CU 2.0 Podcast 38: Futurist Thomas Frey on Credit Unions Tomorrow

Welcome to episode 38 of the CU 2.0 Podcast. Today is all about the future of banking and Credit Unions.

Will your credit union be in business in 2029?

The question is not academic and it’s exactly the kind of question futurist Thomas Frey chews on. We first heard him at Co-Op’s Think ’18 (video here) and the conversation picks up where that presentation left off: what’s the future of the car business?

And know that the answer directly impacts credit unions.

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Crying Out for an End to Overdraft Fees? Meet Grain Technology

Probably the single most despised charge at financial institutions is the overdraft fee – and a NerdWallet survey of the exact charges imposed by a selection of mid-sized (Navy Federal) through mammoth (Chase) institutions found fees at $20 (Navy Federal) and as high as $39 (KeyBank).

$35 is a particularly common charge in the survey.

Rapacious greed.

Ask yourself this. You present a Visa card at WalMart and the card is declined (and you know it’s because the balance is overextended and a payment is late).  Does the cashier say, “Sorry, bud, card declined and now you owe us another $35 for being a nuisance.”

That does not happen.

You walk out without your purchase, but you aren’t dinged for a nuisance charge.

Overdrafts are different. Charges are the norm, even though at the financial institution, all that happens is that bits and bytes shuffle around on a computer screen.

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When the Credit Union “Human Advantage” Adds Up to Zilch

By Robert McGarvey

For CU2.0

artificial intelligence

Ask credit union senior executives how they plan to beat banks and – I have heard this every time I have asked – they say “our people.”

They elaborate that their people are good, kind, caring credit union people, from the community, and this will be the deciding weaponry in the upcoming wars.

Sigh.

There are so many problems with this thinking it is hard to know where to start.

And I am a person who in fact believes that many credit union people, in fact, are good, kind, caring.

That’s not the problem.

The problem is a two-headed monster that is set to devour that credit union narrative.

Increasingly, the busiest branch is the online website and the next busiest is the mobile app. Personally, I have never been in a branch of my chief credit union (whose nearest branch now is on the other side of the country from me). I have called maybe twice in the last five years.

Are they nice people? I guess. I really haven’t had much to do with many of them. The CEO, whom I know, is and as long as he responds to my emails (which have never been about personal account issues) he’s a good guy in my book.

But I like the mobile app, I like the online banking, and they introduce new features fast enough to keep me from getting frustrated (and, yeah, I have a Chase account too and Chase keeps me in the fast lane).

Here’s a factoid from the latest Digital Banking Tracker via Pymnts: “Mobile banking apps are more popular than ever, with recent research indicating they have become one of the three most used app categories in America as of 2018.”

According to the Fed, in 2017 about half of US adults with a smartphone had used it to access banking.

The digital access numbers are just going to explode in the near future.

The more digital we become the less human interactions matter.

And then the second shoe drops. According to that same Pymnts publication: “Bank of America, just two months after its release, is celebrating the one-millionth user of Erica, its app based, artificial intelligence (AI)-enabled chatbot. Erica is designed to meld AI, predictive analytics, and natural language to serve as a virtual financial assistant.”

AI is going vertical, it is changing how we interact with so many elements of our lives.

AI also is becoming human plus.

In a talk at the recent WOCCU conference in Singapore, keynoter Shivvy Jervis warned that digital technologies – think Erica, Amazon’s Alexa, etc. – are becoming “more human.”

You bet.

She added: “Even as we are becoming more digital, I believe digital technologies are becoming more human.”

And we are embracing them.

Hotels, for instance, are racing to equip rooms with Alexa to answer our questions (when does the restaurant open for breakfast?) and to perform simple chores such as raising the room temperature and turning off the desk lamp. We are becoming accustomed to dealing with these digital intermediaries – I have three Alexa’s in my house plus a Google Home device – and we like them.

Why should I call a human to find out if a check cleared when I can ask Alexa? Many, many credit unions now are rushing to go live in Alexa and what this adds up to is a lessening of the importance of the human face of the credit union.

Nobody is suggesting that humans aren’t important to credit unions and their members. Of course they are, and that is why I urge credit unions to invest in retraining branch employees to move from transaction processing to financial consultants.

People can – and should – be a credit union assets because members will still come into the branch and call into the call center. It’s just that fewer and fewer of us will depend upon those channels as primary avenues for financial services.

That means the smart credit unions – the ones that will survive – are investing in their digital transformation. That is the future of financial services, that is where the wars will be won. Take a deep dive into big data, into mobile banking, and – absolutely – into AI tools such as Alexa and more.

A decade from now it will be considered absolutely normal to talk with a computer about one’s finances. You need to be there sooner.

And you need to accept that tomorrow’s battles won’t be won just because you have “the best people.” Which you may have. But a lot more – mainly digital – will figure into choosing winners and losers and you need to be in the thick of that game to remain a competitor.

Be there.

Want to learn more on artificial intelligence (AI)?

Must a Credit Union Hop on the AI Train? 

Digital Transformation and the Old Fashioned Con 

By Robert McGarvey 

For CU.20 

 

Suddenly there is a stampede of self-professed experts who want to guide your credit union through its digital transformation. 

Just one problem: quite a few of the experts may be bluffing.  Or full of wishful thinking. Or maybe they are just plaindigital transformation con artists. 

It puts me in mind of Odysseus and his voyage past the Sirens in the early part of Homer’s classic poem.  They sing enticing songs but sailors who heard them and sought to get nearer were lured into shipwrecks.   

What did Odysseus do? He plugged the ears of his crew so they wouldn’t hear and he had them tie him to the mast so that even when he heard, he couldn’t act. 

Some credit union CEOs really should think about having themselves tied to the vault to prevent them inking a digital transformation deal, and plugging the ears of other executives might not be out of line. 

Not when so many tempting, sweet songs are getting sung. 

Face this reality: just about every credit union needs to be plunging into a digital transformation because how and where and when we bank has been undergoing massive change in the past quarter century and the changes will continue.  Almost certainly, for instance, the main banking touchpoint for most consumers will become a smartphone.  For many it already is.  Many of us no longer write checks.  Many haven’t been inside a branch in a year or more.  The changes keep on coming. 

Credit unions need to react, to respond, to plot a path through the digital tomorrow.

Many credit unions won’t survive.  They won’t transform fast or thoroughly enough. 

But credit unions actually are well positioned to digitally transform – once they decide they want and need to, 

The typical credit union can be more fleet footed than most banks.  Banks have vast legacy branch systems that increasingly seem like so much deadweight.  But many bankers, by virtue of their personal pasts and their institutions’ balance sheet, are wed to their branches.  They will pay a price for that. 

How should a credit union digitally transform? 

It starts by knowing yourself. What does the institution stand for? What does it want to be in 10 years. Who are your members? What do they want from a financial institution? 

The next step: look at the institution’s digital contact points and ask how they can be better? Most credit unions have blah online banking, their mobile banking is equally blah, and, sure, there are plenty of excuses about this – but it’s probably not going to be good enough. 

Today’s comparison isn’t with the community bank down the street. It’s with Chase and, even scarier, with Amazon, Netflix, and the other big online players. Can you digitally compete with them? 

What’s your busiest branch?  Your online banking site. And the mobile app is the next busiest.  How much time do you spend optimizing those channels? 

You also need a digital marketing strategy, probably built around Facebook, definitely also a lively website. 

A small sign in front of a branch is not 21st century marketing. 

Most of us will start, and end, our search for financial institutions online. You need a plan for gaining visibility there. 

You can’t do all this alone? Just about all credit unions will need to bring in fintech partners – but know that last year’s technology partners may not be right for helping chart your digital transformation, 

Many credit union technology vendors reap profits from the status quo which, frankly, as far as technology goes is primitive in the credit union world. But the profits say it’s not in their interest to rock this boat and so they don’t. 

Understand this: it’s simply crazy that you can’t use the mobile banking platform you want because it doesn’t easily or cheaply interface with your core  And so a system that may be 20 years old, or is it 40, is dictating the technology landscape? 

But so it goes at many credit unions. 

What vendors can help you?  Search for partners with rich fintech cred.  Worry less about credit union bona fides and, for many credit unions, their first question always is, what credit unions have you worked with? 

That may not be good enough. 

What you want are guides who can lead you into and through the digital wilderness.   

Pick wisely.  But pick boldly. 

Some years ago the CTO of one of the world’s biggest banks told me what he did when his CEO tasked him with getting a mobile app for the bank.  He downloaded many of the most popular apps at the time, spent a weekend absorbed in them, went to the office on Monday with a list of the 10 or so he liked the best.  None of those apps were at banks. Not a one. He put HR on finding out the names of the key developers, they called in people for interviews, and within a week or so he had assembled a project team to get his bank on the phone. 

Was he concerned that none of the developers had banking experience? Not in the slightest. His bank, he said, had hundreds of executives who could add in banker smarts.  What he needed was people with digital smarts and he knew he wouldn’t find them at banks. 

Do likewise is my advice. 

Want inspiration for a credit union transformation? Read the story of Partners FCU.   

Credit unions are doing this.   

You can too.

QCash Financial Aims to Eradicate Payday Loans

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. 

 payday loans credit unions

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 charge-off 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 in-house 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. 

Bottom line 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.