PayPal and Your Credit Union

By Robert McGarvey for CreditUnion 2.0 

Feast on a frightening metric: PayPal, an Internet company from the start, now is worth more than venerable American Express. Its current market cap is north of $80 billion and, meantime, it is busy fighting multiple wars, against Apple Pay at point of sale, Square in cash transfers, and Chase and Citibank backed Zelle in peer to peer payments.   

Here’s the question for you: are you better off fighting PayPal or seeking partnership? 

Traditionally senior credit union management has viewed PayPal as an archenemy – one  executive once told me with a smile that he knew Satan walked in our midst and it is called PayPal.  That made a sort of sense because at the time around five years ago PayPal was seen as a barrier in p2p plays taking root at credit unions and it also chipped away at point of sale transactions that credit union execs believed should be theirs. 

Many have seen PayPal as intent on disintermediating credit unions and banks.   

But maybe it’s a time for a rethink. 

Especially at credit unions. 

PayPal may well be in a take no prisoners war with the money center banks – it has to see Zelle as a dagger aimed at its heart – but credit unions just may appeal to PayPal as potential partners that in fact help it spread its p2p tools, also perhaps its POS tools. 

There also is a history of credit union – PayPal partnerships. And lately PayPal has buried its hatchet with Mastercard and Visa, working with them to provide essentially instant transfers of PayPal cash balances into associated bank and sharedraft accounts.  PayPal even offers these super fast transfers for a fee of a quarter, significantly less than Square charges for similar.   

It’s on the move too. A few months ago it debuted tools that let Skype users send money within the Skype app. Right in that conversation, you can fire off $50 or $100 to help that relative.  Convenient.  

Remember, credit unions and their traditional vendors have not excelled at the tools – especially p2p – that make PayPal (and its golden child, Venmo, which handled $17.6 million in transfers in 2016).  And the digitally savvy credit union – a credit union with a plan for longterm success — will want to have p2p tools that members actually use.  

It’s not just Millennials that love p2p. It’s also the parents and even grandparents of Millennials who send money via p2p. 

Future-thinking credit unions have seen the PayPal value for years. As far back as 2012, Tech Credit Union announced a technology that let members tap a few buttons on an ATM screen and send money to just about any US mobile phone number.  A few months later, Tech CU rolled out Send Money Powered by PayPal that lets Tech CU members send money to a mobile phone number or email address in some 60 countries worldwide, via Tech CU mobile or online banking.   

Many more credit unions now have ties to PayPal.  Alliant for instance. Peninsula Credit Union.  California Coast Credit Union.  Wescom Credit Union.  America’s Credit Union.  Mountain America Credit Union.  Pacific Marine Credit Union.    

Even giant PSECU recently added PayPal to its offerings.   

The list goes on. There are many, many credit unions that partner with PayPal. 

The Michigan Credit Union League even has a piece on “Why Credit Unions Should Not Fear PayPal.”   

(PayPal did not respond to a request from this reporter for detailed information on its many credit union partners.) 

Bottomline: for millions of consumers PayPal is a trusted, known way to shift money around.  It’s a good p2p tool for credit unions to consider offering to members and, yes, a tab can be built into many mobile banking apps. 

Won’t some consumers think about ditching the credit union and doing all financial services with PayPal?  Not many, especially not if the credit union has done a good job selling itself and its uniqueness as a member–owned, member-centric institution.  Besides, PayPal just doesn’t offer the range of services most credit unions do – and there is no indication it wants to achieve full bank status in the U.S. Does it want to battle Facebook, Google, Apple? Yep.  But that is the fintech, nonbank arena and it’s there that PayPal wants to be a heavyweight. 

By all means, keep watchful of PayPal if you choose to partner with them. But know that there are things it does extraordinary well – p2p payments for instance – and it is difficult to see how many credit unions could realistically hope to rival PayPal there.   

And your members may in fact be jazzed when you tell them they can use PayPal within the mobile app. 

That’s a lot better outcome than losing them to Chase and Zelle. 

How to Lend Millennials’ Money – and How Not To

By Robert McGarvey for Credit Union 2.0

A new study out of Transunion – Generation Revealed: Decoding Millennial Financial Health – is a goldmine of data for credit unions that are struggling to make sense of their Millennial members and prospects and are also struggling, in many cases, to find profits in serving them.

The excellent news is that Millennials want credit products you have available. The bad news: you probably aren’t offering them the products they want and instead, guided by the borrowing habits of the prior generation, are offering Millennials loans they don’t want.

There are good reasons to be struggling with Millennials (born 1980 – 1994). The Transunion data say that they are a generation different – sharply different from the Gen X group (1965-79) that preceded them.

How different? For instance: they carry far fewer credit cards than do Gen Xers. Their participation in using bank credit cards is 22% less than Gen X. They use private label credit cards 23% less.

Why? The easier question may be how are they otherwise different? The Transunion study points out a blatant fact: Millennials, many of them, came of age in the economic downturn of the Great Recession. Notes Transunion: “As many Millennials were entering the workforce, they faced economic uncertainty during the Great Recession when the overall unemployment rate soared to nearly 10%. Consequently, Millennials aged 25 to 34 have a 5% lower median income than Gen X consumers at the same period of their lives.”

They also were hit by the CARD Act of 2009 which severely limited the ease of obtaining credit cards by those under 21 years of age. Gen Xers, many of them, signed up for credit cards during their freshmen orientation. Not so Millennials.

Dodd Frank also made it harder to get mortgages.

Add those three facts together – a struggling economy, more stringent card issuance, much more stringent mortgage issuance – and it is obvious that Millennials would have a very different relationship to credit than Gen X.

According to Transunion, they carry half as many credit cards in their wallets as Gen Xers did at the same age. They also have an average balance $11,000 less than did Gen Xers.

Then there are myths that inhibit offering the right loans to Millennials. For instance, many believe they are happy as renters with no desire to become homeowners. Not so, says Transunion. “While Millennials may delay home purchasing by a few years, 74% of Millennials who don’t already have a mortgage plan to purchase homes at some point.”

A fact however: access to mortgages still lags for Millennials. Thy want to be buyers but are struggling to make that happen.

Another myth: that Millennials don’t want to own cars. Said Transunion: “the myth that Millennials don’t want to own a car is simply false. More than 80% of Millennials report owning or leasing a car.”

In fact, Transunion says that Millennials are opening car loans between the ages of 21 and 34 at a 21% higher rate than Gen Xers.

Mark that as a key opportunity in pursuing Millennial loan business.

But there are other, surprising opportunities. Such as personal loans. Said Transunion: “Millennials open more than twice as many personal loans as Gen X. This trend is likely driven by the emergence of online lenders creating digital experiences that provide more rapid access to personal loans.”

Read the last sentence again. It fingers where credit unions are leaving lots of business on the table. Transunion loudly made the point more plainly: “More than 60% of Millennials with a personal loan report getting it from a bank or credit union.”

That means 40% of this borrowing is by Millennials using non traditional lenders – often online operators who ask a few questions and if satisfied with the answers, speed off a personal loan.

Also understand that where a Gen Xer might have taken a cash advance against a credit card, a MIllennial, in many cases, will opt instead for a personal loan.

Is your credit union set up to handle this demand?

Fintech startups definitely are and daily there are new ones. According to Transunion, “The FinTech sector, which principally acquires customers online, grew from just 2% of the personal loan market in 2009 to 24% by Q3 2016. Engaging through digital channels like social media has been an effective way to reach Millennial consumers.”

Bottomline: there are rich lending opportunities with Millennials. Maybe not so much mortgages. Credit cards also offer dwindling potentials. But definitely car loans and, unquestionably, personal loans.

Millennials are the future. They want to borrow money. Just offer than the kinds of loans they want, through the channels they use.