Reputation Risk is Real

As many of you know, I live with a CFO.

I know.

But he has taught me a lot about how the financials of a credit union work. There are a lot of moving parts to say the least. But what always strikes me as absurd is in observing trends in financials and – well that’s it. Just staring down the numbers.  Too often credit unions only keep their eye on the scoreboard – and never pull their head up to get in the game.

One of my favorite quotes from Peter Drucker:

“An enterprise’s purpose begins on the outside with the customer…it is the customer who determines what a business is, what it produces, and whether it will prosper.”

I think there is still some belief that we can control volume with the rate. Up or down, our products will increase or decrease as we will it. Not so anymore. You can’t have the best rates in the market anymore. Let me explain. 1.99% vs. 2.49% is not enough difference anymore, and loyal members are figuring it out.

My latest obsession is what I call “Reputation Risk.” If the customer/member is determining your profitability – how are you measuring how that member feels about their experience with your product? The obvious solution is Net Promoter Score – and you know I’m a huge fan.

But I’m diving a little deeper and seeing some trends that may sound the alarm on reputation risk.

Potential Alarm #1 – Your loan approval rate.  How many people do you say “no” to?
Potential Alarm #2 – The average age of your BORROWER. It’s likely 2-5 years older than your membership
Potential Alarm #3 – The percentage of fee income to total income. Watch out for “bad profits”

I’m going to be speaking on September 10th for the new CU Watercooler Talks about this exciting new project. Come join me!