What banking futurist Brett King paints is a dystopian picture of financial services tomorrow where, increasingly, consumers want frictionless money transactions, they don’t give a hoot about banks vs. non banks, and they have no interest in a relationship with a one stop financial services provider.
Credit unions still think they are special. Think again, warns King.
What matters today is digital. Period. Sure, King, as the founder of digital bank Moven, has a bias.
But he very probably is right.
Financial institutions are getting left behind as the biggest banks get bigger – lots bigger – and fintechs gobble up profitable slices of the financial services pie.
Along the way in this provocative conversation, King talks about the new Apple credit card, why Apple Pay has stalled, and the inevitability of real time banking.
It’s a look into tomorrow.
And, yes, it may sound like a horror film.
But at least when you know what’s ahead you can start preparing for it.
Teresa Freeborn, CEO of Xceed Financial Credit Union, chairs the CUNA effort which she – make no mistake – sees as crucial in the longterm survival and prosperity of credit unions.
The campaigns blends research with marketing – much of it online – to reach out to a generation of consumers that simply may not even consider credit unions as a financial services option.
Ouch. It hurts to be ignored. But that is a credit union reality and that also is the why of the CUNA campaign.
A central mission of the campaign: raising consumer awareness of the benefits of credit unions as a different, better category of financial services providers. That’s ambitious. But it just may be critical in the industry’s survival.
In this podcast Freeborn tells the story of the campaign’s launch, it’s current status, and it’s hoped for future. She also blends in her perspective as the longtime CEO of a large credit union.
Consider this podcast a crash course on credit union lobbying, 2019 style. Our instructor: Patrick Conway, CEO of the Pennsylvania Credit Union Association, a very large league with upwards of 370 members.
PCUA lobbies both in Harrisburg, the state capital, and in Washington, DC.
A lot of what PCUA does however could be considered credit union education. For instance, PCUA has played a lead role in the new Philadelphia ID card – designed to give Philadelphia residents a low cost ID card. Will it be adequate for opening a new account at a credit union? That’s still being sorted out and PCUA is in the mix, offering education and counsel to its members.
PCUA is doing likewise with cannabis banking, a topic of significant interest to Pennsylvania credit unions.
Along the way we also talk about credit unions haves and the have nots and, in Pennsylvania, assured Conway, the big credit unions offer plenty of assistance to smaller institutions.
Other topics on the agenda: credit union tax exemption, the CUNA-league relationship, and what credit union can do to win greater consumer acceptance.
Probably the single most despised charge at financial institutions is the overdraft fee – and a NerdWallet survey of the exact charges imposed by a selection of mid-sized (Navy Federal) through mammoth (Chase) institutions found fees at $20 (Navy Federal) and as high as $39 (KeyBank).
$35 is a particularly common charge in the survey.
Ask yourself this. You present a Visa card at WalMart and the card is declined (and you know it’s because the balance is overextended and a payment is late). Does the cashier say, “Sorry, bud, card declined and now you owe us another $35 for being a nuisance.”
That does not happen.
You walk out without your purchase but you aren’t dinged for a nuisance charge.
Overdrafts are different – charges are the norm – even tho at the financial institution all that happens is that bits and bytes shuffle around on a computer screen.
In the olden days, yes, a bounced check was a hassle. It generated lots of paperwork. Many hands of many clerks got involved. Very probably a fee was justified.
Not today. It’s all automated.
A few innovative, digital first institutions (Simple and Chime for instance) already charge no overdraft fees. More will follow. But very probably many legacy institutions will cling to the fees because it’s easy money.
Some credit unions have worked up their own ways to help members dodge overdrafts – Hope Credit Union tell about its tools in this podcast – but many smaller institutions don’t know exactly how to handle this issue.
So they charge overdraft fees, the old school style.
It hurts consumers. It’s terrible for a financial institution’s reputation. But it is easy money.
So now third party work arounds are in the mix.
For the consumer the message is simple: you can keep your legacy checking account but make yourself immune to overdraft fees.
Meet Grain Technology, a Northern California based start up on a mission to stamp out overdraft fees and, in the process, help thin file consumers create credit histories. Win win.
For the participating credit union, it’s plug and play. The member links the sharedraft account to Grain and Grain takes care of the rest.
And Grain has been invited to play in the Arizona fintech sandbox where it is allowed to pilot its tools freed from some regulatory constraints. The company already has plans to offer its tools to students at Arizona State, the nation’s biggest university.
Exactly what does Grain do? In a conversation with Carl Memnon, COO of Grain and a co-founder (hear the podcast here), the details emerged.
The building blocks are that Grain takes a new look at the consumer’s spending habits, income, expenses. It generates a proprietary algorithm. This lets it predict when a consumer’s linked checking account is likely to go into overdraft and Grain can offer an injection of cash to inoculate against an overdraft fee.
The charge? Grain sees its APR ranging from 12% to 15.99% and it envisions cash injections typically ranging from maybe $25 to a few hundred dollars.
Result one: no more overdraft fees.
Result two: the consumer builds a credit history that Grain will report to monitoring agencies. For a thin file young adult that just may be a real blessing. Especially since many of those generations are averse to using conventional credit instruments.
Right now Grain is looking to partner with credit unions that want to help members sidestep overdraft fees. Most of those consumers, said Memnon, probably will come from the money center banks (with overdraft fees typically around $35 per incident).
What would prompt a B of A customer to ditch that institution in favor of a much smaller credit union? Just one overdraft fee could do it. Especially when the recruitment pitch is that this tool will stop overdraft fees, period.
Memnon said Grain also envisions sharing its interest income with participating institutions.
All while essentially living up to the credit union mission of helping consumers manage their money better.
You want to make new account opening easy and fraudsters want to exploit that loophole to rob your credit union.
That is the gist of today’s podcast with Hakan Nordfjell, head of digital banking at Gemalto. He tells about fraudster tricks and also the way financial institutions are fighting back.
He also warns that all your personal information is on the dark web and ready for fraudsters to exploit. PII – personally identifiable information – just isn’t enough to open new accounts securely today. You need more weapons. Nordfjell tells what.
This is information you need to know to protect your institution in what could be called the New Account Opening Wars.
In this podcast Grain co-founder and COO Carl Memnon tells about the company’s proprietary algorithm that lets it devise strategies for making fast loans to users who are about to trigger an overdraft charge and to also help those users find easy ways to start saving.
The latter is the why behind the company’s name – users will see their assets and their credit score grow “grain by grain,” said Memnon.
Memnon also talks about being in the Arizona fintech sandbox and the benefits for a small startup in playing in this sandbox.
Grain is actively seeking to align with credit unions that want to offer its overdraft protection service to members. In the podcast Memnon tells about the benefits to credit unions but a big plus is having cool technology that in effect let’s the member know they will see no more overdraft fees.
Listen up, you’ll find plenty of interest in this podcast.
BTW, the sirens you’ll hear are ambient noise in New York where Memnon was during the call. If you’ve spent any time in New York you won’t even hear the siren. I couldn’t scrub it out so decided just to enjoy the New York moments.
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Find out more about CU2.0 and the digital transformation of credit unions here. It’s a journey every credit union needs to take. Pronto.
Say congratulations to Joe Bergeron – he’s in his 40th year of service to Vermont credit unions and he presently serves as CEO of the Association of Vermont Credit Unions where he has a close up view of the issues and ideas that rock his state’s 19 credit unions, which vary in size from a $1billion+ institution to tiny ones.
In this podcast Bergeron also talks about the relationship between the state leagues and CUNA, state government and the federal, and how small credit unions sometimes matter way beyond their size.
For a topical hook he also talks about CUNA’s GAC and what Vermont credit unions get from that confab.
It’s a wide ranging talk with an eye always planted on the future.
Somehow it feels as though I am writing a period novel about the disappearance of an entire type of financial institution right in front of the eyes of millions – executives, regulators, consumers, and just maybe you too, dear reader.
Surely that plot is too strange to be believed.
But exactly this may in fact be happening.
Th nation’s credit unions are in real trouble.
Trouble as in life or death.
It starts with superficially good news. Mergers in 2018 were down from the prior year. Trumpets blare at NCUA HQ.
In 2016 and also 2017 200 mergers were approved per year. In 2018 the number fell…to 192.
But, wait, it gets worse. Exactly four credit unions merged out of existence because of their rotten financial condition. It was merge or die. And the regulator always prefers a tidy merger. Avoids bad headlines. Members accounts conveniently roll into another credit union. What’s not to like?
Actually there is nothing not to like about tidy mergers that are driven by financial duress.
But there is plenty to dislike when healthy credit unions merge out of existence and, apparently, in 2018 188 healthy credit unions did exactly that.
Why does a healthy credit union simply decide to vanish?
The other question has to become: at what point are there so few credit unions that the designation ceases to make sense?
Maybe the better question is, when will we hit that point?
Yes, there are more credit union members than ever – but how many of them are comparatively inactive borrowers of auto loans? How many are just there for the free checking? How many don’t know they belong to a credit union and that is a vastly different thing than a bank?
If 2000 credit unions vanish in the next decade – and that seems entirely possible – by 2030 there will be perhaps 3500 credit unions.
Is that enough still to matter? Is it enough to warrant its own regulator?
What’s especially odd about many of today’s mergers is that they seem pointless. When a $375 million credit union merges with a $600 million one in New England, what’s the point? At $1 billion in total assets can the merged institution go toe to toe with Chase? Of course not. That credit union will not be the largest in its state. Nearer the 8th largest.
So what’s the point?
What’s the point of the increasing number of institutions that have stripped credit union out of their name? And how’s a consumer supposed to know that the institution is different?
The real trend from where I sit is that the top five or ten banks are getting bigger and bigger.
What happens next already is known.
We saw similar in the world of department stores – remember when seemingly every state had a home grown mini chain? No more.
Look at auto dealerships. A generation ago, dealerships often were family owned and the family owned just one. Now it’s a business dominated by 100 or so very large groups that own many dozens of dealerships.
Similar is happening in financial services- but I see no evidence that bulking up with a merger will help a credit union compete more vigorously. In fact mergers of healthy credit unions are triggering irritations among bankers – and there also is mounting grumbling about pay to play compensation schemes for some credit union executives in mergers.
Neither does the credit union movement any good.
What I do believe is that a smart, well managed credit union that knows its community and is visible in its community can continue to do well. Capitalize on local, intimate scale, community focused and that is a massive differentiator from the money center banks.
Join other credit unions in sharing resources that better control costs and also to attain needed skills/talents.
And look broadly for opportunities.
Credit unions that go after consumers whom the big banks don’t want as customers also may do very well. (Listen to my podcast with Cathie Mahon, ceo of INCLUSIV, the association of community development credit unions.)
There are ample reasons to be optimistic about the future of credit unions – if only they stop cutting their own throats.