The Future of HSAs

By: Steve Christenson, Executive Vice President, Ascensus.

If there is one constant in American politics, it is that with every new administration comes change. One of the first questions that I received after the election was if I think that health savings accounts (HSAs) are at risk of being negatively affected or eliminated. My answer—absolutely not. Of all the issues discussed, it was one of the few issues both sides agreed on. Let’s take a look at why.

Momentum

HSAs became available in January 2004, at a time employers were actively seeking to lower health care expenses for their employees. Hence, the growth of high-deductible health plans (HDHPs) emerged. By the end of 2007, approximately 10 percent of employers offered an HDHP. The key driver clearly was economics. For early adopters, acceptance of these high deductible plans required education and support of HSAs. Learn more from an in-depth conversation with Steve in Using HSAs To Attract New Members-Part 1 podcast.

HSA Growth Continued

HSAs and the dollars invested continued to grow at an accelerate rate. At the end of 2007, there were an estimated 3 million HSAs holding approximately $3.4 billion in assets. By year-end 2012, HSAs grew to 8.2 million with $15.5 billion in assets, and year-end 2015, 16.7 million with $30.2 billion in assets. And at year-end 2015, $4.2 billion of that $30.2 billion was held in investment accounts.

In 2016, Ascensus witnessed an 18 percent growth rate in HSAs at the banks and credit unions that they support. Devenir estimates that at year-end 2016, HSA assets will reach $36 billion with $5.4 billion in investments.2 Regardless of the legislation, economics will drive employers and consumers to the most effective use of their dollars. That has been proven since the inception of HSAs and will remain so with the new administration. Steve shared his insights about challenges and opportunities facing credit unions that look to their HSA products as a benefit to retaining existing members and attracting new ones. Listen to the full conversation.

A Solid Future

For the first time in many years, consumers frequently will see health care and HSAs in the headlines in the foreseeable future. Consumers who have had HSAs and understand their benefits will continue to move HSA dollars into investments and see these as part of their retirement package. Consumers who have been shifted to an HDHP but are not educated on how to open and manage HSA will seek those answers on a larger scale than at any time before in history. Consumers of all generations will seek HSA information from sources they trust. So as a financial services organization, ask yourself if you can afford to not be that trusted source and not participate in the HSA market. Those that do will benefit from this renewed momentum.

 

Ascensus Logo NewAscensus is the NAFCU Services Preferred Partner for IRA, Retirement Plan, and Health Savings Account (HSA) Solutions Software, Training, Documents and Consulting. More educational resources and contact information are available at nafcu.org/Ascensus.





Prepare Now for Future Mortgage Production

Mortgage lenders with strong deposit bases may not face many challenges funding mortgage production, but those that hold long-term loans in portfolio still face interest-rate risk. Given the historically low interest-rate environment and recent volatility in the markets, now may be a good time to lock in an interest rate for term funding. How can a lender that’s flush with retail deposits balance its liquidity and interest-rate risk management needs?

Prepare and Compete Later

  • Goal: Introduce new 10-year and 15-year fixed-rate mortgage portfolio product while managing interest-rate risk.
  • Solution: Forward Starting advance with two-year forward starting period and three-year fixed-rate period. Fund loans off deposits for first two years and take on advance funding at year three.
  • Result: Savings of $337,000 in interest expense on a $10 million advance compared to a traditional five-year Fixed Rate Credit Hybrid advance.

Case Study:
A small community bank in Athens, GA, has built a deposit base from its local municipality, as well as from individuals in the surrounding counties. It has a strong market presence that has allowed it to gather deposits and provide banking services to its clients. It has offered 3/1 and 5/1 ARMs, along with HELOCs, to meet the residential mortgage needs of its customers. With rates at historically low levels over the past several years, several of the institution’s competitors began offering 10-year and 15-year residential mortgage loans.

In 2014, the community bank’s management decided that it needed to revamp its mortgage loan offerings to retain existing customers and add new ones. To offer the longer-term loans that its residential customers were seeking, management had to become comfortable with a portfolio mortgage strategy.

While funding the loans was not a significant concern due to its strong depositor base, the interest-rate risk that these loans would generate was an issue. How could the bank offer competitively-priced term mortgage loans without exposing itself to a significant increase in interest-rate risk?

The management team decided to use a Forward Starting advance from FHLBank Atlanta to help offset the interest-rate risk generated by the pool of longer-term loans. They identified the interest-rate exposure of this new loan program to be at the five-year mark. Instead of borrowing a traditional five-year Fixed Rate Credit advance and placing the funds on its balance sheet today, the bank borrowed $10 million using a two-year forward starting, three-year Fixed Rate Credit Hybrid advance. This gave their management team the ability to lock in a three-year fixed-rate advance at today’s funding costs, but not actually place the funds on the balance sheet – or incur interest costs – for two years.

The community bank will fund the pool of fixed-rate mortgages for the first two years from its robust deposit base, and then at the end of the two-year mark, will automatically receive the advance funds at a rate negotiated up front with FHLBank Atlanta. The rate on the Forward Starting advance is 2.46 percent, which is 31 basis points above the rate on a five-year Fixed Rate Credit Hybrid advance. However, since the Forward Starting advance is only funded for the last three years, the total interest cost is $738,000, which represents a $337,000 savings over a five-year Fixed Rate Credit Hybrid advance.

Strategic Benefits of Forward Starting Advance

  • Compete for Members: Offering an intermediate-term fixed-rate portfolio product for which the funding and pricing are fixed for a known time provides loan officers the opportunity to retain existing customers and attract new ones.
  • Keep Costs Low: The forward starting feature enables institutions to leverage a strong deposit base to fund the first three years of the pool, then use an advance negotiated at today’s low rates to fund the next two years. Because the advance is on the balance sheet for less time than a traditional advance carrying the same term, total interest cost is significantly lower.
  • Lock in Interest Rate Protection at Today’s Lower Rates: Locking in funding at today’s lower rates can potentially help mitigate interest-rate risk at the five-year mark when management was most concerned about its exposure.
  • Achieve Portfolio Growth: The bank has the opportunity to grow its loan portfolio by attracting high-quality mortgage business from both existing and new clients at yields more attractive than other investment alternatives.
  • Easy to Explain: The strategy is easy to explain to regulators, ALCO, or the board of directors.

FHLBank Atlanta is the NAFCU Services Preferred Partner for Credit Union Liquidity and Financing Services. Learn more about our Preferred Partner by visiting nafcu.org/FHLBank_Atlanta

 

Creating a Collaborative Fraud Prevention Program

By: Ann Davidson, VP of Risk Consulting at Allied Solutions.

Many financial institutions in 2016 began picking up their efforts to build more robust risk management strategies. Creating a collaborative, cross-departmental risk strategy has proven to be a great way to manage fraud risk. Watch the full webinar to learn more: Collaboration is Key to Manage Fraud Risk.

One strategy your credit union may want to adopt is to create a risk culture awareness program that will help your financial institution better monitor, identify, and manage potential fraud activity.

What is a Risk Culture Awareness Program?

A risk culture awareness program is an ongoing initiative managed by leaders within your credit union to encourage enterprise-wide awareness of fraud and financial loss threats, so every member of your staff is better equipped to quickly and effectively detect and address these threats. Such programs include creating a fraud investigation unit to centralize the management of these risks, or adopting an enterprise risk management strategy that includes fraud mitigation.

What are the steps an organization should take to implement a risk culture awareness program?

1. Develop the foundational changes that will encourage this new culture of risk awareness.
2. Apply these new organizational changes and the risk culture awareness program.
3. Measure the impact of these changes to determine if they were effective.
4. Apply any necessary changes to the risk culture awareness program.
5. Adjust your risk culture awareness program as needed to meet the evolving needs of your organization and address current risks.

There is something to say about knowing your entire staff is doing their best to help ward-off fraud before it happens. There is also the added bonus of being able to tell your account holders all the hard work you are putting in to help keep their information and money protected – which will inevitably lead to good things for your organization. No matter where 2017 takes you, know that there is much to offer in the way of risk awareness and prevention.

Listen to a more in-depth discussion about how your compliance team and your risk management teams can work together to mitigate risk by watching the full webinar here: Collaboration is Key to Manage Fraud Risk 

 

Allied Solutions is the NAFCU Preferred Partner for Insurance—Bond, Creditor Placed (CPI), Guaranteed Asset Protection (GAP), and Mechanical Breakdown Protection (MBP); and rateGenius. Learn more at www.nafcu.org/allied.





Top Drivers of Change Important to CUs

By: Stacy Styles, Vice President and Senior Business Leader, Mastercard.

Technology and other drivers of change are dramatically reshaping consumers’ lives and the environment in which we – and they – operate.  As a result, we face a future that challenges us with ever-growing complexity.

To better anticipate and shape that future, Mastercard partnered with Kantar Futures to identify and analyze the changes taking place over the next 4- 5 years.  Our approach was a combination of proprietary research (consumers, financial institutions, and merchants), expert interviews, and desktop research, workshopped with a team of accomplished futurists.

Our objective was simple: to explore specific opportunities for ourselves and our partners, so we can better prepare for and shape this future. Learn more about Mastercard’s research by listening to this insightful podcast. Click here to listen.

Through this work, we identified 40 drivers of change in areas such as demographics, values and attitudes, technology, consumer experience, macroeconomics, and much more.  We grouped these drivers into three critical areas:

  • Relationships: Reimagining how to define, connect and build relationships with consumers
  • Technology: Harnessing the power of technology to establish responsive, seamless, and secure consumer experiences
  • Standing for something: Recognizing the growing importance of embedding greater purpose in the corporate charter

Credit union leaders should focus on these drivers of change:

  1. Emerging entrants in the financial services landscape: Smartphones and digital tech are enabling mobile operators, tech giants, and startups to jockey for position in the financial services industry.  FinTech firms are unburdened by regulators, legacy IT systems, branch networks, and the need to protect existing businesses; and some, like Venmo, have become quite successful.  Where they are vulnerable, and credit unions are strong, is security.
  2. Rising member service expectations: People’s expectations for more efficient, enhanced, and human-centric member services are growing as consumer choice proliferates, access to information increases, and it becomes easier to communicate via online platforms.  Creating a culture of service will help establish the long-term relationships critical to success. Learn more in Mastercard’s podcast series. Click here to listen
  3. Increasing expectations for anything on demand: Companies are providing more on-demand solutions, whether through same-day deliveries or via mobile apps. This is altering baseline consumer expectations: they can get whatever they want whenever they want it. Financial services companies with Big Data will continue to play an important role in enabling us to meet people’s desires and expectations and to recognize them as individuals, not just accounts.
  4. Growing desire for customized and tailored products: There is a rise in demand for personalized products that fit not only the individualized tastes of consumers but also begin to anticipate their needs. As one credit union executive we interviewed said, “People aren’t looking for individual items anymore; they want to have a full-service experience that will not only solve their problem but excite and delight them at the same time.” Learn more in Mastercard’s podcast series. Click here to listen.
  5. Ubiquitous and constant social connectivity: The integration of mobile devices into Americans’ daily lives is leading to continuous, seamless, and instant social connection. 66% of Americans agree that they could not get by without their smartphone. Mobile needs to be at the heart of everything we do.
  6. The social path to purchase: The center of social trust has moved from large, stable, corporate brands to peer-to-peer networks. Due to social media and online ratings, consumers feel comfortable trusting their peers, despite the fact that they may be strangers. They are quick to share what they love – and what they don’t – about any interaction they have with a business.

For a more in-depth conversation about these trends, listen to the podcast series with Stacy by clicking the links below: 

The World in 2020: Part 1

The World in 2020: Part 2

Mastercard is the NAFCU Services Preferred Partner for Credit, Debit, and Prepaid Branded Products. More educational resources and contact information are available at www.nafcu.org/Mastercard.

 

Key Insights Credit Unions Need to Know about the Nation’s Underbanked

By: Bryan Clagett, CMO at Geezeo, and Adele Glenn, Emerging Channels Innovation Architect at San Antonio Federal Credit Union (SACU).

According to experts, one in four American households is considered unbanked or underbanked. That’s approximately 50 million individuals.* Credit unions are uniquely positioned to tackle the toughest issues facing these individuals and make a positive impact on their quality of life.

Two experts who have dedicated their careers to researching and creating tools to serve these segments: Bryan Clagett, CMO at Geezeo, and Adele Glenn, Emerging Channels Innovation Architect at San Antonio Federal Credit Union (SACU), shared some key insights with us.

What are the demographic and psychographic characteristics of the financially underserved?

Adele:

The behavioral data shows that whether these members are unbanked, underbanked, or financially struggling, they exist across all age groups and all demographic groups.
We refer to the unbanked as living in a “prepaid economy” because they are reliant on using prepaid cards with no traditional account structure. Psychographic data shows that those who are financially struggling have difficulty managing their finances from day to day. The inability to build a financial cushion leads to not having access to affordable credit; which ultimately inhibits them from building up the long-term savings necessary to achieving their aspirational goals.

Bryan: There are places in the United States where roughly 20% of residences have no bank accounts. Some examples of the regions are: Miami, Florida; Detroit, Michigan; the Bronx in New York, and several counties in Texas. It seems that urban areas and areas in the mid-south are the geographic regions with the highest percentage of unbanked.

Why are so many people in the United States outside of traditional banking channels in 2017?

Bryan: There are several reasons, but if we were to boil it down I’d start with:

  • Many immigrants, millennials, and others do not trust financial institutions, including credit unions.
  • Credit unions need to be more proactive when it comes to educating their members on financial literacy and actually show members the opportunities/options credit unions have available.
  • The typical underbanked consumer is working long hours with long commutes and often lives paycheck to paycheck.
  • They do not have the time or money to wait for checks to clear nor are they able to visit the brick-and-mortar branches.
  • The hard reality is that payday lenders exist because some financial institutions do not offer affordable products to consumers with limited resources.

For a more in-depth conversation, listen to the first podcast in this series with Bryan and Adele: “Key Issues Credit Unions Need to Know about the Nation’s Underbanked – Part 1 (Podcast)”

Geezeo A-Z LogoGeezeo is the NAFCU Services Preferred Partner for Personal Financial Management (PFM). More educational resources and contact information are available at www.nafcu.org/Geezeo.

Image source: FDIC July 2014 The Financial Brand