Back-of-Card Branding Webinar Q&A

MC_backofcard_brandingAnd the questions kept on coming! One of our last webinars of 2015, “Preserving Credit Union Income:  The Impact of Back-of-Card Branding to Your Bottom Line,” sparked so many questions that Caroline Heller, industry expert and webinar speaker, decided to follow up to those we didn’t have time to address during the webinar.

To Catch You Up…

On average, approximately 20% of a credit union’s non-interest income is derived from payments.  In recent months, many institutions have seen some erosion of their payments-based income, but have not been able to specifically identify the source of the erosion.

This webinar helps your institution focus on one area of potential revenue erosion – back of card branding.  In addition to the brand mark found on the front of your debit card, there are usually one or more brand marks present on the reverse side of the card.  It is important to understand the implications of the back-of-card brand marks to your transaction routing and subsequent revenue stream.

Watch the full webinar here:

Click here to watch the presentation in a new window

Webinar Q&A

Caroline Heller, Vice President of Core Payments Solution Sales with MasterCard, responds to your questions:

1. What are a few of the key questions we ought to be asking our current back-of-card brand to ensure our revenue is not eroding?

  1. You may request these reports from your PIN Networks and/or your processor.  First, request reporting that separates PIN transactions from PINless. Ensure you have transaction count, amount, and interchange earned. These may come from various reports vs. one report. Second, request historical reports to look for trends of the above.  Look at a year ago (or two.) Is PINless increasing?
  2. Ask if your PIN Network supports dual message (aka “signature”) transactions or if they have plans to support in the future.
  3. Request current and historical Top Merchant Reports to look for trends.  Is their significant growth (above your overall growth)? This could be a shift from your other PIN network or from signature debit transactions now routing as PIN.  Compare the Top Merchants across all of your networks.

2. How do we know the optimal number of PIN POS Networks on the back of the card?

You may want to consider pairing down the number of PIN POS Networks on the back-of-card.  For instance, if you have 3, I would consider reviewing the economics and need for each network.  If it makes sense, I would limit to 2 networks.

3. Right now we have a rewards program that only gives points for signature debit transactions. Is that still okay, or what do you recommend?

I recommend doing a thorough profitability analysis on your portfolio including the cost of rewards and the estimated increase in usage before changing anything.  However, there are a few things to consider:

  1. When cardholders are encouraged to use their card for all purchases, regardless of signature/PIN, both transaction types tend to increase.
  2. The signature vs. PIN methodology will become more complex with EMV. For instance, a cardholder could enter their PIN, and the transaction is still routed dual message to MasterCard or Visa (what would have been a “signature” transaction prior to EMV).
  3. PINless transactions as they work today definitely are confusing to cardholders when they are motivated to sign for the purchase. The cardholder is not given a choice at the point-of-sale for these transactions when the PIN network is participating in PINless transactions.

4. Can you explain the term ‘exempt issuer’?

ExemptIssuer2I am referring to Section 1075 of the Dodd-Frank Act (aka “Durbin Amendment”).  One portion of the Durbin Amendment caps debit interchange with specific exemptions.  One exemption is for small issuers defined as an issuer with assets less than $10B.  These issuers are often referred to as “Exempt Issuers” when talking about debit interchange and profitability.

This ABA article details the competitive advantage of “exempt issuers” over “regulated issuers” relative to Durbin.

5. Are there any negatives to the issuers that opt out of PINless? Loss of small transaction volume, customer satisfaction, anything else?  

Generally speaking, we don’t believe there would be any negative repercussions were you to opt out of PINless, neither relative to volume or revenue, nor to customer satisfaction.

6. In the event that we were to manage opting out of PINless with our PIN networks, would those transactions which might route as PINless fallback on signature rails?

Yes.  These transactions would likely fall back on signature rails with no signature required.

7. I am an FI. To whom do I opt out of PINless with? MasterCard or my network?

You would opt out with PINless on your PIN Networks.

8. How is EMV going to affect routing? 

The Card Verification Method (CVM) on an EMV card authenticates the Cardholder, but does not dictate routing.  A cardholder could enter their EMV Card PIN, and the merchant can route the transaction to any of the applicable networks on the card including MasterCard or Visa.

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MasterCard is the NAFCU Services Preferred Partner for Credit, Debit, and Prepaid Branded Products. For more information, please visit www.nafcu.org/mastercard

©2015 MasterCard Worldwide Proprietary and Confidential

The information provided herein is strictly confidential.  It is intended to be used internally within your organization and cannot be distributed nor shared with any other third-party, without MasterCard’s written prior approval.

Information in this response relating to the projected impact on your financial performance, as well as the results that you may expect are estimates only.  No assurances are given that any of these projections, estimates or expectations will be achieved, or that the analysis provided is error-free.  No reliance can be made on this response and MasterCard will not be responsible for any action you take as a result of this response, or any inaccuracies, inconsistencies, formatting errors, or omissions in this response.   This response constitutes willingness, in good faith, by MasterCard to explore the possibility of a business arrangement between the parties and does not contain all matters upon which agreement must be reached in order for the proposed transaction to be established.

Decumulation: There Is No Rule of Thumb

By Rich Rausser, CPC, QPA, QKA,   Senior Vice President, Pentegra Retirement Services

In most pursuits, people usually look for a “rule of thumb” when it comes to sound strategies or best practices. However, when it comes to developing a retirement plan strategy the rule of thumb is that there is no rule of thumb.

The reason for this may be obvious. As individuals, we all have our own needs, wants and concerns; many of us may be the same age, live in the same geographical area, and even make the same exact salary. Even if two people were hired on the same day by the same firm at the same salary, and made equal contributions to their 401(k) plans throughout their careers, there are still a number of variables to prevent them from taking a “one size fits all” approach to decumulation.

Are both persons married? Are their spouses/partners both working and, if so, what are their salaries and retirement savings? Do they have any children? Where are they in terms of college expenses and healthcare needs?

Unrealistic Rules

I note this because there has been some discussion of late over an industry-wide “rule of thumb” that suggests retirees should try to replace 80 percent of their income during the first year of retirement. While that may be an admirable goal, it may not be realistic for many retirees for the reasons listed above as well as others.

Another specious rule of thumb is that retirees will simply take their 401(k) savings as a lump sum distribution when they retire. While lump sum distributions are certainly a viable option, many plan participants may not even be aware that other options exist and may benefit from further education about alternative distribution options.

Alternative Distribution Options

Many 401(k) plans have numerous distribution options, thus offering a tremendous amount of flexibility in how retirees can take their money. These can include what we call an “ad hoc distribution” – whereby the retiree takes out some money whenever he or she wants; a regular, periodic distribution — $2,000 per month, for instance, or $6,000 per quarter; or structuring payouts over the retiree’s life expectancy.

There is another option that I have mentioned before: supplementing one’s retirement income by purchasing an out-of-plan annuity that can provide a guaranteed level of income to retirees for as long as they live. If a retiree puts 20 to 25 percent of their retirement savings into an annuity, with Social Security providing supplemental income and the rest of the retiree’s account balance consisting of various other pieces, the retiree is in effect “pensionizing” part of their retirement savings.

The annuity option should be available to every 401(k) plan participant, regardless of individual circumstances; it should be viewed as another tool in their retirement savings tool box.

Retirement plans should be constructed in a way that provides the best possible solutions to its plan participants in a cost-effective manner.

For additional information, watch the recent webinar, “Keys to Building Successful Retirement Outcomes.”  Or, download The Pentegra Distribution Path™  for an overview of all the options available to employees and essential tips for creating a decumulation strategy to build a lifetime income stream.

Pentegra_LogoPentegra is the NAFCU Services Preferred partner for Qualified Retirement Plans for Credit Union Employees. More educational resources and contact information are available at www.nafcu.org/pentegra

Adding LIFE To Your Credit Union

By Bryan Clagett, Chief Marketing Officer, Geezeo

Your members’ expectations evolve as they become more acclimated to technology, more financially stressed, and overburdened with life’s pace and demands. In case you have not noticed, the world is changing. Newly emerging competition is developing new bank-like products, and the definition of banking is evolving right before our eyes.

It’s time we step back and reevaluate how credit unions can provide more value.

Declaring you’re the financial partner for life is just not compelling, unless you have strong actions to back it up. Too often we forget that credit unions are enablers, and in fact have the ability to enable members to get the things they want and do the things they want to do.

With all the advances in technology, some things have not changed—like the basic needs of a household to address fundamental financial requirements, milestones, challenges and obligations. Life and money are inextricably linked whether we like it or not (or are willing to admit).

Importance of an Emotional Connection

The key for the credit union is to remain remarkably relevant throughout the “member” journey and to be there with logical products and services when members (or their households) could use them the most. Credit unions are missing very logical point-of-purchase opportunities, while not associating their products with the specific needs of a member at a specific, relevant time.

Don’t lose sight of the fact that people have an emotional connection to money and, perhaps more importantly, things and events. Emotion is a primary differentiator between transactions and a true relational connection, which (in my opinion) is the foundation of an engagement banking strategy.

How can you help a family prepare for a child’s education? How can you help a young couple get their first home? Can we help a couple plan a wedding? What’s the best way for me to get a car for my son? How do we help a family with a medical emergency? Can a bank resolve a small business’s cash crunch? In all of these examples, there are financial considerations and ramifications—and all present opportunities to credit unions.

Engagement Opportunities for Credit Unions

We need to put some LIFE into banking. LIFE is my acronym for “life infused financial experiences.” Milestones, like the examples above, represent obvious opportunities for credit unions to engage members and offer very relevant solutions while building deeper relationships and new levels of trust.

Life_weddingapp_geezeoWe have the data, the systems, the channels, and the people; we simply need to make sure we have the right solutions and services in place that will build systems and triggers that bring credit unions and their solutions to the forefront at the ideal time of need.

Now let’s try to put some ROI or business rationale around this. Bain and Company reports that members who are “emotionally connected” purchase 47% more than those who are simply “satisfied.” Members with a strong, committed relationship are 49% more likely to remain a member and twice as likely to recommend a retailer to friends and family. Bain also found companies that are loyalty leaders, grow revenue twice as fast as their competition and at a lower cost.

We should not fear disruption in the banking industry. However, we should recognize that life is disruptive, so we should find ways to reduce members’ financial pains. Credit unions have the chance to reduce friction while forming deeper emotional connections with members through recognizing and cultivating life infused financial experiences. This is a real opportunity for financial institutions and one that most industry disruptors don’t have the infrastructure or understanding to leverage.

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

6 Compliance Tips For Loan Estimate Revisions

By Sue Burt, Senior Compliance Consulting Specialist, Wolters Kluwer Financial Services

wk7When it comes to issuing a Loan Estimate under the TILA-RESPA Integrated Disclosure (TRID) rule, revisions are not permitted due to mistakes, miscalculations, and underestimation of charges caught after the fact.  However, the law does recognize that some situations can arise beyond lender errors that cause the original loan estimate to become inaccurate.

The Justifying Events

The law sets out six events that justify a revised Loan Estimate for purposes of re-setting fees and performing one’s good-faith analysis.  Those six events include:

  1. Changed circumstances that cause an increase to settlement charges
  2. Changed circumstances that affect the consumer’s eligibility for the loan or affect the value of the property securing the loan
  3. Consumer-requested changes
  4. Interest rate locks
  5. Expiration of the original Loan Estimate
  6. Construction loan settlement delays

Before considering each of these, it is important to review the definition of “changed circumstance” as this term impacts the first two triggering events.  Download the full whitepaper to explore specific case examples of the six justifying events, the timing for providing such revisions, and a review of the following few compliance tips.

Compliance Tips

wk1Collect all application information before issuing a Loan Estimate.  Revised Loan Estimates are not permitted simply because the lender failed to collect all six pieces of information required in the application prior to issuing the Loan Estimate.  For example, the failure to obtain the property address prior to issuing the Loan Estimate cannot be used as a reason to issue a revision if that address is later collected and impacts fees.

Collect complete, accurate application information.  Lenders should consider sequencing the application information requests to have sufficient information to issue an accurate Loan wk2Estimate the first time around.  In fact, they may request information above and beyond the six items that make up the definition of an “application.” For example, they may want to collect the consumer’s mailing address or the product the consumer is interested in prior to collecting the six pieces of required regulatory application information.  However, keep in mind, once the lender receives those six items, a Loan Estimate is triggered.

Also, recognize that it is important to collect as much information as possible from the consumer during the application stage so that the Loan Estimate disclosures are accurate.  Remember, lender errors and oversights will not justify a revised loan.  Put another way, a “bad” application is not a change in circumstances.

wk3Only fees affected by a triggering event can be re-set.  For good-faith purposes, only those fees impacted by the triggering event can be re-set.  The triggering events are not a license to issue a completely revised Loan Estimate and address other changes not affected by the event being relied upon.

wk4Courtesy loan estimate revisions.  The law does not prohibit issuing updates to a Loan Estimate to reflect changes not based on one of the six triggering events.  Many refer to these revisions as “‘courtesy” revised Loan Estimates.  The purpose of such revisions is more customer service oriented in nature and intended to keep the consumer updated on fee changes to avoid surprises at consummation.  However, courtesy Loan Estimate revisions cannot be used for purposes of re-setting fees to establish good faith.

wk5Record retention.  The TRID rule recordkeeping provisions require that documentation be maintained to support the reason for issuing a revised Loan Estimate.  Presumably, examiners will look for this supporting documentation when they review loan files and see revised Loan Estimates.  Lenders should keep records documenting the reason for revision, the original Loan Estimate, and the revised Loan Estimate.  This evidence of compliance should be retained for three years.

wk6Manage Revisions.  Lenders should implement some type of system to track and mange revised Loan Estimates.  This will be important for purposes of conducting one’s good-faith analyses.  It’s also important for purposes of tracking multiple revisions and determining at what point fee increases exceed the 10% cumulative tolerance threshold.

For more information, download “The Revised Loan Estimate: Changed Circumstances and Other Triggering Events.”  The whitepaper highlights when a Loan Estimate revision is permitted, the timing for providing such revisions, and a few compliance tips to consider regarding the revision process.

wolterskluwerlogoWolters Kluwer is NAFCU Services Preferred Partner for Consumer and Member Business Lending and Deposit Services for credit unions.  More education resources and contact information are available at nafcu.org/wolterskluwer.

 

Combat Social Engineering Fraud

Produced by Jay Slagel, VP of Risk Management at Allied Solutions

Due to a general lack of awareness, fraudsters are often successful in obtaining your account holders’ private information using various social engineering methods.  Because of this, it is essential that you raise awareness among your employees about the causes of social engineering fraud and the prevention measures your financial institution has in place to combat these attacks.

Social engineering fraud occurs in a variety of ways:

  • Social Engineering FraudPhishing attacks via email or phone, where the fraudster claims to be a person of authority to obtain confidential and personal information.
  • Impersonation of a fellow employee, friend, or vendor to gather personal and confidential account information.
  • Obtaining personal and confidential information from digital storage devices (such as thumb drives, phones, or CDs) or paper documents that were not discarded properly.
  • Offering prizes or gifts via phony emails or calls in exchange for private information and/or money.
  • Baiting is when a person leaves an infected storage device, like a thumb drive or CD, at a location where someone would likely find it to entice the individual to load the infected device onto their computer.
  • Phone phishing where the fraudster uses an interactive voice response system (IVR) to duplicate a message from the person’s financial institution, directing the account holder to input their confidential and personal information.

Credit unions can defend against social engineering fraud by changing their corporate culture through education and training. Employees should know how to recognize methods of social engineering and how to combat those attacks.

Actions your financial institution should take to combat social engineering include:

  1. Determine which employees have access to sensitive information, and may be targeted.
  2. Educate employees about ongoing threats.
  3. Verify that deposited checks clear before permitting a withdrawal or transfer.
  4. Establish a multi-level authentication process for financial transactions or account change requests that are not performed in person.
  5. Never open attachments or links in emails received from untrusted sources and do not forward these emails.
  6. Tell employees to be wary of any prizes or offers made over the phone or through email, especially those that offer to update, correct, or solve a computer issue or problem.
  7. Protect private information on documents or storage devices no longer needed before shredding or destroying.
  8. Conduct tests to determine where system vulnerabilities exist and promptly address those areas of weakness.
  9. Monitor social media outlets to reduce the chance of sensitive information being posted.

It is likely that one or more of your employees will be the target of a social engineering scheme, but taking proactive steps early and often will help your financial institution to remain protected from these fraud attempts.

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Allied Solutions is the NAFCU Services Preferred Partner for Insurance – Bond, Creditor Placed (CPI), Guaranteed Asset Protection (GAP), and Mechanical Breakdown (MBP); and rateGenius.  More educational resources and contact information are available at www.nafcu.org/allied