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.

 

Why Overdraft Fees Cost You

 

In the olden days, yes, a bounced check was a hassle. It generated lots of paperwork. Many hands of many clerks got involved. Very probably, a fee was justified.

Not today. It’s all automated.

A few innovative, digital-first institutions (Simple and Chime for instance) already charge no overdraft fees. More will follow. But very probably, many legacy institutions will cling to the fees because it’s easy money.

Some credit unions have worked up their own ways to help members avoid overdrafts – Hope Credit Union tell about its tools in this podcast – but many smaller institutions don’t know exactly how to handle this issue.

So they charge overdraft fees, the old school style.

It hurts consumers. It’s terrible for a financial institution’s reputation. But it is easy money.

So now third party work-arounds are in the mix.

 

An End to Overdraft Fees

 

For the consumer, the message is simple: you can keep your legacy checking account but make yourself immune to overdraft fees.

How?

Meet Grain Technology, a start up in the Bay Area on a mission to stamp out overdraft fees and, in the process, help Thin File consumers create credit histories. Win win.

For the participating credit union, it’s plug and play. The member links the share draft account to Grain and Grain takes care of the rest.

And Grain has been invited to play in the Arizona fintech sandbox, where they may pilot its tools free from some regulatory constraints. The company already has plans to offer its tools to students at Arizona State, the nation’s biggest university.

Exactly what does Grain do? In a conversation with Carl Memnon, COO of Grain and a co-founder (hear the podcast here), the details emerged.

The building blocks are that Grain takes a new look at the consumer’s spending habits, income, and expenses. It generates a proprietary algorithm. This lets it predict when a consumer’s linked checking account is likely to go into overdraft and Grain can offer an injection of cash to inoculate against an overdraft fee.

The charge? Grain sees its APR ranging from 12% to 15.99% and it envisions cash injections typically ranging from maybe $25 to a few hundred dollars.

Result one: no more overdraft fees.

Result two: the consumer builds a credit history that Grain will report to monitoring agencies. For a Thin File young adult, that just may be a real blessing. Especially since many of those generations are averse to using conventional credit instruments.

Right now, Grain is looking to partner with credit unions that want to help members avoid overdraft fees. Most of those consumers, said Memnon, probably will come from the money center banks (with overdraft fees typically around $35 per incident).

What would prompt a BofA customer to ditch that institution in favor of a much smaller credit union? Just one overdraft fee could do it.  Especially when the recruitment pitch is that this tool will stop overdraft fees, period.

Memnon said Grain also envisions sharing its interest income with participating institutions.

All while essentially living up to the credit union mission of helping consumers manage their money better.

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 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. 

 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. 

He added: “The momentum is there. We just have to get more credit unions off their butts.” 

The Vanishing Credit Union Gets Bigger

By Robert McGarvey 

For Credit Union 2.0  

The April CUNA Mutual Trends Report drops a paradoxical bomb that leaves us confused: are credit unions getting bigger? Or are they vanishing? 

First the good news: more of us belong to credit unions, reported CUNA Mutual.  “Credit union membership growth was on a tear during the first two months of 2018, adding 850,000 new memberships versus the 650,000 reported in the first two months of 2017.” 

CUNA Mutual went on: “Credit unions should expect membership growth to exceed 3.5% in 2018. This will push the total number of credit union memberships to 117.6 million by year end, which is equal to 33% of the total U.S. population.” 

Roll back to 1960 and, per NCUA data, just 6 million of us belonged to federal credit unions.  A similar number belonged to state chartered institutions. That’s 12 million total, out of a US population of 180 million.  That’s about 6.7% of us, far below today’s one in three. 

Plainly, a lot more of us belong to credit unions now, probably because of expanding FOMs and also because many credit unions offer tempting deals – for used car loans, for instance, and in some markets home mortgages – that bring in members at least for those specific products. 

More credit unions also are working smarter and better at communicating that their membership is pretty much open to all. There remain some of us who believe they can’t join a credit union because they don’t belong to a union – but those numbers are shrinking. 

Member growth is good.  But do the CUNA Mutual data mean the credit union movement should pop open champagne and toast the good times? 

Maybe not. 

At least not just yet.  There’s more to digest in the CUNA Mutual data dump. 

Toward the end of the report, CUNA Mutual serves up these disturbing numbers: “As of February 2018, CUNA estimates 5,757 credit unions are in operation, down 240 from February 2017. The pace of consolidation in the credit union system is accelerating due to the following factors: retiring baby boomer CEOs, rising regulatory/compliance burdens, low net interest margins, rising concerns over scale and operating efficiency, rising competitive pressures, and members’ demand for ever more products, services and access channels. NCUA’s Insurance Report of Activity showed 9 mergers – 7 mergers were due to ‘expanded services,’ 1 for ‘poor[Text Wrapping Break]financial conditions,’ and one for ‘lack of growth’ – were approved in February with a merging credit union average asset size of $13 million. This is a fewer than the number of mergers reported in February 2016 with a merging credit union average asset size of $10 million. We are forecasting the number of credit unions will decline 250 in 2018.” 

Do the math. If the current rate of consolidation continues, by 2028 there will be a bit over 3000 credit unions. 

In 1960 there were about 10,000 federally chartered credit unions, per NCUA.   

As for the membership growth, CUNA Mutual sees it continuing, sort of.  “The membership gain was partly driven by the 502,000 new jobs created during January and February, according to the Bureau of Labor Statistics, and by the tremendous growth in credit union indirect auto lending. During the last few years credit union membership growth has been highly correlated with job creation with the seasonally adjusted annualized growth rate exceeding 4% over the last year. With job growth expected to slow slightly in 2018 to 2.2 million, we forecast credit unions to pick-up an additional 4.0 million members.”  (Emphasis added.) 

Many credit union executives, at least privately, of course grumble about indirect car loans because the “members” they bring in often limit their memberships to the car loan and they aren’t especially profitable. 

Add this up and what’s the meaning? Credit unions need to do a much better job of expanding their relationships with members.  It is great to have an expanding number of members, it is not so great not to be creating more solvent credit unions. 

The truly good news is that if one in three Americans belong to a credit union that is plenty of bulk to use to seek to grow the institutions organically.  For instance: get that indirect car loan borrower using a sharedraft account and a credit card and the credit union is onto something wonderful. 

The alternative is to join the thundering herd of dying credit unions, many of which are like wildebeest in the Tanzanian Great Migration, there essentially to be picked off by predators. 

Parse the CUNA Mutual data and just maybe the message is a double edged sword: grow membership, especially the right membership, and success may lie ahead. Or shrink into extinction. 

That is the stark choice in front of today’s credit union executives. 

News Flash: Mobile Banking Apps Now Among the Most Used 

By Robert McGarvey 

For Credit Union 2.0 

 

The Citi 2018 Mobile Banking Study told us what we should already have known: consumers love a decent mobile banking app.  And they use it a lot. 

How often? Citi said that mobile banking apps come in third, after only social media apps and weather. 

That’s based upon a survey of 2000 US adults. 

How often do your members use your app? 

The question is not theoretical.  It’s in your face, life and death.  If your members don’t like your app – and I personally dislike the apps used at the two credit unions I belong to – what’s your future look like? 

Almost half – 46% of consumers – told Citi they have increased their mobile usage in the past year.  Nearly two thirds of Millennials have done same. Expect that number to keep trending higher. As more of us discover that we can easily do most routine banking chores on a phone, we’ll migrate there – especially if we get the message that generally a mobile phone banking session (via cellular) is more secure than the same session on a Windows computer connected to WiFi. 

Citi threw more numbers at us. 8 out of 10 of us use mobile banking nine days a month. One-third of us mobile bank 10 or more times a month. 

91% of us prefer mobile banking over a visit to a branch – and don’t expect that number to decrease. Branches are dead, except for special purposes. If a consumer needs a wire transfer as part of a home purchase, sure, he/she may go to a branch (I did exactly that five years ago); it just seems simpler.  But for routine banking chores – including check deposit – it just is vastly more time efficient to do it in one’s home, work, or car. 

Personally I just deposited three checks via MRDC and transferred money from one account to another, all done at my desk, all done within five minutes. Going to a nearby branch would have eaten up at least 30 minutes and who has time for that? 

Not many of us anymore. 

According to Citi, we estimate we save 45 minutes a year by using mobile banking.   

“Mobile banking usage is skyrocketing as more consumers experience the benefits of greater convenience, speed and financial insights driven by new app features and upgrades,” said Alice Milligan, Chief Digital Client Experience Officer, U.S. Consumer Bank, Citi, in a press statement. “Over the past year we’ve witnessed this increase in engagement first-hand, with mobile usage in North America increasing by almost 25 percent, and we don’t see this trend slowing down any time soon.” 

Mobile banking users also told Citi they feel more in control of their finances.  95% believe they know their exact balance right now, compared to 85% of non users.  Citi elaborated: “Nine out of ten (91 percent) have experienced additional positive outcomes from mobile banking, including greater awareness of their financial situation (62 percent); fewer concerns about managing their finances (41 percent) and a better understanding of the services offered by their bank (38 percent).” 

Now for the bad news for you.  Read this: “Milligan added: ‘At Citi, we launched over 1,000 digital features in the U.S. in 2017, a nearly 500 percent increase over the previous year, and we continue to reimagine the client experience through innovative capabilities that deliver ease and simplicity for our cardmembers. In recent months, we have introduced a number of features to further enhance protection and security, such as face ID sign-on for the Citi Mobile App on iPhone X and email notifications when we detect unknown attempts to access customers’ accounts.’” 

How fast are your vendors upgrading your apps?  Judging by the ones at my credit unions I’d say not frequently. 

Not nearly often enough.  Not nearly enough to keep pace with the likes of Citi and Chase. 

Can you say better about your apps? 

You need to be able to,  That’s the reality for today. 

When I talk with senior executives at many credit unions a common complaint about their apps vendors is that upgrades come too slowly.  It’s rare that I don’t hear that complaint. 

But just maybe it’s no longer good enough just to complain. 

Take action to make faster – richer – upgrades a regular reality. That’s how to survive today. 

Consumers Say Boo To Your Digital Banking Products – Now What Do You Do? 

By Robert McGarvey 

For Credit Union 2.0 

The press release headline had me at go: “D3 Banking Technology Survey Finds More than Two-Thirds of American Digital Banking Users are Frust.” 

Nah, I didn’t know what “frust” means either.  The Internet tells me a secondary slang meaning is frustrated.   

And, you bet, I too am frustrated with credit union mobile and online banking – and I’m not alone, per D3, and that should definitely worry credit union execs. 

I have accounts at two credit unions. Digital products at both are inferior to Chase, where I also have an account.  If I could have only one account – and if I weren’t a big believer in the credit union movement – it would be with Chase.  I hate to say that. But it’s true and, thankfully, I am not limited to just one account. 

Chase is forever improving its digital products. My credit unions aren’t (and, yes, I know they are locked into their vendors’ upgrade cycles – but why accept that?).   

Five years ago just having mobile banking was good enough.  20 years ago just having online banking, however feeble, was cause for a celebratory press release. In 2018 that definitely is not enough. 

Not even close. 

D3 proves that with its Harris poll that surveyed 1600 digital banking users (who had used it in the past 12 months) and they were quick to vent. Two in three – 68% – expressed frustration with their digital banking experience. 

Count me among them. Yesterday I logged in to change the PIN of my debit card.  No can do in my credit union’s mobile banking app.  I eventually called an automated line and accomplished the task and how 1985 is that? 

Why can’t I do a simple, mechanical task like changing a PIN on a mobile phone – and, really, do you think call centers do a better job of screening out fraudsters? Ask Microsoft co-founder Paul Allen about that.   

Nor is there evidence to suggest doing this via online or mobile banking is inherently riskier than via a telephone call. 

So why can’t I do it? 

A bottomline reality is that in 2018 an increasing number of consumers want – indeed demand – that their mobile banking app and online banking let them do anything they could do in a branch visit. 

D3/Harris did find that there are age differences in expectations about mobile banking – but the differences aren’t as big as you might have hoped for. Said D3: “The survey revealed that digital banking users ages 18-34 are more likely than those ages 55+ to be frustrated with their digital banking experience, as 73% of the younger group indicated that they have been frustrated with their digital banking experience over the past year, compared to only 61% of adults ages 55+.” 

Even tho credit union members skew older, it is safe to assume 6 in 10 of them are dissatisfied with their mobile banking experience. 

For sure, too, members demand a feature rich digital banking experience: “The survey also found that more than half of digital banking users feel it is important for financial institutions to provide mobile deposit (70%), P2P services (66%) and mobile account opening (51%) as part of their digital banking offerings,” relayed D3. 

Here’s the frightening kicker: “32% of digital banking users report that they are willing to leave their current bank or credit union for a better digital experience.” 

That is blunt: one in three members who use digital services say they just may shift financial institutions to get better services. 

Mark Vipond, CEO of D3, observed that that’s the real issue here is “the number of American digital banking users – 32 percent as found in our survey – who are willing to leave their current banking relationship for a better digital experience. As new types of technology continue to be introduced, financial institutions are going to need a strategy built on technology that allows them to innovate and introduce new features and functionality faster than they have to date.” 

That’s the reality. Today consumers benchmark your app and website against Amazon, Netflix, Google and the other top digital services – and, sadly, at all but a handful of financial institutions the digital products are mediocre at best. 

What’s the solution: commit, today, to improving your digital offerings just about daily, certainly weekly.  Word of advice: smart credit unions are committing to continuous improvement of their digital offerings.  The era of a once or twice a year update is over.   

The path to credit union extinction is paved with complacency. 

Particularly with Millennials, credit unions have key positive attributes – they are local, they are community-minded, they generally are intimate scale, and they aren’t “big business.” All good. But will Millennials suffer a poor digital experience to do business with a credit union with bad online and mobile offerings? 

Most credit unions seem to be betting that indeed Millennials will. 

I don’t think they will. 

Do you? 

Mobile Banking Rules – and Where You Still Stumble 

By Robert McGarvey 

For CU 2.0  

New research out of Javelin, sponsored by identity specialist Jumio, makes plain multiple facts and the central one is that digital banking rules and it does so across generations.  It’s not just a Millennial thing anymore. 

Another key takeaway: most financial institutions – eyes on you – stumble in many key places, particularly in deploying mobile banking. This is eroding member loyalty: they will sometimes simply flee to another institution. 

And security concerns continue to be a bother for many users, according to the Javelin research. Despite the fact that generally a mobile banking session over a cellular network is much more secure than one over an online network.  No matter. A lot of users remain very worried about safety and digital banking and the smart institutions are addressing these fears. 

What all this means is that mobile banking – increasingly the channel that matters in banking – is where credit unions have to double down on efforts to compete with the money center banks and the fintechs that continue to nibble at the user base of smaller, legacy institutions (talking about you, Amazon).   

Al Pascual, SVP, Research Director and Head of Fraud & Security at Javelin Research elaborated: “To capitalize on the growing demand for mobile banking as millennials grow in spending power, financial institutions must simplify user experience and address ongoing concerns around security and fraud.” 

Dive deeper into the report and the results can surprise.  For instance, although 76% of Millennials now regularly use digital banking, 77% of Boomers do – and, yep, that says Boomers have greater acceptance of the channel. 

But Millennials are way ahead with mobile banking. 62% use it monthly, compared to 34% of Boomers.  Also, claimed Jumio, “millennials report stronger satisfaction with nearly all aspects of mobile banking, compared to Generation X and Baby Boomers.”  

Millennials definitely have fewer gripes about mobile banking.  25% of them express concerns with the channel, compared to 33% of Gen X and 35% of Boomers. What kinds of concerns? 28% grumble about “hidden fees,” while 53% complain about ease of use. 

The study uncovered valuable findings when it focused on abandonment issues – why do we just close out when midway into a task in a digital banking session?  36% said they did so because “the process [was] taking too long.”  20% complained about authentication “being too time consuming.” 

Waste a consumer’s time – and the consumer is the judge of this, not a cautious credit union manager – and they will blow you off.  Just that fast. 

Here’s the kick in the head: “One-third of consumers respond negatively to their FI after abandoning a mobile banking activity,” reported Jumio. Understand: 7% decided to open an account at another financial institution.  And 13% shared their grumble about the experience with family and friends. 

That’s word of mouth you don’t need. 

In this regard, the Javelin research shows that account opening tools must cater to Millennials, mainly because they are the leading cohort when it comes to adding new accounts and services. Their chief complaint: it takes too long.  The antidote: speed it up. 

And make it easy to complete the tasks on a mobile device. That is becoming a crucial battleground. 

When it comes to authentication, Millennials in particular prefer biometrics, especially eye scans and facial recognition, according to the Javelin data.  Farther down the list are legacy modes such as QR codes.  Very probably institutions that want to stay on the cutting edge of Millennial acceptance need to roll out multiple biometric modalities. 

Another, key piece of advice from the research is: “Put security first (and make sure your customers know it).”   

“But… weave security into the customer experience in smooth, fast, intuitive ways.” 

Don’t make security into hurdles members have to jump – how many routinely forget passwords? – but do let members know that security protocols are always there, always protecting them. They want that reassurance even if they don’t want the hassles of dealing with in your face security challenges (what street did your father live on at age 6?).   

Sift through the Javelin findings and there is much to cheer credit union leaders. There is no way they can compete with money center banks in terms of branches – but they don’t need to.  What a credit union needs is top grade digital experiences, online and mobile, that include easy account opening and build in seamless security that will protect members. 

None of that is easy. 

But it all is doable at credit unions that embrace the digital mandate. 

On the Digital Transformation Journey with Partners FCU’s CEO 

By Robert McGarvey 

For Credit Union 2.0 

 

“We are not moving fast enough. We need to move 2x or 4x faster,” said John Janclaes, CEO of the $1 billion Partners Federal Credit Union headquartered in Burbank, CA. 

In a wide ranging interview, Janclaes revealed exactly why he had put the credit union on what he describes as a journey of digital transformation – and he also talked about progress made. 

You might think Partners is a blessed credit union. It has enough assets to compete and it has strong SEG ties – it essentially is the Disney credit union and pulls membership from the many Disney companies, from the theme parks to movies and ESPN.  It also has two very different geographical hubs – southern California and Orlando, FL. It has a lot going for it. 

But three or four years ago, Janclaes looked at the competitive landscape and he had a worrisome thought: “Credit unions are in the crosshairs,” he said. He elaborated that the industry faces ever smarter, tougher competition from big banks and also fintechs and companies like Amazon.  “We need to keep up with that level of competition.” 

Not that many decades ago, credit unions, he said, were a well balanced three legged stool that offered better rates, better service, and better convenience because many members could bank at work. 

And then that happy bubble burst as consumers – increasingly – have demanded digital banking and many credit unions have faltered in the transformation from high personal touch and community based institutions. 

“We recognized we need to keep changing to remain relevant to our members,” said Janclaes.  

Fueling his thinking was a CO-OP funded study on digital transformation that found, in a survey of 221 credit union leaders, 88% said digital transformation is “extremely or quite important.”  And about half the respondents acknowledged their digital experience is “inferior” to top brands like Google and Apple. 

Janclaes wanted more for Partners, he wanted to offer members a digital experience that in fact rivaled the best of breed because – face it – those are benchmarks members use to grade what they get from their financial services providers. 

A big step was that he went outside to Kony and also the Boston Consulting Group to help Partners in its journey. “We wanted to work with trusted partners who are industry leaders,” said Janclaes. 

“We have de-emphasized inhouse tech innovation,” said Janclaes and that is because – looked at frankly – few credit unions have the scale and environment to attract the top tech talent that is needed to create a thriving 21st century institution. “We are picking where we can win.” 

What especially attracted him to Kony – which has done the bulk of the heavy digital lifting for Partners – is that it had a limited credit union background and also had had successes in very different industries such as retail and energy. 

“We did not want a credit union incumbent with a credit union mentality,” said Janclaes. 

Read that sentence again.  Credit union management orthodoxy is to vet potential vendors based on their resumes of past credit union hits.   

But Janclaes turned this thinking upside down. 

He elaborated that “we are getting better at picking strategic partners.” 

He also has taken an increasingly active role. “Ten years ago I was not involved with our tech partners. Now I am. I talk regularly with their CEOs.” 

He said he had full support from his board which, he explained, is composed of Disney executives. 

“Our sponsor sees us a value for the company and its cast members,” said Janclaes. 

A challenge, he added, is coordinating the new digital credit union with the traditional brick and mortar credit union  He indicated that every measure says that in fact is happening as Partners  has committed to offering an omnichannel presence that lets members pick how they want to interact. Most tasks – from account opening to joining the credit union – now can be done via any channel and that, believes Janclaes, is the future of credit unions that aim to thrive tomorrow. 

Along the way, Janclaes has recognized that the traditional credit union way of updating digital functions via an annual or semi-annual upgrade just doesn’t work today. “We need to do this much faster, 3x, 4x.  We have started with 2x – that’s the business problem now in front of us.” 

“We want to make incremental improvements at a rapid pace,” said Janclaes. 

This, he said, represents a massive “mindset shift” in credit unions that, traditionally, have aimed for perfection and that has taken time. 

Today calls for faster and that means, often, perfection won’t be there. 

But what happens will nonetheless be good enough. 

That of course is how all tech companies think.  

“Our members are already ahead of us in thinking that way,” said Janclaes. 

And now Janclaes is determined to bring Partners to that mindset too. 

 

An 11 minute video on the Partners digital transformation is here.  It’s worth a view by any credit union manager, or board member, contemplating the next steps in their institution’s digital journey because that has become a ride no one can refuse. 

Real Time Is Coming at You: Ready or Not 

By Robert McGarvey 

For CU2.0 

 

A new report out of Celent asks a question that just may terrify you: Are banks ready for a real time world? 

You probably know the answer at your credit union. 

Join the club: many – probably most – credit unions are nowhere close to embracing a real time financial services universe. 

Tell me why it takes a day – sometimes several days – to move money from an account at my credit union to a payee already in the system when, truly, it simply is a matter of shifting bits and bytes? 

Money can – and now should – move as fast as a text message and if a friend in India sends me an SMS via Facebook right about now it is showing up in my FB queue. 

It can happen in financial services. Everybody – that means you – will have to climb aboard. We now are in an instant world.  “Real time payments,” said Celent, “have moved beyond being an if to a when.” 

Here’s a Celent observation: “Most existing payment engines have a number of challenges in delivering real-time payments. First, they are generally batch-driven, rather than single message and instant, and so simply not suitable. The second, and less obvious reason, is that they require downtime for maintenance and upgrades, something that isn’t allowed in a real-time payment solution. Many real-time payment schemes only have downtime over the year measured in seconds. Old technology simply wasn’t designed to support that.” 

What Celent is prescribing is adoption of a robust payments hub that can provide the 21st century world what it wants. 

“Real-time payments require all the activity in the value chain to be carried out, typically in under a second, if not quicker. If all the processes are within the hub, they are easier to manage and coordinate. But as volumes increase, this becomes more and more essential. Furthermore, functions that sit within the hub will be subject to the same design requirements in terms of availability and maintenance,” wrote the Celent author, Gareth Lodge. 

Some realtime functions already are in use in the United States. 

Digital currencies – the report pointed in particular to Ripple – are paving the way for a shift to real time money movement. 

Zelle also is a step into realtime for institutions that adopt it (and some credit unions already have – such as America First Credit Union and BECU).  And Dwolla offers realtime ACH transfer functionality.  

Don’t necessarily expect smooth sailing for your institution into the real time universe. Exactly how – and how well – many competing real time systems will integrate with each other is not yet known. 

Then, too, as Celent pointed out: “The term real-time payments perhaps hides an obvious truth: in order to make the payment real-time, everything and anything that touches the payment, including fraud checking, balance checks, and the front end initiation system have also to be real-time…24 hours a day, seven days a week.” 

All of that represents a massive change in how credit unions work.  Digital banks, Celent pointed out, are architected from the word “go” to handle real time. A legacy institution has a different, very real set of challenges. Said Celent: “Real-time payments then are the vanguard of the digital bank. New banks, built from the ground up, do not need to give this a second thought, but for any other bank, the task of converting from the existing infrastructure is a huge task.” 

And the news gets worse.  Said Celent: “Many banks still run core banking systems that are over a decade old. The chances are that unless it has been replaced within the last five years, it is still a batch system. This poses immediate challenges — how to update the customer balance until the next batch, overnight run.” 

Institutions – and their cpre providers – are fiddling with workarounds.  But that’s the point: there will definitely have to be workarounds and they may not always be easy, elegant or even straightforward. 

What to do?  The first step is recognizing that now indeed is the start of real time banking.  That, said Celent, is integral to the transformation into the digital bank that just about all now know is the future. Wrote Celent: “Banks may see the need to move to a digital bank, but they may be struggling to make the business case for investing in real-time payments. Yet there is a confluence of the digital banking trend with real-time payments, as they share many of the same attributes and indeed, that make it impossible for a digital bank to truly exist without it.” 

Absolutely right. Until real-time payments are part of the package the institution just isn’t a digital bank. Period.