Institution Profile

Tempering high-growth opportunities with the necessary realities of doing business efficiently is helping balance Stanford Federal Credit Union’s portfolio and technology decisions.

While their banking counterparts are forced to fight battles on many different fronts and spend energy and capital on building with bricks and mortar, Stanford Federal Credit Union (SFCU) has taken a different route to success. The foundation of its present expansion is a solid understanding of what members want, coupled with the ability to implement new products quickly and efficiently.

“We specialize in market knowledge,” says Sam Tuohey, SFCU’s vice president of technology for the past eight years. “Our service scores high with our members. Because we serve one market, we are better able to anticipate their needs.”

Forty-seven years ago, SFCU was created by employees of Stanford University, one of the world’s leading research and teaching institutions, located in the heart of California’s Silicon Valley. SFCU has an asset base of $800 million, 110 employees, four branches and 46,000 members composed of alumni, staff and students.

Reflecting the university’s international reach, SFCU’s members are scattered around the world. Half of them use a branch during each calendar year and, apart from banking services, they require one of three main loan products: mortgages, consumer loans and commercial loans.

Business Situation

Now with four branches on the heels of this success, SFCU is looking to expand into other areas, such as commercial loans, and is evaluating ways to ensure sustainable growth. Tuohey believes concentrating on knowing its clients has helped differentiate SFCU from other banks, and it has achieved this while remaining a key part of the university community where it all started. Recently, the board of trustees approved the Stanford Federal Credit Union Professorship, making SFCU only the second credit union to endow a professorship at a university.

SFCU has offered money market accounts since the early 1980s. These accounts required a $2,500 minimum deposit paying a higher interest yield over regular savings accounts. In 1997, with a new chief financial officer on board, SFCU introduced a tiered interest rate account. That meant that someone with a $25,000 money market deposit would receive a higher interest rate than someone with a $5,000 deposit. This product attracted approximately $50 million dollars in its first two years.

With the stock market taking off in the late ‘90s, SFCU members wanted more liquidity so that they could invest in a growing stock market. The idea of “locking in” funds was not appealing at the time.

“All this helps us provide what our members need,” explains Tuohey. “They want high interest without the risk of being locked-in (for example, to buy stock). We have only nominal penalties for ending certificate programs early.”

In the current economic environment, SFCU learned that its members wanted to lock in money for a short period of time. It found that a seven-month certificate period was just right for members to be comfortable with. As a result, they introduced a seven-month certificate with a minimum of a $10,000 deposit. The new certificate attracted more than $130 million in deposits the first year. In comparison, it took SFCU nearly 30 years to build $100 million in checking deposits.

This new product was developed using Open Solutions’ core retail banking software, Wealthview Banking, and was launched in only five weeks. Of those, four weeks were for User Acceptance Testing to minimize risks. Another week was devoted to the internal approval processes required for new products.

SFCU selected Open Solutions following a due diligence process that included a 360-degree supplier evaluation. The selection involved 13 different suppliers. From this list, four candidates were requested to submit a solution proposal. Two were invited to give a product demonstration. Supplier rating was based on features, functionality and usability, technology platforms and even (vendor) financial risks. Price was the least important consideration.

One of the main considerations in choosing Open Solutions was its open architecture – considered integral to ongoing success. Tuohey was wary of the fact that many banking structures claim to be open, but he felt strongly that Open Solutions could truly deliver.

“The system comes with a gateway that provides online banking – we call it ‘CU Online,’” he says. “Its open architecture meant we could develop a customized program that allows for a great deal of information to be at members’ fingertips.

According to Andrew Voorhies, SFCU’s technology operations manager, Open Solutions helped resolve issues linked to conforming to processes outlined by the regulators. “We had established a Health Savings Account (HSA) with a new debit card product,” explains Voorhies. “The new debit card product required specific regulatory requirements administered for ATM and debit usage. Open Solutions helped us solve the problem through code adjustments in less than one week.”

According to Tuohey, success also means rapid application development. “Designing and launching new financial products has to be a smooth and efficient process,” he says. It also means, “job automation – hundreds of jobs daily, weekly and monthly. Technology makes this possible,” says Tuohey.

Technology is seen as a solution at SFCU. One of the credit union’s current objectives is to increase its market share of loans and deposits with local businesses. “We’ve been making commercial loans for a few years, and we will continue to do so, but we’re also working on increasing our business deposit accounts,” Tuohey says.

“One of our objectives is to build a one-to-one ratio between merchant loan balances and deposit balances. This is not as easy as you might think. We’re not interested in attracting hundreds of high-volume merchant checking accounts. We don’t have the infrastructure to ramp up to provide coin, cash, and other labor-intensive services. Instead, we’re creating higher-yielding money management accounts. The strategy is to attract working capital accounts and larger balances. We’ve been working with Open Solutions to create specialized account programs that will help us do this effectively.”

SFCU has mastered the art of knowing its members. Generating deposits of $130 million in just a few months as a result of its seven-month certificate program is a good example of how in tune with the market it has become. Consequently, as with many financial services providers, a major part of Stanford’s strategy going forward will involve being able to balance growth with an efficient operation.

As a lean organization with aggressive growth plans to expand into commercial loans, it will rely heavily on Open Solutions, “a relationship which has been very positive over the last few years,” says Tuohey.