The Challenge From Tech Savvy Titans

What does it mean for credit unions that more millennials are willing to bank with titans of industry?

 
 

Google, Apple, Walmart, and others are making waves in the financial services game, and credit unions should be paying attention.

A recent survey of 4,000 Americans conducted by Accenture and reported by the Washington Post found that 72% of respondents between the ages of 18 and 34 would bank with technology, retail, mobile providers, or postal companies such as Square, T-Mobile, Costco, Apple, Google, Amazon, and Walmart if they offered banking services.

Why?

Because consumers already have relationships with these organizations, which are large and can adapt quickly to new technology trends. From a consumer’s perspective, why maintain a relationship with a bank or credit union when these companies already have the person’s financial information? Doesn’t that seem redundant?

This is the question that credit unions will have to answer — and soon. Both banking technology and user preferences are evolving rapidly.

In the same survey, participants answered how likely they would be to bank with nontraditional financial providers: 50% of respondents said Square, 41% PayPal, 31% T-Mobile, and 29% each for Costco, Apple, and Google. Though the question was hypothetical, the percentages are still a significant indication of the potential disruptive impact these companies can have. In fact, several of the top companies listed such as Square, Google, and Walmart have high profile financial products in the market for consumers already.

If and when the rest follow to turn this hypothetical banking scenario into a real consumer choice, migration from traditional financial institutions has the potential to occur.

So what does this mean?

It’s all about value. Why do members bank with you? How can you help them leverage their personal relationship with you beyond simply your products and services?

Square, for instance, has a mobile banking platform that plugs into a smartphone and can read credit cards. But recently, the company expanded into a hybrid kind of lending and cash advancing product.

The product, Square Capital, essentially offers cash advances in exchange for a slice of your business’s future sales. Because the company collects an immense amount of payment data on users, it can algorithmically decide who gets offered an advance. These businesses don’t ask for money. They just accept Square’s offer. And instead of asking for regular fixed payments, which is potentially difficult for the cash poor small businesses that use Square’s card reader service, the company takes a percentage of a merchant’s daily credit card sales and does not set a time limit for repaying the balance. The service is both flexible and merchant friendly.

There’s no shortage of speculation about how credit unions will attract the next generation of members, the 18-to-34-year-olds mentioned in the survey. Where are they? What do they want? This survey provides great insights. Meanwhile, the outside threats are real.

As the Post article acknowledges, one advantage that banks and credit unions have is the consumer and transaction data they collected over the years and their experience in security, compliance, and payment processing. Even so, consumer financial preferences continue to shift. How will you find a way to provide greater value?  

 
 

June 12, 2014


Comments

 
 
 
  • Erik, I completely agree with your thinking here. CUs must answer the competitive challenge. CU.PAY, I believe, is that answer. You may have seen a recent article in CU Times. CU.PAY is the creation of the a CU owned payment platform, not a wallet and not an app, designed to go after the acquiring market. The same market that the companies you reference in your article are targeting. Strategies abound in our industry but they all settle for what platform owners that are hostile to our members offer us. CU.PAY allows us to own and control the entire payment stack from rails to transaction. It allows us to target a new market and to drive the avg age of a member down. It allows us to protect and manage interchange and to create member stickiness. Big challenges ahead of us here. We are literally in a battle for the hearts and minds of our members. It's time to get proactive. Enough with the white papers already. Time for action. As you say, time is running out.
    Rick Cranston