credit union

Do Your Members Understand A Credit Union Is Not a Bank? – The Credit Union Exchange http://bit.ly/2fYYsEQ

By Robert McGarvey

 

Just maybe the fast track to greater credit union success is staring just about every credit union in the face and that’s the cooperative next door.

Mark your calendar. October is National Cooperative Month and, by some counts, there are around 40,000 cooperatives nationally that are joining in the celebration.

What are you doing to celebrate?

Core advice is get busy putting together cooperative events with other co-ops to celebrate your community, also your cooperative essence.

Do your members know you are a cooperative?  This month is the time to remind them, and to help them recognize that in lots of ways America’s economic success has roots in the cooperative movement. Lot of ideas are at the National Cooperative Business Association. Here are plenty of suggestions for co-op month activities.  

But what I want you to mull is a stretch goal: How about making every month a Cooperative Month in which you look for ways to celebrate the cooperative difference and how cooperatives benefit their communities.

It’s about ownership by members, not shareholders, and the foundation of every cooperative is putting people before profits. That’s a message that resonates especially loudly today and it’s a message that is ideally suited to Millennials. Millennials, the pollsters tell us, want to do business with people they trust and 40% say they want to buy locally.

How does that not say now is an ideal time to be a credit union? How does it not say that when Millennials understand what credit unions are about – local, member ownership, people before profits – they will want to become members?

And other cooperatives will help you get that message out loudly and persuasively.  In many cases you just have to ask for help.

Know this: Cooperatives are a key part of the American economic fabric – and by accentuating the cooperative backbone of every credit union, a savvy credit union can leverage that DNA to build better relationships that stimulate growth.

Who to partner up with? Look at the National Cooperative Bank’s annual list of the top 100 cooperatives.  You’ll know a few names.  Navy Federal places 9th on the list.  State Employees Credit Union in North Carolina ranks 37th. Pentagon Federal is 65.  BECU is 88.  

That means most of the nation’s biggest cooperatives are not in fact credit unions.  What many are is agriculture cooperatives (Sunkist, Cabot Cheese, Land o’Lakes and Blue Diamond are among the better known).  Many are in retail – think Ace and True Value.  There are numerous electric coops, which remain essential in electrifying huge swaths of rural America.  

What’s important – and exciting – about these cooperatives is that they are succeeding and they are rooted in cooperative principles.  

And many just might want to join with you in celebrating what makes cooperatives special.

Paul Stull, CEO of the Credit Union Association of New Mexico, told me: “Credit unions have access to the power of the cooperative.  They can share ideas, technology, employees.  They can enjoy great value through cooperation.”

Indeed.

Another suggestion: look for cooperative partners where you already shop and spend money.  If you are a customer of REI, ask the store manager.  If you buy your nuts and bolts at ACE, ask the local owner.

How can other cooperatives help you out? The big agricultural cooperatives are well known for a willingness to provide product samples at some meetings.  Ask and you may receive a bounty. That’s just one for instance.  Think creatively and there are plenty of ways for a cooperative to help another.

The real point: it is too easy for a consumer to see a credit union as a kind of one-off, eccentric and small bank – but hit home the message that a credit union, as a cooperative, is part of a large movement that aims to put more power in the hands of consumers and also in many cases workers, many in the public will applaud the idea.

What had seemed small and eccentric instead is seen as something that is part of a big movement that empowers those who get involved.

Want another starting point? Put on a quick workshop for employees that reminds them that the credit union is in fact a cooperative and that puts it in a tradition that traces back to the Rochdale farmers and their struggle for a better life in the 1840s.  

And urge employees that where appropriate – in new member onboarding for instance – that they get across the message that a credit union, definitionally, is part of something big and glorious.

Don’t assume they know all about this. Many probably don’t. So building a stronger cooperative movement can start with a little employee education.

And just keep building one cooperator at a time.  

 

 

By Robert McGarvey

 

The multi-factor authentication tools your credit union implements may win you members – but the wrong ones just may cost you members while driving away mobile and online banking users.  It’s also very, very possible that soon authentication will become a key battleground in member retention.

That’s how important multi-factor authentication (aka MFA) has become in today’s financial services.

Passwords plainly are broken.  Between epidemic breaches – Equifax for instance – and rampant user laziness (such as using the same password at multiple sites), a password alone is not adequate protection for most accounts involving money.

Enter multi-factor authentication which, often, rides on top of a password. The password may be adequate for low value tasks but when bigger money is on the line, it’s time to bring out multi-factor to provide beefed up protection.

FFIEC provides interesting insights into the role of multi-factor authentication in financial institutions:  “A common example of two-factor authentication is found in most ATM transactions where the customer is required to provide something the user possesses (i.e., the card) and something the user knows (i.e., the PIN). Single factor authentication alone may not be adequate for sensitive communications, high dollar value transactions, or privileged user access (i.e., network administrators). Multi-factor techniques may be necessary in those cases.”

Plainly we have entered an age where consumer expectation about the availability of multi- factor has vaulted ever higher. Personally I use multi-factor on Amazon.  I also have it setup on Google.  So of course I expect it, and use it, at Affinity Federal Credit Union.

Understand this however: there is ample evidence that many consumers rebel against MFA that is deemed too cumbersome, too much of a hassle.  It’s something of a double-bind. They want to feel protected by their financial institution but they also don’t want to feel hassled.

Yet good, trustworthy MFA increasingly looks to be critical in fueling credit union account growth, especially usage of lower cost digital channels (online and mobile).  But lots of Americans shy away from online and mobile banking because of fears of data insecurity in the digital channels. Multi-factor can be the cure.

Mark this as a key 2017 challenge: offering members MFA they will use, gladly, and that leaves them feeling their financial data are safe.  

That is easier to say than to deliver.

Increasingly, multi-factor offers a choice among something the user knows (a PIN perhaps, or a favorite teacher in grammar school), something the user has (a cellphone perhaps or an ATM card), and something the user is, that is, a biometric solution and gaining traction there are fingerprints of course – think Apple Pay and Touch ID – but also retinal scans, which have gained popularity at money center banks (particularly Wells Fargo).  

More attention nowadays is going into biometrics because, thanks to Apple, more of us are comfortable using a biometric tool to perform a financial task and, to most of us, biometric factors seem beyond the reach of most criminals.  

What should you offer? Best advice is to offer members a choice of multiple tools and let the member decide.  Some people still think retinal scans are creepy, others have seen it at high security office buildings and like them.  There is no disputing member tastes.

Put out a menu of maybe five or six tools and let members decide what they like.

Key is that what they use cannot seem intrusive or a hassle – to them. They get the only vote that counts.

Also good are protective tools the consumer may be unaware of, such as looking for trusted, known devices and trusted, known locations. When a member who lives in Phoenix, AZ is signing into a sharedraft account at a local credit union, that institution can breath easier when it recognizes the computer and the member location – and the member has no need to know these checks have been made.

Key also is providing flexibility. A member may like using voice as a biometric when signing into the credit union in the early a.m. from home – but probably would think it weird when signing in from a busy Starbucks at noon.

Give members choices and they will use them.

Also stay on top of news developments and, definitely, there is news in the multi-factor space.

A sore spot to watch is SMS which, frequently, figures into multi-factor authentication, where a PIN is sent to a registered cellphone number. The user then inputs that PIN at a banking site.  But – increasingly – there is evidence that smart crooks have figured out how to simply steal cellphone numbers and thereby hijack the SMS traffic.  Worries are big enough that the National Institute of Standards and Technology (NIST) has begun to back away from SMS, as awareness grows that the safety of the cellphone channel is in doubt.

Right now, cellphones and SMS remain integral in the multi factor techniques deployed by most financial institutions but smart money is betting that will change unless cellphone carriers impose better processes to safeguard number transfers.

Note: this author recently transferred a number from one carrier to another and from one device to another and, frankly, the process was frictionless – which has to raise security worries.  But – again – it would be easy enough to erect some hurdles in the process and that might restore confidence in cellphone SMS.

The message there: stay on top of developments. Crooks are energetic in hunting for new weaknesses to exploit. Credit unions have to be as energetic in their self-defense tactics.

Want more ideas about what tools to use? Good advice is to look at leaders in the field and recent ratings from Javelin Strategy & Research heap particular praises on USAA, Wells Fargo, Bank of America, Bank of the West, and Fifth Third when it comes to preventing fraud involving member accounts. Only the very largest institutions were compared so don’t look for credit unions.  

Are your tools in the same class? They should be. That’s how to keep members.

Meantime, CU-2.0’s Kirk Drake pointed to emerging tools that credit unions need to know about.  Said Drake: “Using things like DAON, AnchorID, DUO, Averon, etc. really allow you to elevate the member experience while increasing security.” 

The point: credit unions have a growing number of authentication options. New ones are emerging. Learn about them, use them.  This just may become a key battleground in member retention in the years ahead. Falling behind is not an option.

 

Reinventing credit unions for the 21st century: A conversation with Kirk Drake – CUInsight http://bit.ly/2w6ibJl

 

By Robert McGarvey

 

“Oh, I couldn’t belong to a credit union.  I travel too much. I need to be able to do my banking wherever I go.”

I hear that a lot from business travelers when they learn that a primary work interest of mine is credit unions and that’s because I view the member owned institutions as honest and decent and usually community minded.

So how do I travel and also depend upon credit unions for the bulk of my banking when most are hyper community focusd with a handful of branchs?

Know too that the nearest branch of my primary credit union, Affinity Federal, is about 2400 miles away in north Jersey.  I moved to Phoenix from Jersey City five years ago and took Affinity with me.

Why? I had BillPay set up. I had the Affinity account set up to receive direct deposits from many clients.  It also works with my person to person payment network accounts. I could unravel all those strings but why?

At the Affinity website I input my zip and up pop dozens of ATMS where I have surcharge free access – mainly at 7-11s, by the way – and there are also a few nearby credit unions where I can enjoy what’s called “shared branching” and that means I can make deposits.

Mobile Remote Deposit Capture – snapping a photo of a check with a cellphone – lets me refill my accounts with a few clicks.  I don’t even need to walk to a nearby ATM to make a deposit. I do it at my desk.

CO-OP, the company that manages the shared branching network, says it has 5600 locations. That’s second only to Wells Fargo with 6100.  It’s ahead of Chase with 5300 and Bank of America with 4300.

That means my north Jersey credit union has a more convenient footprint than just about all banks.

CO-OP also has around 30,000 ATMs where there is surcharge free access.  About 7500 also take deposits.

CULiance runs another ATM network numbering some 300,000. This is the country’s largest surcharge free ATM network. (For the record, I do blogging for this company.)

Among banks, Chase operates the biggest ATM fleet with around 19,000 machines.  B of A has around 16,000.  

So, you see, a credit union actually provides more convenient access than any large bank.

Oh, even if you travel abroad, your credit union ATM card will work as well as a bank’s.  I’ve used mine in Italy, Germany, Spain,the United Kingdom and other countries I am blanking on.  No problems. Note: Joe Brancatelli pointed out to me that just about no cedit union offers surcharge free ATM access abroad. If that’s important to you, shop accordingly.

Not all credit unions belong to CO-OP or CuLiance.  Most do – thousands of them. But ask before setting up an account if far-flung ATM access matters to you.

Can you do everything at a credit union that you can at Chase?  Nope. Maybe at a handful of the very biggest credit unions but maybe not. Navy Federal is the largest credit union and has been for some years; its assets are around $81 billion. J.P. Morgan Chase’s assets are about $2.5 trillion.  That’s a lot bigger and I know just about any banking need, in just about any corner of the globe, can be handled inside Chase.

But the other reality is that for most except the 1%, credit unions have ample services and products.

Truth is, I also have a Chase account which I have because I write about banking and Chase is a good one to study.  It’s also convenient – there are two branches near me – when a deposit is above my MRDC limit at Affinity (and, yes, I could get it raised with a phone call but why bother).  And I used Chase to handle a six-figure wire transfer in association with a real estate purchase a few years ago because it was easier to do it in branch and I also happened to be in Las Vegas at the time  and a Chase was a short cab ride off Strip.  

Could I get by without the Chase account? Yep.

But my suggestion isn’t to burn all bridges with money center banks.  It’s to open a credit union account and see what it’s like to bank in an institution in which you are an owner.

 

 

 

By Robert McGarvey

 

Ask credit union executives about big data and what you are most likely to hear aren’t cheers of approval but grumbles and that is because many institutions have shoveled money into big data initiatives but have enjoyed scant benefits.

That’s fact: big data plays require a lot of thought, planning and sophistication to do successfully. It is very easy to get this all wrong.

But also know that from Amazon to the money center banks there’s a rush to harness big data in order to better serve customers and in that way make more sales.

The whole concept of big data may in fact seem to fly in the face of a lot of what credit union executives believe their businesses are based on, that is, face to face interactions with friends and neighbors whom we know and therefore who needs big data?

Credit unions do.

I’m looking at a ranking of credit unions by membership and the leader has 4.7 million members. Over 50 credit unions have more than 200,000 members.  These numbers are way past the old beliefs about friends and neighbors.

Nobody is saying to ignore personal interactions. Cherish them.  They are indeed some of what can make credit unions special. But also embrace the big data driven insights that let an Amazon recommend exactly the book you had been wanting to read but didn’t know it existed.

For a credit union, the right data analytics can deliver powerful results. In a white paper sponsored by Filene, Philipp Kallerhoff observed: “What and when people buy and how much debt they’re carrying can indicate how likely they are to upgrade (or close) their accounts. The cluster analysis undertaken here can predict the next best product with 30% accuracy. “

In other words: credit unions can enjoy the same kinds of data analytics triumphs as Amazon.

That’s easy to say but many credit unions will tell you hard to do.

But tune into what experts at OnApproach – a data focused CUSO – are saying. Read this stark observation in a recent OnApproach blog: “The financial services industry is facing a period of sweeping changes in the forms of fintech disruption, challenging regulations, and evolving member preferences and expectations. In order to remain relevant in this new arena, credit unions must be able to integrate and optimize data.”

Harness your data – or maybe face extinction.

You face many challenges.  Data may be the cure.

Where do big data initiatives go awry?  You remember that old saying: Garbage in, garbage out.  

OnApproach’s Austin Wentzlaff blogged this: “ In a credit union, data is coming from many disparate sources from all facets of the organization. In order to overcome this, a data warehouse is essential. However, when a data warehouse tries to combine inconsistent data from disparate sources, it encounters errors. Inconsistent data, duplicates, logic conflicts, and missing data all result in data quality challenges.”

Data comes in two piles.  There’s what you might call little data – this is structured data that comes in known forms, such as the data created in a core system.  It’s rather easy to process but the problem is that it gives only a one dimensional view of a member.

Enter big data which, by definition, is unstructured and voluminous.  Think all the data on Facebook or Instagram or Twitter, plus SMS messages, maybe email, and a whole lot more.

Marrying those two heaps of data is the rub – but it also is critical. Austin Wentzlaff noted, “In the world of data and data analytics, credit unions must leverage all the data accessible to them.”

Yep.  Insights come to those that gather all the information they can.

But making use of it isn’t easy.  Austin Wentzlaff sketched a how-to road map: “Credit unions should start with the structured data within their own operational systems by developing the data infrastructure to manage, store, and analyze the data. Once the credit union has all of their structured data in a single repository, planning should begin to leverage unstructured data from available data sources.”

He added:  “If the data warehouse does not support the move from structured data to unstructured data there will be a serious loss of value. While both Big Data and Little Data are extremely powerful, the marriage of the two is where the real value lies.”

One estimate is that maybe 5% of credit unions have their data in good enough shape to get real value from big data analytics.

That mean 95% don’t.

Big pushes in 2017, at least at the money center banks, are the rise of machine intelligence aka artificial intelligence.  But getting there requires rich data the machines can readily process – and for many credit unions that takes them back to square one.

What needs to happen to actually make use of all the data a credit union has?  The data – basically – has to be massaged into a usable form.  Frequently that means putting the data into a data warehouse and the core concept is that data can be manipulated – rearranged and cleaned up – without fundamentally distorting its meaning.

Huge progress has been made into this regard.

Many projects are still failing but, said experts, the primary cause now is because they are underfunded.  Good data scientists and their tools don’t come cheap.

Does that mean only the very largest credit unions can make use of data analytics? Nope.  Data analytics skills are become more widespread and at the same time there are more options available.  Some credit unions are hiring internal data scientists.  Others are contracting with large vendors. Still others are working with CUSOs to attempt to keep costs down.  Either way, there are many more data focused companies aimed at credit unions and community banks.

The best advice: start now to set big data goals. Such as? A common goal is how to get smarter in offering members new products – which Filene already tells us is prime for a big data revolution.  Know too that the money center banks are investing heavily in exactly this. They want to offer a customer a car loan minutes before he or she walks onto a dealer’s lot.

A credit union needs to stay determined to develop that same sort of timely pertinence and, very probably, the answers are in fact already in the data that’s on hand.

Ditto for when is the right time to offer a member a CD, a new credit card, maybe an upgraded share draft account.

The answers are in the data when you know how to harvest and analyze it.

Make 2017 the year you put big data to work for you and your members.

By Robert McGarvey

 

Call this a tale of two kinds of credit unions – and know that there is no simple answer to the question: Is a path to survival for credit unions to outsource many IT functions?

A reality is that many credit unions – especially smaller ones with assets under perhaps $250 million, roughly 80% of all credit unions – have targeted outsourcing as a key tactic in an environment where providing basic technical services has gotten ever more necessary and also expensive.

But another reality – more details later in this piece – is that many bigger credit unions (with assets over $1 billion, roughly 300 out of the nation’s 5800 credit unions) are going the exact opposite route, seeking to differentiate by offering customized, personalized tech.

Both groups may be doing exactly what’s right for them.

They also wind up on very similar paths.  Eventually. Because there’s a lot to like about smart outsourcing regardless of credit union size.  The crucial word is “smart.”

The Outsourcing Benefits

It’s about saving money while getting IT that’s as good as, maybe better than, what can be done inhouse.

Here are the top places where credit unions outsource:

Core systems.  About 2500 credit unions, nearly one in two, now get core processing through a hosted or service bureau solution. The core itself resides outside the credit union. So do the employees who work on it and they in fact typically are employees of the hosting company.

Experts say many credit unions can cut their core costs by 25 to 50% with a hosted solution.

Going the hosted route involves trade offs. Independence is lost. It’s not a solution that would work for every credit union.

But for many smaller credit unions, hosted cores are a lifeline that let the credit union provide members with the services they want but at costs the credit union can afford.

Compliance.  Amid the thicket of federal requirements – involving everything from the Patriot Act to BSA – more credit unions are turning to outsourced solutions, sometimes provided via state leagues.  The big advantage is that the credit union stays compliant with regulations that it may not fully understand.  

Mobile banking.  Mobile may be the primary channel in future years but, right now, of the credit unions that offer members a mobile banking app about 98% use off the shelf packages where the technology and much of the servicing is done by a vendor.  

One vendor has about a 25% market share, and that means one in four credit unions use essentially the same app.  But the credit unions that use off the shelf apps like the convenience and reliability.  

CISO as a service. CU 2.0 founder Kirk Drake talks about how many credit unions would benefit if they turned over the bulk of their IT security to an outsourced provider. That would mean lower costs and very likely higher skill levels.  As the tech IT battles intensify, the need for ever better security climbs.  Watch more credit unions explore third party CISO alternatives.

Inventive credit union leadership is finding still more places to outsource. That’s because outsourcing brings benefits to credit unions.

The real benefit may be that when a credit union uses outsourced solutions for many functions that frees management to focus on improving core competencies which, at a credit union, revolve around better knowing and servicing members and finding ways to upsell members into more services.  All of this is hard – especially because the competition in many cases are money center banks with vast resources.  That’s why success is more likely for the credit unions that go after member focused improvements with their full energy.

The Other Perspective: Homebrewing Tech

Just as many credit unions are looking to outsource more of their functions, some are looking to bring work back inhouse.  Case in point: Congressional Federal Credit Union where CTO David Hufnagel told me that in fact he planned to introduce a home banking product that explicitly gives him substantially more opportunity to offer custom features.  Why? “We want to differentiate ourselves in the market.”

Hufnagel is right. Custom home banking is a stand out because it is rare. A handful of vendors provide the bulk of off-the-shelf home banking tools.  

As digital becomes the primary channel, institutions like Congressional Federal are exploring the how-to of taking more control of those channels so that they can own the member points of contact.

That’s smart.

Congressional Federal also has a membership with an unusual trait: most are paid once monthly and that, said Hufnagel, introduces special challenges for members.  He wants more digital tools that can accommodate that pay schedule.

Congressional Federal is not alone in this charge. For instance,  a growing number of large credit unions – generally with assets over $1 billion – are now deploying home-brewed mobile banking apps.  They cite the ability to customize, both the look and the tools, as the key driver.

They also like having a mobile banking app that is not twin to the many thousands of other apps in the Apps Store.

In many cases, incidentally, taking back control of mobile banking will reduce costs because most third party packages involve per user fees and as the number of users climb into the hundreds of thousands, for some credit unions million, those monthly checks are tough to write.

How many credit unions are doing this, either with home banking or mobile banking? Perhaps as many as 100.

That number will grow as credit unions differentiate themselves as a central competitive strategy.

Your Road Ahead

Just maybe the biggest and smaller credit unions have more in common than they might think.

Here’s the irony. Probably the smart move even for credit unions that want to bring back inside tools they consider mission critical – such as home banking or mobile banking – is to outsource technology that is not mission critical.  That puts this tech in the domain of a company that does it for a living and frees the credit union to focus on the areas where it can in fact differentiate itself.

There have not been many members who have praised a credit union for its Bank Secrecy Act compliance.

And just about no member knows what a core system does.

Start looking for services and technologies to turn over to third parties.  And put a stronger focus on touch points that matter to members and make these places where the credit union can puts its own spin on what it provides.

Look for ways to differentiate. That’s how to stay ahead in the 21st century.

The 21st Century ATM – The Credit Union Exchange http://bit.ly/2wMzTm9 My reporting

Credit unions and new tech – my reporting: http://www.nxtbook.com/ygsreprints/NAFCU/G80296_nafcu_septoct2017/index.php?startid=18#/20

What the public gets wrong about #creditunion matters – CUInsight http://bit.ly/2vGy4oO My reporting