Category Archives: Credit Unions

The Strategic Planning Problem

There’s plenty of good advice out there on how to run a strategic planning session or offsite. As it pertains to credit unions, check out Mark Arnold’s blog or CU Insight.

Mark encourages CUs to address questions about the organization’s value proposition and how it engages members. The CU Insight article, penned by CUES’ Charles Fagan, suggests that CUs identify the right planning horizon, get artistic, and leave time to incubate ideas.

No argument from me. All great ideas and suggestions for what to focus on in a strategic planning effort. Charles even goes on to recommend that CUs “include key players from all areas and levels in the organization”:

“CUES is small enough that we were able to include every staff member in the brainstorming sessions. This was a great professional development opportunity for our young professionals and others on the team who don’t think organization-wide on a day-to-day basis. Being inclusive also helps get staff buy-in for the ideas generated and the resulting strategic plan.”

Being inclusive is important. I had a boss at a consulting firm who told me that “only senior execs formulate strategy” and as a result we had to ignore the front-line managers who really understood what the day-to-day issues were.

But regardless of how you structure your organization’s strategic planning process, regardless of which questions you address, and regardless of whether or not you get artistic and leave time for incubating, it’s likely that you’ll still have a strategic planning problem.

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The problem is a people problem. At the risk of oversimplification, you will likely have two distinct personalities participating in your strategic planning process: Dreamers and Solvers.

An employee’s job description might be a predictor of which strategic planning process role they play, but it isn’t 100% accurate. Their job description notwithstanding:

1. Dreamers look for greenfield/blue ocean opportunities. The dreamers are those who want to address (and even create) the potential market opportunities. Their contributions to the strategic planning process tend to focus on suggesting new products and services the firm could/should offer, the new consumer segments to go after (Gen Y is our future!), and the new emerging technologies that promise to make the organization orders of magnitude more effective and efficient (a billion people are on Facebook!).

2. Solvers want to fix today’s problems. Solvers are problem solvers. They see and feel the pain of the weaknesses of the existing system and want the organization to fix them and fix them now. They use the strategic planning process to advocate for these fixes, if for no other reason that there’s usually no other process that organization has in place for allocating resources to fix these problems.

The problem that results from this dichotomy in roles stems from two issues:

  1. Dreamers are not always particularly good at figuring out the “how do we get there from here” question.
  2. Solvers’ time horizon is usually too narrow and their content focus is a whole lot more tactical than strategic.

If you work at a credit union, you might have a third type of contributor (and another problem): The board of directors. In my experience, many of them — while highly committed to the success of the CU and often quite successful business people in their own right — aren’t particularly good contributors to the strategic planning process.

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If you’re the CEO (or member of the senior exec team) at a credit union, planning your CU’s strategic planning process/offsite, you’ve got some challenges to deal with:

  • How do you balance the focus of the effort between the truly strategic and the tactical?
  • How do you incorporate input from both the Dreamers and Solvers?
  • How do you evaluate the skills of a facilitator who may be better at Solving than Dreaming (or vice versa)?
  • How do you overcome (or at least recognize) your own inherent biases in this process?

No easy answers here. The first step is to recognize that there is no “formula” or “recipe” for successful strategic planning. 

Knock Somebody Off The Pedestal

In a recent industry analyst meeting, the CEO of a large financial technology firm laid out his firm’s vision for expanding into new markets within the financial services space. I asked him “Who do you see as your primary competitors standing in the way of your quest for world dominance?”

His answer (as best as I can recall) was “well, we have a number of competitors in the variety of spaces in which we play.” He did name four firms — one of which I wasn’t familiar, another which I would never have thought he’d mention (since this particular organization doesn’t sell software to financial institutions).

My take: His answer was unsatisfactory. You’ve got to know who you’re going to knock off the pedestal on your way to world dominance.  And this is of particular importance to credit unions.

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Let’s say you’re the 250th ranked tennis professional in the world. There are 249 other pros ahead of you on the list, but only one matters — that Djokovic guy. If you beat Djokovic you might not jump from #250 to #1 (or #2), but if you beat him, you’re in the big leagues. On the map. On the radar.

It might take you a while to get a chance to beat Djokovic, but the other piddly-sh*t pros don’t matter. They’re just the peons you have to slay and step over on your way to the top.

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In the world of financial services, the focus of your FI’s competitive strategy doesn’t necessarily have to be the largest provider in the market. It should be the one who has the best reputation, or best products, or best service, or best whatever it is that you compete on.

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Why is this so important? In a word, alignment.

When you know who you’re (really) competing against — or better yet, when you know who you want to knock off the pedestal — your organization has a much easier time deciding what to invest in, and what not to invest in.

What the other piddly-sh*ts do doesn’t matter. They’re pretenders to the throne. Only your firm is the true contender to the throne.

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Why tell you all this?

I saw a tweet today, from someone attending a credit union conference, quoting Chip Filson telling CUs “Don’t try to be ‘nice’ banks.”

Excellent advice, I couldn’t agree more.

But it reflects a problem that credit unions have: They set their sights on knocking banks off the pedestal.

No offense to bankers, but people, allow me to let you in on a little secret: If banks are on a pedestal, the pedestal isn’t very high off the ground.

Every survey I see (not to mention do) shows that credit unions are seen as having better customer service than banks, and higher advocacy (that is, seen as doing what’s right for the customer) scores than banks.

And I doubt that every one of those surveys is spot on. But it begs the question: If it is true, then why aren’t credit unions tearing up the charts in membership growth?

The answer has to be: Because they’re not clear about who they’re really competing with. They don’t know who they have to knock off the pedestal on their way to world dominance. 

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When I observe and hear about credit unions’ strategic (or so-called strategic) planning efforts, I’m underwhelmed. These efforts quickly devolve into tactical planning efforts that determine which projects will get funded in the coming year. 

Strategy isn’t just about how you compete, it’s understanding who you compete with.  Sorry to be critical, but there are a lot of credit unions out there doing a lousy job of strategy creation/formulation. 

Credit Unions: Reinvent P2P Lending

Some university professors recently researched the effect of personal relationships on P2P lending platforms. They discovered three “effects”:

  • Pipe effect. Friends of a borrower, especially close and off-line friends, act as financial “pipes” by lending money to the borrower.
  • Social herding effect. When friends of a potential lender, especially close friends, place a bid, a “social herding” effect occurs as the potential lender is likely to follow with a bid.
  • Prism effect. A friend’s endorsements via partially funding a loan reflects negatively (i.e., becomes a “prism”) on the value of the loan to a third party.

What the study shows is that the volume and patterns of lending and borrowing are influenced by, and strengthened by, the extent of the relationship between participating borrowers and lenders.

My take: Credit unions (and community banks) should interpret these findings to find ways of introducing P2P lending-type practices into their lending processes.

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The 2013 Financial Brand survey of marketers found that — not surprisingly — lending is at the top of the list of marketing priorities for the near future.

How are credit unions and community unions going to compete for the borrowing business that’s out there? If it’s going to be by berating big banks, pointing to the results of bogus customer experience surveys, and going on and on about how great their customer service is…then I’m not sure the results will be all that much better than they’ve been in the past.

Which is to say, not very successful.

What the results of the academic study suggests to me is that a credit union or community bank could improve its market share of the lending business in an area by creating a community of lenders and borrowers to redirect and/or insulate the flow of funds away from other sources and destinations to the CU or community bank.

I’m not suggesting that a credit union or community bank try to recreate a Prosper or Lending Club. Those firms have gone through a regulatory rigamaroll that no CU or bank wants to go through.

But I can’t help but think that are ways to avoid that regulatory nightmare and still achieve some of the feel of the P2P lending platform.

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On a P2P platform like Prosper, a lender (or multiple lenders) — OK, wait. Let’s call them for what they really are: Investors. On a P2P platform, an investor or investors lend(s) money to a borrower. The platform isn’t really an intermediary, it’s simply an enabler — i.e., enabling two or more parties to find each other and execute a transaction.

What does a bank/CU do? It finds depositors, takes their money, and promises something in return (where that something may or may not be financial). It then takes those deposits and lends some portion of it out to borrowers it deems worthy of receiving those funds.

The bank/CU is an intermediary. Depositors have no idea who gets the money, nor do they have any say in who gets the money or at what rate. There is no relationship or connection between depositors and borrowers.

But what if there was a relationship or connection? The academic study implies that the “platform” — in this case, the bank or CU — would benefit because lenders (in this case, depositors) and borrowers would be more likely to transact with each other.

In other words, one way for credit unions and community banks to gain market share in the lending market is to create a mechanism for depositors (lenders) and borrowers to create and strengthen a relationship.

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That “relationship” doesn’t necessarily have to be a one-to-one, named connection. A bank or CU depositor could provide input into determining who receives their deposits (or some percentage of it) by some dimension that characterized a borrower. For example, the depositor could indicate that they would like their funds lent to someone buying their first home, or to a small business owner who needs funds to grow their business, or to someone looking to pay off debts. They wouldn’t necessarily get to direct 100% of their deposits, but by giving depositors an ability to direct some percentage of the funds, it would approximate what’s happening on a P2P lending platform.

By making the elections of funds deployment public, other community members would see where their peers are looking to direct funds, and — as the study implies — become more likely to elect that their funds go to the same places. With publicly available information about where depositors would like to direct their funds, potential borrowers who fit the description(s) would become more likely to turn to the bank/CU for a loan, knowing that the FI is looking for borrowers like them. 

The deposit nature of the relationship wouldn’t be changed — that is, the deposits would not become investments in the sense that they are on a P2P lending platform. The bank/CU is still an intermediary determining the creditworthiness of a borrower and the rate at which that borrower qualifies for a loan. But the depositor gets to provide some input into who gets the money (or some percentage of it).

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I realize I haven’t thought through this completely, and, for all I know, there’s  some regulatory issue that stops this in its tracks. I’m just thinking about how smaller FIs are going to compete with the big ones for the coveted lending market.

Customer Segmentation Is A Game Of Tic-Tac-Toe

Remember when you were a kid — or maybe more recently with your own kids — and played tic-tac-toe?

You started by drawing two vertical lines and two horizontal lines, which combined to create a nine-square grid. You then put your shape (X or O) in a box to claim it, alternating with your competitor to “own” the grid (and win the game) by securing three boxes in a row.

In some ways, that’s exactly what marketing is.

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A credit union contacted us recently and asked us how they could better understand the consumer landscape in their footprint to help them win more lending business. I proposed that they play tic-tac-toe. We’d start by drawing a tic-tac-toe board, and go one step further and label the rows and columns:

20130409_Tictactoe

On our board, the three rows correspond to the timing of consumers’ borrowing needs: Immediate, intermediate, and longer-term (not length of loan, but how immediate the need for a loan is). The columns correspond to consumers’ propensity to consider a credit union for their borrowing needs: Low propensity (or likelihood), moderate propensity, and high propensity.

Through consumer research, we would segment the consumer population using this tic-tac-toe board, and help the CMO organization understand:

  1. The market opportunity each segment represents by estimating the allocation of consumers to each segment.
  2. The demographics, channel behaviors, and financial services-related attitudes of consumers who belong to each segment.
  3. The marketing challenges each segment represents (e.g., what holds consumers back from considering a credit union).
  4. The marketing tactics required to capture the borrowing-related business from consumers in each segment.

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Generalizing the board a bit, another firm might not capture “propensity to borrow from a credit union” but “propensity to consider XYZ.”

But much as a tic-tac-toe player must weigh the consequences of capturing a particular cell on the board, marketers must determine the costs, benefits, and competitive consequences of going after consumers in any particular segment.

If the majority of consumers are in the upper right hand bucket, you might want head down to the bar for an early beer. If the majority of consumers are in the lower left hand bucket, you might get sent down to the bar for an early beer.

If the majority of consumers are in the seven other buckets, you’ve got some marketing decisions to make.

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The art is in determining how to allocate consumers to segments.

It’s not enough to just ask consumers “will you consider XYZ for your next purchase?” but to derive the likelihood by looking at past behavior. Same with product timing. A consumer may say that she or he has a longer-term need for a product, but good predictive modeling may indicate that certain behaviors, attitudes, and purchases indicate that the need may be more immediate than the consumer thinks or is willing to say.

Gonna Manage Big Data Like It’s 1999

I started working at Forrester Research in 1997. In retrospect, I think I got hired not because I demonstrated great potential to be an analyst, but because my boss and colleague needed a sucker to join the team and write a report that nobody else wanted to write.

So I joined Forrester and wrote my first report on the hot topic of the day: Knowledge Management (it was a terrible, terrible report).

I interviewed executives from about 50 companies about what they were doing about knowledge management. What I heard was confusing. For the most part, what these companies were doing with IT and data was pretty much what they had been doing for the prior 10 years.

What was different (in 1997), was that now these initiatives were called “knowledge management initiatives.”

There were two key success factors (or barriers) critical to the success of knowledge management initiatives: 1) employees with the right skills in knowledge management, and 2) management support and commitment.

After all, sucking the “knowledge” out of people’s heads and making it available to everyone else in the organization wasn’t easy, and wouldn’t be successful if management didn’t sufficiently invest in it.

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Roll the clock ahead 16 years and you’ll find that nothing has changed. Except the labels.

In a creditunions.com article titled Big Data At A Growing Credit Union, an interview with a credit union executive went like this:

Q: Can you define Big Data?

A: Not really. But in a way, Big Data is what people have been doing all along — looking at and analyzing data. I don’t know the tipping point where a credit union moves from generally looking at data and is suddenly in Big Data.

Q; Can’t data also overwhelm and slow decisions?

A: It can unless you achieve the balance of talent and training. If you put the right data in the wrong hands you can be swimming in that data forever. You’ve got to get people to the point where they understand what’s relevant and what’s not, and that takes time.

Q: What do you feel is critical to success with Big Data?

A: You have to have directors and senior managers who are supportive and understand there are revelations this data can provide.

You’ll pardon me if I can’t help but think that this all sounds vaguely familiar.

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If you can’t define Big Data — other than saying it’s what “people have been doing all along” — you are not going to get management support for the efforts.

If you think Big Data represents a different way of managing your business, but you can’t articulate that difference to your employees, you will not get broad employee support for the efforts.

Management is usually willing to fund some initiatives to try something promising. Employees, on the other hand, are generally loathe to change unless the pain of the existing is too much to bear. You might argue that they’re willing to change if the potential upside is appealing enough, but I’m not so sure about that.

Jumping on the management fad bandwagon is a prescription for failure. It trains employees to put everything they want to get funding for under the fad banner, and diminishes whatever potential value really lies in the core of the new concept.

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My take: You won’t find anyone more supportive of using data to make business decisions than me. But the path to becoming more data-driven doesn’t mean managing like it’s 1999 and jumping on the fad bandwagon. 

Should Credit Unions Be Consumers’ Primary FI?

In a speech at the recent GAC conference, CUNA president Bill Cheney said:

“Service excellence will be achieved by providing services that are forward moving and constantly improving. Proof of success will be 50 million Americans that call a credit union their primary financial institution by 2023.”

While there are plenty of proof points of success, this goal sounds pretty reasonable, no?

Maybe not.

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A 2012 Filene Research report titled Mind over Money: Measuring Health and Happiness among Credit Union Members reported on a study which found that:

“Credit union members who use their credit union as their main financial provider are in fact significantly (with statistical confidence) less able to make ends meet than those who use it alongside another financial provider (i.e., a bank).”

This isn’t great news for credit unions, and puts Mr. Cheney’s goal in a tough place.

If credit unions are truly concerned for the financial well-being of their members — and I do believe the concern to be sincere — then becoming primary FI might not be in all members’ best interest.

Furthermore, it might require that CUs find ways to collaborate — not so much with each other, but with banks. With all the bank-bashing coming out of credit union professionals (oh, I can find links if you really want me to).

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What credit unions really need to do is re-think the concept of “primary FI” and reconsider why they would want to fill this role.

For many consumers, their primary FI is the bank (or credit union) where they have their checking account.

But with the growing Debanked segment, and the growing popularity of prepaid cards, and Neochecking accounts like those from Moven, Simple, and GoBank, the checking account might not be the primary account for many Americans in a few years.

Furthermore, with caps on overdraft fees, reductions in debit interchange, and a desire to cling to free checking, the traditional checking account might not be particularly profitable for an increasing number of consumers over the next few years.

In that case, being the “primary” provider sounds nice, but isn’t necessarily profitable.

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Personally, I’d like to see another alternative emerge.

A scenario where a consumer’s primary financial provider is one who provides advice and guidance on managing ones’ financial life — regardless of whose FI’s products the consumer owns. Oh, and in this scenario, the “primary” FI monetizes this advice and guidance.

If credit unions can create this scenario, then they will certainly be living up to Mr. Cheney’s are call for services that are “forward moving and constantly improving.”

The One Key Question About Retail Banking’s Future

In connection with its Retail Banking conference, American Banker ran an article titled Five Key Questions about Retail Banking’s Future which included the following questions:

1. How many branches should we close?
2. How many new branches should we build?
3. How many more people should we lay off?
4. How much revenue can we get from offering mobile and online technology?
5. What are the future sources of revenue?

My take: An OK list. But not in the right order. And if you put them in the right order, there’s really only one key question about retail banking’s future, because the answers to the others are all dependent on the answer to the one key question.

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So what’s the one key question? Simply: What are the future sources of revenue?

A bank can’t determine how many branches it should open/close, or how many people to let go, until it has a clear vision and strategy for how it’s going to generate revenue. Specifically, what (products and services), where (geographically), and from whom (customer segments).

Closing/opening branches and/or letting people go before developing that vision/strategy is pure stupidity, and the board should fire any CEO that does the former before the latter.

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But I’m still not sure that a lot of banks are asking the right question.

As the article states, when it comes to future revenue sources, “many banks are pinning their hopes on commercial and industrial lending. At banks with $20 billion or less in assets, C&I loans grew 3% from the third quarter and 9% from a year earlier. Some banks have a rosier outlook on other types of loan growth; Regions Financial (RF) said last week that it is expecting single-digit growth in credit cards, indirect auto lending and C&I lending to upper middle market companies.”

Huh? C&I loans? I thought we were talking about retail banking?

Here’s the challenge that the majority of banks face in a nutshell:

20130314_NII

The majority of banks (and credit unions for that matter) aren’t generating enough revenue from enough non-interest sources of revenue.

Financial services execs are locked into a narrow view of what their sources of NII are.

In a study done by Filene Research Institute last year, three of the top five most important sources of NII to credit unions were checking account fees, mortgage closing costs, and out-of-network ATM fees. I can’t imagine that those aren’t in the top 5 list of bank execs, as well.

Yet, when asked to rank sources of NII by the value they provide to credit union members, only one — mortgage closing costs — was in the top 10 list of value-added services. And CU execs must’ve been smoking to think that people think that mortgage closing costs “add value.”

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I know that there a lot of people in the industry who will say “mobile is the key to the future of banking” or that “innovation is crucial to the success of banking.”

Yeah, whatever. 

As far as I’m concerned, mobile is nothing more than an access mechanism. Just one more way of connecting. If  banks and credit unions want to charge customers/members for accessing their accounts using a mobile device, good luck. That doesn’t add a lot of value to the product (account) itself, and I don’t many FIs will get far with that tactic.

The successful banks and credit unions of the future will be those that generate new sources of revenue that consumers are willing to pay for. Tacking on additional fees to existing products, or dreaming up new penalties or usage/inactivity fees is a dead end. 

And if you don’t answer the question of what those sources of revenue are going to be, you’re going to end up closing a lot more branches, and firing a lot more people, than you thought you would.

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.

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“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.

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“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.

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“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.

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“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.

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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.

The Credit Union Cost Per New Member Performance Index

Creditunions.com recently published a couple of blog posts which contained interesting statistics regarding credit unions’ member acquisition costs and membership growth.

I thought it would be interesting to take some of the data and construct a new performance metric for credit unions to use.

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The first post ranked states by their aggregate cost per new member, and included the state’s overall membership percentage growth (for the 12 months ending 9/30/2012). Kudos to North Carolina credit unions for only spending $142 to acquire a new member, $300 less than the national average.

The second place state, Alaska, had an acquisition cost per new member $32 larger than NC’s number, but achieved nearly twice the growth, at least in terms of percentage growth.

To see which state really performed best,  I constructed the Credit Union Cost Per New Member Performance Index by dividing the percentage growth by the acquisition cost per new member (a high growth percentage is good, a low cost per member is good, so a really large score is good).

The calculated score produces a number which is kind of meaningless, so the best way to compare results is by indexing the score against the overall US, which grew credit union membership by 2.7% in the time period under question here.

The result is that although NC had the lowest cost per new member ($/NM), three other states (AK, ID, VA) outperformed NC by driving a greater degree of growth out of the money they invested in new member acquisition.

State $/NM  % Chg    Score    Index
NC    $142  3.19%    0.0225    368
AK    $174  6.26%    0.0360    589
ID    $208  5.88%    0.0283    463
VA    $230  6.02%    0.0262    428
MS    $238  3.63%    0.0153    250
TN    $248  4.19%    0.0169    277
UT    $260  4.40%    0.0169    277
OK    $267  4.59%    0.0172    281
WA    $276  5.34%    0.0193    317
NM    $280  4.07%    0.0145    238
US    $442  2.70%    0.0061    100

Source: creditunions.com, Aite Group

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The second creditunions.com blog post contained stats on the top 10 states by membership growth. Between this second list and the first, eight states were included on both lists (NC and MS fell off. The data for those states might be available publicly  somewhere, but frankly, I’m way too lazy to try and find it).

By looking at absolute growth, we can calculate what the credit unions in each of these eight states actually invested to acquire new members. Overall in the US, credit unions spent $1.1 billion to acquire 2.5 million new members (#NMs). That works out, with 7,031 credit unions, to be a little more than $157k per credit union.

In Alaska, although the credit unions in that state had the highest Performance Score, they spent the most per credit union to acquire the new members that they did. The 12 CUs in the state invested nearly $7m — roughly $580k per credit union — to acquire the ~40k new members they picked up over the past four quarters.

Virginia, with nearly 180 credit unions, spent almost $100 million to acquire ~434k new members. That’s about $560k per credit union.

Among the eight states, Tennessee spent the least (per credit union) at just $110k per institution.

State  #CUs   #NMs      Avg/CU   $ NM      $NM/CU
AK     12     40,025    3,335    $6.96m    $580.4k
ID     52     32,570    626      $6.77m    $130.3K
VA     178    433,782   2,437    $99.77m   $560.5k
TN     171    75,868    444      $18.82m   $110.0k
UT     82     75,882    925      $19.73m   $240.6k
OK     71     48,306    680      $12.90m   $181.7k
WA     109    149,333   1,370    $41.22m   $378.1k
NM     50     27,841    557      $7.80m    $155.9k
US     7,031  2.5m      356      $1.1b     $157.2k

Source: creditunions.com, Aite Group

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What this demonstrates is that, even if your cost per acquisition is towards the low end of the range, you may still under-perform the market if you don’t sufficiently invest in marketing.

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Another question that came to mind was: How does all of this compare to banks?

To answer that, I turned to the expert on the topic, Serge Milman from Optirate. Serge pointed me to a number of studies (one of which was my own from a few years back that I had forgotten about) which have estimated banks’ cost of new customer acquisition.

The numbers are generally all over the map. One study puts the number at about $350, but that appears to include both banks and credit unions. Serge also cited a study from Brintech, Cass Bettinger & Associates and Amalfi Consulting from November 2009 which estimated the cost at $143 for online acquisition and $328 for branch acquisition.

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So I don’t know what the comparable bank number is for cost per customer acquisition. But if the overall industry is at $350, and credit unions are at $442, then that’s not good.

If it costs 26% more to acquire a new member than what it costs a bank to acquire a new customer now, what’s it going to be when the mistrust and negative sentiment towards big banks fades (and it is going to fade)?

But you should calculate the Cost Per New Member Performance Index for your credit union and see how your CU stacks up.

Mobile Banking Forecast: Transactions Vs. Management

Aite Group recently published my latest report Mobile Banking Forecast: Smartphone and Tablet Use in the United States. It forecasts the use of smartphones and tablets for a  variety of  banking transactions and uses.

If you’re an Aite Group client, you should check out the report, because the really important discussion isn’t about how many mobile banking users there will be, but how the use of smartphones and tablets will differ. (If you’re not an Aite Group client, then you’re a loser, and the only way to redeem yourself is by becoming an Aite Group client).

But, OK, since it’s part of the press release, I can give a little of the plot away: 

Tablets will become financial management devices, and smartphones will become financial transaction devices. Financial institutions should invest accordingly.

This might be a blow to bankers who operate under the delusion that they should “build out functionality in all channels and let customers which channels to use.”

What a load of nonsense. 

For years, I’ve been advocating the concept of right-channeling: That some channels (or in this case, devices) are better than others for certain kinds of transactions or interactions, and that you should build out what’s right for the channel (or device) and get customers to use that channel (device).

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Bank industry retention and attrition rates haven’t improved greatly over the past 15 years. Cross-sell rates have not improved. Loyalty measures have not improved. Cost structures have not been radically reduced.

So what has been the real benefit of the online channel to banking? The added convenience is clearly a benefit to consumers, but it’s hard to pinpoint the benefit to banks. The online channel has become a cost of doing business. 

This seems to be where the mobile channel is heading. Yet another customer contact channel, and a new cost of doing business.

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This time around is a little different, however.

It isn’t just about providing greater levels of convenience to customers.

It’s about providing a greater level of value.  Banks and credit unions think they add value today, but they really don’t add that much.  Sure, they provide a loan when it’s needed (assuming the customer qualifies). 

But where is that everyday help?

On Movenbank’s blog, some 20-something writes ~1000 words dispensing advice to other chidults (half-child, half- adult — hey, it was her description, not mine) about managing their finances. 

I could’ve written the post in 5 words: Stop sending so much, chidults.

The important point here is that these chidults are forced to turn to other clueless chidults because banks (and yes, credit unions) don’t do it. Your cute little “safe to spend” chart doesn’t really cut it, banker-boy. We’re talking about a much deeper level of spend management here.

Every chidult has a smartphone. And before long, they’ll all own a tablet. 

If all you’re going to do is give them the ability to check their balances, get an alert, or pay a bill, you lose. It’s “Online Channel” all over again.

You need to make the smartphone the financial transaction device, and the tablet the financial management device. Figure it out. I can’t give you all the answers here.