Credit Unions and Innovation

Innovation, Credit Unions

Ivan Schneider wrote an excellent piece on his blog recently, titled Advice to Credit Unions: Innovate or Die, that has had me thinking for a week.

Ivan attended the recent Bar Camp Bank meeting in Seattle, which I was really bummed to miss because so many of my favorite people attended (for another write-up, see William Azaroff’s blog post). 

Here are some of the points from Ivan’s post that jumped out at me (and my take on them, of course):

“Credit unions are capable, strategic opportunists. Whether it’s a pullback in small business lending or a cultural moment of dissatisfaction with big banks, CUs have been ready and willing to take advantage of opportunities when they arise. Yet these opportunistic stories [e.g., Bank Transfer Day] are not enough, as the big banks won’t stay easy targets for long.”

My take: Spot on. In June 2012, I wrote “We Americans like to have our villains to blame all the evils of society on, but those villains come and go. Are banks still the Satan-incarnate?”

The answer to my rhetorical question has remained yes. But listen up, CU people: The seeds of a reversal in opinion have been sown. The Wall Street Journal picked up on this recent in a recent op-ed piece.

With the Senate approval of Jack Lew(zer) as Treasury Secretary, the Obama Administration has put itself in a position where it will look awfully inconsistent and contradictory if it keeps bashing the big banks. Where do you think Lew(zer) came from? A big bank. And his life story could be the plot of an Oliver Stone movie looking to bash corrupt big bankers. With the Administration backing off from bank bashing, the lapdog media won’t be long to follow. And by 2014, we’ll find a new villain to blame all of our evils on. And the banks will be out of the doghouse. Even if it’s not by 2014, that day will come eventually.

Thanks for picking up on this, Ivan.

—————

“We [the credit unions] should have invented Square,” remarked Gene Blishen, general manager of Mount Lehman Credit Union. Similarly, during a discussion of personal financial management (PFM) tools, I asked whether the credit unions should have invented Mint, the popular PFM from Intuit. Again, the consensus was “Yes.” I respectfully disagree. No credit union or CU collective could have invented Square or Mint. The credit union industry, either individually or as a group, lacks the DNA, the tech talent pipeline, and the stomach to invest member assets into financial technology startups.”

My take: 1) Disagree w/ Blishen (gasp!); 2)  CUs should have invented PFM, but not Mint; 3) The reason CUs couldn’t have invented Square (or Mint) is due to reasons other than “lacking the DNA, tech talent, or stomach to invest member assets.”

Why is Blishen wrong (for the first time in his life)? Because Square is small business technology. It’s technology designed to make it easier for micro-merchants to accept card-based payments. The percentage of most credit unions’ member base made up of small businesses is too small for any one CU to have focused on developing and marketing a Square-like product. It wouldn’t have even been worth setting up a CUSO to do this.

Why should CUs have invented PFM, but not Mint? First, because PFM can be (should be?) a tool to help consumers better manage their finances. And that — at least it seems to me — is a core part of the credit union promise and premise. But Mint, in particular, was a tool setup to enable marketers to push offers at consumers based on their financial lives. Not what credit unions should be doing.

To the third point, I have to disagree with Ivan regarding the comment that CU don’t have the “DNA, tech talent, and/or stomach to invest member startups in fin tech startups.” The slew of CUSOs out there that have been created by individual CUs are testament to the innovation DNA and talent that exists in the industry. Compared to other financial institutions of similar size (i.e., community banks) the innovation DNA and tech talent in CUs is probably 100 times that found in those other FIs.

—————

“The main challenge [to innovation] is that the overburdened, underpaid technology leaders at credit unions are in no mood to field the constant stream of technology pitches that bombard anyone with a visible presence in the industry.”

My take: This is not the “main” challenge.

Many (if not most) CUs rely on a small set of technology vendors (often the core apps provider) for their technology needs. For startup technology vendors, it’s simply not feasible to have a sales force out all over the place calling on these piddly-little credit unions (no offense, CUs).

The “main” challenge to deploying the innovations being created have more to do with how those innovations are going to be integrated into the application and data infrastructure being provided by the current tech providers, and how it’s going to be priced.

—————

“In attendance at BarCampBank Seattle was just one techn vendor, Graeme Cox, of Mobilearth. When given a brief opportunity, Cox described how the company’s MobiBranch tablet app untethers employees from the branch, allowing them to accept deposits, open accounts or take loan applications from anywhere. [T]he response to the pitch was lukewarm at best. A profit-seeking software vendor has to tread carefully in the not-for-profit world. Unless you have a free, open-source product, it’s unlikely that you’ll be given the time to present a live demo, let alone score an introduction to a credit union’s CTO. My sense was that if you’re not part of the virtuous and saintly not-for-profit credit union culture, you’re an interloper, a profit-seeking vendor, or an MBA-toting infiltrator.”

My take: Wow. Disappointed to hear this, but it doesn’t jive with my experience at all.

I can’t dispute Ivan’s account of the response to Cox’s demonstration. That’s up to someone who attended to confirm or dispute.

But I can say this: I’ve met a lot of credit union executives in the past 15 years. And while they’re all keenly aware that they work for a not-for-profit organization, not a single one believes that they work for a charity. And not one is ignorant of the fact that they must make a “profit” (excess of revenue over cost) in order to stay in business.

I work for a for-profit firm, and have been made to feel like an interloper or MBA-toting infiltrator. (Which is ironic, because that’s exactly what I am). In fact, it’s really been the opposite. I am often, and continually, amazed at how tolerant CU people are, not just of me, but all the for-profit firms and people they do business with.

—————

“Free advice to the CU industry from this MBA: Transform BarCampBank into an event like Finovate. Spend more time listening to pitches, and then share your impressions with your peers.”

My take: Good advice, but kind of misses the point of why the BarCampBank was setup in the first place. Finovate is an amazing conference. Jim and Eric have done an incredible job with it in a short period of time. Nobody needs a mini-Finovate, or a CU-Finovate. In fact, a critical mass of vendors won’t show up if it’s 10 credit union people in a room. 

The BCB is there to let attendees have a more active role. That said, it might not be a bad idea to have some more demos for people to discuss/debate, but not all of the discussions at a BCB are designed to be — or have to be — about technology.

—————

Bottom line: I may have taken issue with a few of Ivan’s points and perspectives, here, but I do thank him for writing a very honest, and intellectually stimulating blog post. Both of those attributes are in short supply in the blogosphere, as far as I’m concerned.

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11 thoughts on “Credit Unions and Innovation

  1. Thanks for this post, Ron. I also missed the Bar Camp Bank meeting and it is nice to hear some of the discussions that occurred there. I think that you hit it on the head with your comment, “The slew of CUSOs out there that have been created by individual CUs are testament to the innovation DNA and talent that exists in the industry.”

    We are an industry that is constantly forced to innovate. This goes for CU’s of all shapes and sizes. Smaller CUs are better suited to quickly adapt to changes in the industry and larger CUs, if so inclined, are positioned to create CUSOs to solve industry-wide problems. While we are and will remain years behind big banks and their fancy new widgets, this does not mean that our industry is without its fair share of thought leaders. William Azaroff, Andy Janning and James Robert Lay are perfect examples of strategic risk takers and innovators.

    To your point about being not for profit, I would would also agree. It is in our members best interest for their CU to be profitable and I believe that most members understand that. The biggest difference here is that there is an “ethical” way to turn a profit and “predatory” method of doing so. I’ve been on both sides of the phone taking and making sales calls and I can honestly say that when I am looking for a solution, I understand that I will have to pay for it. What I will never understand is how companies do not understand that CUs are willing to pay for the products that they need, but they need to be priced accordingly. Our budgets are tight and any salesperson working the CU circuit should know that. It has nothing to do with being a “part of the virtuous and saintly not-for-profit credit union culture” and everything to do with vendors that do not understand or are unwilling to realize that we face a higher level of responsibility whenever we open up our wallets. While any organization must way the cost of the solution against the benefits it will provide, credit unions also need to consider their membership. It seems to me that this is commonly where the disconnect is.

    -Bryce

    • Thanks for weighing in, Bryce. Personally, though, I’m not convinced that “Smaller CUs are better suited to quickly adapt to changes in the industry and larger CUs.”

      I think it’s more a matter of culture and management style than size. I’d argue that a larger CU has more resources (human and financial) to invest in order to adapt to changes. At mega-size levels, sure, it’s really hard to turn the boat around. But few CUs are that large.

      Also, I’m loathe to call any particular practice (or organization) “ethical” or “predatory”.
      CUs charge overdraft fees as do banks. Banks’ fees may be higher, but does that it make it “predatory”?

      If you were thinking of something like payday loans, OK, but I do think that some CU people draw some imaginary line and put themselves in the “ethical” group and other FIs in the “predatory” group.

  2. Good post Ron. I read Ivan’s post and have enjoyed checking back on the comments from time to time. Great points being made. As someone who was also in the room at Salal Credit Union in Seattle, I’ll comment on two things.

    1) I think Gene’s comments are being taken way out of context. I’m sure he’ll chime in, but here is my take on what I heard.

    Both Square and Mint are great services and are really helpful to people, therefore, they would be natural things for credit unions to possibly think of and build. One of the first white-label PFMs was the brainchild of a credit-union-formed CUSO, Jwaala, so this isn’t too far fetched. Square isn’t really in the wheel-house of U.S. credit unions, but most credit unions in Canada are heavily into helping small businesses and retailers, so, again, I don’t think this is too far fetched to be thinking about a mobile solution for credit card payments.

    At this point Square seems to be a run-away success. It is brilliant, has star power, is heavily funded and connected. But I think what Gene was actually saying is this would have been a natural idea to flow from the credit union ethos.

    2) I’ve been at plenty of BarCampBanks (as have you) with a mix of credit union people, bankers, journalists and startups and the conversation has always been open and really energetic. No different here, other than it was all credit union people, one journalist and a couple of “vendors” present. Graeme and me. I wasn’t pitching anything and Graeme wasn’t really either. There was a late-in-the day topic about helping branch staff get out of the branch with mobile tech that didn’t really blossom into much of a conversation. Period. Then the day wrapped up and off we went.

    It has made for a couple of thought-provoking blog posts though!

    • Damn. You made me realize how US-centric my comments were. I failed to take into account that Gene was probably talking about the Canadian market. Shoot. And I thought I had finally found something he was wrong about.

    • Hi Tim,

      Thanks for your comments. I enjoyed meeting you and everyone else at the event, and gained much insight from the ensuing discussions. I’m glad to provoke thought, but I also like to be accurate. I hadn’t been following comments on this blog, so allow me at this point to make a belated reply to your observations.

      According to my notes, Gene had been talking about how the credit union community has been “infiltrated by this MBA mindset” where the need to quantify everything has destroyed innovation and risk taking among credit unions. “We should have invented Square. Square was ours,” he said. (How’s that for context?)

      In my blog post, I didn’t address the premise of the counterfactual, i.e. if not for the MBA mindset, credit unions might have invented Square. That’s an entirely different discussion.

      Nor did I assess, as Ron did, whether Square in particular would have been a suitable project for credit unions given the market size of business customers at credit unions, or other such criteria. That’s also an entirely different discussion.

      Instead, I challenged the underlying premise that credit unions should be in the business of inventing anything, MBAs or no MBAs. My answer, based on my perception of the capabilities of credit unions in reality (instead of counterfactually) is no, you should be buying innovation, not building it.

      As for the climate for vendors, I’d rather not get into names but here’s how I kept score on behalf of a tech vendor at a small, intimate daylong event.

      Does the vendor get to lead a discussion on their solution offering? Yes, for half of a session.

      Does the vendor get to demo the solution on the overhead projected (as requested)? No, it would have had to have been set up specifically and there wasn’t enough enthusiasm to do so.

      Did he score an introduction (as requested) to the CTO of one of the larger CUs in attendance? Based on body language, the prospects didn’t look good. No “maybe,” not even Clintonian, noncommittal nodding. Just crickets.

      Were there discussions of vendor management? Yes, about how tech vendors keep calling with their incessant pitches; and how out-of-date vendor solutions hold the industry back.

      So, I stand by my report. However, based on feedback from Ron and others, I do realize that my conclusions may have been slightly off the mark, which is why I have a follow-up post coming soon to Enterprise Efficiency with a revised recommendation for CUs. Regarding the ideas to be floated there, I would certainly welcome and appreciate your comments and those of other Snarketing 2.0 readers.

      Best,
      Ivan

  3. Credit unions are simply too f-ing risk adverse to innovate. Until they can get over those hurdles, little will change. Yeah Blishen will say we could have invented Square, PFM or any number of different technologies, but we don’t because by the time we get over the risk, make a million decisions by committee, the market has already delivered and is iterating on the next idea. Last thing CUs innovated on was the rollout of the ATM…and who uses those anymore.

    • DriveBy: Puh-leeze. Not only are there plenty of examples of CU innovation (maybe you should talk to the folks at Filene Research), but you offer no evidence that CUs are any more risk averse to innovation than banks (or any other type of organization) are.

      Also: As a provider of services to the financial services industry, I ASSURE you that the decision making process is MUCH faster in the typical credit union than it is in the typical Top 100 bank.

      p.s. Can’t speak for the most recent trends in the US, but between 2006 and 2009 ATM usage increased. Australia reported numbers more recently:

      Year ATM Withdrawals
      2009-10 829m
      2010-11 830m
      2011-12 843m

      So, to the question “who uses those (ATMs) anymore?” the answer is Australians. :)

  4. Pingback: The Experience Economy, NPS and Credit Unions Reviewed | Backbase Blog

  5. I agree that Finovate and BarCampBank are very different, with different goals. We’ve had great success with the London BarCampBank by setting it the day before Finovate Europe. That way, we can accomodate the folk who come into town for Finovate but would enjoy a more interactive experience as well.

  6. Pingback: Enterprise Efficiency - Ivan Schneider - Credit Unions & the Buy vs. Build vs. Beg/Borrow/Steal Decision

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