Category Archives: PFM

Do You Need A Minty Fresh PFM?

Intuit announced that it would offer banks and credit unions the opportunity to implement Mint as a PFM platform integrated with the FIs’ online banking platforms. As usual, NetBanker was all over this with it’s equally as typical excellent analysis. Jim Bruene’s list of pros and cons for FIs to consider regarding implementing Mint is spot on.

Well, mostly spot on.

There are a few points I’d quibble with. Jim writes:

“Many of Intuit’s 1,100 online banking clients (500 of which use Intuit’s FinanceWorks PFM) will jump at the chance to integrate Mint. Non-customers will be considerably more wary.”

Jump is not the right word.

For the 500 FinanceWorks users, switching to Mint will be a difficult decision. Mint.com may be the gold standard in PFM, but forcing users to change something they use (and may actually like) should not be taken lightly. I also find it difficult to believe that the other 600 clients have been holding off from deploying PFM because they’ve been waiting for Mint.

Jim also points out the potential for brand confusion:

“Adding another brand to your service is always a tough call. And if other banks offer the same Mint-branded PFM, have you lost the potential for competitive advantage? Furthermore, does driving your customer into Mint actually make you more vulnerable if Intuit or someone else releases a “conversion kit” to move all your account history to Mint.com or another bank’s Mint service?”

I don’t think of deploying Mint as adding “another” brand to the online banking service. What other brands are there? Geezeo and Money Desktop are industry, not consumer brands. Popmoney is not a strong consumer brand. There are no strong consumer brands in the world of remote deposit capture. Checkfree for bill pay? It’s not the Checkfree brand that draws consumers to use online bill pay.

—————

NetBanker’s list of pros and cons are excellent, but it my simplistic way of looking at the world, there’s one overarching question banks and credit unions need to answer here:

Economically-speaking, what are we going to get out of implementing Mint?

According to the nearly 500 credit union executives surveyed by Filene Research last fall, 6% of credit union members use PFM tools provided by their credit union. In other words, the 12 million users that Mint has (or so it claims) is more than double the number of PFM users the total credit union industry has (you can do the math).

1. Will integrating Mint into the online banking platform jump start PFM adoption in a way that other platforms have been unable to?

Geezeo and Money Desktop may have some stories to share about how their clients have seen better than 6% adoption of PFM.

2. If existing Mint users are happy using Mint at Mint.com, will they switch to using it at their bank’s or credit union’s site?

Yes, I too have consumer research showing that consumers would prefer to use PFM at their FI’s site — but those aren’t the existing Mint users.

The future Mint user experience confuses me. Intuit told me that they would not deploy the offers functionality of their dot-com platform in their FI platform. But couldn’t a consumer who uses Mint on their FI’s platform just go over to Mint.com to see these competing offers? If they’re already a Mint.com user, I have to believe the answer is yes. 

3. If we implement Mint, and our customers/members use it, what’s really the bottom-line impact to us (the FI)?

And that’s the question that few (if any) FIs can answer with any degree of certainty.

The research I’ve done shows that — according to consumers’ own perceptions — a minority of PFM users (~20%) deepen their relationship with their bank or credit union as a result of using PFM.

So if you’re a credit union with 6% PFM adoption, and deploying Mint would double that –no, hell, let’s make it triple that to 18%, and only one in five of those members will deepen their relationship from using the tools, the question is:

Is it worth deploying Mint to grow the relationship with 3.6% of our members?

There’s no simple way to answer that question. Who are those 3.6%? How will they grow the relationship? How much do we really need to invest in order to get that relationship growth? Could we be doing some differently with PFM to make the 20% impact rate expand to 40% of PFM users?

Bottom line: Deciding whether or not to implement Mint is not an easy decision. If your FI is willing to make a serious commitment — to PFM, not just Mint — as a tool and platform for nurturing and growing customer/member relationships, then you should do the hard work of figuring out if this is the right platform for your organization. If you’re not willing to make a serious commitment to PFM…

Telling The PFM Story

In a recent Financial Brand article titled Online Banking 2.0: Getting Visual, Brett King is quoted as saying:

“FIs still have a long way to go. Visualizations and basic budgeting tools are only one small step forward. It’s going to take more than a few fancy pie charts, a drag and drop goal function, and seeing account usage on a timeline to pimp out internet banking. While a pie chart is potentially an effective tool to show me some of that, and might even be central in some scenarios, there is a lot of other relevant information that might be prioritized.”

My take: Totally agree. FIs need to tell their customers a PFM story.

—————

Here’s the problem few bankers seem to want to realize: Many people hate numbers, aren’t comfortable with numbers, and/or don’t want to spend their time trying to make sense of numbers.

This is one of the major reasons that PFM usage is so low (another being the fact that many of us just aren’t interested in doing budgets, categorizing our expenses, or graphing our financial lives to death).

Want to increase the usage of PFM — and it’s value to customers? Tell a PFM story.

Tell each PFM user the “story” of their spending, savings, investment performance, etc. each month. In WORDS, not numbers.

—————

How are you going to do that?

A company called Narrative Science just might be able to help. The company claims to “transform data into stories and insight.” From what I’ve seen, it just might be able to do that with PFM data.

Here’s an example for what the company has created for one financial services firm:

The “narrative” was created solely from data provided to Narrative Science’s AI engine.

—————

For any particular customer, the depth and detail of the narrative will depend on the level of data provided. But if a bank customer gets a personalized “statement of performance” each month — and gets value from it — it might create an incentive to interact more frequently with the PFM platform.

—————

What I would like to see Narrative Science develop (and for PFM providers to do, as well) is tell “data stories” in the form of infographics. 

Let’s face it: With the exception of the highly-intelligent people who read this blog, most people out there are too damn lazy to read a lot of text. 

An infographic — a good one, that is — isn’t just a series of graphs and charts. It’s a story, a narrative, that makes heavy use of visual ways to display data. 

But the missing ingredient to PFM isn’t graphs and charts — it’s the story. 

Anybody For A PFM Summit?

Some people are really good at organizing things, events, and people. About the only thing I can organize are my thoughts.

So I’m really hoping I can convince somebody (or organization) to organize a PFM Summit.

Not a conference, not a Finovate-style demo format, and not a free-form BarCamp.

A summit. A meeting of the minds about where PFM is, the impact it’s having (and not having). And where it’s going.

I want the leading PFM providers to pay for it — Geezeo, Money Desktop, Yodlee, Strands (to name just a few — I don’t want any heat for leaving anybody off the list).

And I don’t expect to be the only analyst there. The sponsorship money has to cover getting Jegher, Cohen, and Schwanhauser there, too.

If we can’t get 100 well-qualified, relatively seniorish-level execs from FIs to show up, then there is no there there regarding PFM.

I’m not 100% clear on what the format would be, but I’d like to see it include:

1) An analyst debate. In a recent Google+ hangout about PFM organized by the National Consumer League, Schwanhauser and I expressed some clearly conflicting views about PFM. Would like to continue and expand that conversation, and include the other analysts.

2) Vendor interrogations. Don’t get me wrong — I love the Finovate format.  But it leaves no room for a critical questioning of the vendor. And just giving them more time on a stage is a waste of time (sorry guys). Somebody (and I would propose those somebodies would be me and my fellow industry analysts) needs to sit down with these vendors and ferret out what’s real, what’s vaporware, and most importantly, what’re really working well and not working well in the world of PFM.

So, how about it Bruene? You’re really good at organizing this kind of thing. How about adding a PFM Summit to your list of events?

Finance Dot Data Dot Gov

One of the following two statements is false:

1. Just one in four PFM (personal financial management) users believes that PFM tools have done a good job of helping them understand how other people manage their financial lives.

2. No data exists for FIs or PFM providers to help consumers understand how other people manage their financial lives.

I can assure you that statement #1 is true, because I have the research data to back it up. If you thought statement #2 is true, you are forgiven, but that statement is NOT true.

—————

The Treasury Department recently launched a new web site called the Finance Data Directory, which brings together (for the first time?), a number of data sources relating to consumers’ financial lives. Included are links to the CFPB’s credit card complaint database (which I’m not a big fan of), the CFPB Credit Card Agreement Database, the FDIC’s Call Reports, Survey of Un/Underbanked, and Summary of Deposits, and a database on Consumer Expenditures.

This last database mentioned above should be utilized by every PFM provider. It provides detailed spending data by category (e.g., food, housing, utilities, apparel, transportation, etc.) at an incredibly granular level. It’s exactly the kind of data that consumers need to understand how their spending compares to others in their age and/or income brackets.

Another dataset worth exploring is the Survey of Consumer Payment Choice Data which provides detailed data on consumers’ credit, debit, and prepaid card usage. Helping consumers make sense of this data, and how it could/should affect their payment decisions is what PFM providers should be doing.

—————

The Treasury’s efforts appear to be tied to two initiatives: The first is the Data.gov initiative, whose purpose, according to its website is to:

Increase public access to high value, machine readable datasets generated by the Executive Branch of the Federal Government.

The second initiative is the Treasury’s attempt to take a more activist role in helping consumers manage their financial lives.

I participated in a Google+ Hangout recently, coordinated by the National Consumer League, and sponsored by JPMorgan Chase. One of the panelists was Sophie Raseman, the Director of Smart Disclosure in the Treasury’s Office of Consumer Policy. On the Treasury’s web site, Sophie wrote:

“The Finance Data Directory is part of Treasury’s work to promote the development of the next generation of personal finance tools that promote financial capability.”

While the finance data directory has a ton of data that PFM providers should find useful, Sophie said something during the hangout which really resonated with me:

“PFM needs to focus on outcomes.”

I couldn’t agree more. This gets at the heart of what I was trying to communicate in my PFM Is Dead post. Oversight — the ability to know where your money is and where it goes — is useful, but just one of the potential benefits and impacts that PFM can have.

Account aggregation and budget creation/tracking is great, but unless it changes behavior — or in Sophie’s terms, alters outcomes — then the potential impact of PFM is unfulfilled.

—————

One aspect of the Treasury’s objectives that shouldn’t go unnoticed is its choice of words. Note that the Treasury is looking to promote financial capability. I might be reading more into this than what’s really there, but I believe it was a conscious choice to use the word capability instead of literacy (Sophie’s comment about outcomes supports my belief). 

Too many consumer advocates focus on financial literacy. Knowledge without action, or change in behavior, is useless. 

It will be interesting to see how the Treasury’s efforts in this area unfold.

PFM Is Dead, Long Live FPM

PFM (personal financial management) is dead. And if you want to know who killed it, look in the mirror. Because you killed it. You, the banks and credit unions that have been implementing PFM. And you, the PFM vendors who have been selling them this stuff.

I know what you’re thinking: What the hell are you smoking, Snarketing Boy?!@#? You’re thinking, “We integrated PFM into our online banking platform and saw a big spike in adoption in the first 90 days!”

That’s actually how you killed it. You buried it. Buried it alive. Stuck it in the discount rack of that dying record store you call your online banking site.

—————

It didn’t have to end this way. But you deceived yourselves into thinking PFM was something that it isn’t. The following quotes were pulled from CU Times:

“We wanted to bring a product to market that offered our members a real and complete solution to managing their personal finances.” — Credit union COO, referring to PFM

“The purpose of the new tool is to help build awareness of the credit union’s ability to help individuals plan for short- and long-term financial goals, as well as track income and expenses and promote financial literacy.” — Attributed to just the credit union

“Gaining an understanding of one’s financial picture will empower our members to make prudent financial decisions.” — Credit union CEO

I’m sure there are plenty of similar quotes from bankers, I’m just too lazy to go find them.

The problem with these statements, however, is that none of them are rooted in reality.

PFM — as implemented by most FIs today — is mostly budgeting, expense categorization, and cash flow analysis. Not only is that a far cry from being a “complete solution” for helping people manage their finances, but, drawing upon a recent survey of 1,115 consumers conducted by Aite Group, and published in a report titled Strategies For PFM Success, there are (at least) two issues that prevent the above statements from being true:

1. Few consumers are sufficiently engaged with the management of their financial lives. I identified 14 financial activities — including budgeting, expense categorization, forecasting cash flow, evaluating savings/investment performance — and asked consumers if they did these things, and if so, how frequently. I took the results and grouped respondents into one of three activity levels: Low, moderate, and high. About 30% of consumers (consistent across generations) are not at all engaged in their financial lives.

The percentage of consumers that are highly active, however, varies by generation: One-third of Gen Yers, a quarter of Gen Xers, about 15% of Boomers, and just a handful of Seniors active in the management of their financial lives. One thing, however, is consistent: The most active consumers are those most likely to use PFM tools. Bottom line: Unless consumers become more active in managing their financial lives, the PFM tools will go unused.

2. PFM tools fall short of delivering full value. One of the things I discovered analyzing the survey data was that PFM users could reap three types of benefits from the tools: Oversight — knowing where their money is and where it goes; Insight — knowing how their financial lives are performing; and Foresight — knowing what to do to improve the performance of their financial lives. Bottom line: Few PFM users have reached the pinnacle (or the middle level) of this pyramid.

—————

PFM is stillborn. Budgeting and expense categorization, with pretty charts and graphs (and now Bubbles!) simply doesn’t have that much of an impact on consumers’ financial lives. Consumers get Oversight out of PFM, but that it isn’t enough. They need more.

I’m not one to shy away from trying to name things, so I’ve got a name for what is needed. If you’re dyslexic, you already know the answer: We need FPM. Financial Performance Management.

Consumers need tools like the bill analysis tools that Truaxis provides, the card and mortgage analysis tools that Credit Sesame has developed, the saving incentives apps that Bobber Interactive has designed, and the spend management capabilities that Banno demoed at the recent Finovate conference.

But consumers need these things to work together with their existing accounts, and existing online and mobile banking platforms. Independent, one-off tools and sites will never gain enough traction to garner a significant mass of consumers.

If FIs really want to provide their customers and members with a “complete solution to managing their personal finances,” they’re going to have to go well beyond slapping up some PFM (i.e., budgeting and expense categorization) tools on their web sites. 

It’s going to require a concerted — and probably strategic — effort to bring these capabilities together into a coherent offering.

Adding PFM as a feature to checking accounts is a dead end. 

FPM needs to become the product. It’s what people will pay for. It’s what delivers the value.

Facebook Fans Aren’t Better Customers, Better Customers Are Facebook Fans

Marketers who obsess over driving social media connections (like Facebook likes and Twitter follows) because they see or hear that social media likers/followers are more likely to buy, are better customers, or whatever, are missing an important point:

Social media connections don’t cause the desirable behavior/attitudes — they’re the result of something else. That “something else” is customer engagement.

In a survey of more than 1,100 US consumers, Aite Group asked respondents how frequently they performed financial management activities like creating/managing a household budget, categorizing/forecasting their spending, analyzing the return on their savings and investments, and seeking help and guidance in making financial decisions (there were 13 activities, overall).

Based on their responses, respondents received a score for each activity and an overall Financial Activities Score. That score qualified them for one of three groups (with the percentage of the population each group represents): Level 1: Inactive (30%); Level 2: Moderately Active (50%); and Level 3: Highly Active (20%).

Highly Active consumers (Level 3) are the most likely to:

Grow their relationship with their primary financial institution. Just 4% of Inactive consumers expanded their relationship with their primary FI in the past 12 months (by increasing balances and/or number of accounts). Among Moderately Active consumers, that percentage is 11%, and among Highly Active consumers it’s 14%.

Refer their FI. Highly Active consumers are 1.5 times more likely to refer their primary FI to family/friends than Moderately Active consumers, and twice as likely as Inactive consumers. 

Use and reap the benefits of PFM. Nearly two-thirds of Level 3 consumers use an online PFM tool, in contrast to just one in four Level 2 consumers, and one in 10 Level 1 consumers. More importantly, Highly Active consumers reap the benefits of PFM. In a soon-to-be-published Aite Group report, I defined three levels of benefits that users achieve from PFM: 1) Oversight: The ability to know where their money is and where it goes; 2) Insight: The ability to better control and manage their financial accounts; and 3) Foresight: The ability to make better financial decisions. Among PFM users, Highly Active consumers are four times as likely as Level 1 and 2 consumers to have reached the Foresight level of benefits. The benefit to FIs of PFM users reaching the Foresight level will be described in the report.

Connect with FIs on social media. Among Highly Active consumers, nearly three in 10 are Facebook fans of their primary FI, and one in five follow the FI on Twitter. Among other consumers, those percentages are in the low single digits.  Looking at it from a different perspective, of the customers that follow their primary FI on Twitter, 95% are Moderately Active or Highly Active consumers. Ninety percent of Facebook fans come from these two segments.

Bottom line: Encouraging customers who aren’t actively involved in the management of their financial lives to “Like us on Facebook!” or “Follow us on Twitter!” is a waste of financial services marketers’ time and efforts. The customers who make those connections are already good customers. 

Customer engagement — engagement with one’s financial life — is what financial marketers should be encouraging.

 

 

Which Consumers Prefer Credit Unions?

Ever notice how happy a pig in shit is? That’s probably how that saying came about. Well, give me survey data, and I’m happier than a pig in shit.

And I’m really happy right now, because the results of a survey of 1,115 US consumers, conducted by Aite Group and BancVue, is sitting on my PC providing me with hours of analytical fun. In the next few weeks, we will be publishing a report on PFM (which you might be able to get from BancVue if you’re really nice to them). 

With permission from BancVue, I wanted to share a couple of data points (which have nothing to do with PFM, so I’m not giving away the PFM punchline here).

My take: Both banks and credit unions should take note of these data points as I believe they’re cause for concern on the part of both types of financial institutions.

We asked consumers to assume that they were in the market for a new financial product, and that the providers they were considering offered similar rates, fees, terms, etc. We then asked them if they would prefer a large bank, a community bank or credit union, or if they had no preference.

Below are the results by the respondents’ generation affiliation:

Credit unions should not be happy to see this. Gen Yers — the generation that practically all CUs are dying to court in order to lower the average age of their member base — are just as likely to consider a credit union or community bank as they are a large bank.

Who’s the most likely to prefer a CU or community bank? Seniors, who, it would seem, are discarded and ignored by so many industry observers as not being profitable or providing the engine for growth.

Bottom line: Credit unions should stop patting themselves on the back every time a survey comes out showing that consumers trust credit unions more than large banks. 

It’s great that the 20% of consumers who consider a CU their primary FI trust CUs more than the 60% of consumers who call a big bank their primary FI trust those big banks.

I don’t want to downplay the importance of trust in developing customer relationships, but the data shown above (as well as other data points that will be published later) point to two concerns CUs should be worried about:

1. Preference. More than half of Seniors would prefer a CU or community bank, but just over a third of Gen Yers express the same preference. Not a good metric for CUs.

2. Conversion. Nearly half of Gen Xers — who, while not a particularly large generation in overall numbers, are critical because many are in the peak of their financial service need years — said they’d prefer a community bank or credit union. But do 45% of Gen Xers who open up a new financial account or apply for a new financial product do so with a community bank or CU? I don’t think so. Conclusion: CUs have a conversion problem.

This is what CUs should be worried about. Not their trust numbers.  

Comscore’s 2011 State of Online and Mobile Banking

Comscore published its annual State of Online and Mobile Banking for 2011. Anyone in financial services with an interest in the online or mobile channels, payments, or marketing should check it out.

Lots of interesting data points and trends in this report. Here’s what caught my eye:

1. PNC is kicking @ss. The bank’s satisfaction level jumped from 57% in Q1 2010 to 79% in Q1 2011. The 57% number was down from 70% in Q1 2009. My guess is that these changes reflect two things: 1) The drop in 2010 reflected PNC/Nat City merger fallout, and 2) The bump in 2011 reflected the great job PNC did with the merger and the bank’s success with its Virtual Wallet product. The 79% level is 9 percentage points higher than Chase or Wells Fargo, 16 points higher than Citi, and 17 points higher than BofA. Kudos to PNC.

2. PFM interest and use is anemic. This might reflect the blending of the demographic segments. In other words, it might be too late to get Boomers, and maybe Gen Xers, interested in PFM. Would love to see the numbers for Gen Yers. But the Comscore numbers are not reassuring for PFM vendors, nor for online channel execs at banks looking for ways to use the online channel to add value to the customer relationship. (Side note: I’ve got an Aite Group report on PFM coming out in late Feb/early March that will define strategies for addressing the issues banks and CUs are having with PFM). Just half of BofA and Wells Fargo customers are aware of those banks’ PFM tools. In contrast, 60% of PNC customers know about Virtual Wallet, and 63% of USAA members know about the Money Manager tool. Both BofA and WF have had their PFM offering a lot longer than PNC and USAA has had theirs.

3. Nobody knows about P2P payments. And of those that do, few use it. This is a cause for concern because a number of the core apps providers I’ve talked to recently are expecting P2P payments to be big, and become a revenue generator for both themselves and the banks that offer it. Personally, I think banks go about marketing P2P payments all wrong, and Comscore’s numbers give me some proof for my contention.

4. Social media efforts go unnoticed. I’m sure you’re tired of hearing me bash social media gurus and zealots regarding their baseless claims about the miracles of social media, but Comscore’s stats really tell a story. Less than one in five consumers are even aware that their FI has a presence in the social networking space.

5. Email is an effective communication channel. Email sure takes a beating in the blogo- and twitter-sphere. According to the Comscore report:

“…the impact of receiving emails to new account opening activity is on the rise. While the response rate on offers to open a new account is still modest at 6%, it represents a doubling of last year’s rate. In fact, email is highly effective in increasing customer awareness and engagement in other offerings, with 17% of recipients visiting the site to get information on other products.”

6. Remote deposit capture awareness is low. Just 29% of smartphone owners are aware of  the ability deposit checks remotely (I know of an 8 year-old who knows about this feature). This surprised me considering the importance so many bankers place on RDC as a way to differentiate their organization, and attract younger consumers.

Overall, lots of good stuff in this report. Nice work, Comscore.

Giving Away iPads Doesn't Solve PFM Challenges

In about 20 words, NetBanker takes a machete to PFM, cutting it down with three swipes:

  1. It’s hard to get started
  2. It’s a pain to keep up
  3. It’s disconcerting to view spending summaries

But, as NetBanker notes — and I agree with both the swipes and the rebuttal — there are “obvious benefits” to PFM use.

NetBanker goes on to say that “one way to tackle the first problem is to offer a sweepstakes or bonus to induce trial,” and highlights Truliant Federal Credit Union’s attempt to do just that by giving away iPads to members who sign up for using PFM.

My take: Truliant is wasting its money.

If you need to lose weight, you can: 1) Read up on which foods to eat; 2) Eat those foods; and 3) Exercise more. Doing only #1 — reading up on which foods to eat — will do little good in actually reducing your weight. Step #1, without #2 and #3, is a failed strategy.

This is analogous to what Truliant is doing: Trying to solve the three-pronged PFM problem by addressing just the first prong. 

PFM is the new New Year’s resolution. It used to be that when the new year came around, we resolved to lose weight and/or stop smoking. Now we resolve to get our financial lives in order. And just as we used to join a gym to realize our weight loss resolution, we sign up for a PFM to to realize our financial resolution. 

When March rolls around, we’re not going to the gym as often, and not long after we start using a PFM tool, our enthusiasm and commitment wanes, and we stop using it. 

Realizing the “obvious benefits” of PFM requires committed use of the tool over some period of time. Simply incenting people to sign up for using the tool does absolutely nothing to encourage or ensure continued use. 

In fact, if you read the fine print of Truliant’s contest, members don’t actually have to enroll in PFM to participate. (I’m tempted to enter the contest to see if they even really limit it to members). 

My prediction: A large percentage of Truliant’s online banking members will enter the contest and sign up for PFM. Truliant will then boast about their high PFM enrollment numbers. And then we’ll never hear again whether or not those members continued to use the tool and reaped the benefits. 

What should Truliant do?

Think Foursquare for PFM. 

Despite what a lot of people think, Foursquare isn’t about location awareness or the mobile channel. It’s about gamification. It’s about earning badges and becoming mayor. And if there are rewards for doing those things, great.

People like to play games. We like friendly competition, and we like to turn routine things into games to spice them up, and make them more interesting.

And that’s what banks and credit unions need to do with PFM — make a game out of it. Points for setting up a budget, points for categorizing your spending, even more points for keeping to your budget. Points for sharing tips and tricks regarding the management of one’s financial life with other PFM users.  And giving away iPads to the people who amass the most points.

In other words, incenting customers and members to deal with the “pain of keeping up” with the use of PFM.

If you can address challenge #2, challenge #1 takes care of itself. 

As for the disconcerting nature of seeing your spending patterns, I can’t help you. I’m a consultant — not a miracle worker.

How To Differentiate Your Credit Union

On the CU Water Cooler site, William Azaroff wrote:

“When I look at many credit unions, I’m troubled by their blandness, their inoffensiveness. They used to stand for something, but now they’re moving away from differentiation and towards sameness. And many credit unions are doing this at the precise moment when differentiation is a necessity. The question is: do some people hate your brand? If some do, then I would say you’re doing something right. If not, then I’m guessing your organization is trying to be all things to all people, and should take a stand for something and embed that into your brand.”

My take: To quote former President Clinton: “I did not have sex…” No, wait, that’s the wrong quote. I meant this one: “I feel your pain.”

William is spot on that many credit unions aren’t differentiated in the marketplace. What William didn’t get into, however, is why few credit unions are effectively differentiated. There are (at least) three reasons why undifferentiated credit unions are that way:

  1. They don’t know how to differentiate themselves.
  2. They think they’re differentiated, but don’t know better.
  3. They don’t want to be differentiated.

The last reason might surprise you, or strike you as wrong. But after 25 years of being a consultant, I can’t even begin to count the number of times I’ve made a recommendation to a client to do something, only to be met with the following question: “Who else is doing that?” Risk adversity runs deep in the financial service business.

There are also a fair number of CU execs who think that their CU is differentiated. Almost to a man/woman they give the same description of what differentiates their CU: “Our service.” This is often — I’m inclined to say always — wishful thinking. Why? First, service may be what your firm does best, but it doesn’t mean your service is comparatively better. And second, because service means different things to different people.

The most prevalent reason why so many CUs are undifferentiated, however, is probably the first reason: They don’t know how to differentiate themselves. 

I’m not looking to pick a fight with William — I suspect he would agree with me here — but approaching the topic of differentiation from the perspective “what can we do to tick people off and be hated by some of them?” is not the right way to go about it. 

And with all due respect to my friends in the advertising business, the last thing a credit union should do is bring in the advertising people to help them figure out how to differentiate the CU. 

Why? Because there’s a prevalent — but misguided — mindset among advertising people that differentiation comes from “the story you tell.” (If you need proof, go read Seth Godin).

But the story you tell doesn’t differentiate you. What differentiates you is the story that your members tell. That they tell to themselves inside their head, and that they tell verbally to their family and friends. And those stories only come from their experiences with the credit union, not the advertising. 

Which means this: Differentiation comes from something you do. 

That “something” must be meaningful to members. And that something must be something that: 1) only you do; 2) you do measurably better than anyone else; or 3) you do measurably more often than anyone else.

Differentiation doesn’t come from standing for something, and it doesn’t come from your branding efforts (your differentiation drives your brand, not the other way around).

William’s credit union Vancity “stands” for community development and improvement.  So do plenty of other CUs. What differentiates Vancity is that — time and again — they do something about it. They can count the number of times they’ve done something about it, and they can measure the impact of what they’ve done.

Differentiating on service is tenuous. What does that mean? That you fix your mistakes better than anyone else? That the lines in your branch aren’t as long as they are in the mega-banks down the street? That Sally at one of your branches greets everyone by name and with a smile when they come in?

If you’re going to differentiate your credit union, you have to do something. Different, better, or more. None of those options is particularly easy to do. Technology initiatives intended to gain a competitive advantage — mobile banking, remote deposit capture, etc — are often easily (I didn’t say cheaply) copied. Better is hard to prove. And “more” requires strong commitment from the management team for an extended period of time.

This isn’t to say that aren’t opportunities for differentiation, just that they require commitment — and a lot of it.

So what can you do to differentiate your CU? I think it comes from committing to differentiate in one — and only one — of the following areas:

1. Advice. Managing our financial lives is tough and getting tougher. People need help making smart financial choices. But the advice available in the market tends to be focused on asset allocation and stock picking for the relatively affluent, or focused at the very lowest end of the income spectrum for people who need help with serious debt problems. What about everybody else in the middle? What about providing help with all those everyday/week/year decisions that have to be made? PFM holds the potential to provide and deliver this kind of advice, but the tools aren’t quite there yet. If this is the path you choose, you’re going to have to make some investments to develop them and get them to point where they can deliver on this promise.

2. Convenience. There’s one bank in the Boston marketplace that advertises itself  as the “most convenient” bank. Hooey. Having extended branch hours and free checking isn’t “convenience.” Making people’s financial lives easier — i.e. more convenient — to manage is a complex and difficult proposition. But when you’re really doing it, people know it. And you’ll be differentiated.

3. Performance. You might not be the easiest FI in the market for me to deal with, and you might not provide me with any advice (maybe because I don’t want any), but if the performance of my financial life — that is, the interest I earn, the fees I pay, and the rewards I get and earn, are superior to everyone else out there, than I will consider you to be differentiated in the marketplace.

I didn’t say differentiation is easy.