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Credit Unions have a superpower – powerful enough to fend off fintechs.

Credit Unions have a superpower – powerful enough to fend off fintechs.
Posted: Dec 1, 2017
Comments: 0
Author: Lou Grilli

[Editor's Note: This article was previously published on “Anthem”, the online News & Info site of the Northwest Credit Union Association, and has been modified.]

When members think about services provided by their credit union, they might first think about their share draft account, a debit card, bill pay, loans, and credit cards - basic services offered by almost all financial institutions. But, something new is happening when it comes to these services. No, not new services, but rather something called “banking on the fringes.”

Start with PayPal. If you add up all the money in all the PayPal accounts, which totals about $40 billion, PayPal would look like one of the largest credit unions in the U.S. Of course, they are not a credit union and they are not regulated like a credit union either.  However, PayPal does offer a debit card in Europe, they acquired TIO networks in Canada to offer online bill pay, and they own Venmo, which moved $9 billion in this most recent quarter. And now, Venmo users can apply for a debit card, to use their Venmo funds at brick and mortar stores.

For basic services, there are alternatives for members to store money rather than online bill pay or a debit card. What about loans and credit cards? Did you know that Amazon has loaned more than $1 billion to small business? On the consumer side, Amazon gives 2% cashback when you load funds into your Amazon account using debit or ACH. And If you use the Amazon credit card to make purchases on Amazon.com, you get 3% cash back, and 5% cash back if you are eligible for the Amazon Prime Rewards Signature card.

None of these companies are banks, although PayPal does have money transmitter licenses in every state. But while debit, credit, online bill pay, and loans seem like traditional banking services, today we call these services “banking on the fringes.”

Would people want to do their “banking” with a tech company?

Of course, that’s a rhetorical question. But, a survey by uSwitch, a price comparison site, showed that one quarter of millennials think tech companies, like Google and Amazon, could offer better financial services for their generation. An Accenture survey showed 34 percent of millennials, and 20 percent of respondents aged 35 to 54 would bank with Apple if it offered those services. Apple has 800 million iTunes accounts that could be turned into banking customers – if they could convert 1% of iTunes account holders to banking customers, (8 million) that would put them only behind Navy Federal in terms of number of members.

So, should a credit union fear the possibility of the First National Bank of Apple?

Yes, and no.  First, let’s start with why credit unions should fear tech companies offering banking services, or so-called “banking on the fringes,” and what credit unions can do to fight back. Tech companies are better positioned than traditional banks to provide innovative services with interfaces both online and on mobile that their users are already familiar with.  Plus, they are unencumbered with legacy banking systems. Apple Pay on an Apple Watch works flawlessly and is much faster than a chip card. Just about everyone is familiar with Amazon’s slick check-out process – they have the lowest cart abandonment rate of any ecommerce site because it’s so easy to do business with them. Venmo users know how simple, intuitive, and fun it is to pay friends and family with an app, otherwise referred to as P2P payments. You know who else offers P2P payments? Apple, Facebook, Google, PayPal, Square, and several others.

Here's A Thought: Fight fintech with fintech

Credit unions, especially smaller credit unions, suffer from the perception as being slow to adopt new technological products and solutions for members. Realistically, there are challenges to keeping up with the big four banks.  Most credit unions rely on vendors who are already in the market with the latest and greatest. But, here are some ways credit unions can fight fintech with fintech:

  • Many credit unions still don’t offer remote deposit capture (RDC). Whether you currently offer it or not, make sure you have the latest RDC software in your mobile banking app – don’t’ make a member have to work hard to snap the ideal picture – just “grab it” when its lined up.
  • Offer P2P payments, using Zelle, from in your mobile banking app. And promote it!
  • Don’t make members come into a branch if you send them an offer to refinance their car with you, or even more difficult, if you offer a HELOC. Provide an easy-to-complete online loan origination form and process.
  • Help your members save up for their rainy-day fund by offering a round-up savings type of program.
  • Put card controls (the equivalent of Discover’s “freeze” on/off controls (especially debit) in your mobile banking app.
  • Provide online onboarding when acquiring new members.
  • Utilize data analytics to target credit line increases, product promotions and targeted marketing.

This last point is especially important to “fight fintech with fintech.” Over 30% of credit union members said the information from their credit unions is irrelevant to them, compared with 28% for customers of local community banks and 41% of big national bank customers. However, more than half (54%) of credit union members said they would be open to getting marketing communications from their credit unions — including ads on mobile banking apps or statement inserts — if the information were tailored to their personal financial needs, according to the results of a survey conducted by marketing analytics company, Segmint. Credit unions that don’t follow suit could lose members, the study suggested. About one in four credit union members (24%) said they’d be more likely to switch financial institutions if they got personalized information about things such as credit card, mortgage or auto loan offers from a competitor.

What is the superpower that credit unions possess?

Getting back to the original question – should credit unions fear the First National Bank of Apple, or more generally, giant tech companies offering banking services? No, because credit unions have a superpower. That superpower is collaboration.

When CSCU holds its annual conference – you will see attendees (member credit unions), in constant collaboration. There is credit union staff comparing notes on which mobile banking vendors offer state of the art remote deposit capture and which online bill pay vendor best integrates with both online and mobile. Collaboration takes place from the highest-level discussions – what should a digital strategy include, down to the minutia – should a credit union decline fallback transactions.

Credit unions have a power that banks don’t have and that fiercely competitive tech companies don’t have. Apple and Samsung would never collaborate. Neither would Google versus Facebook. But credit unions can, and need to leverage their collaborative powers. The best, most economical way to use this superpower is by taking advantage of the power of a CUSO, a not-for-profit service organization that provides services specifically to credit unions. So, don your cape, raise up your members to new financial heights, and use your superpower to make the world a better place.


 

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Lou Grilli

Lou GrilliLou Grilli

Lou is the Director of Payments Strategy at Trellance and is responsible for providing leadership to the organization for emerging payments and industry trends, as well as managing the product portfolio.

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