How Digital Are Financial Institutions Today: Celent Research

By Robert McGarvey


For CU2.0


Celent recently convened a panel of financial institution honchos – credit union execs included – for its eighth such session in three years to explore a fundamental question: how digital are financial institutions today.

Of course just about every FI now talks a good digital game but talk is still cheap  What are they doing to bring their institution into the digital age that increasing numbers of members demand?

Celent analyst Daniel Latimore starts the report with a cheery note: “Banks and credit unions have reason for cautious optimism. Reponses show a greater C-suite commitment to investing in digital compared to 2015. Customer preferences are increasingly driving decision making, and panelists are eager to learn more about leveraging data and analytics to serve them.”

Latimore then struck a note of realism: “There is still a long way to go, however. Few respondents consider their efforts truly outstanding.”

Indeed: how would you rate your institution’s digital transformation?  Honestly.

If you remember only one thing about this blog, or the Celent study, make it this hard hitting statement of reality:”Digital is unambiguously an imperative. A towering 88% of respondents say
digital is imperative; 12% say it’s optional.”

Getting 88% of financial executives to agree on anything is just about impossible. When 88% agree that digital is “imperative” -a forceful, direct prescription – you know a new day is dawning.

Also intriguing – especially as new data analytics plays enter the credit union marketplace – is hopes aren’t high for big data, said Celent.  “Panellists were overwhelmingly pessimistic about their analytics and automation.”

That’s understandable. Earlier credit union big data plays have been busts and that’s the charitable interpretation. But – increasingly – we see big data analytics improving our lives in many arenas (think only of Amazon which is less a retailer and more a data analytics proving ground) and we also see a well-funded stampede of money center banks into data analytics.  The message for credit unions is hop aboard this fast moving train, now, or get left behind.

And in 2018, per Celent, just 4% of participating FIs claim they see improvement in their use of analytics.

That has to change.

There also is some delusion among financial institution executives. According to Celent, when asked to grade their digital progress, none claimed excellence (and good on that!) but 50% claimed they are very good.

Most aren’t.  Not in my opinion. Most are just starting the digital journey and an increasing number are well intended and energetic, but few rise to “very good.”

That glowing self-assessment is troubling because so much work – hard and sometimes expensive – lies in front of credit unions that aspire to be alive and relevant just 10 years from now. That’s how fast change is coming and how profound the transformation will be.

Celent, by the way, understands the baked-in hesitation when it comes to innovation at financial institutions. But it also understands the cost of hesitation. Latimer wrote: “Public failures are extraordinarily painful, so it’s understandable that financial institutions are cautious about their approach to digital transformation. Nevertheless, banks and credit unions have had to accelerate their pace of innovation. Fintech has exploded, while online conglomerates like Amazon and Google rewrite consumer rules of engagement.”

Self-congratulation about mobile banking is another puzzle in the Celent findings: “2018 satisfaction with the mobile platform is generally higher than with the online platform, whereas they were roughly equivalent in 2015.”

Maybe it’s just the credit unions I use, but the mobile platforms I see are stagnant, unengaging, and feature poor.  The Chase app, in contrast, just keeps getting better and it offers more and more features.

My advice to credit unions that applaud their mobile platform is two-fold. Ask members who don’t use it why they don’t. And ask those who do how satisfied they are. The members’ voices are more telling than what executives say about their wares.

What’s the next step in the digital journey for credit unions? Very simple: double-down on digital because digital is life, it has a future.  Legacy, traditional banking not so much. As the Celent research reveals, that realization is slowly percolating in financial institutions.

But it’s up to each credit union to chart its own course. And the first step is to really make a digital commitment.

QCash Brings Payday Loans to Credit Unions


By Robert McGarvey


$30 billion annually – that’s how big Pew said the payday, pawn auto title, etc.  loan market is in America. When people need a loan, and everybody else has said no, they go to alternative lenders. That’s 10 to 12 million Americans every year.

They pay through the nose too. Up to 400% APR.  

But what if credit unions could get involved. And what if credit unions could offer more consumer friendly options.

Enter QCash, an innovative, small dollar lending platform that grew out of WSECU (Washington State Employees Credit Union) and also benefited from counsel via Filene.

Ben Morales, CEO of QCash, said that QCash in effect brings WSECU back to its roots. The first loan the credit union made, around 60 years ago, was $50 to a member to buy new tires.

That is exactly the kind of helping hand credit unions were formed to offer and, said Morales, QCash is a platform designed to help many more credit unions profitably offer small dollar loans to members, to the benefit of the member and also to the credit union.

The problem: many credit unions have abdicated small dollar loans, said Morales, leaving the market to alternative lenders.  Which often means predatory lenders.

Said Pew: “The average payday loan customer borrows $375 over five months of the year and pays $520 in fees.”

Pew added: “banks and credit unions could profitably offer that same $375 over five months for less than $100.”

Pew continued: “banks and credit unions can be profitable at double-digit APRs as long as applicable rules allow for automated origination.”

That’s exactly where QCash comes in.  What it offers is an automated platform where the loan applicant answers a very few questions and, in under 60 seconds and with just six clicks, a decision on the loan is rendered.

That speed is possible, said Morales, because the credit union already knows a lot about the member. There’s no need to ask the member questions where the answer is already known and, because QCash accesses the core, it knows plenty about the member.

That speed and simplicity is a big plus for loan applicants.  Many fear that applying for a credit union loan means a visit to a branch for a face to face but QCash puts the process online or in the mobile app. That makes it easy for the member and also eliminates much of the embarrassment potential.

About 70% of loan applications are approved, said Morales.

Add it up and QCash is a good deal for the appropriate member.

Why isn’t it offered at more institutions?

The grumbles about offering payday loans at a credit union are many. There are complaints that this isn’t what a credit union should be doing, that the borrowers will default, that it’s too expensive to process loan apps to bother with small dollar loans to imperfect borrowers, etc. etc.

QCash proves a lot of that wrong.  Last year QCash – which presently has five active credit unions involved with several more in the go-live queue – processed around 35,000 loan apps.  It has a track record. The chargeoff rate, said Morales, is around 10 to 13%. “That’s why you charge as high as 36% APR,” he said.

He added that some QCash institutions charge significantly below 36%. Nobody presently charges more.

Morales acknowledged that some in the credit union movement are squeamish about the idea of charging members 36% APR – but he pointed out that, for this member, that usually is a very good deal, much better than the alternatives that might be available.

Point is: this is helping members. Not hurting them.

Even so, not every institution involved in QCash is aggressive about marketing it, Morales acknowledged, perhaps because of some lingering concerns about being seen to offer payday loans.

That’s something the reticent institution just has to get over. Because that’s the better path for the member.

An obstacle to credit union implementation of QCash is that right now doing so requires significant inhouse technical talents and credit unions below perhaps $500 million in assets often don’t have that.

Small credit unions may also have problems in providing access to the core – frequently because the cost of needed middleware is high.

Morales said such issues represent a challenge to QCash to “perhaps adapt its product to overcome these issues.”

Point is: QCash is working on making its product readily adaptable to a growing number of credit unions. Morales said QCash hopes soon to offer QCash to credit unions without regard to size and scale.

Fees from the QCash side in implementing it run $15,000 to $20,000.

Bottomline for Morales: going after high interest, predatory lending should be a credit union differentiator – and QCash puts those targets in range.  “We can do something about this,” said Morales.

“We can make a difference for our members.”

Credit unions could rock their way up in the public consciousness and put on a good guy aura in the process of taking on predatory lenders.

He added: “The momentum is there. We just have to get more credit unions off their butts.”


What Do Your Members Want? Lessons from the FIS PACE Study


For CU2.0 


By Robert McGarvey


One word captures what today’s consumers want from financial institutions: digital.  

That’s a takeaway from the 2018 FIS PACE Study.  And FIS does not pull this punch when it identifies digital transformation as today’s number one priority. Said FIS: “Digital Transformation  – Consumers now expect the same digital capabilities – mobile deposits, transfers, account opening, digital payments, mobile wallets, etc.– from credit unions and community banks as they do from larger banks.”

Read the last bit again. FIS is saying that credit unions do not get a pass on digital because they are small. Consumers see the Chase and Bank of America ads, they say “that’s cool,” and they want it, from Zelle to realtime banking.

Many credit unions struggle to accept these realities.

The PACE report is a slap in the face.

Remember, too, PACE stands for: Performance Against Consumer Expectations.

How well do credit unions measure up against consumer expectations? FIS has the numbers.

The good news: people still love their credit unions.  Said FIS: “Overall, 82 percent of U.S. bank customers are ‘extremely satisfied’ or ‘very satisfied’ with their primary banking providers. Credit union members once again are much more satisfied, and customers from top 50 global banks are much less satisfied with their banks. Unsurprisingly, customers from large banks – top 50 or regional banks – are most unsatisfied with the fees they incur.”

In the FIS deep dive into satisfaction scores, 60% of us say we are “extremely satisfied” with credit unions.  Just 37% are same with community banks. A paltry 22% are with global banks. Credit unions score very, very high.

FIS also announced that “mobile is the main branch.”  It elaborated: “Digital Self-service is a high priority for consumers under the age of 53, so it should not be a surprise to learn that these
same consumers, from young millennials through Generation X, now use their mobile phones and tablets to interact with their primary banking providers far more than via desktop PCs, ATMs and physical bank branches.”

Note: Boomers lag in this regard but even among them, 34% of their digital contacts with an FI are via smartphone and 12% are via tablet which adds up t0 46%.  54% of Boomer digital contacts are via online banking.

Among young millennials, by contrast, 63% of digital contacts are via a smartphone. Just 2% are via tablet (and you wonder that Apple is struggling to sell iPads).  And 35% are via online banking.

FIS hammered the point home: “42 percent of consumers report that they use their bank’s mobile app more now than they did a year ago. This highlights a needed shift in strategic thinking for banking providers, especially smaller ones, as their mobile interfaces – not their physical locations or even their personnel – are now the ‘face’ of the bank.”

An oddity in the FIS data. 5% of us said that we use our credit union mobile app less than a year ago.  At global banks that number is 2%. Even at community banks it is 4%. Ask yourself: are your members using the mobile app less and if so, why? What can we do to remedy this?  Because the future of a financial institution is its mobile channel.

FIS also trotted out data that shows that we are ready for new features in digital banking, with significant numbers of us piling into p2p (look at Zelle’s rocketship trajectory), mobile wallets, virtual cards, and various other features that may have seemed the stuff of sci fi. The FIS conclusion: Add It and They Will Use It.

What’s the lesson in these data? Consumers are inclined to like – really like – a credit union. But they also expect state of the art digital from that credit union.  They want the credit union to provide a digital experience that rivals what Chase offers.

Not easy? Nope.  But more consumers – especially younger ones – are making it clear that they won’t accept less. A credit union that wants a long future had better get that message and get with upping its digital offerings.  

When you see that next Chase ad, ask yourself: is what we offer as good?

It had better be.


Are Credit Unions Merging the Movement Out of Existence?


By Robert McGarvey


For CU2.0


The headline in American Banker screams: “Credit unions are bulking up via M&A — and banks are nervous.”

The story continued: “Since March…there have been three deals in which the credit union being acquired had more than $300 million in assets. And a New York investment banker said he is working on a fourth deal — with even more possibly on the way.

“Those deals threaten to create bigger, and more formidable, credit unions to compete against banks.”

The thesis, plainly, is that while mergers once were the exclusive province of generally small, dying credit unions, suddenly bigger ones are getting the urge to combine – and bankers should be trembling in their boots.

Word of caution: remember the source of this contention.  American Banker.  

Word of advice: file all this under fake news.

That’s a label I never thought I’d use but it just may fit in this instance.

According to American Banker, “nearly 670 credit union mergers took place between 2015 and 2017.”

That compares to 774 bank mergers in the same period, per American Banker.

The article – naturally – quotes a chorus of banking voices all of whom warn that the big bad credit unions are rushing to combine in order to better to gobble down the bankers’ cheese.  

The narrative is compelling. But fundamentally flawed.  

What is fact is that in the vast majority of cases, credit unions merge because one is grievously injured and there are pressures on a stronger credit union to do the right thing and take over the weakling.

Very occasionally, the weak institutions are large – think taxi medallions – but, generally, the weak are small, sub $100 million in assets and they find themselves unable to compete in technology and services and compliance with complex regulations increasingly try the talents and resources of tiny credit unions.

Meantime, numbers out of CUNA Mutual, by way of NCUA, in fact show that the number of mergers fell in 2017.  

And, yep, most mergers involve tiny credit unions. In February, said NCUA, there were 9 mergers and the average asset size was $13 million.

Personally I believe many more credit unions will close (typically by merging out of existence) in the next 10 years. Possibly  as many as 2000, roughly one-third of today’s 5700+. But most will be small. A few larger institutions will shutter due to grievously bad operational decisions (such as an over concentration in taxi medallion loans) but they will be the exception.

Also exceptional – extremely – will be mergers of two large, healthy credit unions.

On paper merging Navy and PenFed  might make a kind of sense – to better compete with USAA and the money center banks – but I believe my chances of winning PowerBall Friday night are significantly better than the odds of that merger occurring.

Five years ago in Credit Union Times, I wrote a story headlined: “Mergers Will Continue to Cull the CU Herd.”

Not much has changed since then, except many hundreds of credit unions have merged out of existence since 2013.  

The article picked a number – $100 million – as a kind of arbitrary benchmark for the size a credit union needed in order to survive the turbulence that lay ahead.  But it cited other experts touting bigger numbers, as much as $500 million in assets.

The reality is that there is no known minimum size. A lot depends upon the ingenuity of the top managers, the energy of the line staff, and the passion of the FOM. If enough members want their small credit union to live, it will. Simple as that.

When they don’t, it won’t.

But it certainly is sheer rubbish to insist that there is a wave of mergers of big, healthy credit unions and this is threatening the survival of community banks.

What’s threatening their survival is the same as what’s threatening many mid sized and larger credit unions: the growing strength of money center banks and, especially, the rise of non banks.

It’s idiocy for bankers to worry about credit union mergers.  Worry about Quicken Loans is my advice. Or any of many non bank car loans companies. Or any of many non bank p2p players.  

Really. Just plain idiocy to gnash teeth about credit union mergers threatening banks.

But it makes good fake news headlines, doesn’t it?


The Reinvention of CO-OP: News from Think18


By Robert McGarvey


For CU2.0


One message came through loudly at the recent CO-OP Think18 conference in Phoenix: this is not your father’s CO-OP.

“We are in a revolution inside CO-OP,” said Todd Clark, who has logged two years as CEO of the nation’s largest CUSO.  

“We are sprinting towards change.  We are driving this hard,” said Samantha Paxson, CO-OP’s chief marketing and experience officer.

“We are positioning CO-OP to move forward,” agreed Nick Calcanes, CO-OP’s chief information officer who just may be the busiest CO-OP executive because so much of what is planned is in the digital arena, an area where CO-OP had proceeded cautiously in much of this century, a time when big banks – and at least some big credit unions – had already doubled down on digital.

It was about time for CO-OP to take the digital plunge. And now executive after executive at Think18 sang from the same hymnal: CO-OP is in the midst of a digital transformation, driven by the perception that the credit union movement needs this, that it needs a leader that draws on the sharing and communal culture that distinguishes credit unions from their for profit brethren banks.

That leader, said CO-OP, will be it.  “Our goal is to be a world class technology company,” said Calcanes.  

These changes won’t happen with the snap of the fingers.  “Digital transformation is a continuous process. You don’t just wake up one morning and go ‘We did it! We’re transformed,’” warned James Wester, research director for IDC Financial Insights, a Think18 mainstage speaker. His message was aimed at the audience – executives from some 400 credit unions – as they contemplate their own organization’s transformation but it could just as well be an invocation to look at CO-OP’s transformation with a measure of patience.

Just what is going on at CO-OP which most in the credit union universe know for its 30,000+ fee-free ATM network and its shared branching network which consists of 5600 credit union branches where members at a participating credit union can walk into another credit union’s branch and do many of the transactions they can do at their home credit union? Many experts have cited these cooperative ventures as a credit union secret sauce that gives members access to a bigger ATM fleet (twice the size of Bank of America’s and Chase’s) and a branch system second only to Wells Fargo’s 6000+.

Count them as great achievements. But – realistically – it is the tech frontier where the financial services wars will be fought and won or lost.  

“The future of banking will be mobile,” said futurist Thomas Frey, another mainstage speaker. He added that “over 20% of branches will disappear by 2022. We are now closing three branches every day. That number will go up.”

CO-OP, under Clark, knows this.  And it has taken some bold steps — for instance, the acquisition of all of The Members Group from the Iowa Credit Union League for $100 million in 2017. (CO-OP had been a minority owner.) That instantly gave CO-OP significant digital payments credibility.  It also triggered big changes inside CO-OP because Clark’s aim with TMG has been to integrate it into CO-OP, to meld the TMG culture in with the more traditional CO-OP culture. In the acquisition press release, he said: “We are creating a new CO-OP that embraces technology and best-in-class service delivery to create a seamless, secure and personalized experience for our clients and their members, however they choose to interact with their credit union using a CO-OP product.”

Specifics about that vision have been scant, however – until Think18 where CO-OP’s leadership got busy communicating significant substance about the CUSO’s way forward. Understand: the CO-OP reinvention is a work in progress.  But a takeaway from Think18 is that CO-OP’s leadership is promising that the $424 million in revenues CUSO is thinking big – and about what will be needed for credit unions to thrive tomorrow.

Already there is big news about a new fraud initiative from CO-OP – as well as good news about Zelle, the p2p payment tool that last year processed a staggering $75 billion, twice what fintech darling Venmo moved.  

Ab0ut Zelle – which already has a handful of credit unions in its go live queue – Clark said the company is eager to enroll credit unions but it wants all but the biggest to go through a third party. Enter CO-OP.  “CO-OP will be an intermediary for credit unions,” said Clark.

The industry understands this from Apple Pay. Few credit unions – possibly only Navy Federal – worked directly with Apple. Others went through third parties such as TMG, CO-OP, Fiserv, and First Data.  Expect similar with Zelle but, stressed Clark, Zelle is a no brainer. “P2p is an important engagement channel,” he stressed and with its mushrooming name recognition, Zelle is becoming a tool digitally aware credit unions want to offer members.  

Bigger, more tangible news from CO-OP revolves around what it calls COOPER which CO-OP described this way in a press statement: “COOPER is CO-OP’s largest technology initiative, in which the company is investing millions of dollars to provide state-of-the-art machine learning and artificial intelligence to its client credit unions across the CO-OP ecosystem.”

Clark added: “COOPER is a major piece in our strategy to bring greater security throughout our products and services, while providing the most seamless experience to credit union members. COOPER will allow us to constantly improve upon the fight against fraud by enabling the understanding of huge amounts of data and detecting complex patterns rapidly.”

COOPER is built around what’s called machine learning which means it’s a smart system that keeps on learning.  It’s based on technology developed by machine learning company Feedzai, which has focused on fighting fraud in financial services and which counts First Data among its clients.

Clark said COOPER will be rolled out to the shared branching system in June. Wider roll outs follow.

“Credit unions are waiting for what we are doing to make a difference for them,” said Clark – and he clearly is betting that COOPER will be an answer to the worried prayers of many credit union executives who increasingly face armies of very smart, very skilled fraudsters.  

Fotis Konstantinidis, a senior vice president at CO-OP charged with overseeing fraud products, elaborated:  “Effective fraud prevention is a competitive issue for FIs. Our ultimate goal is to democratize AI and give credit unions the technology to compete with big banks.”

Another CO-OP initiative – still taking shape – was hinted at by Clark. He wants to put CO-OP to work monetizing the huge data lakes, as he called them, that CO-OP and many credit unions already have.  Said Clark: “The data we have can give you a real picture of what your member is doing if you use the data correctly.”

The initial steps are using data to attack fraud (a la Cooper).

Then it may get a lot more interesting.

“The power of this data is amazing,” said Clark.

This kind of data is how Netflix knows what you want to watch before you do.  It’s how Amazon knows what you need to buy before you do. Trust this: big banks have been all over this for at least five years. They are getting very good at knowing more about end-users than they may in fact know about themselves.

Credit unions – the vast majority – are not on this bus. Many don’t even know it’s out there.

Your future may hinge on getting smart about the data you have.  The answers you need already are there, if you know where to look.

CO-OP believes it is in a position to be the credit union wagon master on the trail through this digital wilderness of big data. In this bargain, what CO-OP has, via its partner credit unions, is lots of info about what we spend on, how much money we have, what our interests are, that’s a good place to be.

“We can use data to optimize member engagement, to anticipate their needs and deliver what they want before they know they want it,” said Paxson.

CO-OP has big dreams about how to monetize those data lakes so watch this space. The big data play may be the most transformative initiative at CO-OP.

There’s more percolating at CO-OP. Matt Maguire, chief data officer, noted that what credit unions members want – want all of us want – is what he called “a GAFA experience.”

He suggested that CO-OP wants to play a lead role in helping credit unions rise to the excellence of GAFA.

Because that just may be the bare necessity needed for a financial institution to thrive in the coming years of the 21st century.

Don’t know what GAFA is?  Look it up. Because just that is a perfectly 21st century gambit, and not bothering is just so 20th century.

Back at CO-OP chief marketer Samantha Paxson noted, “Amazon is our muse. It’s critical that we behave like Amazon.”


What’s the credit union response to CO-OP’s plans? Maybe the most succinct view belonged to Chuck Purvis, CEO of Coastal Federal in North Carolina, who said: “CO-OP has scale and reach that will entice fintechs to work with them.”

That’s key because, frankly, outside help – for instance, from companies like Feedzai in machine learning – will be needed. And CO-OP is getting that help.  The new CO-OP plainly has signaled that it will reach out to leaders and experts in order to better meet the needs of CO-OP members and their members.

It’s also moving faster. And that now is critical.

Warned Purvis: “If we don’t develop urgency about change we won’t be around.  We need to embrace change.”

The clock is ticking, it ticks for you.


News Flash: Mobile Banking Apps Now Among the Most Used


By Robert McGarvey


For Credit Union 2.0


The Citi 2018 Mobile Banking Study told us what we should already have known: consumers love a decent mobile banking app.  And they use it a lot.

How often? Citi said that mobile banking apps come in third, after only social media apps and weather.

That’s based upon a survey of 2000 US adults.

How often do your members use your app?

The question is not theoretical.  It’s in your face, life and death.  If your members don’t like your app – and I personally dislike the apps used at the two credit unions I belong to – what’s your future look like?

Almost half – 46% of consumers – told Citi they have increased their mobile usage in the past year.  Nearly two thirds of Millennials have done same. Expect that number to keep trending higher. As more of us discover that we can easily do most routine banking chores on a phone, we’ll migrate there – especially if we get the message that generally a mobile phone banking session (via cellular) is more secure than the same session on a Windows computer connected to WiFi.

Citi threw more numbers at us. 8 out of 10 of us use mobile banking nine days a month. One-third of us mobile bank 10 or more times a month.

91% of us prefer mobile banking over a visit to a branch – and don’t expect that number to decrease. Branches are dead, except for special purposes. If a consumer needs a wire transfer as part of a home purchase, sure, he/she may go to a branch (I did exactly that five years ago); it just seems simpler.  But for routine banking chores – including check deposit – it is vastly more time efficient to do it in one’s home, work, or car.

Personally I just deposited three checks via MRDC and transferred money from one account to another, all done at my desk, all done within five minutes. Going to a nearby branch would have eaten up at least 30 minutes and who has time for that?

Not many of us anymore.

“Mobile banking usage is skyrocketing as more consumers experience the benefits of greater convenience, speed and financial insights driven by new app features and upgrades,” said Alice Milligan, Chief Digital Client Experience Officer, U.S. Consumer Bank, Citi, in a press statement. “Over the past year we’ve witnessed this increase in engagement first-hand, with mobile usage in North America increasing by almost 25 percent, and we don’t see this trend slowing down any time soon.”

Mobile banking users also told Citi they feel more in control of their finances.  95% believe they know their exact balance right now, compared to 85% of non users.  Citi elaborated: “Nine out of ten (91 percent) have experienced additional positive outcomes from mobile banking, including greater awareness of their financial situation (62 percent); fewer concerns about managing their finances (41 percent) and a better understanding of the services offered by their bank (38 percent).”

Now for the bad news for you.  Read this: “Milligan added: ‘At Citi, we launched over 1,000 digital features in the U.S. in 2017, a nearly 500 percent increase over the previous year, and we continue to reimagine the client experience through innovative capabilities that deliver ease and simplicity for our cardmembers. In recent months, we have introduced a number of features to further enhance protection and security, such as face ID sign-on for the Citi Mobile App on iPhone X and email notifications when we detect unknown attempts to access customers’ accounts.’”

How fast are your vendors upgrading your apps?  Judging by the ones at my credit unions I’d say not frequently.

Not nearly often enough.  Not nearly enough to keep pace with the likes of Citi and Chase.

Can you say better about your apps?

You need to be able to,  That’s the reality for today.

When I talk with senior executives at many credit unions a common complaint about their apps vendors is that upgrades come too slowly.  It’s rare that I don’t hear that complaint.

But just maybe it’s no longer good enough just to complain.

Take action to make faster – richer – upgrades a regular reality. That’s how to survive today.

The Vanishing Credit Union Gets Bigger


By Robert McGarvey


For CU2.0


The April CUNA Mutual Trends Report drops a paradoxical bomb that leaves us confused: are credit unions getting bigger? Or are they vanishing?

First the good news: more of us belong to credit unions, reported CUNA Mutual.  “Credit union membership growth was on a tear during the first two months of 2018, adding 850,000 new memberships versus the 650,000 reported in the first two months of 2017.”

CUNA Mutual went on: “Credit unions should expect membership growth to exceed 3.5% in 2018. This will push the total number of credit union memberships to 117.6 million by year end, which is equal to 33% of the total U.S. population.”

Roll back to 1960 and, per NCUA data, just 6 million of us belonged to federal credit unions.  A similar number belonged to state chartered institutions. That’s 12 million total, out of a US population of 180 million.  That’s about 6.7% of us, far below today’s one in three.

Plainly, a lot more of us belong to credit unions now, probably because of expanding FOMs and also because many credit unions offer tempting deals – for used car loans, for instance, and in some markets home mortgages – that bring in members at least for those specific products.

More credit unions also are working smarter and better at communicating that their membership is pretty much open to all. There remain some of us who believe they can’t join a credit union because they don’t belong to a union – but those numbers are shrinking.

Member growth is good.  But do the CUNA Mutual data mean the credit union movement should pop open champagne and toast the good times?

Maybe not.

At least not just yet.  There’s more to digest in the CUNA Mutual data dump.

Toward the end of the report, CUNA Mutual serves up these disturbing numbers: “As of February 2018, CUNA estimates 5,757 credit unions are in operation, down 240 from February 2017. The pace of consolidation in the credit union system is accelerating due to the following factors: retiring baby boomer CEOs, rising regulatory/compliance burdens, low net interest margins, rising concerns over scale and operating efficiency, rising competitive pressures, and members’ demand for ever more products, services and access channels. NCUA’s Insurance Report of Activity showed 9 mergers – 7 mergers were due to ‘expanded services,’ 1 for ‘poor financial conditions,’ and one for ‘lack of growth’ – were approved in February with a merging credit union average asset size of $13 million. This is a fewer than the number of mergers reported in February 2016 with a merging credit union average asset size of $10 million. We are forecasting the number of credit unions will decline 250 in 2018.”

Do the math. If the current rate of consolidation continues, by 2028 there will be a bit over 3000 credit unions.

In 1960 there were about 10,000 federally chartered credit unions, per NCUA.  

As for the membership growth, CUNA Mutual sees it continuing, sort of.  “The membership gain was partly driven by the 502,000 new jobs created during January and February, according to the Bureau of Labor Statistics, and by the tremendous growth in credit union indirect auto lending. During the last few years credit union membership growth has been highly correlated with job creation with the seasonally adjusted annualized growth rate exceeding 4% over the last year. With job growth expected to slow slightly in 2018 to 2.2 million, we forecast credit unions to pick-up an additional 4.0 million members.”  (Emphasis added.)

Many credit union executives, at least privately, of course grumble about indirect car loans because the “members” they bring in often limit their memberships to the car loan and they aren’t especially profitable.

Add this up and what’s the meaning? Credit unions need to do a much better job of expanding their relationships with members.  It is great to have an expanding number of members, it is not so great not to be creating more solvent credit unions.

The truly good news is that if one in three Americans belong to a credit union that is plenty of bulk to use to seek to grow the institutions organically.  For instance: get that indirect car loan borrower using a sharedraft account and a credit card and the credit union is onto something wonderful.

The alternative is to join the thundering herd of dying credit unions, many of which are like wildebeest in the Tanzanian Great Migration, there essentially to be picked off by predators.

Parse the CUNA Mutual data and just maybe the message is a double edged sword: grow membership, especially the right membership, and success may lie ahead. Or shrink into extinction.

That is the stark choice in front of today’s credit union executives.

Can You Trust Zelle?

By Robert McGarvey


Big banks have rushed to embrace Zelle – the new breed person to person payment tool – and credit unions too are joining the queue.

And now there is news about rising rates of fraud and criminality involving Zelle.

Time for a rethink?

First off, why Zelle?  Part of the answer is in the immensity of its primary backers, such as Chase, Bank of America, Citi, Capital One, Wells Fargo, USAA, and a handful of credit unions including BECU, First Tech, Schools First, Star One. Many more institutions – credit unions included – are in the queue to go live.

Zelle makes it very easy to send money to anyone with an email account or mobile phone number and a bank account.  No Zelle account is needed.

Some years ago I tried an experiment where I sent small payments to people using services such as Dwolla and the redemption rate was about zero. People asked me if I’d been co-opted by Nigerian scammers.  They just did not want to pick up money involving a service they hadn’t heard of.

Zelle is hard to not have heard of. A lot of TV ads and digital ads support it.

And then there’s how easy it is to get the cash.

Consider this a death warning to legacy but clunky services such as PopMoney.

But the trigger that launched Zelle was the PayPal fueled fire around Venmo which, out of nowhere, had emerged as the p2p tool of choice.  Bankers had snorted at tools like PopMoney but Venmo was different – users liked it, it had fintech heritage, and suddenly p2p was gaining the kind of enthusiasm many had predicted for it but that had stubbornly not materialized.

Bankers decided they needed their own weapon and thus Zelle, which in 2017 moved an estimated $75 billion, twice as much as Venmo, and the scariest bit is that this is plainly early days for Zelle.  Thought of a trillion dollar market is not far-fetched. Pymnts offered this dazzling buffet of Zelle stats: “Earlier this year, Zelle revealed that on average, close to 100,000 customers signed up each day for 2017. It also said it processed more than 247 million payments last year, which marks a 45 percent jump from 2016. It handled a total of $75 billion in peer-to-peer (P2P) payments in 2017, a significant increase from the $55 billion it made the year before.”

And now there are the stories about Zelle as a platform for fraudsters. The New York Times dropped the biggest bomb in a piece that began this way: “Big banks are making it easy to zap money to your friends. Maybe too easy.”

The Times continued: “Interviews with more than two dozen customers who had their money stolen through Zelle illustrate the weaknesses that criminals are using in targeting the network. While all financial systems are susceptible to fraud, aspects of Zelle’s design, like not always notifying customers when money is transferred — some banks do; others don’t — have contributed to the system’s vulnerability.”

Time to re-think Zelle? Not so fast.  Three years ago I wrote a piece for The Street headlined: “Are Peer-to-Peer Money Transfer Apps Unsafe to Use? Worries Focus on Venmo.”

The story started this way: “The Internet has been abuzz for a couple weeks with chatter about documented cases of theft of money from accounts of users of Venmo, the p2p (peer-to-peer) money transfer app that had been the the fast growing darling of Millennials.

One user, in a story reported in Slate, had $2,850 looted from a Chase checking account.”

Sound familiar? Indeed, it sounds exactly like the Zelle growing pains.  Regarding Venmo back then, PayPal told me they had moved fast to put in more security. File this under problem solved was their message.

Similar is getting said about Zelle.  Lou Anne Alexander, head of payments at Early Warning which runs Zelle, told the New York Times: “When there is a problem, we and the banks are proactive. It’s not something we’re putting our heads in the sand about.”

A lot is riding on Zelle for the banks and credit unions that embrace it.

There’s no present reason for a financial institution to panic about Zelle. If fraud reports continue and multiply, by all means, get worried. But for now this all sounds like growing pains and there are enough grown ups in the room to put in the needed fixes.

Color me optimistic.

Apple Pay Status Update: Three Years On Do You Still Need It?


By Robert McGarvey

For Credit Union 2.0


It’s been over three years since Apple Pay rolled out the nation’s first beefy mobile payments system and today’s blunt question has to be: does anyone still care?

Into that fray has stepped Pymnts which recently offered up a detailed look at mobile wallet usage, along with trends.

Be ready to question your own institution’s wallet strategy.

Be ready to ask if it’s in fact time for an institution that offers Apple Pay, et. al. to dump them.

The data just may surprise you.

For good reason. Apple Pay was birthed amid loud and wide clamoring for it. I remember the panic that beset many credit unions three years ago when Navy Federal was the first – and only – credit union invited to the launch party by Apple.  I had many talks with credit union CEOs and even more CIOs who wanted Apply Pay, like right now. And Apple put all of them in a deliberate queue where it took many weeks, sometimes months, before more credit unions joined the Apple Pay legions.

Every credit union wanted Apple Pay – even though they had spurned a very similar Google Wallet a few years earlier.  I had first used Google Wallet to pay at a Whole Foods in Scottsdale AZ in, I believe, 2013 which had Mastercard touch and pay installed on its registers and sometimes it worked with Google Wallet, sometimes it didn’t.  

But few credit union execs paid much mind to Google Wallet. It was Apple’s marketing genius that spawned a feeding frenzy where every institution craved a contactless payment solution.

Apple nowadays regularly updates its list of institutions that offer Apple Pay but I don’t think anybody much cares anymore.  More credit unions don’t offer Apple Pay than do – should they care?

That’s where the Pymnts data come in.

The article reminds readers of the famous S Curve, via Harvard Business prof Theodore Levitt, which posited that three years in, a new consumer product’s adoption should be at the top of the S curve.  Where does Apple Pay stand? Here’s what Pymnts says: “Apple Pay’s adoption since its launch in Oct. 2014 looks more like a flat line than an S-curve. In fact, the overall growth in Apple Pay transactions is almost certainly the result of more merchants installing near-field communication (NFC) terminals than iPhone users getting more interested in Apple Pay itself.”

Read that again – and remember that, per Apple CEO Tim Cook, Apple Pay is now accepted at more than half of all US retail locations.  And yet even Cook said that mobile payments have “taken off slower than I personally would have thought if you asked me sitting here a few years ago.”  

How bad is it?  According to Pymnts, under 30% of Apple iPhone owners have activated and tried Apple Pay. That’s terrible but just 17% of Samsung owners have activated and tried Samsung Pay.  And only 13% of all Android users have activated and tried Android Pay (nee Google Pay, nee Google Wallet).

Remember Levitt’s curve.  These are awful adoption rates.

Pymnts tossed out more gloomy data. Just 23% of Apple Pay users used it for their last transaction at store where they could use it.

And a dismal 17% of Android Pay users did likewise.

(Pyments, by the way, is reasonably bullish on WalMart Pay and its adoption.  I don’t shop at WalMart so I defer to other opinions.)

Bottomline: Apple Pay has its fan base but it definitely isn’t huge. Data is no more compelling for Android Pay and Samsung Pay. There is a user cohort – but, really, mobile wallets are still not wowing that many consumers with their alleged advantages over plastic cards.

The big question: if you don’t presently offer Apple Pay and Android Pay should you?  That depends upon your demographic, now and also the one you want five or ten years from now.  If your members want mobile payments, give them what they want.

Which bring us to the should you dump the mobile wallets?  Absolutely not, multiple credit union senior execs told me.  They in fact expressed delight that the mobile wallets are not much used – Apple Pay for instance charges a significant premium over a credit card as such and no credit union is thrilled about paying the difference. And yet credit unions that offer Apple Pay, etc. nonetheless get to proclaim themselves on the tech cutting edge and that’s a potent marketing platform, especially with Millennials.

For some credit unions, the present situation is win – win.  They brag about their techie cred and yet they aren’t stuck with paying the premiums involved in mobile wallet usage.

So don’t dis non use of the mobile wallets. It just may be exactly what most credit unions honestly prefer.