During Javelin Strategy & Research’s report on the impact Bank Transfer Day had on the industry, founder Jim Van Dyke made the inflammatory statement that credit unions aren’t cutting the mustard in the area of technology and could eventually become dinosaurs (or an Oldsmobile).
"It turned out that technology and individuals' inertia really won the day in favor of the large banks," he says. "If this continues, these small institutions will go the way of the Oldsmobile."
Van Dyke refers to the way big banks woo and capture a valuable emerging consumer base--young adults. He contends that young adults demand a high level of sophisticated technology and if credit unions don’t put it into high gear they aren’t going to make it.
Mark Miyamoto, Director of Mobile Banking at Tyfone Inc., a company that delivers comprehensive mobile financial solutions to the financial institution industry says that credit unions have traditionally not marketed to younger consumers and need to, desperately.
“Credit unions are hip and cool, but the younger generation is not aware of this,” he explains. “Those who market effectively to the younger generation will see a change in their demographic if they back it up with technology that Gen Y will appreciate. Orange County’s Credit Union is a great example of successfully marketing to Gen Y. OCCU’s creative marketing and incentives resulted in rapid mobile adoption.”
Van Dyke’s company cites mobile banking as playing a pivotal role in overall adoption rates. Currently, 21% of consumers at regional and community banks and a mere 15% of credit union members use mobile banking as compared to 37% of consumers at big banks.
Javelin notes that the mobile banking trend is skyrocketing-- increasing by 63% since last year, powered primarily by the wide adoption of smartphones.
By 2016, Javelin predicts that over 50% of all consumers will be loyal mobile banking users. Currently 92% of the top 25 banks already offer mobile banking and if credit unions and community banks want to compete they have to step up their game.
"Smaller banks and credit unions have always prided themselves on providing superior customer service, so they cannot continue to ignore the mobile channel," Van Dyke says. "Resource-constrained institutions should focus initially on the browser method, currently used by a majority of mobile consumers. It is the most cost-effective and easiest to deploy. However, these financial institutions need to focus future efforts on developing app and SMS text banking to appeal to a broader array of users and technology."
Credit Unions Are Toyotas…Not Oldsmobiles
Miyamoto says that comparing credit unions to the Oldsmobile doesn’t work. “Credit unions being compared to Oldsmobile is an extremely bad analogy,” Miyamoto says.
“In fact, I would take the opposite perspective and compare credit unions to Toyota 15 years ago, when Toyota was known, but not valued as the quality, efficient car manufacturer it is known as today. In this economy, consumers can benefit by ‘understanding’ what credit unions stand for and how they operate. Banks and credit unions have a fundamental different philosophy and way of doing business - for starters, credit unions are non-profit whereas banks are for profit. At a high and simple level, the credit unions I speak with truly want to offer the best deal to their members, while making the necessary margins to operate. Excess profits are returned to members.”
Miyamoto says that the kind of technology credit unions provide truly rivals what anyone could find at a big bank--aimed at helping the member avoid fees instead of tricking them into paying more.
“Here is great example of the credit union philosophy,” he says. “Tyfone will be launching an NSF alert for Star One Credit Union. The credit union will send a morning alert to the member informing them that they are in jeopardy of incurring an NSF charge unless they move the appropriate funds into the particular account by 2pm that day. Instead of preying on the NSF revenue, Star One would rather prevent their members from incurring the pain of an NSF fee.”
Tony Cortez, VP/Marketing at Meriwest Credit Union ($1 billion, San Jose, CA) agrees that credit unions can offer the same level of sophisticated technology as the bigger players in the market.
“The misconception could most likely be associated to the same misperception of size equaling prowess, in this case, technological advancement,” Cortez says. “Being smaller isn’t always bad. It also allows you to be nimble and adjust to changes in technology faster.”
Does it Come Down to Public Relations?
“Probably one of the largest misconceptions would be the fact that credit unions don’t have the million dollar marketing budgets of a Chase or Bank of America to create that awareness,” Cortez continues. “That doesn’t mean that credit unions don’t have the technology. They just don’t have the funds to promote it so widely. Credit unions have been the innovators of many of the processes and technologies used today, but have done so with little fanfare and acknowledgement by the media or industry. Sure trade publications feature the updates, advances, initiatives, etc., but how many consumers read those?”
Miyamoto says that although mega bank advertising dollars may be trying to drown out the credit union voice, credit unions can harness big bank efforts to their advantage. “The biggest hurdle is mega-bank advertising. However, credit unions can leverage the mega-bank advertising dollars, too. Chase educated the market on mobile remote deposit capture. Credit unions can leverage that by offering the services shortly after or during such campaigns.” Miyamoto refers to a big bank partnership between Chase and other large financial institutions where the big guys have fostered a network for faster and more convenient money movement amongst their bankers.
Todd Nuzum, VP of Technology at Tyfone says, “For the most part, credit unions and banks have the ability to offer similar mobile features.”
“The exciting development to watch is the evolution of financial institutions as a whole. For example, p2p payments and faster money movement is a very hot topic. Credit unions have large and powerful networks in place now, which can move money very efficiently. The ‘big banks’, Bank of America, Wells Fargo, Chase have formed a partnership to build clearXchange, a network for faster and more convenient money movement amongst their bankers. Where does this put regional banks? It will be interesting to see how the networks are leveraged as the financial ecosystem and regulations evolve.”
Credit Unions Have Technology Muscle
Nuzum describes some of the newest technology being made available to credit unions. “For example, Tyfone is launching the industry’s first mobile fraud analytics solution with technology partner, Guardian Analytics.”
“Additionally, Tyfone’s iCashe mobile wallet was the first to enable a mobile banking feature that generates revenue for a financial institution, in turn, reinforcing the ROI.”
He says that looking forward, as contactless payments becomes a reality, Tyfone clients will grow to appreciate the “integration” of mobile banking and contactless payments, which offers single login for both services. “For example, today Citi mobile bankers log into mobile banking in one app and log into a different app to access the Google/Citi mobile wallet. Tyfone’s integrated approach offers a more convenient user experience and more stickiness for financial institutions. Additionally, banking and payment integration also provides the ability for more features, branding control and more.”
Cortez says that Meriwest’s online banking and technology has experienced a dramatic evolution since it’s initial introduction in 2001.
“Besides the standard services offered on most online banking platforms/websites, Meriwest was one of the first credit unions to offer online new product opening and funding as well as online memberships,” he says. “We offered a single point where future as well as existing members could not only access and manage their current products, but select new products that met their needs.”
Cortez says that the credit union has expanded bill pay offerings to include P2P (person to person) payment options, same day payment, and other features. “We’ve offered e-statements and e-tax forms for our members. Meriwest has introduced mobile banking for members providing both application and web enabled processes. We are in the development stages on mobile bill pay, something not many financial institutions are currently offering and later this year will be introducing remote deposit capture for home and mobile use.”