A Bold Vision: 10 Years Ahead of Their Time, Part II

In part two of his article on the proposed merger of Patelco, First Tech and Seattle Telco in 1994, Ed Callahan discusses the intensifying competition brought about by huge leaps in technology.


In part two of his article on the proposed merger of Patelco, First Tech and Seattle Telco in 1994, Ed Callahan discusses the intensifying competition brought about by huge leaps in technology.

Part 1 outlined the strategy and rationale behind the merger. A Bold Vision: 10 Years Ahead of Their Time

Metamorphosis II: Meeting the Electronic Competition

I've had a month now to hear feedback on our proposal to transition Patelco CU, First Technology FCU and Seattle Telco FCU into a single credit union. Some observers understand that our major goal is to serve our members and be a better credit union both by taking advantage of the developing "information superhighway" and by meeting the competition of those who want to make as much benefit and profit as they can out of that same information highway.

But, of course, there are others who are critical. They seem to think we are trying to aggrandize ourselves.

That is false. As I wrote last month, we have put the members first. They benefit immediately. They also benefit in the long run, and that is our overriding goal. They benefit in the long run because they will have a credit union that, rather than being stuck in the past and with old ways of doing things, will be as competitive as any traditional or non-traditional financial service provider, even providers on the emerging information superhighway.

Formidable New Competition

Unfortunately, there are credit union people who believe their most worrisome competition comes from other credit unions. Not true. What really threatens us is, of course, the for-profit financial institutions, but also the so-called "non-traditional" providers of savings and credit, most especially those that are going to exploit the coming information superhighway as thoroughly as they can. If they get their way, there won't be much left for traditional financial institutions, including credit unions, to do except offer "out-dated" checking accounts.

The potential of the new competitors is immense. My wake-up call was AT&T's Universal Card. It was significant competition for us - it offered discounts on telephone calls and deep discounts to employees, who of course were members not only of our credit union but of hundreds of other telecommunication credit unions. Before long, AT&T had eight to twelve million credit cards in people's pockets. This alerted me to all the other "non-traditional" providers such as GM, Ford and others that are trying to circumvent the traditional means of buying, selling, lending and borrowing.

And that's just the start. Already here in a small city in California, AT&T and PacBell are teaming up with the city to offer interactive television. And not far up the road a high-tech Japanese/GM auto plant is close to taking orders for its cars directly over an interactive television system. My feeling is that the information superhighway will be a prime mover of hard goods - including cars - that people will order directly from the factory (bypassing dealers, of course) and then financing their purchases with the "financial institution" that is connected to the cable system.

That could be AT&T or any other company capable of getting involved. Whoever, as they say, "controls the switch," can sell cards, beds, diapers, farm machinery - you name it. AT&T already has eight to twelve million cardholders; they also have the addresses of anyone who has ever made a long distance call on its system and they know the "credit rating" of anyone they have dealt with simply by keeping track of how those people have paid their telephone bills. If they begin selling and financing over the information superhighway, they are soon going to have the addresses and "credit ratings" of half the country's population. You tell me they aren't going to be fierce competitors for the kinds of services we credit unions have traditionally provided.

The potential competition coming at us both from the deposit side (mutual funds) and the credit side ("non-traditional" providers) is going to be increasingly fierce. Financial institutions as we know them may well melt away to the point where customers are going to go to them for no more than their checking accounts, and these are less and less going to be the "paper" checking accounts we are familiar with; they are going to be more of the "plastic check" electronic variety. After decades of talk, paper really is going to yield to electronics. We'd better be ready for it, or surely we'll be swamped by it.

Role of Telecommunications Credit Unions

I think we in the telecommunications credit unions are more sensitive to the threats of competition from "electronic" firms than are managers of other credit unions. Why? Because we see what's going on in our sponsor companies. They are scrambling to shape the information superhighway and to profit by it in any way they can. Just as some credit unions in the '80s - the defense credit unions, the military ones and others whose memberships were steady - did not regard diversification of field of membership as much of an issue while others - the airlines most notably - realized that how they handled their field of membership issues would determine their very survival, so the telecommunications credit unions see the future "electronic" financial world more clearly than others.

That is a major reason why we are acting to bring technology and service together, as this metamorphosis of three credit unions would do. We feel that the old ways are going to change swiftly. We need to at least keep up with the new kinds of services technology is going to offer and in that way to keep credit unions a vibrant part of America's financial workplace.




March 7, 2005


  • You are so right. Such is the climate today - pays to be proactive versus reactive.