Finding New Ways to Serve the Nation’s Underbanked

By: Lawrence Pruss, Senior Vice President and Payments Expert, Strategic Resource Management.

According to the Federal Deposit Insurance Corporation, approximately 27 percent of all American households are unbanked or underbanked – that’s 50 million individuals.

For purposes of this article, unbanked refers to individuals who don’t have a bank account and underbanked refers to those who supplement their bank account with alternative financial services like check cashers. Both underbanked and unbanked households are typically forced to rely on nonbank financial or high-rate lending solutions such as payday lending, tax refund, and settlement loans.

How did we get here? Why are so many people in the United States outside of traditional banking security in 2016? There are several reasons why, with many people falling into more than one category. This article addresses these issues and provides solutions your credit union can offer to serve the underbanked and help them become members of your credit union.

Case One: During the Great Recession from late 2007­— early 2009, many people with previously good credit had their credit history tarnished. Most financial institutions now exclude these individuals with a record of bounced checks, overdrafts, or delinquencies.

Solutions: Offer second-chance checking accounts, debit or prepaid solutions, and credit building tools generally available at local banks or credit unions.

Case Two: A significant portion of the immigrant population is underbanked. They often arrive to our country with a distrust of traditional banking systems, and depending on legal status, avoid traditional banks that require government issued identification. Increasingly stringent Know Your Customer (KYC) and other anti-money laundering regulations have exacerbated this situation.

Solutions: Develop easy account applications and use alternative identification solutions like individual taxpayer identification numbers (ITIN). The IRS issues ITIN numbers to non-citizens who are working in the U.S., but are not eligible for a Social Security number. Develop inexpensive money transfer solutions which can help alleviate high fees typically associated with transfers, and consider alternative lending scores to help qualify these individuals for financial products.

Case Three: Approximately half of the 80 million millennials in America (those between 18 and 29) are unbanked or underbanked. The 2009 Credit CARD Act put strict limits on how credit cards are marketed and issued, and an inherent skepticism of large money-making institutions and Wall Street means many young adults are hesitant to pursue credit cards and other traditional banking products. In fact, more than one-third of that population has never had a credit card.

Additionally, because of their digital communication preferences and desire for fee and pricing transparency, companies that offer clear debit, prepaid, or increasing alternative financing solutions are winning over this segment. Examples include PayPal, Google, and some of the more creative credit unions with “young and free” efforts geared toward the younger generation.

Solutions: Establish your institution as a trusted, tech-savvy brand to build loyalty with this consumer group, locking them in as future, long-term members.

Case Four: While the official unemployment number is at 5 percent, or 7.9 million people, an estimated 30 million Americans are still out of work or underemployed – an audience typically avoided by banks.

Solutions: Develop lending based on an individual’s potential. Many of these individuals have returned to school or pursued further training while being un- or underemployed. This offers a great opportunity for establishing lifelong loyalty for those institutions willing to take a chance on their future success.

The number of un- and underbanked individuals in the United States is larger than the total populations of many countries. As such, it offers a huge opportunity for American financial institutions willing to better understand “why” they are underbanked and then find ways to support them and help them reach their unique needs.

Strategic Resource Management is the NAFCU Services Preferred Partner for Vendor Cost Benchmarking and Negotiation Services.

3 Questions for Your Mobile Banking Partner (Part 1)

By: Will Furrer, Senior Vice President – Product Group, Q2  

With the ubiquity of the mobile-first member, implementing a mobile banking solution should be a top priority for your credit union. In this blog series, we will address the top three questions your credit union should ask a digital strategy company when developing a mobile banking plan.

Question 1: Does your mobile digital experience mirror your online channel?

People say the mark of a true champion is consistency. The same is true for mobile banking. Although mobile banking is seeing rapid adoption and growth by credit union members, it’s not projected to actually outpace interactions via the desktop until the year 2020.

The ability of your digital solutions vendor to provide a consistent experience—from data to workflows to functionality—should be high on the priority list as you make your selection.

Data Consistency  

When discussing mobile strategy with a possible partner, it’s important to ensure that all of your data is consistent between devices. When making buying decisions for a mobile banking partner, this attribute is often overlooked.

The accuracy of the data across devices—desktop, laptop, tablet, and mobile phone—is critically important. Without consistent data, you risk eroding the brand you work so hard to promote with your members; confused and frustrated members aren’t generally good brand promoters.

Consistent data across devices is table stakes for today’s multi-device member. Earn their trust, solidify your brand, and grow your digital channel strategy with consistency at its core.

Click for Q2 Case Study – Flexibility 

Dependable Experience

The branch used to be the central touchpoint for most credit unions. Today, however, more interactions are happening outside the branch than ever before.

Providing a dependable brand experience on any device, anytime, that’s in line with what your members need and desire, should be paramount in your decision making. The language and workflows your members are accustomed to on their computers should mirror that of their mobile devices.

The same care should be taken with the digital experience you provide your members, as the care you demonstrate when members are in the lobby of your credit union.

Click for Q2 Case Study – User Experience 

Reliable Functionality

Finally, where the rubber meets the road is with functionality. What members want is the ability to do everything they can do online on their mobile devices. Scheduling bill payments, aggregating accounts, categorizing expenditures and setting language preferences – all the value they’re afforded on their laptops and desktops, they also demand on their mobile devices.

Strengthen your credibility with your mobile members by ensuring they have access to all the features and functionality they have on their desktops, with a mobile banking tool that has the reliable functionality they can count on.

Click for Q2 Case Study – Brand/User Experience 

Look for Part 2 of our blog series for Questions 2 & 3 of what to ask your mobile banking partner, and to learn about implementing a mobile strategy.

 

Q2 is the NAFCU Preferred Partner for Single Platform Virtual Banking Solutions—Including Online and Mobile—for Community and Regional Financial Institutions. Learn more about Q2 by visiting www.nafcu.org/q2.

Card Data Breach Loss Prevention Checklist

By Ann Davidson, VP of Risk Consulting at Allied Solutions

Many of the large-scale card data breaches in 2015 involved the compromise of magnetic stripe data on both credit and debit cards. The data compromised in most of these card breaches involved either track 1 or track 2 magnetic stripe fraud (POS 90), as determined by the merchant during the transaction authorization. Because the track information can be duplicated, there will likely be a high risk for future fraud exposure if you opt not to block and reissue these cards.

For an in-depth look into payment card fraud risks that many credit unions are being hit hard with right now, watch Allied’s webinar “Card Fraud on the Rise: How Financial Institutions Can Help Prevent It.”

Card Data Breach Loss Prevention Checklist:

  • Evaluate the compromised card number to help determine if the risk is high
    • A high risk involves the full unaltered magnetic stripe data from track 1 and/or track 2 – track 1 carries the cardholder name; track 2 does not
  • Confirm you’re utilizing “name matching” if track 1 data was part of the breach
  • Review card associations’ alerts and act immediately on at risk card data outlined in alert
  • Analyze at risk open card accounts to determine which cards are/are not still active
  • Review other card accounts to find out which cards are non-active and have already been closed due to fraud
  • Identify the fraud pattern to uncover the common point of compromise (CPP)
    • This is where the breach took place, not where the fraud occurred
    • Once discovered, report the CPP immediately
  • Block and reissue impacted, open card numbers when magnetic stripe has been compromised
  • Accelerate the reissuance of active cards prior to their expiration date
  • Consider reissuing the card 30 to 180 days before the date of expiration
  • Ask the card association(s) to take recovery action related to any expenses
  • Report the fraud to the Visa Fraud Reporting System and/or MasterCard’s Safe System, as this is a requirement under the card association(s) rules

Watch Allied’s webinar “Card Fraud on the Rise: How Financial Institutions Can Help Prevent It” to learn more about payment card fraud risks.

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

 

Ins and Outs of Fiduciary Outsourcing for Credit Unions

By: Richard W. Rausser, Senior Vice President of Client Services, Pentegra Retirement Services

With retirement plans seemingly becoming ever more complicated, outsourcing of fiduciary investment responsibilities has steadily become more commonplace. This is especially true in the case of the C-Suite at credit unions, which can find outsourcing very appealing.

Not only is the passing along of fiduciary responsibilities one less burden for credit union managers, allowing them to focus on day-to-day business and obviating the need for them to become qualified plan experts, but the practice can also serve to insulate them and their credit union from a number of risks.

Benefits of Outsourcing

Outsourcing to a sanctioned third-party fiduciary guarantees that a given plan’s documentation is up to date, complies with all laws and regulations, and delivers appropriate disclosures to plan participants and sponsors.

If a plan is large enough (meaning it has roughly 100 to 120 participants) it requires an independent auditor – the selection of which again can be provided by the external fiduciary, saving the credit union time and money. (It should be noted that investment fiduciary outsourcing can be appropriate for defined benefit and defined contribution plans of all sizes.)

In addition, the day-to-day management of a plan involves, among other things, making sure the plan is running as it should be; nuts and bolts record-keeping; and administrative decisions about such issues as a plan participant’s request for a loan or a hardship distribution.

Customizing Responsibilities

Arranging the responsibilities of a third-party fiduciary should be fairly easy to customize; one can outsource all of the above or cherry-pick whichever duties one wishes on an ala carte basis.

A credit union needs to provide a reputable third-party fiduciary with the following:

  • Data on the plan participants;
  • The money involved with the plan; and
  • A commitment to regularly review the plan’s performance (usually once a year).

In that way, any questions or concerns can be addressed efficiently. (Of course, any issues that rise before the review date can also be discussed at any time.)

Fiduciary Responsibility

If there are record-keeping errors made by the outside fiduciary, it is that fiduciary’s responsibility to make amends, including making up any monetary shortfall. In the unlikely case of a participant-filed lawsuit, the outside fiduciary is again front and center, providing the defense in the case and making good on any claims or settlements.

The credit union’s board and senior management are insulated from responsibility; even though the plan ultimately belongs to the credit union, it is the named fiduciary who holds the liability in such instances.

Such an arrangement can also be of value in the case of multiple employer plans (MEPs), an employee benefit plan that can be maintained as a single plan in which two or more unrelated employers participate. As each credit union has its own separate boards of directors, the advantages of having an independent fiduciary to manage and administrate the plan are readily apparent.

Credit Union Responsibilities

All of that said, there will remain some fiduciary responsibilities and liabilities for the fiduciary responsible for selecting and contracting with the outsourced fiduciary. Breach of contract is the most obvious of these, but there is also the matter of monitoring/reviewing with the outside fiduciary that I mentioned previously.

In addition – and this should go without saying – it is incumbent upon the relevant credit union executive to read all communiques from the third-party fiduciary, and to ask and follow through on any questions or concerns.

None of these duties should be particularly onerous, especially if you have chosen a reputable external fiduciary. When considering such a company – as you should with all outside vendors – “test drive the car”: Find out all you can about several different ones, ask lots of questions, and make as informed a final decision as possible.

Learn more from Rich by watching the recorded webinar: “Innovative Retirement Plan Design for Maximum Results.”

About Rich Rausser:
Richard W. Rausser has over 25 years of experience in the retirement benefits field. He is Senior Vice President of Client Services at Pentegra Retirement Services, a leading provider of retirement planning services to financial institutions and organizations nationwide, founded by the Federal Home Loan Bank System in 1943. Rich oversees Pentegra’s consulting, marketing and communications and actuarial service groups at Pentegra. He is a frequent speaker on retirement benefit topics; a Certified Pension Consultant (CPC); a Qualified Pension Administrator (QPA); a Qualified 401(k) Administrator (QKA); and a member of the American Society of Pension Professionals and Actuaries (ASPPA).

Pentegra_Logo_FinalPentegra is the NAFCU Preferred Partner for Qualified Retirement Plans for Credit Union Employees

3 Critical Stages of Third-Party Vendor Management

By Vanessa Stanfield, Insurance Solutions powered by Affinion

Did you know your credit union could be responsible for the performance of your vendors? No credit union wants to encounter regulatory trouble or face reputational risk; especially as a result of vendor activities. It’s because of that fact that vendor management due diligence is a topic of increasing importance.

But what is the right way to go about choosing  third party vendor? The National Credit Union Administration (NCUA) has provided clear direction regarding vendor due diligence. Additionally, the NCUA has deemed the following areas as critical in third-party vendor management: Risk Assessment & Planning, Due Diligence, and Risk Measurement, Monitoring and Control.

Risk Assessment & Planning

Risk Assessment

Prior to engaging a third-party relationship, assess the current risks and document how the vendor will relate to your credit union’s strategic plan. When conducting a comprehensive risk assessment, the key areas of focus are: credit, interest rate, liquidity, transaction, compliance, strategy, and reputational risk. In this discovery phase, your credit union can identify the current risks and establish expectations of the new relationship.

Due Diligence

There are four fundamental due diligence elements to consider when choosing a vendor: organizational, business model, financial health, and program risks. In these areas, your credit union can assess what degree of due diligence is required.

But remember- not all vendors are created equal. More complex vendor relationships with more risk will typically require increased due diligence; less complexity and risk means less rigorous due diligence. For a comprehensive report and the five key due diligence questions you need to ask your vendors, read the full whitepaper here.

Risk Measurement, Monitoring and Control

Credit unions must be able to continually measure performance and risk throughout the relationship with the vendor. To do this, your credit union should clearly outline the vendor’s responsibilities and policies before taking on the vendor. In the end, this will allow for proper vendor performance management so that you can ensure expectations are being met.

Credit unions should not think of vendors as a third party, but as an extension of their organization. Because of this, it is important to consider the three critical areas above when deciding on a vendor. As the NCUA has conveyed, the utilization of vendors does not in any way diminish the credit union’s level of responsibility and for that reason, credit unions should carefully select their vendors.

What Should We Ask Our Vendors?

To be confident that the vendor’s management programs are the right fit, credit unions must discuss the vendor in great detail and ask the hard questions. Failure to conduct thorough due diligence and effectively monitor these vendors place the credit union at risk. Again, not all vendor relationships call for the same level of due diligence and ongoing monitoring, but in order to determine what level is necessary there are key questions that your credit union must contemplate.

For an in-depth look at the five key due diligence questions that credit unions must ask when selecting a third-party vendor, read the full whitepaper here.

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InsuranceSolution_4CAffinion is the NAFCU Services Preferred Partner for AD&D Insurance