What is your take on the barrage of fintechs today? There seems to be an app for everything, a software as a service, a product as a service, a solution as a service, and even a Chief XXX Officer as a service.
The credit union industry is changing, whether we like it or not. We speak with members over social media. We automate tedious processes. Some of us are experimenting with AI.
These technology trends are going to continue. And they’ll continue to affect our industry.
Credit union membership growth! How do you measure it? It seems like a simple question, just like “where can I get the best burger in town?” seems like a simple question. However, once different interpretations of what constitutes a new member—or a good burger come into play—things don’t stay so clear.
I have been on the Board of Directors at South Bay Credit Union for the last 11 years. At almost every board meeting, our COO delivers the monthly new member report. We seem to grow by a certain percentage each month, yet we have had roughly the same number of members for the last decade. How does that happen? Member attrition.
Understanding Credit Union Member Attrition
Member attrition is not a focal point of many credit unions. It certainly wasn’t for SBCU until just last year. I don’t know why I had that epiphany about focusing on attrition, but I did.
It forced us to focus on why members were leaving, which members were leaving, and where they were going. In my opinion, there are members whom we don’t mind leaving. Let that sink in for a minute…
Not all members are good members participating in the cooperative. Just like a team is only as strong as its weakest player, a cooperative is only as strong as its weakest link. Think of the Great Wall of China. It kept China safe for centuries until the gates were opened from the inside and the Mongols walked right into China and took over. The weak link was the open door in the hundreds of miles of brick wall.
Armed with the data on which members we were losing, why we were losing them, and where they were going, we were able to address a growth strategy in a tactical manner. Intuition is great, but data is factual. Using data, we were able to “farm” our existing members and cultivate those members to be our most profitable and highest participating members.
Knowing why members leave and which ones you want to keep allows you to fix the reasons why those members leave. The first step in membe
r growth is to stop the bleeding. You can add 50 new members per day, but if you’re losing 50 per day as well, you’ll never grow.
Credit Union Size vs Member Growth
Now that we have fixed the leak in membership, it is time to start adding net new members. Take a look at this study from NCUA. Can you explain to me why the larger the credit union, the greater the new member growth?
My guess is that the larger credit unions grow because of their ability to spend on advertising. TV, radio, print, online, etc. are all things smaller credit unions struggle to do at scale.
However, that is changing daily. We are moving from a one-to-many toward a one-to-one marketing environment. Tailoring the message to the individual potential member you are targeting is a much more cost-effective way of doing this.
Credit Union Member Growth via Smarter Advertisement
One-to-many marketing does work. It’s inefficient, but it does work. One-to-one marketing works better, though. If you know who you’re marketing to, you can ensure that you and your prospect are well-suited to one another.
To put it in terms you might be more familiar with, think of it as the RFP process. If I run a core provider or mobile banking provider, I probably get 50 or so RFP’s to complete each month. Some vendors will complete all 50 and hope for the best. If they complete all 50, they will likely get included in 25 searches, do 10 demos, and get 5 new clients. The more efficient vendors will evaluate all 50, score the potential for winning by developing an ideal prospect persona, reply to those 25 that fit their ideal client profile, do 20 demos and get 10 clients. Double the clients, half the work, a pretty good model.
New member acquisition is the same. You can advertise to thousands with your generic message, onboard as many as you can, and then have 40% of them leave because they are not a fit for your credit union (they are not your ideal member). Or, you can use technology to find the potential members that fit your ideal member persona, target them specifically, and onboard the same number of new members who will not leave. And you can do that for half the cost.
The first step is identifying your ideal member or persona, which you will have already done while examining member attrition. Then, find the right partner to help you put your message in front of them at the right time in the right context.
There are several examples of this being done and CU 2.0 would be happy to help you. Contact us here.
And, for the record, the best burger in town is from In-N-Out.
Phygital, it is a thing. And, it can be a very important concept in furthering the relevance of a credit union with an increasingly digitally savvy member base. As we walk down this digital transformation path as an industry, we overlook the physical aspect to competing digitally. Now, if you are of the mindset that financial institutions should have columns and vaults and project physical security, this may not be the best article you read today. However, if you are pouring money into competing digitally, this will interest to you because a bottomline message is that even in a 21st century digital world the physical still matters.
Some AHA! moments to consider. Have you flown lately? What is your impression when you get on an older United plane with no in-seat video, no Wi-Fi, or no personal device entertainment? Now, what is your impression when you get on a newer United plane? Or a Virgin America plane? It goes beyond them simply having Wi-Fi or PDE. It is the physical appearance of the cabin as well. What does the lighting look like? Is it industrial white lights? Or, is it lights with color, tone, ambiance? You are taking the same flight from LAX to DFW, but it is a completely different experience when the physical appearance of the plane is combined with the digital amenities you need.
Think about first impressions. I tend to make snap judgements when I walk into any type of business. From coffee shops to credit unions to fintech startups, when I enter a building for the first time I immediately decide if this business is tech savvy. And it has a lot to do with the physical appearance. Is the furniture older than I am? Little things too, like the keyboard. Think about that, does your keyboard look the same as it did 20 years ago? No, it does not. It is rounded, cordless, and smaller. Even something as innocuous as a phone can send the wrong message. What does that phone look like? There are a ton of millennials out there buying homes and cars and having kids. These people don’t even know what a dial tone is, or a busy signal. Many of them have never used a traditional phone. Telling them to dial 9 to get out is a completely foreign concept.
Now, think about your credit union. What do the branches look like? You may have the greatest mobile banking, internet banking, and digital marketing solutions around, but if your branches look like 1982 or 72 or 62 or even 1992, it might be time to update them. Have some secret shopping done. Hire a millennial to walk into your branches and provide feedback. It can be as simple as digital displays and as complex as selling older buildings off and starting over in new branches. For example, do you still have paper brochures in a display for members to grab? Is that really what people are looking for? Does your staff roam freely in the branch or are they confined to a desk with a computer? Enabling the staff to be mobile and digital is a big piece to the Phygital transformation. You cannot expect the members to adopt digital technology if the staff cannot adopt the technology. Each staff member could have a tablet with the capability to teach each member how to use the technology, email or text the member information, open accounts or perform transactions from the entire branch. Telling a member they have to go sit with Suzy Loan Officer or Tommy Teller to do a specific transaction is not exactly confidence inspiring. However, having a staff member with nothing more than a tablet being able to walk the member through every possible thing they could do in the branch is a confidence inspiring approach.
Have you ever watched an Apple product introduction? Here’s one. Apple wants to be seen as the digital company. But it also projects a sleek but appealing physical image. Everything is sleek, contemporary, inviting and if you think anything you see is there by accident, think again.
Nobody is saying that your credit union has to look like an Apple video. But take a lesson from Apple and know that appearances do matter. So do first impressions. It’s a phygital world.
Want to know more about digital transformation?
A common question we get at CU 2.0 is, should credit unions partner with fintech companies. Then, if the answer is yes, how should the partnership work and which fintech companies should credit unions work with.
The answer is in fact yes. However, as with most things in life, the question goes deeper than you would initially think. For example, if you believe your credit union can develop code better, faster, and more customized than a fintech, then this article is probably not for you. If you are a do it yourself shop, maybe this is not a path you should walk down. However, if you recognize that you exist in a pretty big space with tons of players, please read on.
It is important to realize that innovation rarely, if ever, comes from incumbent vendors. Very little innovation comes out of the traditional, legacy core providers. As the internet continues to age, some of the early providers of mobile and online banking have aged with the internet to the point that they have such large existing books of business and backlogs of development that they cannot be viewed as innovative anymore.
Before we get started, we want to ensure you have the full picture. It’s important to know the difference between being a fast follower and being a company that is not afraid to fail forward fast. Being a fast follower is just a polite way of saying that you have no original thoughts and that you follow trends as soon as you find them. Failing forward fast does not mean that you court failure. It simply means that you take ideas (your own and/or from others), implement them, measure them, and move forward, whether good or bad. Despite what you may have heard, integration, while important, is NOT innovation, and waiting for a legacy provider to help you remain relevant, is not something a credit union should depend on.
Now that you understand the key concepts, here are several fundamental points to use when evaluating new technologies offered through fintechs. Be aware that fintechs are not following traditional revenue models. A basic traditional model involves a credit union paying their legacy provider a large capital outlay to acquire the solution then 20% maintenance on that solution in perpetuity. Oh, and don’t forget the 3%-7% CPI increases each year. Think about that, if you have been on a core solution for 12 years, how much are you actually paying? I would have to say it is much more than the market would bear today. Meanwhile, fintech companies, at least the good ones, would rather participate in your success. When evaluating a fintech solution, pay attention to the revenue model. If the fitech gets paid when you make money that is a winning solution. If the fintech want a large upfront payment and “maintenance” or “per application” fees, be leery. Almost all the fintech companies that CU 2.0 works with have a model in place that pays them based on the success of the credit unions that deploy their solution. For example, a provider of alternate loan decisioning and offers should only take a piece of the loans made when they are paid. The per application model is dead. This is just one example of hundreds of fintech ideas out there. Do your due diligence before partnering up with a fintech.
If you are a credit union evaluating whether to adopt or partner with a fintech, choose a fintech that wants to participate in your success and your members success.