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Our Webinar Will Begin ShortlyThe webinar starts at 2:00 p.m. ET
Today’s Presentation: Preparing Your Credit Union for Crisis Recovery
Hear about beneficial card portfolio strategy changes that will be required of your credit union in light of expected increases in delinquency, credit losses and changes in consumer behavior. Also, bringing you the latest on card marketing trends and recommendations...stay tuned for insight provided by our Advisors Plus subject-matter experts.
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Today’s Speakers:• Glynn Frechette, Senior Vice President, Advisors Plus• Norm Patrick, Vice President, Advisors Plus• David Ross, Vice President, Data & Analytics
Preparing Your Credit Union for Crisis RecoveryApril 29, 2020Glynn Frechette
Norm PatrickDavid Ross
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DisclaimerInformation as of April 29, 2020
Though we are familiar with regulations, acts and practices, the suggested recommendations we provide do not constitute legal advice and should not be acted upon without specific counsel from your credit union’s legal representation.
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Today’s Topics§Market Conditions
•Looking Back
•Since COVID-19
•Outlook
§What Credit Unions Should Do Now
§Additional Resources and Services
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The Path to Crisis Recovery
§ As the COVID-19 situation ramped up and began showing signs of leveling-off, our credit unions have done a remarkable job in taking care of members – some examples
• Adjusted delivery channels to promote social distancing
•Deployed special pages on websites to provide important information to members
• Provided flexibility in loan repayment (aka deferred payments / skip-a-pay) to keep impacted members on track
§ Now, as we look to the current state and future, it is time to not only continue to take great care of our members, but to also examine the impact on your CU business and begin to move forward into the stage of crisis recovery.
Turning the Corner
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The Path to Crisis Recovery
§ As with most crisis events, we will get through this and we will be stronger on the other side
•Will take time, patience and a whole lot of effort to get there
•Our industry is strong and you have great resources to assist you
We Will Get Through This
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Market Conditions – A Quick Look Back
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Source: US Bureau of Labor StatisticsSource: US Bureau of Economic Analysis
Trends Coming Into 2020
§ An economic recession is defined by two consecutive quarters of negative GDP growth
§ Approximately 70% of US GDP represents consumer spending
§ GDP forecast was at ~2% for 2020 and the unemployment rate was trending favorably at a 50-year low
Two Important Economic Indicators
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2.2%
3.3%
2.0%
2.8%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
2014 2015 2016 2017 2018 2019
Credit Card Charge-Offs
All FICUs All FICUs ex. Navy Federal
Trends Coming Into 2020Slight Softening in Card Spend and Slow, Steady Rise in Charge-Offs
10.7%9.6%
12.3% 12.2%
9.4% 8.3%7.8% 8.0%
6.5%5.4%
11.6%
9.6%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
2014 2015 2016 2017 2018 2019
Purchase Volume Growth
Credit Debit
Source: Nilson Report Source: NCUA 5300 Reports
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Market Conditions – Since COVID-19
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Source: US Department of LaborNote: Dates represent week-ending date
Initial Unemployment Filings
§ Prior to COVID-19 outbreak, weekly filings were in the low 200k range for a prolonged period of time
§ Over the pasts 5 weeks alone, 26.7 million Americans filed an initial claim
§ Peak during Great Recession was 665k in March 2009
§ Previous record of 695k in 1982
Nearly 27 Million in Five Weeks
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Source: PSCUNote: Dates represent week-ending date
Source: PSCUNote: Dates represent week-ending date
Recent Consumer Spend Trends
§ Overall, credit card volume has been down nearly one third over the past four weeks, with some marginal improvement in the most recent week
§ Debit has been improving and has benefitted from stimulus payments
YoY Growth in Total Spend – Weekly View
Credit Card Debit Card
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Source: PSCUNote: Dates represent week-ending date
Source: PSCUNote: Dates represent week-ending date
Recent Consumer Spend Trends
§ Travel, Entertainment and Gasoline sectors have been hit the hardest
§ Goods and Services have been strengthening in recent weeks
Sectors Experiencing High Negative Impact
Credit Card Debit Card
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Market Conditions – Outlook
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Analyst Estimates - GDP and Unemployment
§ Approximately 70% of GDP is driven by consumer spending
§ About 21% of combined credit card spend happens in travel, entertainment and dining sectors. Lost sales will not be made up in 2020 and will have a lagged recovery.
Similarities to 2009
GDP Forecast 1Q 2Q 3Q 4Q FYF 2009Goldman 2 -6.0% -24.0% 12.0% 10.0% -3.8%JP Morgan 1 -4.0% -14.0% 8.0% 4.0% -1.5%Bank of America 0.5% -12.0% 3.0% 4.0% -0.8%UCLA 0.4% -6.5% -1.9% 4.0% -0.4%CUNA -1.0% -20.0% 0.2% 1.0% -5.0%Visa -0.2% -8.3% -0.6% 3.1% -0.8%Morgan Stanley -3.4% -37.9% 20.7% 15.9% -5.5%Goldman 3 -9.0% -34.0% 19.0% 8.0% -6.2%JP Morgan 3 -10.0% -40.0% 23.0% 13.0% -3.5%Average -3.6% -21.9% 9.3% 7.0% -3.1% -2.5%Unemployment 4.4% 20.0% 9.0% 6.0% 9.9% 9.9%
Initial 1Q GDP: -4.8%reported 04/29
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Income Statement Implications
§What to plan for over the next 12+ months
•Compression in Net Interest Margin, driven by Fed rate changes
•Need to increase Provision for Loan Losses
•Card-based fee income (interchange, ATM fees) will be reduced due to lower transaction volume and discretionary waivers
•Operating Expenses may be higher in support of social distancing, remote workforce setup and other unplanned expenses
•All of which will drive to much lower than planned net income and ROA
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What Credit Unions Should Do Now
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Products and Services
§ Contactless Credit and Debit Cards
§ Mobile Wallet Proliferation
§ Digital Banking / Remote Deposit Capture
§ Electronic Payments (e.g., direct deposit, P2P, recurring payments)
§ Use of Credit Union Website as Important Communications Tool
Great Time to Launch and/or Promote
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§ Conservative, economic risk in membership
§ Favor programs using existing credit availability over new extensions
§ Tighten credit criteria & exclusions, better income verification, review forbearance & DTI, ex. payment < 10% of open-end balances
§ 20% lower initial lines on new approvals
§ Credit line decrease / closure on open inactives(criteria-based, deposit check, # relationships)
§ Assistive, but careful, marketing• Member/cardholder retention & TOW is the priority• Watch creative – no crowds, work teams• Programs that do not involve a credit score = ok• Pause direct new account marketing in short run
Paths to Marketing in 2020Marketing Must Continue – Approaches Will Vary
§ Credit union and FOM are on solid financial footing and largely unaffected by C19 – fortress balance sheets, member job and income security
§ Tone = empathy, assistance, value
§ Include in media and digital ads
§ Full slate of marketing activity – follow the plan but more careful about credit risk
§ 60%+ effort in new account acquisition
§ Grow new accounts = lifeblood
§ Lower & longer intro rates
§ Temp increased intro reward
§ Temp repurpose travel rewards
§ Awareness, New Accounts, CLIP, Usage/BT
Stable Protective
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Marketing GuidepostsSome Suggestions
If You Are Thinking About Doing… Objective Considerations
New Account Acquisition
Revolving credit to qualified members at preferred terms
• Careful underwriting; strengthen criteria & income validation, raise credit standards for the next 12 months• Reduce standard line assignments by $1k except for the most qualified• “Limited Time Only” introductory terms – low cost of new money
Authorized Users Additional credit access
• Requires no credit check• Credit bureau reporting decision
Activation Hidden Value • Strive for incenting long term performance• Review process for credit line decrease or closing of open inactives
Balance Transfers PFM • Provide online transfers and account funding through digital banking
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Marketing GuidepostsSome Suggestions
If You Are Thinking About Doing… Objective Considerations
Credit Line IncreaseAdditional
Purchasing Power and Revolving Line
• Careful underwriting; strengthen criteria & income validation, raise credit standards for the next 12 months• Watch for accounts in forbearance
Convenience Checks Flexible Low Cost Account Access
• Careful underwriting; strengthen criteria & income validation, raise credit standards next 12 months• Exclude accounts with < 10% repayment
Usage
Top of Wallet (TOW) Targeted as beneficial to cardholder
• Incent affected retail (dining, barber/beauty, furnishings, charity)• Reinforce new spend patterns (delivery)• Back-to-School Tax Holiday sync• Digital usage incentive• Amazon & Walmart “Prime Days”
Sweepstakes Goodwill / TOW • Sensitive publicity
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Other Actions to Take NowREPORTING
Track aggregate performance for COVID-19 relief accounts
Daily and MTD vs. prior month vs. prior year same business day
Max billed delinquency – sum of cycles
Monthly trends of volumes, revenue, risk & ratios
Variance to Budget, Forecast, Prior Year
ADVERTISING
Take advantage of beneficial placement and mass media rates
Tone of empathy, assistance, strength, safety and soundness
Examples of helping members with difficulties
PFM and digital options
Less product, more solution
Avoid email fatigue and applicability
ASSISTIVE MARKETING
Focus on member retention & responsible marketing
Top-of-Wallet emphasis
LTO bonus points business support: i.e. dining, hair salon, fitness, hotels
“Today Only” bonuses
ID & promote new spend trends & reinforce – i.e. digital, delivery
Educational benefits
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Other Actions to Take Now
PREPARE YOUR COLLECTIONS SHOP
Delayed, not avoided, delinquency and loss surge coming
Assume scarce resources – find scale now
Members can be stressed across product lines
Plan to prioritize queues for dollars at risk – size and probability of payment
Present multiple payment options & monitoring
NEW ACCOUNT PRICING
Revenue shortfalls and narrowed margins
Interchange falling, losses & expenses growing
Cheap money = better, longer intro rates
Raise margins?
Adjust credit tiers upward as necessary
“Lifeline” account? Expensive to offer
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Additional Resources and Services
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Advisors Plus Consulting and MarketingValuable Advisors Plus Services (www.advisorsplus.com/services)Ad
visor
s Plu
s Pr
ogra
ms –
The
Deta
ilsConsulting Plans
With Light MarketingMarketing Plans
With Consulting Options
Essential On Demand Accelerate Maximize
Portfolio Metrics &Benchmarking Reports 4x/year
Portfolio Metrics & Benchmarking Reports 4x/year
Advisors Plus Academy Advisors Plus Academy Advisors Plus Academy Advisors Plus Academy
1 turnkey marketing email campaign 2 turnkey marketing campaigns 3 custom marketing campaigns 3 custom marketing campaigns
Full Consulting Engagement Full Consulting Engagement
Strategic Consulting Access up to 25/hours per year
Strategic Consulting Access up to 4x/year (8 hours) with regularly scheduled Marketing Analyst meetings
Strategic Consulting Access up to 25/hours per year
Dedicated Marketing Analyst Dedicated Marketing Analyst12 Month Marketing Plan 12 Month Marketing PlanPro-Forma Projections Pro-Forma ProjectionsResponse Tracking & Results Analysis
Response Tracking & Results Analysis
Data Science & InsightsPredictive Analytics
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Financial Hardship Model
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Attrition ROI DashboardBased on real historical data, the ROI dashboard allows CUs to define their campaign population
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Solution: Predictive AnalyticsEnd-to-end solution, built on data science and Credit Union feedback
Predictive Analytics
Attrition
FinancialHardship Growth
End-to-End Solution:v Scoring modelsv ROI dashboardv Automated Campaign
1
Scoring and ROI:
v Scoring modelsv ROI dashboard
2
Scoring Only:
v Scoring models via DataVue
3
3 Options for Credit Unions Omaha Full Service CREDIT only
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Solution: Predictive Analytics
For additional information, please join our Webinar on Tuesday, June 9, 2020 at 2PM Eastern Time
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Q & A Session
To ask a question, please utilize the Chat function on the right side of your screen.
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