BY SCOTT MCCLYMONDS
How can your credit union integrate member portfolio management into your strategy and operations? The answer to this question holds the key to serving members better and maximizing profitability. This case study will walk you through the process and help you reap all the MPM impacts.
Last month I spoke with you about Member Portfolio Management (MPM) and its ability to help you serve your members better while increasing your profitability. At the end of my column I promised this month’s article would show how to integrate MPM into your strategy and operations, and that’s where we’re headed today. We’ll start with a recap of what MPM is, then we’ll bring it to life with a case study.
I began my explanation of MPM by contrasting it with typical analytics, which generally focus on cross-selling more products. MPM is much more strategic, far-reaching and longer term. It impacts the entire credit union, so CEOs and their executive teams need to be deeply involved to formulate new strategies, invest in technology and train employees. In short, it completely changes the conversation in your credit union, from the board and executive team to the front line.
MPM divides the membership of your credit union into critical, digestible parts so you can build appropriate strategies for each member group. Just like your loan portfolio has different risks, maturities and ALM concerns, your members have different attrition risks, profitability levels, revenue mixes, demographics, levels of financial health, preferences and life events. It is a commitment to deeply understand the very people you exist to serve, and it takes your team’s knowledge of your members to a whole new level while changing how you operate.
With strong acknowledgement that I was speaking to a not-for-profit audience, I argued the starting point for MPM is member profitability groups (PGs). Why? Because without profitability you can’t fulfill your mission to your members and community. PGs also let us understand who is and isn’t receiving value from our credit union, and they give us ideas on how we can provide greater value to various member groups.
In the context of PGs, I pointed out that in credit unions it is quite common for about 10 percent of members to provide 90 percent of a CU’s profits, and I referred to this PG as the “End Zone.” In the following case study we’ll use this End Zone PG as an example of how MPM impacts your entire credit union.
Case Study: Creating Value and Closing the Gap for End Zone Members
Let’s begin our case study by examining new accounts and balances over the last year. Figure 1 shows the number of new accounts opened during that time. It is broken into four distinct profit groups, which we call End Zone, Red Zone, Mass Market and Lower Tier. Orange bars represent new accounts opened by pre-existing members, and green bars represent activity from new ones. Similarly, Figure 2 shows balances associated with the new accounts.
Figure 1: Number of New Accounts Opened Last 12 Months
These figures reveal something relatively staggering in that End Zone members opened 13 percent of new accounts, and those accounts provided 89 percent of new balances. Reading it another way, 87 percent of our new account efforts brought in 11 percent of the new balances. Since we’re not for profit this effort is not wasted, but let’s consider further impacts.