Required Reading For Credit Union Execs

James Gardner’s post on his BankerVision site — Riding The Anti-Bank Wave: Web 2.0 — should be required reading for all credit union execs.

As you read it, however, when you see the words “Web 2.0” or “web financial services company”, substitute “credit union”.

James asserts that the underlying premise of a number of Web 2.0 upstarts (e.g., Zopa, Prosper, and Wesabe) is “banks are bad, we are good, let us help you get the banks.” He contends that:

Web companies that are anti-bank can be so with impunity only when their customers can identify readily with their values. Those values are most consistent when these companies are small. But if they plan to grow, their anti-bank slant is likely to be seen as hypocritical at best. Being seen as the underdog/consumer friend will be more difficult as equity dilutes away from the founders and the imperative of fiduciary responsibility to shareholders becomes more pronounced.”

After reading this, it struck me that the Anti-Bank approach is what many US credit unions are taking (for proof points see: BankerSpank, You-Belong.Org, Looking Out For The Little Guy). And I agree with James that this approach won’t work over the long-run — but for different reasons.

Credit unions’ values are consistent with their members’ — growing out of them isn’t the problem for CUs. Instead, the anti-bank strategy isn’t a panacea for credit unions because:

Product quality still matters. By product quality, I’m alluding to rates. It doesn’t matter how great the service is, if rates aren’t competitive (I didn’t say better), consumers will go elsewhere. The savings rate at two of my favorite CUs — New England Federal CU in Vermont and University FCU in Austin, TX — is around 1%. ING Direct — which doesn’t even have the best rate out there — is at 4.5%. You’ve got to be really anti-bank to go with the credit unions’ rates.

It’s not an either/or situation. The reason the PC/Mac commercials work for Apple is that consumers generally have either a PC or a Mac. Mac fanatics relate to the anti-PC positioning put forth by the ads. But few CU customers don’t do business with a bank. Consumers may be amused by BankerSpank- like ads, but the ads won’t compel them to stop doing business with a bank.

CUs need a strategy — not a positioning statement. Anti-PC ads work for Apple — but remember, they only have a single-digit share of that market. That’s OK with Apple, because it’s the 800-lb. gorilla in the mp3 player/online music space. My point: CUs may attract some consumers with an anti-bank messaging approach, but will that be sufficient to maintain profitability and sustain growth? I think you already know that the answer to that is NO.

Bottom line: CUs can’t rely on messaging and positioning statements to improve their competitiveness. They’ve got to make tough choices about the products and services they offer (and whether or not they should continue to offer all of them), and how to make those offering more competitive in the eyes of the existing and potential member base they’ve been dealt.

As George Stalk would say, it’s time to play hardball.

UPDATE: For a good example of the kind of strategic thinking that’s needed, see this post  on The Life And Times Of A Credit Union Employee.

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8 thoughts on “Required Reading For Credit Union Execs

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  2. Amen…Ron! Besides, what type of prospect really respects any salesperson who constantly puts down competition. That’s not the kind of “competitive advantage” that attracts me.

  3. Thanks for your comment, Roger. Couldn’t agree more that putting down the competition is a turn-off. But I am willing to bet that if you went into the typical CU branch, the people you’d deal with don’t do that. What I’d be afraid to find out is whether or not they’re even knowledgeable about what the competition is doing (rates, fees, etc.).

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  5. Pingback: Web 2.0 companies, versus poor old Banks « The Bankwatch

  6. One way to define who you are is by comparing yourself to your competitor(s). “Unlike my opponent, I support/oppose…” This strategy can make sense if you are trying to align your organization with the philosophical ideals of your target audience.

    Of course, the real reason CUs (and banks, for that matter) use this strategy has to do with inertia; the only people really moving accounts are those who are ticked at their current bank. So it makes sense to distance yourself from their current provider of financial services, even if you’re more alike than you care to admit.

    The real problem with this strategy is that is all too often used by credit unions who don’t know what differentiates them, so they fall back to Old Reliable: “We aren’t a bank.”

  7. Ron,

    I missed this post (because it was my birthday and it’s all about me on that day) but since my buddy Jeffry brought it back —-

    I just want to debate one point. I don’t think the Mac/PC ads are anti-PC at all. Just like the first Apple commercial (the famous 1984 Super Bowl Ad) it was about giving people a choice. In fact, Apple’s position is now that in some homes (like mine) it makes sense to have both. My husband is a CFO. He is all about charts and graphs baby. One of the “I’m a MAC – I’m a PC” ads actually acknowledges that PCs can do insane things with spreadsheets. The MAC cannot compete with that and is okay with that.

    I see MACs as the traditional credit union. We are NOT for everyone – but we are an alternative to banking. And we acknowledge that we are a much smaller player than banking. We also “get it” that our members use banks too.

    The lesson that can be learned from these brilliant “story telling” ads is about values and differentiation. Until credit unions stop trying to compete on the “be all things to all people/economies of scale/let’s open a CUSO so we can serve everyone/full-service or die” strategy and get back to their niche — I think we’re in danger of becoming an HP. A big bland dinosaur that is still limping along…

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