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Are You A Dumb Bank? (Part 4ish)

Originally published on CUInsight.com

This is a spiritual continuation of a series from a while back, titled Are You A Dumb Pipe. The idea is related; read on to understand how. 

For every 100 members buying a car, 8 will pay in cash and 30 will lease, leaving around 60 which continue to be an opportunity for your credit union.

Of those, many will simply finance at the dealer, signing with captive or another indirect lender.

Was it yours? Maybe. Probably not.

Since most people pay for cars at the dealer, it only makes sense to pour resources into indirect, right? Operating in this fashion reminds me of my post on being a dumb pipe.

Becoming A Dumb Bank

Skyscrapers and Plane
One of those has the main offices. Which one? Who cares?

Indirect lending is making your credit union a dumb bank. Your members won’t know who you are. They don’t care. You’re a line in their bill pay platform, and it’s probably set to automatic, anyway.

I’ve spoken to the lending teams at many credit unions. The allure of indirect is strong. Do nothing, get auto loans. As long as you approve and fund them in good time, you’re done.

I’ll be honest; I’ve lost some business to it. However, it’s costing credit unions like yours far more. It’s the same as the internet providers being just a dumb pipe (with the loss of Net Neutrality this will change).

It’s the path to becoming a faceless lender.

What’s Wrong With Being a Faceless Lender?

Credit unions see financial interactions in a different way than any other institution. It’s what makes you, well, you. And not a random bank. Right?

I mean, if I’m wrong, say so and continue down the path you’ve set. Become the faceless money storage and lending facility.

Faceless Woman Illustration
“I guess some people work there…”

It’s true, there are a lot of people who will never care about their bank, credit union…whatever. When it does what they expect, it’s another utility which receives little attention.

If something goes wrong, well…”geez, this bank just sucks!”

You can try to engage them, but the decision is theirs.

However, if you are in any way trying to fulfill your mission statement, this is not the path forward. As your services become commoditized, your interactions devolve into support requests and complaint resolutions.

So what’s wrong with becoming a faceless financial institution? It becomes nearly impossible to achieve your mission, which is a disservice to everyone.

You lose the ability to help your members in all the unique ways available to credit unions. Financial coaching? That would have been nice. Investment guidance? I’m sure they’ve got it handled.

Even a simple grasp of how fee structures or interest rates can affect someone long-term? Hey, if they don’t know you, they don’t engage.

And if you try to connect, well, you’re just that faceless money box. Have you earned their time and attention?

Where “Faceless” Works

Am I saying indirect and other “faceless” services are bad? Not at all. They can serve a valuable role in boosting asset volume in many credit unions.

Of course, indirect isn’t quite the money-maker some think it is. So I’d keep a close eye on that.

Sometimes, you just want to run a service that’s “set and forget”. If this fits your strategy, and is properly accounted, then enjoy the growth it delivers!

Stick Shift
I’m more of a manual kind of guy, myself. Automatic is good for certain things.

However, I have noticed a growing trend of institutions putting more resources into this basket…at the expense of their direct member engagement.

There are a lot of industries where your company can remain unknown while also a part of everyone’s life. That works if being faceless yet ubiquitous fits the mission.

I don’t believe it does for the credit union industry. Do you?

Want Tomorrow’s Tech? Team up! (Part 2) – [2019 Update]

Due to the importance of this topic, I’ve gone past my normal length limits in this post. Estimated reading time is 5-6 minutes.

Are You a Dumb Pipe? If this comes across as an insult, instead of fighting, let’s go back to the post which shared the same title. It’ll take two minutes, three, tops.

Done? Welcome back. Much appreciated. I know it’s distracting out there.

You Don’t Need To Be A Dumb Bank

What did you think? Is your institution on the path to becoming a “dumb bank”? Turn that frown upside-down, because there’s a way to avoid such a bleak future.


You know my history of encouraging interrelationships amongst financial institutions and other service providers. Whether they be fellow cooperatives or complementary offerings, bringing them together under your brand increases the value of your membership.

There are other groups doing a wonderful job presenting the data on these activities, from CU Social Good to Filene Research and even CUNA itself.

It’s not my goal to rehash their findings. Rather, I aim to focus this strategy into the consumer technology field, which is one where the credit union industry struggles.

Do You Have Unlimited Resources?

It’s a matter of resources. If you’re large, with enormous budgets and negotiating power, you can design and implement a cutting-edge platform for your members. If they ask for it, you can provide it. But, I can count the number of credit unions able to do this on a single hand.

And even then, their resources pale in comparison to national and international banks. Take Bank of America’s board compensation, for example. In FY 2019, a non-management director receives a $100,000 cash award and $250,000 in restricted stock units, with additional incentives of between $30-50,000 annually available for chairing committees (source).

Imagine how much is available for their mobile app, voice assistant, and other innovative services.

Someone’s Making A Better Member Experience

Look at your own member experience. Where are you weak? More than likely, there is a technology solution which can overcome that pitfall. “Oh, we don’t have the budget for improvements this year.”

Someone does. Take Simple, for example. They are aiming to become the PFI of their customers. Using a mobile-first platform, you can do anything from your phone, all with few of the traditional fees. Get a Visa debit card, configure auto-payments, and you’re done.

The “riffraff” of a financial institution is eliminated. All the money is held by an insured entity, which happens to be their parent company, The Bancorp, the largest provider of pre-paid debit cards.

For my Canadian friends, Koho is a similar platform. Both of these companies eliminate or convert the traditional FI to a place to hold your funds. Koho explains their money is made on interchange fees.

In the case of Koho, discussions with their team led me to believe they might engage in credit union partnerships, but I don’t know anything for certain at this time.

Barring potential teaming up, I don’t suppose you expect to continue receiving interchange revenues

Wait, Are You Competing Against Me?

The previous examples were complete financial institution replacements. Let’s talk about one which may become a threat over time.

If you’ve shopped at a farmer’s market, art fair, or food truck event recently, you likely bought an item using Square. It’s that little white box attached to the vendor’s phone or tablet enabling a swipe transaction.

Their current devices are dedicated POS units. They make paying easy (whether you use a card or contactless like ApplePay), let you add gratuity, and decide how you want your receipt (printed, texted, e-mailed, etc.).

Once again, their money is made through transaction fees. Square’s growth is due to the ease of use on all sides; add an affordable touchscreen to your front desk or attach a tiny device to your phone…bam! Your cash-only business now accepts plastic.

While funds are drawn from and deposited to traditional checking accounts, I’d wager they are building a system to become the home to all your funds, in the vein of another provider, the king of alternative banking: PayPal.

Best Partner Options – “Over-The-Top” Providers

The best options for partnerships are what I call “over-the-top” providers. These are services which add valuable capabilities to your members, without minimizing your brand. This is the place you want to be.

A small credit union can stand on the shoulders of technology giants and offer a suite of modern services on par with the “big banks”. One I’m seeing in many credit unions is PopMoney, not surprising as it is powered by Fiserv.

P2P Money Transfers. Easy.

It’s possible you’ve heard of PopMoney, or even use it at your own. Their service enables easy transfer of money from one person to another, regardless of financial institutions. As long as both are members of the PopMoney network, the funds will arrive immediately.

Still writing checks? How quaint. You can use text messaging, e-mail, or even the mobile app (if the CU supports mobile Bill Pay, this is often integrated), while the branding remains your own.

Disrupt With Help

Want your over-the-top service to do more than just provide an additional member service? It’ll take more work, but credit unions around the country (Disclosure: Including some of our clients) have integrated innovative technologies into their core systems.

Take Kasasa, for example. No, I didn’t just cast a spell from Hogwarts (you silly Muggles!).

Kasasa is a platform to soup up your free checking.

Which makes this a perfect place to learn more about Rewards vs. Value-Added Checking from my company’s Learning Library.

You can add high interest rewards, ATM fee reimbursements, and a range of other perks, all within a policy of only partnering with local banks and credit unions (they share the community nature of the credit union industry).

Are fraud concerns raising your costs and scaring your members? Educators CU teamed up with a tech firm called OnDot to solve these challenges. How?

Imagine you forgot your debit or credit card somewhere. With their Ctrl phone app, you can easily turn off your card. Find your card safely? Switch it back on.

An additional layer of security, if a member agrees, is a location-based trigger. When your phone is more than 10 miles away from a place your card was just used, you get a notification. I think it’s important to mention that Bank of America uses this technology for fraud prevention on their cards.

The member convenience of turning on/off their card without triggering a costly replacement also makes money. An institution demoing the service reduced their fraud expenses by 60% while their member spend rose nearly 50%.

Talk about a win-win!

Offering “Big Bank” Features

Couple programs like these with support for Apple Pay (which, at this point, your institution really should support), and you are offering “big bank” functionality no matter your asset size.

Co-Op Financial Services, a leading credit union industry tech provider, discussed the concept of credit unions using their shared resources to meet or exceed capabilities of much larger institutions.

One caveat: Not every solution fits your credit union. As an example, my own credit union tried Money Desktop, a self-contained account management system, supporting accounts in any institution (not unlike Mint, discussed in the previous post).

However, it exists on its own, as a separate site, with no integration. Can I get to it from their mobile app? Nope. Does it even load on my phone or iPad? Poorly. I’m sure my credit union put a lot of effort into adding this program, but it just doesn’t meet my expectations.

Like any other initiative, plan ahead, talk to your staff, members, and other credit unions to see what makes sense for you!

Subscribe & Continue To Part 3!

Hope you enjoyed the second of this four-part series (see the “spiritually-similar” Part 4) on credit unions and technology. I appreciate you sticking with me during this longer post.

Make sure you read the next article, covering the generation challenge; how do you create a future-ready platform while not confusing or alienating your older members?

And be sure to subscribe to get new posts in your inbox! Typically one or two e-mails a month…what’s stopping you? Sign up above on the sidebar.

Image credit: http://www.lifehacker.com.au/2013/01/common-tech-myths-that-cost-you-money/

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