You Are Your Data

Credit unions are in the information business. All the transactions completed for members essentially involve the movement of digitized information over networks.


Credit unions are in the information business. All the "transactions" completed for members essentially involve the movement of digitized information over networks. Whether the service is a credit card purchase overseas or a mortgage loan payment via payroll deduction, the credit union receives and sends data between the member's account and other institutions.

But information is more than transactions. Most credit union business strategy today relies on some enhanced use of data. Pricing services on relationship criteria, segmenting members for promotions, or providing counsel about investment alternatives are all information-based efforts.

Increasingly, the use of technology focuses on information "at the point of contact." From data warehousing to MCIF programs, to service representative support systems and consolidated statements on the Internet, credit unions are trying to integrate all the information about a member whenever and wherever needed.

The Inevitable Outcome: An Infomediary
This information aggregation includes more than data generated by the credit union's activities. Increasingly there is a need to bring in other information to more effectively serve the member. This can include demographic and lifestyle facts, data about other financial relationships, and even notes about the member's inquiries or response to surveys.

More effective member information management is at the core of business strategy. As the Internet helps increase the circulation of essential business information, the importance and feasibility of this strategy is multiplied many times. The cost of moving data over the Internet is essentially zero, the expense of maintaining digitized information is close to zero and the potential for using information more effectively is limited only by the creative imaginations of the users.

This inevitable evolution to data management as the core competency in credit unions is captured in the term "infomediary." The concept signifies the transition of a credit union from being a financial intermediary taking in savings and converting those to loans and investments to becoming a collector and manager of information for the member's benefit.

The New Business Logic
Information management is not a new skill. Every time a loan is made, the decision is based on data collected and evaluated manually or using data-based decision models. However, becoming an infomediary is about more than making transaction decisions. It includes five underlying assumptions:

  • Member data has value;
  • The member owns the data;
  • The member requires help in collecting, viewing and using all the data available;
  • The credit union is a trusted agent that can act on behalf of the member to manage this data for the members' benefit; and
  • As a cooperative linked into other networks, the credit union can leverage the member's data in numerous economic and retail transactions and share the economic benefits first with the member.

There are several key areas where this model differs from the current use of information. First, the data aggregation on behalf of the member includes external information, not just credit-union-related data. Second, as a trusted agent the credit union is committed to using the data for the benefit of the member, not the institution. The benefits of working together to meet mutual needs and sharing that group "leverage" with the members first is the primary distinction that a cooperative brings to this activity. This value priority is what justifies the tax exemption.

Most, if not all privately owned infomediaries, must share the benefits of information strategies first with their owners/shareholders. In the Internet startups, many of the new business models that serve consumers use information to facilitate shopping, compare prices, or search multiple suppliers easily. These Internet businesses "empower" the consumer to make more effective decisions; however the benefit of the model first goes to the shareholder and secondly to the user.

Although sometimes appearing to "give away" the product below market cost, these new Web-based businesses are essentially engaged in a "land grab," trying to acquire new customers faster than competitors. With a large enough customer base, this positions the site as the preferred solution for a specific area of Web business. Examples of this approach are everywhere from e-loan, to to the Internet gorilla, Ultimately, however, the expectation is that this volume of Web page visitors will be used to provide a superior return to the company's shareholders, not the site's users.

Information Becomes Personalization
With this new customer base and information, the Web enables "personalization" strategies based on 1:1 marketing proposals. By registering at a site and building a user profile, the Web-based firm can present individual offers that are consistent with a consumer's interests each time the shopper returns to the Web. This approach brings a "high touch" experience into the technology channel.

These same technologies , which are at the core of new Internet businesses, are available to credit unions, which already have an established customer base--their members. Instead of spending investment dollars on the "customer acquisition" phase required in all new startups, credit unions can focus on deploying this new technology to members. Most importantly, credit unions can do this while enhancing the members' opportunity to improve their well being, not merely struggling with Internet-only alternatives.

The Steps to Implementation
Becoming an infomediary requires partners. Sometimes these will be other credit unions that can provide the scale or expertise to support first-mover projects. Sharing the risks and lessons from new strategies is one advantage credit unions have historically enjoyed over their competitors.
The technology solutions will also involve partnerships. Often this will include the host data processor to support the integration of information from transactions and external sources. However, many of the new technology applications will be from Internet-focused startups looking for partners to provide proof of concept. Identifying the key technology areas and potential firms is an ongoing process. Each area of the country has numerous incubators supporting Internet concepts. Becoming involved in this entrepreneurial network is essential to gain entrance at an early stage of the business before the requirements of an IPO-driven market capitalization model force the startup to seek bigger firms.

Success will entail thinking and acting at a much faster pace than the traditional credit union business practice. Because of the transparency that the Internet gives new consumer-focused startups, firms that are looking at retail solutions want to move fast once their business is visible. This means the credit union must have personnel who can grasp the opportunity and commit both the organization and its resources in the deployment of what some in the credit union will see as disruptive and unproven technology.
Finally, the credit union needs to see the effort as a continuing process, not a one-time installation of a killer application. Technology evolves so quickly, that second- and third-generation versions will follow quickly. But by moving fast, the credit union not only learns the process of innovation and partnering, but also preserves the loyalty of its own member "early adopters."

Credit Unions' Advantage as Infomediaries

Credit unions provide ideal partners for new information-based business strategy entities. Credit unions have the trust of their members, an essential requirement when collecting and managing data for the consumer. With Internet home banking widely deployed, credit unions have an active member base to bring to new solutions. The financial strength of the whole movement means that credit unions can take risks and incur expenses that firms watching their quarterly earnings per share reports are not as well positioned to consider.

Most importantly, however, is the cooperative advantage. The attraction of the Internet is that it is an open system not owned by anyone. Like other "public goods" such as air and water, the Internet's promise is that its benefits can be shared by all -- both the rich and the poor -- at a nominal cost. But there still needs to be a cooperative point of entry where an individual's interests are protected and the benefits of participation in new Internet solutions are indeed shared with the user. Only the credit union can make this promise unequivocally. That's what a cooperative means. That is also the opportunity we must pursue.




May 29, 2000



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