With Changing Mortgage Market, Examine Vendor Contracts to Recoup Lost Fee Income

Firm Assists Credit Union with Achieving Seven-Basis Point ROA Improvement


With the changing trends in the mortgage market – including reduced fee income, due to slowed home re-financing – credit union executives are looking at less activity and revenue in areas that have typically been reliable in recent years.


Credit unions are now looking to outside sources for assistance in identifying areas where they can fill the gaps. A company that specializes in this process is Strategic Resource Management (SRM), an independent consulting firm that assists its clients with maximizing profitability through identifying ways to reduce expenses and generate revenue.

Through data-driven vendor-contract negotiations and the examination of internal company processes, SRM impacts its clients’ bottom lines by utilizing its industry benchmark database and expertise in negotiation and process management.

For a credit union, firms like SRM may assess contracts in card processing-related areas when looking to increase revenue. When assessing savings opportunities, they may explore contracts in areas such as armored car service, ATM, Internet banking, bill pay and telecommunications. SRM estimates there are about 3,500 financial institutions across the country that could benefit from profit-enhancement services. A typical credit union client has around $300 million or more in assets.

“Financial institutions, and especially credit unions, are one of the industries we know best and where we can make the most impact. There are so many lines on the balance sheet we can positively affect,” said Brad Downs, president and CEO of Strategic Resource Management. “And companies like credit unions may not have the resources, expertise or training in contract negotiations.”

One credit union that has benefited from hiring a profit-enhancement firm is TwinStar Credit Union, based in Olympia, Wash. It serves more than 100,000 members in the Pacific Northwest and has particular business focuses on developing collaboration strategies with other credit unions and reducing cost through volume purchasing.

After SRM completed its project with TwinStar, the credit union saw a seven-basis point boost to its return on assets for the fiscal year, with potentially more savings still to come. Initially, because TwinStar has a strong vendor management due diligence process, the company did not think consulting with a profit enhancement firm would be an area of opportunity.

“We previously said no, but I spoke with an account executive from SRM who explained how the savings process works,” said Scott Daukas, vice president and COO of TwinStar Credit Union. “If SRM could negotiate just one contract, it would be a worthwhile endeavor, and our commitment would only be one of employee time. I figured the research would either validate our negotiations or give us a new perspective.”

Daukas said they discussed which contracts TwinStar would like reviewed. He realized the credit union had quite a few large agreements that may have been using an outdated price point, when current market trends were taken into account. One area SRM identified for revenue enhancement was card processing and related areas.

“That was a contract we felt we negotiated very effectively, and SRM validated that,” said Daukas. “But based on our scale, SRM identified that there was opportunity to bring in volume-based incentives, like a reduction in fees or rebates to drive our transaction levels. We were astounded by the dollar amount.”

Daukas said SRM is more credit union-focused than its competitors and that SRM understood TwinStar’s needs and the nuances to its industry. SRM CEO Brad Downs agrees that there are opportunities specific to credit unions where SRM can help identify opportunities.

“Unlike banks, credit unions have a clientele that is more consumer than business-based,” said Downs. “SRM is especially successful in producing dollars in the areas of retail-payment processing, so it is not unusual to see the huge success with our credit union clients.”

There is no risk to the credit union when they are considering hiring a profit-enhancement expert. The credit union does not have to budget for the firm’s work, and there is no out-of-pocket expense. That’s because all fees are derived from savings to the client.

“Once we moved to the engagement process, there wasn’t much of an investment of time,” said Daukas. “SRM was on-site for a couple of days working with our team and looking at contracts. After that, negotiations happened quite quickly, and we received a report within a few weeks.”

When a company is considering working with a profit-enhancement firm, sales representatives will meet with credit union decision makers, who are, typically, select, C-suite executives. The representative may discuss initial vendor areas it would like to explore and assess and present the areas where it can make the largest impact. The range of expectations for the savings or revenue enhancement dollar amount will typically depend on the size of the credit union.

If the credit union would like to move forward with profit-enhancement negotiations, it decides which vendor categories it would like reviewed. Information will be collected by the firm, along with a presentation of estimated savings or opportunities for revenue enhancement.

Because SRM is an independent firm, it objectively presents empirical results and explains the facts and figures to the credit union.

“One thing we appreciated was that SRM didn’t waste our time with contracts where we couldn’t significantly save money,” said Daukas. “We had them review 15 areas, and they can back with a proposal of four contracts where they could make the biggest impact.”

If the credit union wants to move forward with the opportunities presented, the firm will implement its findings with the vendors. The majority of the time, the credit union will stay with its existing vendor, but with a better, optimized contract. SRM will then track the savings with the vendor and present a report to the client. From the date of signing with SRM, the vendor exploration and savings-implementation processes will take six to eight weeks.

So when a historically reliable source of fee income, like mortgage re-financing, begins to decrease due to changes in the market, credit unions can turn to other areas of their balance sheets to remain profitable. By diving into areas of potential revenue or decreased expenses, credit unions can make up for lost fee income by taking a close look at and enhancing vendor contacts. Profit-enhancement firms like SRM are some of the best resources for identifying these opportunities.