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 If only your credit union could do something like that today…But I digress. “So you owe me $14.53 for dinner. Cool? Just Venmo me the money when you get a chance.” Besides, there’s a newer service that aims to do the same thing, but with a twist…
Other tech firms are taking a different route.
If only your credit union could do something like that today…But I digress. “So you owe me $14.53 for dinner. Cool? Just Venmo me the money when you get a chance.” Besides, there’s a newer service that aims to do the same thing, but with a twist…
If only your credit union could do something like that today…But I digress.
“So you owe me $14.53 for dinner. Cool? Just Venmo me the money when you get a chance.”
Besides, there’s a newer service that aims to do the same thing, but with a twist…