CU Employee CULytics Founder

How much do you spend to serve a customer?

Over the last few years, banks and credit unions have been investing in digital technologies to cut their operating costs. Newer advances such as machine learning, artificial intelligence, and robotics, promise to accelerate this change by improving efficiency not merely by 5-10%, but more significantly by running the processes thousand times faster and reduce marginal transaction costs to zero.

These new advances are a blessing for credit unions but are also an existential threat. By not adopting them quickly they may lose to competitors. In addition to creating newer experiences for their members, these advances drive down the operational costs, making the credit unions more efficient. Being a cooperative entity, every dollar saved can then be invested back in the relationship by further introducing new product and/or services backed by data and technology.

Definition of Cost to Service Each Member

"Cost to service each member" is essentially the ratio of non-interest expense and total members.

Cost to Service Each Member = Non-Interest Expense/Total Members

Non-interest expense includes employees’ salaries, benefits, branch and office rentals, utilities, professional fees, etc. It also includes the expense that the credit union in incurring in its technology upkeep as investments in digital transformation. It does not include provision for loan losses. Should it be included? Add your comments below. It also does not include interest expense.

This expense includes costs that credit union incur throughout the member lifecycle, all the way from marketing, onboarding, servicing, account closure, etc. As a next step, the credit unions should see how much they are spending at each step in the member lifecycle and is there a way to optimize that expense.

Is Lower Really Better?

On the surface, it may appear that the Credit Unions should strive to lower the cost to service each member, while keeping the overall engagement satisfaction metrics such as NPS score steady or higher. However, what was interesting is that the credit unions such as Star One, which has efficiency ratio of 26% (very efficient) has the highest cost to service a member amongst Big 10 CUs. In 2017, they spent $564 to service a member. We do see some correlation between the cost to service a member and average asset per member. The cost to service a member is higher when the asset per member is higher. 

Credit Union Name

Service Cost/Member

Asset Per Member



































The data is from Credit Unions 5300 report - Dec-2017 - as file with NCUA. 

Why is it important?

While the "cost to serve a member" from a stand-alone metrics may be less interesting compared to other metrics, however, there are some areas where it can help.

  1. As credit unions are investing newer digital technologies that bring operational efficiencies, they should see a downward trend in their cost to service the members.
  2. "Cost to service member" may be an important consideration when evaluating multiple initiatives to decide which one to take on. This bring in an efficiency perspective to see whether it is really going to help save money for the credit unions and for the members.
  3. The cost to service member may become more interesting if cost at each member lifecycle stage is understood. E.g. Understand the cost of marketing, onboarding, serving, etc. This will give a baseline of the cost that can then be used to identify areas of optimization from a lifecycle perspective.

How else could “Cost to Serve a member” be used within your organization? What decisions should it drive? Add your comments below.

How much is your credit union spending to service each member?

As you can see the cost to service a member is one of the extremely easy formulae to help get a better understanding of your credit union. By no means, this should be considered an end-all, be-all financial metrics. There are other financial measures that should be used along with it to have a better understanding of the opportunities to optimize your operations and find opportunities to save.

How much is your credit unions spending to serve each member? What trends are you seeing, as you make investments in digital transformation initiatives. Share your thoughts here with the community.

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  • Vendor

    I would pair this metric with economic participation per member.  I think you will find those credit unions with the best efficiency ratios also have the highest economic particpation rates, and probably have fewer single service members (like a credit union with 20,000 indirect loans and no other relationship).  Also, when I talk about efficiency, I am using UBPR definition (interest income less interest expense plus non-interest income as percentage of operating non-interest expense ... does not include PLL).

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