Credit unions have a problem. So do many members.

The problem is deposits, and it can be solved by applying a little behavioral economics (BE).

Credit unions need to buttress their lending and address a liquidity crunch that has resulted in the industry loan-to-share ratio jumping from 66.08% in the first quarter of 2013 to 80.65% as of March 31, 2018. In fact, many individual institutions have surpassed 100%.

Many members, meanwhile, need to increase their savings along with taking out all those loans. That’s for their own sake, and that’s where the cooperative financial movement can engage in some behavioral economics.

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People don’t behave as pure economic models would predict. Behavioral economics provides insight into true consumer behavior by considering other factors, including psychology, that influence decision-making.

Is your credit union up to considering new ways to incent savings behaviors? That’s a tough question. But its exploration might help answer another tough question Callahan has heard repeatedly in conversations with credit unions this year: How can we generate more deposits?

Consider three ideas reduce friction, obtain pre-commitment, and gamify behavior that all come from free-wheeling discussions among credit union leaders during Callahan Roundtablesas well as from Understood Connections, Callahan’s new partner in offering BE seminars.

No. 1: Reduce The Friction

How much friction do members face when opening a checking or savings account? How about when funding them?

The BE team at one credit union found many of its members don’t have direct deposit and instead cash paychecks at a branch. In fact, for some members, walking out with all the cash was easier than depositing some of it because of paperwork and extra steps.

Is that true at your shop? How can you make account opening easier? How can you eliminate friction to encourage members to deposit some of that cash into savings?

Designing products that serve the predictably irrational is the new path to putting members first. Learn why in Behavioral Economics And Credit Unions Make A Fine Pair.

No. 2: Get Pre-Commitment

A full 84% of U.S. households with annual incomes of $50,000 or less get tax refunds. Tax refund season is a great time to entice members to put aside savings, and the BE concept of pre-commitment can help credit unions formulate a strategy for capturing some of those refunds in the form of deposits.

Pre-commitment strategies are interventions that incent a consumer to commit to an action early, in this case to saving some of the refund before the check arrives.

Last year, institutions deploying the Tax Time Savings program from Common Cents Lab reported a 27% participation rate. And those who participated saved 35% of their tax refunds.

Considering investing in a long-term relationship? Then consider something like the $aveNYC program administered at select Volunteer Income Tax Assistance (VITA) sites in the Big Apple from 2008 to 2010. The program offered a 50% match on deposits to taxpayers who opened accounts through the program and left the funds in there for one year.

The savings generated were intended to help households manage unexpected expenses and become more economically secure, says a Brookings Institute report on the project.

It’s Time For Tough Questions

Asking tough questions helps the credit union movement flourish. Make Callahan’s Tough Questions commentary on CreditUnions.com a regular stop for insight on thinking differently about the movement and framing strategies for success.

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Sounds pretty member-friendly, doesn’t it? Participating in VITA sites is an annual tradition for many credit unions. Why not weaponize that effort in such a positive way?

The average participant in $aveNYC saved approximately $300 more than non-participants, the Brookings report said. Multiply that by enough members and that could result in a nice bump in deposits while creating sticky relationships that have the potential to grow over the years.

No. 3: Gamify It

Making a game out of positive habits is a concept that has been around for a while. In the credit union space, the Save to Win lotteries are the obvious example. Joining them in popularity are round-up programs, in which institutions round up debit transactions to the next dollar, for example, and deposit the difference into a participant’s savings account.

But why not gamify that a bit more?

Nir Eyal, author of Hooked: How to Build Habit-Forming Products, writes that it’s not the reward itself, but the anticipation of it what he calls the stress of desire that’s the most powerful component of addictive behaviors. Unanticipated rewards are a nice, BE-correct way to do that.

How about jazzing up that round-up program with unexpected bonus matches every so often at uneven intervals? That’d be a nice surprise, right?

Sure, it would take some extra bucks from the organization’s bottom line to reward members this way, but isn’t that what a credit union is all about?

The power of BE is that it’s ultimately member-centric. Rather than prompting members to make choices that benefit only the institution as in the for-profit corporate model these techniques encourage members to make choices that benefit themselves.

Such a program could provide marketing buzz through social media and traditional channels all while generating extra deposits to help make more member-friendly loans.

That’s a cycle that’s not so vicious.