8a. Checking/Share Draft Penetration
A credit union’s share draft penetration is an excellent measure of the membership’s participation in the credit union. The checking account is generally the central account for most households. It indicates the financial institution is the one the member contacts first when looking for additional financial services. The credit union’s ability to penetrate its share draft account market is based on how well the product or products meet the needs of the members and on how well the credit union is able to communicate the product’s benefits to members. Debit card activation and usage along with associated direct deposit relationships are critical to building a sticky relationship through the checking account product.
8b. Auto Penetration
Auto loans are the primary source of income for most credit unions as they are both profitable and broadly appealing. When done right, they can also be a productive use of operational resources. However, they do carry risk, particularly if the credit union does not have adequate risk control procedures. Auto loans are also not great relationship builders and the marketplace is highly competitive.
Successful auto lending credit unions generally have the following characteristics — some sort of relationship with auto dealerships either through buying programs or indirect lending programs, solid risk management policies, multiple delivery channels for loans, and effective marketing and sales programs. Credit unions in urban areas will post noticeably lower auto loan penetration rates than those credit unions located in suburb or rural areas.
8c. Mortgage Penetration
Real estate loan penetration is a measure by which credit unions can determine the percentage of members that are using the credit union’s first or second mortgages or home equity lines of credit. Several factors contribute to the value of this ratio. For example, if the credit union is mainly a consumer lender or has a young mortgage program, this ratio might be lower. This ratio also might be lower if the credit union primarily sells mortgages to the secondary market rather than keeping them on their balance sheet (the ongoing record-low rate environment makes this increasingly the case).
Use care when comparing the real estate loan penetration rates using 5300 Call Report data. Advanced analysis using a combination of additional metrics — such as amount of loans sold or serviced, average mortgage balances, and market share — provides a more accurate comparison for credit unions that are strong mortgage lenders.
8d. Credit Card Penetration
As a financial service, the credit card is as ubiquitous as a checking account. At year-end 2009, according to the Nilson Report, there were 2.7 credit cards per person in the United States in circulation. Having a credit card is nearly essential to function in today’s increasingly cashless society. A credit card account can therefore be a relationship-building account along with the checking account and a real estate loan.
Operationally, credit cards generally require more resources and a higher level of expertise. And if not managed correctly, credit cards also have risk management characteristics that can lead to significant losses relative to the portfolio. Credit unions that have sold their credit card portfolios will report few, if any, outstanding accounts on their call reports.
8e. Online Banking Penetration
Member usage of the credit union’s online banking portal indicates a strong relationship. Most consumers expect the availability of online account access, bill pay, and eStatements. Additional online services such as personal financial management, remote deposit capture, online loan applications and pre-approvals, and mobile banking are gaining prominence in serving members regardless of their physical location. Credit unions that do serve a disparate group of members or have a large number of Gen X and Y members are more likely to have or be investigating these delivery channels.
We’ve already examined metrics relating to membership base and new business, reviewed the member relationship based on balance sheet totals and the number of accounts, and tackled product penetration rates. Now, we consider the income and expense items related to marketing.