Credit Unions and Innovation

Innovation, Credit Unions

Ivan Schneider wrote an excellent piece on his blog recently, titled Advice to Credit Unions: Innovate or Die, that has had me thinking for a week.

Ivan attended the recent Bar Camp Bank meeting in Seattle, which I was really bummed to miss because so many of my favorite people attended (for another write-up, see William Azaroff’s blog post). 

Here are some of the points from Ivan’s post that jumped out at me (and my take on them, of course):

“Credit unions are capable, strategic opportunists. Whether it’s a pullback in small business lending or a cultural moment of dissatisfaction with big banks, CUs have been ready and willing to take advantage of opportunities when they arise. Yet these opportunistic stories [e.g., Bank Transfer Day] are not enough, as the big banks won’t stay easy targets for long.”

My take: Spot on. In June 2012, I wrote “We Americans like to have our villains to blame all the evils of society on, but those villains come and go. Are banks still the Satan-incarnate?”

The answer to my rhetorical question has remained yes. But listen up, CU people: The seeds of a reversal in opinion have been sown. The Wall Street Journal picked up on this recent in a recent op-ed piece.

With the Senate approval of Jack Lew(zer) as Treasury Secretary, the Obama Administration has put itself in a position where it will look awfully inconsistent and contradictory if it keeps bashing the big banks. Where do you think Lew(zer) came from? A big bank. And his life story could be the plot of an Oliver Stone movie looking to bash corrupt big bankers. With the Administration backing off from bank bashing, the lapdog media won’t be long to follow. And by 2014, we’ll find a new villain to blame all of our evils on. And the banks will be out of the doghouse. Even if it’s not by 2014, that day will come eventually.

Thanks for picking up on this, Ivan.

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“We [the credit unions] should have invented Square,” remarked Gene Blishen, general manager of Mount Lehman Credit Union. Similarly, during a discussion of personal financial management (PFM) tools, I asked whether the credit unions should have invented Mint, the popular PFM from Intuit. Again, the consensus was “Yes.” I respectfully disagree. No credit union or CU collective could have invented Square or Mint. The credit union industry, either individually or as a group, lacks the DNA, the tech talent pipeline, and the stomach to invest member assets into financial technology startups.”

My take: 1) Disagree w/ Blishen (gasp!); 2)  CUs should have invented PFM, but not Mint; 3) The reason CUs couldn’t have invented Square (or Mint) is due to reasons other than “lacking the DNA, tech talent, or stomach to invest member assets.”

Why is Blishen wrong (for the first time in his life)? Because Square is small business technology. It’s technology designed to make it easier for micro-merchants to accept card-based payments. The percentage of most credit unions’ member base made up of small businesses is too small for any one CU to have focused on developing and marketing a Square-like product. It wouldn’t have even been worth setting up a CUSO to do this.

Why should CUs have invented PFM, but not Mint? First, because PFM can be (should be?) a tool to help consumers better manage their finances. And that — at least it seems to me — is a core part of the credit union promise and premise. But Mint, in particular, was a tool setup to enable marketers to push offers at consumers based on their financial lives. Not what credit unions should be doing.

To the third point, I have to disagree with Ivan regarding the comment that CU don’t have the “DNA, tech talent, and/or stomach to invest member startups in fin tech startups.” The slew of CUSOs out there that have been created by individual CUs are testament to the innovation DNA and talent that exists in the industry. Compared to other financial institutions of similar size (i.e., community banks) the innovation DNA and tech talent in CUs is probably 100 times that found in those other FIs.

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“The main challenge [to innovation] is that the overburdened, underpaid technology leaders at credit unions are in no mood to field the constant stream of technology pitches that bombard anyone with a visible presence in the industry.”

My take: This is not the “main” challenge.

Many (if not most) CUs rely on a small set of technology vendors (often the core apps provider) for their technology needs. For startup technology vendors, it’s simply not feasible to have a sales force out all over the place calling on these piddly-little credit unions (no offense, CUs).

The “main” challenge to deploying the innovations being created have more to do with how those innovations are going to be integrated into the application and data infrastructure being provided by the current tech providers, and how it’s going to be priced.

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“In attendance at BarCampBank Seattle was just one techn vendor, Graeme Cox, of Mobilearth. When given a brief opportunity, Cox described how the company’s MobiBranch tablet app untethers employees from the branch, allowing them to accept deposits, open accounts or take loan applications from anywhere. [T]he response to the pitch was lukewarm at best. A profit-seeking software vendor has to tread carefully in the not-for-profit world. Unless you have a free, open-source product, it’s unlikely that you’ll be given the time to present a live demo, let alone score an introduction to a credit union’s CTO. My sense was that if you’re not part of the virtuous and saintly not-for-profit credit union culture, you’re an interloper, a profit-seeking vendor, or an MBA-toting infiltrator.”

My take: Wow. Disappointed to hear this, but it doesn’t jive with my experience at all.

I can’t dispute Ivan’s account of the response to Cox’s demonstration. That’s up to someone who attended to confirm or dispute.

But I can say this: I’ve met a lot of credit union executives in the past 15 years. And while they’re all keenly aware that they work for a not-for-profit organization, not a single one believes that they work for a charity. And not one is ignorant of the fact that they must make a “profit” (excess of revenue over cost) in order to stay in business.

I work for a for-profit firm, and have been made to feel like an interloper or MBA-toting infiltrator. (Which is ironic, because that’s exactly what I am). In fact, it’s really been the opposite. I am often, and continually, amazed at how tolerant CU people are, not just of me, but all the for-profit firms and people they do business with.

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“Free advice to the CU industry from this MBA: Transform BarCampBank into an event like Finovate. Spend more time listening to pitches, and then share your impressions with your peers.”

My take: Good advice, but kind of misses the point of why the BarCampBank was setup in the first place. Finovate is an amazing conference. Jim and Eric have done an incredible job with it in a short period of time. Nobody needs a mini-Finovate, or a CU-Finovate. In fact, a critical mass of vendors won’t show up if it’s 10 credit union people in a room. 

The BCB is there to let attendees have a more active role. That said, it might not be a bad idea to have some more demos for people to discuss/debate, but not all of the discussions at a BCB are designed to be — or have to be — about technology.

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Bottom line: I may have taken issue with a few of Ivan’s points and perspectives, here, but I do thank him for writing a very honest, and intellectually stimulating blog post. Both of those attributes are in short supply in the blogosphere, as far as I’m concerned.

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