From tracking loan payments to uploading information from loan applications, all credit unions use data. But are we using it effectively or does it just seem like clumps of random facts? Most companies actually use less than 7 percent of what is available. And, most of that 7 percent is historical data – data that tells us where we’ve been, not where we need to go. Aggregating your data and relating it to other information allows you to capitalize on a valuable asset you might have overlooked – the veritable goldmine of data you already possess.
On its own, data isn’t very useful. But by centralizing it, you can turn data into intelligent, meaningful information that can stimulate your loan business, tell you more about members’ wants and needs, and provide a higher level of member service as well as monitor risk.
Seeing Value in Data
Recently, I attended a credit union meeting with a noted speaker. A mother in the audience asked where future jobs will be and what should young adults be studying in college to obtain those jobs. The speaker answered simply: meaningful data. Smart companies are making data easily available. And as they evolve, these companies are turning their data into meaningful information. The challenge lies in interpreting that data to provide a forward look.
Most financial institutions use data for risk assessment; yet, it’s valuable for so much more! In the marketing area, meaningful data can help you decide which promotions to offer certain segments of members. For example, suppose you can learn how many and which of your members regularly use their smartphones to reload their Starbucks cards. Could you correlate this data with those who opt-in for your credit union’s promotional text messages? Putting such data together may help you discover a slice of the market that is open to mobile banking.
Simply put, data is the key building block that provides direction, growth, profitability and risk management. It is vital to informed decision-making. It provides economic indicators, member profiles and performance metrics. It also leads to new products, customer satisfaction, and new ways of looking at things. Data is time and money, so it shouldn’t be ignored. It should be centralized, analyzed and acted upon.
Showing Data Relationships
Data should not be used only defensively, such as to assess risk, but offensively as well – to cross-sell products, pinpoint target markets, and improve member service. Instead of only tracking historical data, which sets up a reactive response, harness your data to see correlations that allow you to be proactive.
The time and resources for this effort can seem daunting but aggregating data isn’t as hard as you might think when leveraging technology. Managing your loan data is not only feasible, but also cost effective – in fact, your data goldmine is a profit center, not a cost center.
The key to good data management is to have a single system. Data is dynamic, connected to other pieces of information that also are dynamic, so you can’t look at individual points in isolation. For example, in considering loan risk, we should look at the borrower’s credit history – not just as it is currently or was at origination, but over the life of the loan and throughout the member’s account history. That provides a more complete picture of the borrower because they are not just connected to this loan, but others as well, such as credit card or vehicle. Your credit union has this information, but it may be in disparate systems. For the full picture, these pieces of data must be aggregated in a relational database to facilitate enhanced reporting and analytics.
Once centralized, your data can start working for you by supplying information. Monitoring rules and automation help all departments identify opportunities – in risk, growth, marketing, auditing, or reporting. This is where you can really get to know your portfolio with better visibility, and improved decision making.
Thinking Asset, not Liability
Turning data into usable information can be a challenge and it requires a shift in thinking. Rather than a cost center, your data “goldmine” is valuable. Learning to use it to your advantage can help ensure your credit union’s growth, profitability, and ability to manage risk. Disciplines such as financial reporting, loan risk and product development become more collaborative. With instant accessibility and new way of thinking, your credit union can experience efficiencies and improved decision making on all levels.
Carl Meiswinkel is president/CEO of P360, a data intelligence and analytics firm specializing in state-of-the art technology that combines loan-level analytics with data accessibility.
Ever since the enactment of the Dodd-Frank Act and the creation of the Consumer Financial Protection Bureau (CFPB), compliance related issues have increasingly impacted credit unions’ day-to-day operations. Tasks that used to be handled internally by one or a small group of employees and management, now requires the hiring of additional staff, including but not limited to third party vendors. Not surprisingly, this additional devotion of time has also meant an additional allocation of resources. However, while this increase can easily be measured in terms of money allocated, what often gets overlooked is that these “costs” ultimately trickle down to the member whether it be through an increase in fees or a loss of services or products.
Recently, the CFPB indicated an interest in determining how much it costs financial institutions to comply with the regulations that are issued. Specifically in a March 20, 2013 blog post on its website (www.consumerfinance.gov), the CFPB indicated that their Research, Markets and Regulations team was going to study the costs of the rules that are issued as they “hope to become better and smarter regulators.” While this promise may seem laughable to those closely following the progress of the CFPB, perhaps their acknowledgement of the issue may offer a sliver of hope to credit unions that are already well aware of the costs the CFPB is pledging to look into. However, instead of waiting for a CFPB report to be issued, I solicited opinions and information from several CEO’s of credit unions of varying sizes in Pennsylvania in order to better understand the exact nature of the impacts of recent regulations.
Not surprisingly, all of the credit unions surveyed specifically mentioned the increase in employee costs as the main impact of the increased emphasis on compliance issues. While the larger credit unions typically have hired additional employees for newly created compliance positions, the smaller credit unions have not been able to absorb those costs, but rather, have relied on the cross-training of existing employees or otherwise re-assigning employees from one job within the credit union to a compliance position. No matter how they have gone about increasing their compliance staff, those CEOs surveyed all indicated that in order to compensate for the rapid growth in their personnel costs, they have been looking for ways to generate new sources of revenue through an increase in existing member fees or the creation of new fees such as application fees where they may have not existed in past. While many of these fees may not be overwhelming to the membership at large, the inclusion of the new fees are serving to further create a competitive disadvantage between credit unions and other financial institutions such as banks that may be better situated to absorb those additional costs. However, it should be noted that not only does this disadvantage exist between credit unions and banks; it has also created similar disadvantages between small and large credit unions.
Perhaps the more subtle impact of growing compliance costs is the impact on services and products offered. Although each CEO questioned indicated they had no intention of eliminating any existing products, all acknowledged that member services such as courtesy pay have already or may have to be eliminated. Additionally, the CFPB’s new one-size-fits-all regulations governing mortgages have led CEO’s, particularly those at smaller credit unions, to re-consider whether or not they will be able to offer affordable and competitive mortgage products to their membership due to issues such as SAFE Act certification for staff and new requirements for the establishment and maintenance of escrow accounts. However, most troubling was the suggestion by the CEO’s queried that while they are hopeful that they will not have to eliminate any products, any credit union that is not already offering a product to its members may not be able to financially justify the risk and exposure required to add anything new, such as mortgage and home equity loans, that in the past helped to increase income but also attract new members which in turn have helped sustain and even grow many small and mid-size credit unions.
As member owned financial institutions, credit unions have always held a unique position within our financial system. Being member owned, the focus has naturally always been on serving the diverse financial needs of their members and by tailoring their products and services to a specific membership base which represents all levels of the economic ladder. While direct and measureable impacts of new regulations include an increase in employee costs, elimination or reduction in services, increase in fees, elimination of products or an unwillingness to offer new products, there are many indirect impacts that credit unions and the economy at large will experience that will never show up in a CFPB study on the issue. Ultimately, the pathway to a modern economy and economic freedom is the availability of credit. Unfortunately, as credit unions endure the current compliance environment and the associated costs, those members at the lower end of the credit market will be made to suffer as their local credit union, which they have always relied upon for credit, may not have the resources necessary to be there to offer that credit in the future.
Matthew Urban is the managing attorney of the Credit Union Group in the Pittsburg office of Weltman, Weinberg & Reis Co., LPA, who can be reached at 412-338-7134 and email@example.com. Reprinted with permission from That Credit Union Blog at www.thatcreditunionblog.wordpress.com.
Every business venture has risk, and how an organization accepts and manages that risk defines its potential for success. Policies are tools that set the boundaries for risk appetite while establishing and promoting desired behavior.
Because of this, compliance and HR leaders as well as business process experts view policy management as the core component of an effective governance, risk, and compliance (GRC) initiative—and essential to successful risk management.
But effectively managing those policies can be a challenge, primarily because of difficulties in tracking policy updates. And, as regulations change, so must policies, along with documentation of exceptions. Most organizations usually have only manual processes to cope with these challenges.
By integrating information about risk from across multiple departments, organizations can see the bigger risk picture, according to The Network, Inc., a GRC solutions provider. By using policies to define risk boundaries—what’s good, what’s bad, and what’s in the gray area between—policies become the standard by which to evaluate violations (incidents) and their potential impact.
To have the greatest positive impact across the enterprise, the GRC system should support key functions, by:
By addressing these crucial areas, a policy management system can answer to the needs of the organization, especially in relation to the effectiveness of risk and compliance management initiatives.
A Missouri court's judgment in an ACH/wire fraud dispute between Choice Escrow and BancorpSouth reflects an evolution in how courts view fraud liability, says cybersecurity attorney Joseph Burton.
Unlike other recent rulings in account takeover cases involving banking institutions and commercial customers, the judgment handed down by this district court favored the bank. And while the Choice Escrow decision may be appealed, Burton says the judge's findings will likely have a significant impact on how future cases are decided.
"This is a case in which the bank did everything right," says Burton, managing partner for the San Francisco office of the law firm Duane Morris, during an interview with Information Security Media Group. "The magistrate looked at the bank's conduct and found that the bank acted in good faith."
Burton explains that while the Experi-Metal Inc. vs. Comerica Bank case reviewed the commercial reasonableness of the bank's security offerings, and the PATCO Construction Inc. vs. People's United Bank case reviewed the actual application of the bank's procedures, the Choice Escrow case went a step further—it asked what obligations the commercial customer should have met.
In this case, the court determined that Choice Escrow made itself vulnerable to fraudulent transfers when it decided not to accept BancorpSouth's offer for dual approval of wire transfers, Burton notes.
"I think what you see is really a progression," he says. "This the first case where the court analyzed a circumstance in which a security procedure was offered by the bank but was turned down by the customer."
Now, the question other courts ruling in similar cases are likely to ask, Burton says, is: "Under what circumstances will the customer be held liable and under what circumstances can customers shift liability back to the bank?"
Customers Held Accountable
Banking institutions are capable of preventing account takeover fraud, and the courts have held them accountable, he adds.
"We went through a period of analyzing what did the bank do right and what did the bank do wrong," he says.
Now courts are asking commercial customers to prove they, too, are taking necessary steps to protect their accounts, Burton says. And if commercial customers are taking reasonable steps, they have to prove that the takeover of their accounts was not caused by their own negligence, he says.
"Risk of loss can be shifted back to the bank if the customer can show that the bogus transaction was not caused by anyone authorized to act for the customer, or by anyone who accessed the customer's facilities, or who obtained from a source controlled by the customer information enabling the bypass of the security procedure," Burton explains.
CUInfoSecurity (www.CUInfoSecurity.com) is an information portal for financial industry professionals who want to learn the latest about banking regulations, industry news, events, and opinions. Reprinted with permission.
Tim Segerson, deputy director of examination and insurance with NCUA, shares a top-10 list of red flags that will be getting the attention of examiners this year, as well as another top-10 list of things examiners want to see.
Ten Red Flags
Ten Things Examiners Want to See
This article appeared at www.cujournal.com and is reprinted with permission.