mortgage management solution, Encompass, to its members. The Encompass solution EverSafe, NJCUL Services Corporation form offers a digital mortgage experience that covers the entire anti-fraud alliance loan lifecycle, enabling lenders to originate more loans, Another recent partnership in the CU market is focused on reduce origination costs and decrease time to close. In a keeping members’ identities secure. Technology solutions statement, COCC said the Encompass solution will offer provider EverSafe recently announced a collaboration with its clients “more control with functions and applications a wholly owned subsidiary of the New Jersey Credit Union that improve efficiency, enhance quality and ensure League (NJCUL), the NJCUL Services Corporation. Under compliance.” The partnership also provides COCC access the partnership, New Jersey CU members will gain access to Ellie Mae’s 230,000 users and thousands of service providers.

CO-OP upgrades Springboard platform Meanwhile, the latest edition of CO-OP Financial Services’ credit card servicing application was launched last month and included several new functions. Springboard, which provides CU staff with real-time member card data, is in its fourteenth edition and offers several security-specific features — like a security token to provide a higher rate of security. The latest upgrade also includes an invalid

address indicator to help CU staff detect fraudulent calls Launched in 1947 to cater to the needs of the Salt River to institutions. Valley Water Users Association, the credit union expanded its coverage to residents of Arizona’s Maricopa County in A news release from CO-OP noted that select Springboard 2006. Altier currently serves more than 19,000 members users will gain access to an Executive Fraud Report, a and holds roughly $191 million in assets. America First monthly snapshot of a CU’s key fraud metrics. Other operates 125 locations across Utah and Nevada. upgrades include access to multiple accounts from a single screen and a Shared Branch Management Report Portland FCU, SageLink to tie the CU knot offering select users data insights to help them make A pair of Michigan-based CUs — Portland Federal Credit more informed decisions. Union (Portland FCU) and SageLink Credit Union — recently announced plans for a merger which is expected to close by the beginning of Q3 2018. The merged CU will CREDIT UNION be known as PFCU, hold roughly $521 million in assets and serve 46,000 members located in Michigan’s Kent, COLLABORATIONS Barry, Ionia, Ingham, Shiawassee and Genesee counties.

America First, Altier announce merger All current employees will remain on staff at the combined Later this year, Altier Credit Union will officially become credit union, and SageLink operations will be rebranded part of America First Credit Union, one of the largest CUs as “SageLink: a Division of PFCU” for up to three years in the U.S. Beginning March 1, 2018, it will assume control from the date of the merger. Portland FCU CEO Harvey over Altier’s five full-service branches in Arizona. Hoskins will talk the helm as CEO of the newly formed PFCU, and Anna Wilson, president and CEO of SageLink, will hold an executive position in PFCU’s leadership.

FAIRWINDS gets courtside spot with Orlando Magic app In other credit union partnership developments, Florida- based FAIRWINDS Credit Union recently expanded upon an existing relationship with the NBA’s Orlando Magic that began last year. Through the partnership, the official Orlando Magic mobile app now offers promotions and specials specifically for FAIRWINDS cardholders. These offerings include postgame meet-and-greets with Orlando Magic players, locker room tours, behind-the-scenes tours of the Amway Center, ticket discounts and other promotions. Members must connect their payment cards

to the Orlando Magic app to ensure eligibility. FAIRWINDS also plans to offer new and existing members credit and debit cards featuring unique designs that incorporate the Magic’s logo and team colors.

IH Credit Union taps BSG Financial for overdraft tools While the FAIRWINDS-Orlando Magic partnership can help fans go into overtime with their favorite basketball team, another collaboration is helping credit unions with overdraft operations. Springfield, Ohio-based IH Credit Union recently chose BSG Financial Group’s CourtesyConnect®/CourtesyLimit™ technology for its automated overdraft management needs. In the process, IH divorced a third-party vendor with which it had previously worked for 12 years. In the new partnership, IH will depart from a “one-size-fits-all” model for overdraft limits. BSG’s web-based CourtesyConnect®/ CourtesyLimit™ software can automatically calculate overdraft limits, and all based on new data that incorporates members’ ability to repay the overdraft and other fees involved. myCUmortgage will help the CU trio offer traditional home Credit union trio partner with homeownership loans and government lending programs, including FHA, CUSO VA and USDA loans. According to a news release, the program offers more flexibility for borrowers with little to Another credit union effort was formed to help CUs no down payment. offer members better mortgage lending services. Castparts Employees Federal Credit Union, Cove Federal Credit Union and Partners 1st Credit Union recently St. Canice dials up Bits.ie for IT support launched a collaboration with Wright-Patt Credit Union’s Meanwhile, Kilkenny, Ireland-based IT service firm myCUmortgage CUSO. Together, the three credit unions Bits.ie recently signed an agreement with St. Canice’s represent approximately 41,000 members and hold nearly Credit Union. Under the agreement, Bits.ie will provide $395 million in assets. IT support at St. Canice’s main branch and office locations. The firm will help the CU manage its financial

infrastructure, IT managed services and access to its clients more than $131 million in potential fraud case troubleshooting tracking system, and work with staff to losses. The company indicated plans to invest in more develop a data recovery solution. St. Canice provides advanced security solutions, including machine learning services to more than 57,000 members in 10 branches and artificial intelligence-based offerings. CO-OP also spanning three Irish counties. launched its Mobile Locator App last year, a fraud-fighting effort in the wearables space that boasts rideshare integration and syncs with Fitbit and Garmin devices.

RETHINKING RULES AND REGULATIONS

Land of Lincoln Credit Union (fore)scores SBA certification Illinois-based Land of Lincoln Credit Union (LLCU) recently expanded its portfolio of business solutions. The U.S. Small Business Administration (SBA) recently approved LLCU as a SBA-certified lender. With theSBA approval, CO-OP set new transaction record in 2017 LLCU can expand its business lending products and offer In other support developments, CO-OP Financial lower down payments with longer repayment terms than Services reported a record level of transactions last year. those currently offered by conventional loan terms. According to a company news release, it processed $6.6 billion in credit, debit, electronic fund transfers (ETF) and Business lending makes up less than 15 percent of shared branch transactions on behalf of its CU members LLCU’s loan portfolio. The CU sought the SBA certification in 2017. This figure doubles the number of transactions after members asked for financial solutions to help them reported the previous year, a trend CO-OP credits to its improve their cash flows, working capital and business acquisition of payment solutions firm TMG — previously expansion efforts. known as The Members Group — last year for $100 million. The two companies are now collaborating on NAFCU backs NIST cybersecurity standards research and development initiatives for the credit union Credit unions appear to be getting serious about market. cybersecurity concerns and are ready to embrace new guidelines. The National Association of Federally Insured Additionally, CO-OP noted its fraud detection and Credit Unions (NAFCU) recently announced its approval prevention solutions helped spare its credit union of the cybersecurity framework updates proposed by the

National Institute of Standards and Technology (NIST), a (HELOCs) that began after Dec. 31, 2017, including home non-regulatory agency overseen by the U.S. Department equity deductions and acquisition debt reduction from $1 of Commerce. million to $750,000.

NIST updated its cybersecurity standards in December How CUs can shape the future of payments 2017 to add greater emphasis on external data sources Credit unions are being urged to take more of a leadership when considering risk management. The changes are in role in developing the future of financial services. CO-OP line with NAFCU recommendations. In a letter to NIST, Financial Services recently relaunched a series of co- a NAFCU official noted that an organization’s desired creation councils that “represent the evolution of client maturity level should be risk-based and aligned with advisory teams that had been in place at CO-OP and TMG” cost-benefit analysis, not a one-size-fits-all approach to before the two companies merged last year, according to cybersecurity. a CO-OP news release.

NAFCU investigates how tax plan will impact CO-OP said the co-creation councils are to encourage CU credit unions leaders to collaborate on business innovations and ideas. NAFCU has also examined how the recently passed U.S. They include the Strategy Co-creation Council to explore tax reformation law will directly impact the credit union the best use of CO-OP’s assets; the Solutions Design Co- market. The plan preserves the CU tax exemption, NAFCU creation Council to create new payment tools for fraud reported — thanks, in large part, to advocacy efforts. The prevention and solutions to solve common CU problems; new rules also put limits on the deductibility of interest and the Experience Co-creation Council to build credit paid on some home equity loans and lines of credit union member engagement and experiences.

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