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Deepening Business Relationships Through Payments

By Melissa Giddens, CTP, AAP NCP, SVP, Consulting Business Leader, WesPay Advisors

Most businesses have a need for financial services above and beyond a loan and basic deposit account. Whether the business’ need is online and mobile banking or extends to ACH or wire payment origination services, businesses of all sizes are placing greater importance on the ability to maximize payables and receivables, mitigate the risk of fraud, and leverage information to make cash flow decisions. Credit unions need to have the resources and skills required to help their business members thrive.

Offering payment solutions can help meet the needs of business members, but also generate non-interest income for a credit union. Businesses pay for value perceived, therefore charging a fair and competitive price for payment services can help a credit union serve its field of membership and cover the costs for providing the services. Meeting the needs of businesses from a payments perspective can contribute toward retaining existing relationships, winning new business and creating a ‘stickiness factor’ that lends itself toward long-term, satisfied business members. It’s a win-win situation for a credit union.

Below are a few tips to keep in mind when working with businesses:

  • Lead with a conversation. Make it your mission to learn as much as you can about a business prospect before discussing your product offering. Talk to them about their business and make the focus all about them. Ask them how their current account and service structure is working, what efficiencies would benefit them, if their clients are requesting new payment options, etc. Taking the time to understand what’s working and what needs to be improved upon with their current provider can provide invaluable insight into how your credit union could meet those needs before ever mentioning a single product.
  • Drill into their payments needs. Get the prospect talking. Ask a wealth of questions to understand how they are utilizing payments in their business. How are they managing payroll, vendor payments, employee reimbursements, etc.? Conversely, how are they being paid from their clients? And, keep drilling down. If they receive a healthy number of checks, how are they depositing those checks into their account? Are they going into a branch, using a courier, leveraging remote deposit, etc.? And, are they receiving the information they need to reconcile transactions, manage their cash flow, etc.? What type of reporting do they need? Are they concerned about fraud? The more you understand a business prospect’s payments needs, the better positioned you’ll be when delivering a tailored proposal and ultimately, servicing the relationship.
  • Become a trusted advisor. Relationships with businesses extend beyond the services a credit union provides. Continually look for ways to add value for your member. Share an article on fraud prevention that may be meaningful for them along with a personalized note, send industry updates that pertain to past conversations you’ve had with them, etc. Let them know you’re thinking of them and keeping them in mind as you come across new information or resources. Create an environment where they look to you as their financial resource.
  • Do your homework. Research your prospect to understand their line of business, key company leadership, new initiatives they’re tackling, recent awards they’ve won, etc. and comment on what you’ve learned during meetings. Congratulate them on a new product they’ve launched or an industry award they’ve earned. Demonstrate that you’re prepared and that you’ve done your research. Prospects can tell when a potential provider shows up unprepared, so don’t give them a reason to question whether or not your credit union is the right fit for them.
  • Master the little things. Follow up timely. Do what you say you’re going to do. Send thank you notes or emails. Write down important takeaways you hear during the discussion, such as birthdays, a dream vacation they’re about to take, etc., so you can send them an annual birthday card or ask them how their trip went during your next conversation. Servicing businesses starts with building a relationship with the people you’re interacting with, so going the extra mile to demonstrate you were listening goes a long way toward building trust.

Working with businesses is an exciting opportunity for a credit union, as a business’ needs are continually evolving. Businesses look for a true financial partner to guide them through the changing financial landscape and how new products coming to market, regulatory changes, economic considerations, etc. may impact their organizations. When it comes to payments, selling solutions to businesses provides another opportunity for credit unions to shine in servicing the needs of its communities.

Melissa Giddens is the SVP, Consulting Business Leader for WesPay Advisors, a consultancy helping organizations advance their development and deployment of electronic payments. Prior to joining WesPay Advisors, Melissa worked with businesses for over 21 years to help build optimal structures for managing payables and receivables, mitigating the risk of fraud and maximizing cash flow. In 2016, she won the Frank E. Zima Payments Advocacy Award and has won numerous sales awards throughout her career. Melissa earned her Master of Business Administration from Green Mountain College. She holds the Certified Treasury Professional (CTP), Accredited ACH Professional (AAP) and National Check Professional (NCP) designations. Contact Melissa at mgiddens@wespayadvisors.com or 415-373-1180.

Business Deposit - Business Owner

Connecting with Business Members through Deposits

From Larry Middleman, CUBG President/CEO

When CUBG conducted a focus group with business owners near the top of the small business pyramid, the responses reinforced a long-held truism:

Not every business needs to borrow money, but every business needs a strong depository relationship.

The business account opportunity is one that is frequently overlooked by credit unions in favor of a focus on business loans, particularly CRE lending. In order for your credit union to move up the pyramid and capture a larger piece of the small business market pie, you must first shore up the product line to fit the needs of more sophisticated small businesses.

For example, according to a 2013 study by Raddon Financial Group, the majority of businesses with over $5 million in annual sales utilize services like a money market account and merchant services. Other popular services include: remote deposit capture, ACH origination, commercial insurance, and sweep accounts for cash management purposes.

To drill down further, basic consumer-type depository services that most credit unions offer to micro-businesses, such as a business checking account, a savings account, consumer online banking and bill pay platforms, and perhaps merchant Visa/Mastercard services, are not sufficient to be a player with more sophisticated businesses – those that keep six-figure deposit balances and generate significant fee income.

In order to reach this market, your credit union needs to offer a “next level” business deposits package, one that includes services such as: analyzed business checking, advanced-feature business online banking, remote deposit capture, and ACH origination capabilities. Online banking typically serves as the core, central point for businesses to manage the cash inflows and outflows of their accounts.

Do not underestimate the expertise needed to position your credit union as a knowledgeable resource in depository services. You will need to hire a dedicated expert well-versed in the needs of sophisticated small businesses, with a full understanding of the benefits and features of these specialized services. In other words, you will need to hire a Cash Management Officer.

Most credit unions intent on growing a strong and vibrant business loan portfolio will hire three to five commercial lending experts. Yet these same organizations won’t hire anyone to manage the deposit side of the equation. This is not a formula for long-term success.

By the way, did you know that maintaining your business borrower’s deposit accounts may be the best risk management tool that you have at your disposal? Instead of waiting to receive quarterly financial statements or worse yet – annual tax returns – before analyzing your member’s business conditions and ongoing performance, access to the member’s deposits will allow you to observe changes in cash flow in real time, providing you the tools to address issues quickly, before they become real headaches for you and your member.

The future could not be brighter for credit unions in the business lending marketplace. With recent, positive regulatory changes, credit unions’ outstanding reputation for trust and service, and an improving economic outlook, now is the time to take full advantage of this exciting opportunity. With some planning and a dedicated focus on serving business members’ specialized needs, credit unions can capture the full business relationship and become valued partners with larger, more sophisticated, and profitable member businesses.

Connecting With Business Members

Connecting With Business Members Through Lending

One way to tackle the sophisticated small business market is to even the playing field with commercial banks by offering a richer portfolio of business loan products.

According to a 2013 Raddon Financial Group study, the majority of small businesses with annual sales of $5 million and over are active users of credit cards. Many also take advantage of lines of credit, vehicle and equipment loans and leases, as well as commercial real estate and Small Business Administration (SBA) loans. If your credit union doesn’t offer these common products, you have little hope of gaining traction with the top end of the small business market.

Yet most credit unions focus primarily on commercial real estate. In fact, 84% of all member business loan balances are real-estate secured, leaving only 16% for commercial & industrial, credit cards, vehicle and equipment loans, and the like. Credit unions are leaving a huge opportunity on the table.

What can your credit union do to capture more of the sophisticated business lending market? Consider focusing on one or two specific, discrete niches, such as:

  • Commercial & industrial lending: Following the Great Recession, most banks backed away from lending to small businesses, leaving many of these companies strapped for capital, particularly in the $50,000 to $250,000 loan range. This is a natural market for credit unions, and one they can serve very well.
  • SBA and government-guaranteed loan programs: There are a number of advantages to using SBA-guaranteed programs such as the flagship 7a and associated SBAExpress programs. Although a guarantee will never make a bad loan good, it does help to limit credit exposure in the cases of a collateral shortfall, a startup business, or riskier industry sectors. And to top it off, the guaranteed portion of any business loan does not count toward the statutory MBL cap!
  • Targeting specific industries: Many credit unions have found success by narrowing their focus to just a couple of industry segments. For instance, you may consider creating a special package of business loan and deposit services for the veterinarian market, or one specifically designed for medical practitioners. By doing this, you will establish your credit union as the “expert” in that industry, and over time become recognized through word of mouth referrals as the go-to resource—a lender that understands your target market’s unique needs.
Handshake

Connecting with Businesses Through Relationships

From Larry Middleman, CUBG President/CEO

According to the 2015 Temkin Trust Ratings, credit unions collectively rank #1 in trust across all industries, ahead of such recognized national brands like Trader Joe’s and Amazon, and well in front of banks.

In terms of the business market, credit unions have done a good job of serving “micro-businesses”, those entities with annual sales of under $1 million. Fortunately, this is a large group, made up of over 25 million small businesses in the U.S.

Opportunity for Next Level Business Services

This market is easily satisfied with basic financial services, as it typically does not have sophisticated banking needs. But the trade-off is that these really small businesses act much like consumers and thus are not particularly profitable for financial institutions.

In order for credit unions to truly advance in the business market and gain long-term, profitable relationships, they need to move up the pyramid to businesses of $1 – 10 million in annual sales, a group consisting of another 1.2 million businesses. These organizations have more employees, higher cash flows, keep larger account balances, and have a need for more sophisticated financial services.

CU Business Group conducted a focus group survey with such “next level” small businesses. Typical responses included:

“My perception is that credit unions are for personal stuff, and banks are for business.”

“I don’t think credit unions are equipped to handle my business needs.”

It is clear that credit unions have a lot of ground to cover in order to reach this next-level business owner, and truly compete with banks in this lucrative market.

Handshake

Connecting with Business Members…Via Regulations?

From Larry Middleman, CUBG President/CEO

Today, credit unions face a unique opportunity to make major strides in the business lending market. Early in 2016, the National Credit Union Administration (NCUA) released a massive overhaul of its Member Business Lending (MBL) rule, upending the agency’s long-held “prescriptive-based” approach and introducing new, more flexible “principles-based” standards.

Highlights of the final rule include:

  • Ability to waive personal guarantees
  • Removal of explicit loan-to-value limits
  • Lifting of limits on construction and development (C&D) loans
  • Clarification that non-member business loan participations do not count against the MBL cap
  • Elimination of the onerous waiver process

According to the NCUA, “it will be up to each credit union to manage MBL risks through their own policies and procedures.”

Yet, in the immortal words of Dr. Ian Malcolm (as played by Jeff Goldblum in the original Jurassic Park film), “Yeah, yeah, but your scientists were so preoccupied with whether or not they could that they didn’t stop to think if they should.”

Nowhere in the new rule is this cautionary advice more relevant than in the personal guarantee provision, which has already been implemented effective May 13, 2016 (all other provisions will go into effect on January 1, 2017).

The appropriate use of the personal guarantee waiver is among the greatest opportunities credit unions have to meaningfully connect with their business members. But it is important to use this new-found flexibility judiciously, and not simply for the sake of “being competitive” with the bank up the street. Most business loans still warrant the obtaining of personal guarantees from all owners, unless there are mitigating factors and offsetting strengths such as strong collateral positions, significant business cash flow, and a long-term track record of success.

Thanks to the NCUA’s new, more flexible approach, the new MBL rule is a tremendous opportunity for credit unions to serve members their way, in accordance with local market conditions, staff expertise and resources, and their individual tolerance for risk.

For additional questions on the new MBL regulations and how your credit union can connect with business members, contact us at info@cubg.org.