My Analytical Side
As an MCIF analyst, I am sometimes pegged as “just a numbers guy.” However, like Nicolette commented in her blog post, Balancing Analysis with Losing Control, numbers can be misleading. It is wise to proceed with caution when analyzing “the numbers.”
Take for example, segmenting the most “profitable” members in your database. Especially during the current economic climate, this may be a prudent approach. While I will agree with our marketing strategists at LemmonTree Marketing Group, retention of this group is critical. However, there are several cautions:
1. Profitability in MCIF is relative to other account or product types, other members, households and even other branches. Account balances, interest and dividend rates and functional costs all play a part in the profitability calculations.
2. Profitability in MCIF is a point in time. Since it is computed at end-of-month or the end of the quarter, direct deposit or pension payments just hit, artificially inflating deposit accounts.
3. Profitability calculations in MCIF do not always include anomalies in your credit union’s operations.
4. The “health” of the group needs to be checked. Some that appear the most profitable may have delinquent loans, may have had charge offs or could have filed for bankruptcy.
5. The profitable group of households is often a real mix of younger members with high interest rates on loans due to risk-based pricing, as well as older members with large deposits and larger loans.
An example from the database of one of our clients showed that there were 120 of their 3,400 households in the top 10% of most profitable households who were already 60 days delinquent on a loan.
These economic times demand that we look to retain the most profitable and yet be careful to keep reviewing the data to make sure not to misstep in presenting offers that should not be made at the risk of upsetting members.
To add to your comment about Profitability and balances in MCIF being a ‘point in time’ figure, so too are the number of accounts and types of products held by profitable Households.
Often we see a spike in the number of Money Market accounts and balances when a generous CD term ends. This ‘new’ money in these ‘new’ Money Market accounts are temporary parking spots until the next great CD offer comes along – at your Credit Union, or at another institution. This ’Hot’ money is loyal to no institution or product.
The tumultuous stock market only adds to this money shuffle, as people are parking their money in safe investments like CDs. As a result, the profitability of Households that are shuffling money can change dramatically depending on the overall product mix and their deposit product – a CD or a Money Market.
The MCIF can be used to see who is shuffling money by comparing month-to-month, or quarter-to-quarter data. This information can then be used to identify Households who have the potential to be profitable, but because of a change in product mix, or the movement of their ‘hot’ money out of the Credit Union, may be overlooked.