Flex.One: Project Summary

The Market Need

Credit unions look to shift from selling products to building relationships. Many consumers want convenience in, and simplification of, finances.

Credit unions aim to build lasting relationships. Yet, they are consistently missing the mark on the biggest relationship account. First mortgage loans are the ultimate relationship driver, but credit unions only have the first mortgages of 4 percent of U.S. households. Consumers may go to a credit union for checking accounts and a standard auto loan or line of credit, but they go elsewhere for mortgage and other savings products. Consumers also seek higher interest rates on savings and lower rates on loans wherever they can. As a result, credit unions’ hold on the financial relationship is weakening and consumers’ financial portfolios are becoming more complicated and spread-out. The situation has created both more financially sophisticated and more financially confused consumers. Many consumers are ready to simplify their financial lives at a time that credit unions want consumers to add products and service relationships to their credit union mix.

The Solution

Instead of selling new products to a product-laden consumer, credit unions can lessen the consumer’s burden by offering an all-in-one account solution, the Flex.One Account. This product combines all of a member’s general financial products (excluding retirement products like IRAs) into one account. The account is a first mortgage rolled into a Home Equity Line of Credit (HELOC), with all the capabilities of a checking account. It allows ATM, check access, debit card, and ACH access as well as other features that make separate checking unnecessary. The Flex.One Account is essentially a large adjustable-rate home equity line of credit that allows the balance to be paid down when there is excess savings and withdrawn from should “savings” be needed. By offsetting a member’s savings and income against a mortgage and other loans, the account charges interest on a smaller balance than the member would be paying on individual loans.

The Flex.One Account concept is based upon an innovation begun in 1997 at the Royal Bank of Scotland, which has since grown to 800,000 One Accounts. Until 2005, the One Account was largely a European and Australian model. Then, Pacific Trust Bank in San Diego, California, launched its Green Account, and Envision Credit Union implemented the Redfrog account in Canada. Credit unions are positioned to be the early American innovators.

The account is especially appealing to certain member segments, including home and prospective homeowners, members with multiple loans, members with specific savings goals, convenience-driven members, and financially sophisticated members. One thousand credit union members cited lower rates and convenience as the most attractive features of the plan, i3 discovered in its survey of members from one dozen U.S. credit unions. Fifty-seven percent of respondents with adjustable rate mortgages, and 41 percent of non-ARM respondents, said they were “extremely” or “somewhat” likely to use a one account product.

Implementation: i3 suggests that the Flex.One Account be implemented in phases, where credit unions add particular features as markets demand and technology allows. Implementation would begin by introducing the one account structure and then integrating layers. For example, back office integration would increase to allow, first manual and then automatic, flow between accounts. Phases in the i3 model include:

• Hyper Home Equity Line of Credit (HELOC), which introduces the Flex.One Account concept by combining a standard HELOC with a first mortgage and allowing the member to manually sweep between these and a direct deposit account.
• Phase 1, which builds on the HELOC/ first mortgage/DDA foundation by allowing automated sweeping between accounts and the ability to direct deposit into either the DDA or the HELOC.
• Phase 2, which builds further on these concepts by providing the member with a single view of his or her account through technology. Internal credit union tools may still present multiple account views for call center support.
• Full Flex.One Account, which is achieved when the HELOC and DDA integrate into one true account and all transactions post natively into a single account with the data processing system. The back office integrates everything into a single account, and both member and employee views of transactions show one account.

The first phases of this product can be rolled out in conjunction with a checking account, if the overdraft feature of checking can be tied to a HELOC and if a sweep feature can be added to move balances from checking to the HELOC. In the long run, more sophisticated money management tools should be offered, via the Web or by moving the entire data processing function to a separate platform.

The Benefits

The amount and depth of accounts under the Flex.One Account deepens member relationships and builds mortgage products. This product is “stickier” than a traditional mortgage or checking account because it is mortgage and checking combined. Because it could be the only account in a household, the Flex.One Account can improve a household’s profitability and give the credit union an advantage to gain primary financial status. The i3 model also shows that the Flex.One Account will be more profitable than HELOC, auto loan, checking and savings combined.

Long-term, the convenience – and lower loan rates – will likely reduce the competition credit unions face for member loans. Flex.One Accounts will also streamline operations and give a credit union more time and resources to focus on consultative member services that build relationships. Over time, they can shift a credit union from product seller to relationship builder.

This Flex.One Account allows members to “earn” more on savings by taking savings out of short-term liquid accounts that earn 1 to 2 percent and netting them against a mortgage. It also reduces mortgage debt faster – saving a member more than $100,000 during his or her lifetime. An added bonus for members is the convenience of simplified record keeping and lending. For example, Flex.One Account users will rarely need new auto loans because they use the account as an equity line of credit.

The First Step

To provide the One solution consumers seek, view a detailed Flex.One Account plan, including a technology road map and product design worksheet – along with marketing materials and financial models that can be customized – in the i3 section of this Web site or by calling 608.231.8550. Receive additional updates on this and other i3 innovations by becoming a Filene Research Institute member.