Credit Union Geek

Marketing, Strategy, and The Force by Joe Winn

Tag: paypal

Plaid Among Fintechs You’ve Never Heard Of But Changing Banking

No, I’m not talking about the clothing pattern. Plaid is a Fintech startup which just announced a Series C funding round of $250 million. That gives them a valuation of $2.65B. Yes, billion. Chances are, 25% of your credit union members are using their service without even knowing. And Plaid isn’t alone, either in ubiquity or in valuation.

Powering The New Banking

Plaid powers the backend technologies which connect cool financial apps to your bank (or credit union) account. Little players like Venmo. Which is owned by PayPal (they bought them in 2013). I’m sure these aren’t worth your attention.

It’s not like Plaid does anything which may make your credit union into a “Dumb Bank”, simply a place where your funds sit and nothing else. No, they have no plans to take on other traditional bank services. Like mortgages. Oh, it appears they do. But it’s ok, they want your help.

This appears to be a common theme. PayPal’s new debit card “checking program” links with banks across the country to provide needed services, like deposits, check scanning, and lending. ApplePay partners with Discover and GreenDot Bank, itself a Fintech providing reloadable debit cards.

You’re Still Necessary, But Only For the Boring Bits

Fintechs look to partner with banking institutions because the bank part is hard. There’s lots of regulations, safeguards, and steps you know lots about. Basically, it’s easier to buy space in the safe than to build one yourself. Except they don’t pay you. Your resources get used, your members find great value, and might forget you’re the one holding their money.

“So if Fintechs need us banking institutions, why worry?” It’s a good question. And I’ve answered it before, in reference to lending services. How do you best serve your members? Is it with zero interaction, contact, or even awareness from them that you exist?

Of course not! You’re a part of their lives and they know it.

Well, what if your members never knew who you were? What if you were as recognizable as the brand of tires on your car? (I think I have Dunlop, but I’m not sure, and don’t really care, so long as they do their job) Could you still accomplish your mission?

At Least There Aren’t A Lot Of New Fintechs…

If only. Here’s a short list:

  • GoodMoney – Taking a piece of the credit union playbook, they give shares to all users, making them part owners, then use funds to support charitable works. Mission-focused and mobile-centric.
  • Netspend – Prepaid debit products in lieu of using traditional banking
  • Gotransverse – Backend software to allow complex billing solutions for companies
  • Simple – Banking with an app and debit card
  • Koho – Canadian firm with similar product to Simple. Site makes it clear “We are not a bank”, yet with their card, you don’t really need one.
  • PayPal – Besides powering online payments, making business loans, offering the underbanked a checking solution, they can also replace your banking needs. At least they did for this financial sector journalist.
  • Amazon – Business lending, potential checking, and pretty much anything…they’re Amazon

This list is by no means exhaustive. And, more importantly, the larger firms listed (and many more not included, like big banks and other tech companies) acquire start-ups for millions once they offer a competitive advantage. That’s a competitive advantage over you, to be clear.

What Can Credit Unions Do?

It’s unlikely your team will develop the next billion dollar valuation financial services solution. They’re too busy serving your members and countering the efforts of emerging Fintechs!

For me, the only answer is in partnerships. Some Fintechs seek to replace you. Others, like Kasasa or Econocheck (Disclosure: My company represents this service) focus on adding value to your services, while keeping your name front and center.

Your members will look to make their financial lives easier. Services like Plaid might be part of that answer. However, to remain relevant, you must deliver clarity on your value proposition to members as well. Take a look at some of these Fintechs, understand what they are doing and why they are so popular, and then decide how you can adopt these principles to grow into the future!

Big Tech Firms Have A Plan…Do You?

Originally published on CUInsight.com

This post exceeds normal length expectations.  Estimated reading time is 5-7 minutes.  It’s worth it.

The future of banking looks bright!  New possibilities, new technologies, all while serving an ever-expanding portion of the population!

Oh, you’re from a credit union.  That introduction wasn’t meant for you.  I was talking to the big tech firms, the front-runners in creating banking solutions of tomorrow.  What?  Are you saying Jeff Bezos isn’t one of my readers?  Psh, you don’t know that.

Credit unions aren’t paving the way.  Nor are they pioneering the ability to serve the underbanked.  Seriously.  Many are doing great things, that’s for sure, yet the fundamental change is originating from tech firms.  And they’re not doing it alone (more on that later).

Let’s take a look at a super-simplified cross-section of society, with a focus on traditional banking options.  Where does the credit union industry fit?

  • For the lowest-income and credit challenged (or no credit), they have few choices.  A lack of financial knowledge and access to banking resources leads them predominantly to payday lenders or check-cashing stores.  This situation, frankly, sucks.  People are paying hundreds of percent (or more) in interest (or substantial fees) for access to their money.  It’s really expensive to be poor.  When I deposit a check, I get every penny.  Is that really fair?
  • Individuals with sufficient credit to open an account can (and do) go to banks, but many choose a credit union, due to their lower fee structure.  Those who choose a credit union tend to carry a higher credit card balance, with more cards and higher total debt. However, and this may be due to lower interest rates, more individualized (and thus forgiving) relationships, or some other factor, they are less likely to become delinquent in their debts.
  • Higher-income individuals and businesses are more likely to be with the large banks.

So big tech firms are looking for the path of least resistance into the banking world.  It starts at the economic bottom, by offering necessities at far lower rates than the existing solutions.  Then, they offer better programs than those that people have today, focusing on convenience.  Finally, the companies want to become the lenders of choice for a wide range of needs.  By already having successful business strategies, all this can be done at much lower margins than a dedicated banking institution could possibly reach.  For example, Amazon barely makes any money on their Kindle or Echo devices (they might even sell at a loss), because they know users will purchase far more once they have them.

The following is a discussion of selected large tech firms changing the banking landscape.  Each are planting their own flag in the financial world of tomorrow.  Will all be successful?  Only time will tell.  For aesthetics and readability, each company’s actions are accessible by clicking the name.

Where are the greatest opportunities?  And how can a business decision help people the most?

PayPal

PayPal believes the answer to both those questions lies in that first economic category.  As a pseudo-banking institution already, they have held money in online accounts for use on purchases for many years.  This money could not be withdrawn at an ATM, nor used at a physical POS.  Until now.  PayPal now offers a debit card that includes many of the same features your credit union cards have.  Want to pay for dinner?  No problem.  Withdraw money at an ATM?  Sure.  Deposit physical checks?  Grab your phone and take a picture.  All with no monthly fee, no minimum balance requirement, and a ~1% fee for deposited checks.  PayPal is making it clear this account is not for everyone.  It’s mainly for those who you would call “unbanked”.  In fact, their COO even said that if you already have a banking relationship, “this isn’t an account for you.”  They believe as the digital economy continues to grow, the largest opportunity is in those who aren’t currently “banked”.

So PayPal is positioning themselves for enormous growth, while engaging an underserved portion of society, and minimizing economically stressed people’s reliance on high-fee payday lending.  Sounds like the credit union mission, doesn’t it? It should, and not in the least because their CEO keeps saying this at CU conferences.

Other tech firms are taking a different route.

Amazon

Take Amazon.  They want your checking accounts (allegedlyprobablylikely).

Why would your members want to switch to Amazon for their checking?  It’s not like it would be any different.  Except it could (according to surveys) be a fee-based account ($5-10 per month) that provided a series of perks.  Perks like ID Theft Protection.  Or Cell Phone Damage Coverage.  Perhaps it would be integrated into Prime membership.  We don’t know.  But 66% of people surveyed said they would consider paying or definitely sign up for that account, if it existed.

If only your credit union could do something like that today…But I digress.

It’s not like Amazon is inexperienced in banking concepts.  In 2011, they began small business lending to sellers on their site.  They are now lending more than $1 Billion per year.  And it’s invite only.

Recently, Amazon has also expressed interest in serving the “unbanked” of the US and abroad.  Look at them, taking on the jellies!  Ok, PayPal.  They’re taking on PayPal.

Venmo

“So you owe me $14.53 for dinner.  Cool?  Just Venmo me the money when you get a chance.”

Venmo grew so quickly that you can be forgiven if you are still recovering from the windblown hair as it blew past.  Think of it as a peer to peer payment platform.  It began as a way to send money through text messages, but quickly changed into its own cross-platform app.  Users link existing debit cards/bank accounts and send or receive money through the service.  In the time it took you to read this paragraph, you could have gotten reimbursed for gas, sent your portion for drinks last weekend, and gotten the money from another friend for the tickets to that awesome concert.  They handled nearly $7 Billion in transactions in Q1 2017 alone.  Oh, and PayPal bought them in 2013.  So giving them their own section is almost cheating.

Besides, there’s a newer service that aims to do the same thing, but with a twist…

Apple

Your credit union probably supports Apple Pay.  By that I mean your debit and credit cards can be added to Apple Pay on members’ iPhones, iPads, Watches, and Macs.  It’s a brilliant payment system that I use regularly (there’s nothing like paying for groceries with your watch…except not paying for groceries).  I love the simplicity and security of the process.  I don’t love how slowly merchants are adopting the new payment terminals (and then enabling the NFC tech in them to support it).  Ugh, different discussion.

Last year, Apple Pay got an upgrade.  With Cash.  Previously, Apple Pay only worked where a normal debit/credit card could…POS, ie. paying at a merchant.  It was useless for P2P payments like Venmo supported (and PopMoney, to speak CU service lingo).  Apple Pay Cash links a debit or credit card to a digital stash of cash (you like that?) that you use to send/receive money right through iMessage.  Yes, recipients have to be fellow Apple users, but, sheesh, it’s easy.  Heck, it works with Siri.  No data is available on usage, but given it’s built in to hundreds of millions of devices, I’d say it’s only bound to grow.

To establish these potential checking and/or savings accounts, fund these digital wallets, or receive deposited checks, none of these companies are making themselves a bank.  Instead, these companies partner with an established bank, or multiple banks.  Why?  Think of your preparations when the NCUA examiner is inbound.  Enough said.

For example, for PayPal’s new debit card, they use a bank from Delaware for debit cards, another out of Georgia for check scanning, and a few banks in Utah for lending.  Note these are all small banks…is opportunity calling for your credit union?

Amazon is in talks with JP Morgan Chase and Capital One for their checking program.  Venmo uses your existing banking relationships.  Apple Pay Cash uses a Discover debit card powered by Green Dot Bank, a fin-tech which also provides their own reloadable debit card with no minimum balance, no overdraft fees, and no credit check, while still offering things like bill pay.

I feel like I’ve talked about partnering to enhance your strengths while addressing your weaknesses.  Ah, well, no worries.  We’re all here now.

So the big tech firms all have a strategy to attract the banking customer of today and for years to come.  What’s your plan?

PS – You may notice I excluded Zelle, the P2P platform of choice for American banks.  It was developed by Early Warning Services out of Scottsdale, AZ, a company formed and owned by 7 banks, with 70 more in the process of joining.  It’s their answer to Venmo, and is built in to all their mobile apps.  It connects more than 50% of checking accounts in the country and growing.  So why didn’t I mention such a large disruptor?  Because they’re not a disruptor; they’re a service of the existing banking industry, responding to the popularity of the other platforms.  You still have to pay attention to them, though.  Competition is competition.  So I ask again…what’s your plan?

Want Tomorrow’s Tech? Team up! (Part 2)

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.

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. Partnerships! 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. 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 2015, just serving on their Board of Directors nets you at least $80,000 in cash and $160,000 in restricted stock units, with additional incentives available for chairing committees (source). Imagine how much is available for their mobile app.

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 still in beta testing. 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 that, I don’t suppose you expect to continue receiving interchange revenues…

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. Once again, their money is made through transaction fees. Square’s growth is due to the ease of use on all sides; what’s simpler than attaching 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.

The best choices 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. It’s possible you’ve heard of it, 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. And here I am writing a check. 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.

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 one 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 enabling free checking with high interest rewards, as well as ATM fee reimbursements, 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. “So I did leave it on the counter!” This member convenience 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!

Couple programs like these with support for Apple Pay (which more credit unions launch each day), and you are offering “big bank” functionality no matter your asset size. A recent post from Co-Op Financial Services, a leading credit union industry tech provider, discussed this very concept; that credit unions have the power of shared resources to meet or exceed capabilities of much larger entities.

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

Hope you enjoyed the second of a three-part series on credit unions and technology. I appreciate you sticking with me during this longer post. See you in two weeks for the final article, covering the generation challenge; how do you create a future-ready platform while not confusing or alienating your older members?

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

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