Become a Tech Company – or Die: Memo to Credit Unions
By Robert McGarvey
A credit union leader has to break out in a cold sweat reading Aite Group’s new report on the top 10 trends transforming retail banking.
Here’s trend 1: Tech Firms Become Banks.
Trend 2 is blunter: Banks become tech firms.
That latter trend ends with this prediction: “Going forward, the banks that quickly adapt and recognize this shift will stay relevant to their customers and even gain a stronger foothold in the market. Those that do not will struggle to acquire and retain customers, and to survive.”
Read that again. What Aite is saying is that credit unions that don’t climb aboard the tech express are doomed.
Does that mean you?
I’m not aware of an exact count but I would be surprised if at least half of today’s credit unions aren’t hopelessly mired in a Luddite world of anti technology. So many want to blather on about how great their branches are and what wonders their employees are, as though either matters in a 21st century technology world.
But back up. Look at the threat. Increasingly, tech companies from Quicken Loans to PayPal are gobbling up traditional bank and credit union business.
Non banks are on track to very soon have more than 50% of the home mortgage business. PayPal and Venmo, meantime, are feasting on p2p payments, a niche many credit union executives saw as theirs just five years ago but between bad tools and bad marketing, credit unions are increasingly irrelevant in a sector that looms as one of the key financial tools used by Millennials,
Amazon, maintime, has made more than $1 billion in small business loans – how many bankers and credit union execs even know they are in that business? Credit unions may want to up their business lending operations, but do they have a market that craves their offerings?
Non banks also are zeroing in on car loans.
Some techs may even unfurl official banking colors. Aite’s Julie Conroy, in an email, wrote this: “Square already has a bank charter application in progress, and I don’t think it’s beyond the realm of possibility that Amazon would set up a wholly owned sub to do something similar.”
Amazon and PayPal both have been meeting with bank regulators. Nobody knows exactly why but a good guess is that both are interested in expanding their bank-like activities (with or without bank charters).
Conroy, in the report, also warns that banks – this also means you, credit unions – are increasingly becoming what she calls an ingredient brand to whom the consumer has little or no loyalty. The consumer uses Apple Pay, does he/she remember what financial institution it is connected through? Ditto PayPal. Android Pay. Etc. They all run on financial institution rails but few consumers really care what card is connected. They see themselves as Apple Pay loyalists, period.
And she points to Asia where Alibaba and Tencent “have made substantial inroads” into banking.
There are no good reasons to think similar won’t happen here.
David Albertazzi, writing in the Aite report, offered this warning: “FIs need to change entering 2018. They need to fundamentally shift their mindset, business model, and operating model. They must be equipped to fight for the modern consumer—who, because of technology, has a whole new set of expectations. The modern consumer doesn’t want a traditional branch bank. They want their transactions to happen on their mobile devices in real time and on-demand. This is why FIs must become tech companies and provide elegant, nimble, and technologically sophisticated solutions to their customers.”
He also advised a “sharp increase in digital transformation.” So right. It’s hard to find a credit union that doesn’t have a digital transformation committee. But it’s harder to find a credit union where that committee has any say beyond what doughnuts to serve at the next meeting. It just is time to get very serious about digital transformation.
That’s because your institutional life depends on it.
Wrote Conroy in her email to me: “Effective use of technology will be increasingly important to competition for FIs of all sizes. Those FIs that don’t invest (either in their own tech stack, or by finding progressive processing partners) and are constrained by legacy technology will increasingly be marginalized.”
What do you need to do now? Commit to going digital – really – in the next year or two. Poll members on what digital tools they want and offer them. Keep hunting for powerful digital tools your members will want.
And ask yourself this: if I didn’t have to use my institution’s technology, would I?
If you wouldn’t, why are you offering it to members?
Do better.
Read the Aite report. It’s short. But it will give you sleepless nights.
And that is good for you as you face a crossroads in consumer banking where those who take the wrong fork are heading towards extinction.
Take the other fork.