Is Apple Pay Popularity Slipping?

 

By Robert McGarvey

 

For CU2.0

 

Have far can Apple Pay usage drop before emergency sirens sound?

That’s the question I have as I look at new usage numbers via fraud prevention firm Kount which today released the 6th edition of its Mobile Payments and Fraud Survey: 2018 Report, compiled in association with Braintree and the Fraud Practice. Chew on the numbers: “In surveying nearly 600 merchants, the report found that several major mobile wallets have lost traction, with the percentage of respondents accepting Apple Pay in 2018 down from 48 to 35 percent, the most drastic decline of all mobile wallets, and Google Pay down from 38 to 25 percent.”

Understand, this pertains to a mix of multi-channel merchants and pure play ecommerce merchants.  At physical, in-person points of sale, Apple Pay has faced challenges – see this blog from a few months ago – but it’s not the catastrophe the Kount numbers depict.  At in-person retail what seems to be occurring is that Apple Pay adoption has gone stagnant, without many new consumers climbing on. That makes perfect sense. Those who wanted it long ago bought an iPhone – or a Samsung phone or other, high-end Android and got into mobile payments with Google Pay or Samsung Pay.  There is no wave of pent up demand waiting to get the technology. So there is no year on year jump and it’s hard to see how there would be. 

Nonetheless, Apple Pay – clearly – is the dominant mobile wallet in in-person retail. No one disputes that.

And I have no evidence of a mass flight of merchants from Apple Pay in in-store retail.

Usage of Apple Pay, Google Pay, etc. at online and multi-channel merchants is a very different matter however. They apparently are finding the going has gotten tougher.

The Kount research shows the clear leader in the field is – no surprise – PayPal which had grown from 48% to 64% of surveyed merchants.

To me that’s no surprise because I use PayPal probably weekly, usually to pay at online merchants I have no particular intent to visit often and I also have no desire for them to hold my credentials. I paid for a Headspace app annual subscription yesterday with PayPal.  And note: those PayPal transactions pull money from an account I have at a credit union.

There’s a key point. A credit union can look at the battle for payments at online sites and honestly stay indifferent.  It can win whether it is PayPal or Apple Pay or whatever that claims the transaction. The key is to persuade the consumer to name your card as the one behind the transaction. How compelling are you in persuading consumers this matters – to the credit union and therefore also to the member?

Just think beyond Apple Pay because merchants and consumers are. Reported Kount: “The share of merchants who accept Samsung Pay, Visa Checkout, MasterPass and Chase Pay all stayed constant from last year, while AMEX Express Checkout enjoyed the biggest gain in support, growing acceptance from 9% to 16% of merchants.”

As for why some online merchants have withdrawn support for Apple Pay and Google Pay in particular, Don Bush, an executive with Kount, said in an interview that at most merchants there’s a limit to how many logos they want to display on their checkout page. That’s especially true of mobile first merchants. If a particular service isn’t getting used – or if it seems too expensive or if too much fraud is coming through it – the merchant will reassess support and may pull the plug.

“Merchants have to be particular about payment types, depending upon customer adoption,” underlined Bush.

Note too: everybody expects more volume in commerce via the mobile channel. Said Kount: “Nearly one-third of merchants surveyed believe the mobile channel will represent at least half of their total revenue by 2020.”

Kount continued: “60% of merchants say the mobile channel will represent at least 30% of their total revenue by then.”

So the fight for supremacy in mobile payments is a key battle.

And Apple doesn’t look unbeatable.

Bottomline: mobile shopping is on the rise, winners and losers are still emerging, and, as for Apple Pay, it just seems to be losing popularity – and that last has to count as an intriguing factoid.

 

Ranking the Best Mobile Banking Apps: J. D. Power Speaks Up

 

by Robert McGarvey

 

Mobile banking apps are getting better and consumers like them more.  That’s the double-barreled conclusion of the recent J. D. Power study of consumer satisfaction with financial services apps.

But there remain opportunities to do apps better, said J. D. Power.

Credit unions are not scored in this survey, only the largest banks and credit card outfits are.  But there are nonetheless plenty of lessons for credit unions in the findings.

One key:

“As mobile apps rapidly become the primary interaction channel for retail bank and credit card customers, getting the formula right in terms of usability, feature sets and customer engagement has become the key to stronger advocacy and loyalty,” said Bob Neuhaus, Senior Director of Financial Services at J.D. Power, in a press statement. “While overall satisfaction is improving, one area where both banks and credit card companies continue to struggle is in making sure customers completely understand all features.”

J. D. Power came by its ranking via consumer interviews. It said that 6272 retail banking customers were surveyed. As for how it scored, the company told what it counts in ranking an app: “five factors (in order of importance): ease of navigation; appearance; clarity of information; range of services; and availability of key information.

The top ranked app is Capital One.  The lowest ranked, in 9th place, is U.S. Bank – but it came in just 39 points below the winner (888 points versus 849, on a 1000 point scale).

The study matters, said J.D. Power: “With 43% of bank customers using their mobile app in the past three months, mobile has become a critical interaction channel for the industry.”

J. D. Power also underlined that apps are improving.  The polling company said: “The overall customer satisfaction score for retail banking mobile apps is 867, up 12 points from 2017.”

Three key points get made in the J. D. Power study.

Consumer understanding of feature laden apps is important.  Said J. D. Power: “The ability to completely understand all app features has the greatest effect on overall satisfaction among banking and credit card app users. Complete customer understanding of the mobile app is associated with a 116-point improvement in overall satisfaction for banking apps.”

Be honest. If you have, say, the Capital One banking app, or Chase (which placed third), do you have any clue what all the app can do? Probably not, unless you are a certified mobile geek who enjoys playing with apps. Most consumers use a very few services and they call it a day. But that may be a mistake because their bank app may in fact do exactly the task they complain they cannot do in the app.

For credit unions, the takeaway is clear: put a priority on member education about the mobile banking app.  Drill into the many features that are built in but may not always be in plain sight.

J. D. Power underlines the need for education with this stat: “fewer than 80% of customers indicate a complete understanding of all features offered by their banking and credit card apps.” Note: that’s self grading.  I’d wager that well under 50% have a “complete understanding.”  Maybe below 25%. But that’s a fixable problem.  For the credit unions that recognize there is a problem.

Consumers who use their mobile banking app the most, like it the most.  No real surprise.  That’s probably true of just about every category of app.  Consumers who use their meditation app daily almost certainly like it better than the fellow who downloaded it six weeks ago and used it once. Of course.  But J. D. Power puts metrics around this observation: “Overall customer satisfaction is higher among customers who utilize their apps 12 or more times per month, ranging from 44-55 points, when compared with those utilizing their apps three or fewer times per month. ”

The takeaway: encourage and coax members to use their mobile banking app. And watch their satisfaction soar.

The secret of a top scoring app. J. D. Power told how to climb the satisfaction charts: “The highest-performing apps in the study have a combination of high functionality and high performance, which means they have features such as multiple security login options, built-in chat functionality and account management functions, all of which are user-friendly and well-designed.”

The takeaway: don’t be shy about building new functionality into the mobile banking app.  Just about every day a fintech announces a new mobile banking enrichment. Get serious about checking them out and how they align with your members and their needs. Then badger your mobile app provider to follow suit. That’s how to win in the mobile banking app sweepstakes: continual improvement, continual feature enrichment.  Less just won’t hack it today.

 

 

 

Meet Erica: Your Worst Nightmare. But Maybe Amazon and Google to Your Rescue

 

By Robert McGarvey

 

For CU2.0

 

Bank of America dropped the bomb in a recent press release that announced the debut of Erica, which it described as “the first widely available AI-driven virtual assistant of its kind in financial services.”  

Not sure what B of A means by “of its kind” because Erica seems spawned from the same genes as Alexa, the Amazon voice driven assistant (with roughly 31 million units sold).  There are maybe a few dozen financial institutions live in Alexa, but I can think of many more that say they are in an Amazon approval queue.  Expect there to be nearing 100 live by year end and, yes, most will be very large institutions but already around a dozen credit unions claim to have some sort of Alexa skill.  

Even better, Amazon has announced tools that will lead to wider integration of Alexa into PCs, meaning that a standalone Alexa device will not be essential for much longer. That should spur broader adoption.

Google, meantime, has its standalone device for voice driven AI – but it also makes its Google Assistant available on smartphones and some Chromebooks.  

Bottomline:  AI is about to explode and that can’t be ignored in financial services.

Back to why B of A thinks its Erica matters: “Everything we do is based on what we hear from our clients: how they want to interact with us and how we can make their financial lives better,” said Michelle Moore, head of digital banking at Bank of America, in a press statement. “Erica delivers on this in many ways, from making it easy for clients to find what they are looking for to providing new and interactive ways to do their banking using voice, text or gesture.”

Erica, understand, has an advantage. It’s purpose built to do financial services – where Amazon, if anything, seems to see Alexa has a shopping aid and Google sees its Assistant as an adjunct to its search engine – and it is much robust than the Alexa banking skills I’ve looked at.

It is not available across the country yet but B of A said it’s getting there.

As for what Erica, which will be built into the B of A mobile banking app, can do, B of A offered this roundup: Currently, clients can ask Erica to:

  • Search for past transactions, such as checks written or shopping activity.
  • Increase awareness about credit scores.
  • Navigate the app and access key information, such as routing numbers or the closest ATM or financial center.
  • Schedule face-to-face meetings with specialists in our financial centers.
  • View bills and schedule payments.
  • Lock and unlock debit cards.
  • Transfer money between accounts or send money to friends and family with Zelle.

Nothing very exciting but – still – these tasks represent a lot of what we do in mobile banking apps. 

B of A also promised a further build out: “In the coming months, Erica will be able to tackle more complex tasks, such as:

  • Sending proactive notifications to clients about upcoming bills and payments.
  • Displaying key client spending and budgeting information and advice on ways to save.
  • Identifying ways for clients to save more.
  • Managing credit and debit cards to help notify clients of card changes.
  • Showing upcoming subscription charges and monitoring transaction history and changes.”

Assume there will be a broad marketing/advertising blitz to support Erica, much as we are seeing an avalanche of ads for Zelle, and that means members will be asking: when can we get Erica?

The bad news is that they can’t.  Unless they switch financial institutions.

For credit unions the takeaway is this: expect spiking interest in AI powered banking.  So get busy building, or buying, your own AI skills, probably Alexa, possibly Google powered and that way stay swinging in the ring.

This is a fight where credit unions can hold their own because the biggest fintechs – Google and Amazon – are standing by ready and eager to help.

Meantime, MasterCard has said it wants to build its payment tech into the Amazon and Google tools which means easy paying with voice is coming fast.

You may not be able to beat B of A on your own.

But with Amazon and Google as your best buddies you sure have an excellent chance.

 

How Credit Unions Can Win the Big Data Play

 

By Robert McGarvey

 

For CU2.0

 

Ask executives at the money center banks how they plan to win, against both fintechs and smaller institutions like credit unions, and they smirk as they say two words, big data.

Big data is today’s magic.  How does Amazon knows what book you want to read next, or what music you want to buy, or when you are about to run out of cat treats? Those are simple examples but the answer is big data. Amazon crunches a lot of data, in a blink of an eye, and it knows what you want, maybe before you know.

The race now is on inside financial institutions to crunch lots of data and to achieve similar predictive intimacy about their customers and members.  

Think about how many pointless marketing pitches go out: mortgage info to a member who just bought a house, car loan info to a member who just leased a new BMW, and credit card info to a member with a 500 FICO score.

Big data means never making a dumb pitch again.  

The right big data also means knowing which members are on the verge of leaving the credit union – and may even provide clues on how to keep them, perhaps even to get them more engaged.

Big banks think they have enough data to begin to make very smart, very targeted guesses about their customers. They believe they will keep more of them, keep more happy, and increase engagement.  All by mining big data.

Probably they are right.  And probably too community banks don’t have the scale of data and neither do just about all fintechs.

So the big banks already are in their victory dances.

But they don’t get one important thing: credit unions have a possible big data play that will even the field against the biggest banks.  Just maybe even let credit unions win. Often.

OnApproach, the Minnesota CUSO, is spearheading an effort – it calls it Caspian – that will give credit unions a so-called data lake that rivals that of the biggest banks.

And the Caspian Sea, by the way, has the largest surface area of any lake in the world, some 143,200 sq. miles. So the OnApproach choice of name makes perfect sense.

Add up the assets of all US credit unions and the total about equals the assets of Citibank and many times more than US Bank.

That’s serious size.

And it also is serious data and, through Caspian, the OnApproach plan is to create a data lake that lets participating credit unions collaborate to play competitively against even the biggest banks.

“Credit unions can do this, collaboration is in their nature,” said Austin Wentzlaff, an OnApproach vice president.

But what about the big data plays attempted by a number of credit unions in the past half dozen years, many of which never produced much good?  “Credit unions are not big enough to really do big data,” said Paul Ablack, OnApproach CEO. He said maybe Navy Federal has the scale but others, not really.

But credit unions have a path to victory. Ablack pointed to the credit union shared ATM network – bigger than any bank’s – and also its shared branching – bigger than all but Wells Fargo – and said that if credit unions pool their data together in the Caspian data lake, they will have information that will prepare them to compete with the biggest financial institutions.

Ablack envisions a lake populated with all the information a credit union has – and even some acquired from outside sources (such as building permit data, insurance policy data, real estate price info from Zillow, maybe auto data from an Edmund’s, etc.).  

“We see every transaction a credit union handles in the lake. Payments. Loans. Checks. Debit card. Credit scoring info. Call log info. Who is the car insurer? When is the policy up for renewal?”

Wentzlaff added that OnApproach already has tools to pull in data from five highly popular core systems and approximately 30 ancillary systems and, he said, the company does not anticipate significant issues in putting core and ancillary data into Caspian.

The list can go on because just about all data is useful in a data lake and – crucially – OnApproach has developed tools that will normalize and scrub data and make it useful in the lake.

Know this: some earlier credit union data plays failed simply because the data was not rich enough.  Ablack envisions Caspian as a data rich lake, filled with both structured data (the kind pulled from cores, Oracle databases, etc.) and unstructured data (email, video, images, data scraped from social networks, etc.).  

Remember that. Hear about a big data play and always ask: how rich will the data be? Is there a lot of unstructured data? Meager data – limited data pulled from just a single source – really won’t give the insights that are needed.

That’s why the Caspian data mix is crucial.

And when many credit unions participate, the lake gets richer and more valuable as a kind of network effect plays out.

How many credit unions does OnApproach need in Caspian to make the lake rich enough? Wentzlaff said that just adding one credit union to another will increase the value of the data but he elaborated that with maybe 20 to 30 credit unions participating, all will be big winners but increase that to 2,400 credit unions and we have a game changer.

Ablack stressed that the Caspian architecture is built to be scalable.  As more credit unions seek to join, the welcome sign will stay up and lighted.

Ablack also envisioned welcoming fintechs with specific data mining tools to offer their data analytics to credit unions in Caspian. The right tools will help credit unions make more sales. But use of the third party tools will be at the discretion of the individual credit union.

What if a credit union tries Caspian, then wants out? Their data remains their data and there will be a mechanism for a frictionless exit.

When can a credit union dive into the Caspian lake? Right now Caspian is in a proof of concept pilot involving four credit unions.  Ablack said he anticipated that Caspian will be thrown open to more credit unions in Q4 of this year.

Credit unions that want to win the war against big banks and community banks need to mark their calendar.

 

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.”

Indeed.

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.