Early Pay Builds Loyalty At DCU

Digital Federal Credit Union has been building member loyalty with direct deposit early paydays.

Sometimes the best pricing tactic is to charge nothing at all. That’s been the case at Digital Federal Credit Union($6.0B, Marlborough, MA) for longer thananyone can remember, says Tim Garner, DCU’s senior vice president for marketing and strategy.

DCU has a long-standing practice of crediting members’ accounts when it receives the deposit notice instead of when the money arrives. The move costs the credit union a day or two of lost interest and use of that money, but Garner says it’swell worth it.

I’ve been here 20 years, and we were doing early pay when I arrived, Garner says. We know it sets us apart from other financial institutions.


data as of 12.31.14

  • HQ: Marlborough, MA
  • ASSETS: $6.0B
  • MEMBERS: 476,350
  • BRANCHES: 21
  • 12-MO SHARE GROWTH: 12.63%
  • 12-MO LOAN GROWTH: 20.01%
  • ROA: 1.26%

The impact of that kind of goodwill can be hard to quantify, but there are some numbers that can help. For instance, according to Callahan & Associates data, DCU boasts member penetration of 39.7%, compared with 8.25% on average for the nation’s228 billion-dollar credit unions and 5.40% for all 6,400 or so credit unions nationwide.

And as the slide show above illustrates, DCU is a strong performer overall, ranking high in metrics such as member growth, share growth and return on assets.

Relationship Benefits

Garner says 36% of the credit union’s more than 476,000 members direct deposit at least $500 a month each into a checking account. The early posting feature is automatic no one has to sign up for it and part of a mix of relationshippricing and features that has been in place for several years.

DCU offers two checking accounts. One has no minimum balance and pays no interest. The other requires a minimum daily balance of $2,500 to avoid a $10 monthly feeand currently offers 0.05% interest compared with 0.18% for the average billion-dollar credit union.

Each account comes with a list of basic features plus added benefits based on members’ use of three qualifying services: direct deposit of net pay, Social Security, or pensions; e-statements for all accounts; and active loan relationship, whethercredit card, consumer, or mortgage.

Users of two of those services qualify for Plus Benefits, which include free use of non-DCU ATMs and up to $5 a month in foreign ATM surcharge reimbursements. Users of all three also get Relationship Benefits that add 150 free DCU checks a year, a 50-basis-point discount on loans with electronic payments, and a 25-basis-point bonus on regular certificate accounts.

Garner says 81% of DCU’s members use e-statements and approximately 95% of its active checking accounts qualify for either Plus or Relationship benefits.

We don’t anticipate adding additional services since this combination is working so well, he says.

More Than Making It Up

Early deposits are fully automated, Garner says, so how much they actually cost to offer early depends on average cost of funds. DCU’s is right at peer: 0.71% in fourth quarter 2014 compared with 0.73% on average for the 228 billion-dollar creditunions in the Callahan database.

We more than make up for that in satisfied members and business growth, Garner says.

He also offers this advice for other credit unions that want to become the primary financial institution for more members:

  • Keep offerings simple. You can’t confuse someone into opening a checking account, Garner says.
  • Know the competition and find a way to provide better value in ways that are meaningful to members. Free checking along with the early payday seems to resonate in our market today, especially when compared with Bank of America, our No. 1 competitor,the DCU executive says.
  • Highlight your differentiators. DCU occasionally advertises its early payday feature on television and radio in its eastern Massachusetts/southern New Hampshire market.

And stick with it. Garner notes that DCU has been providing the early deposit service through multiple interest rate cycles and he says the expected rise this year won’t change that.

The only thing I could see that could affect it is if payroll companies stopped the advance notice as part of the streamlining of the ACH system, Garner says. If we don’t know about it, we can’t credit it.

March 6, 2015

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