Banks: Don't Use Twitter For Fraud Notifications

From a Bank Technology News article titled Westpac, Other Banks Use Twitter to Warn of Fraud:

“When Westpac was recently targeted by web crooks, the Australian bank used another online venue to warn consumers, sending a Tweet warning consumers of the crime. The alert was part of a new trend—using social media to publicly expose online fraud attacks in real time—that Anti-Phishing Workgroup Chairman Dave Jevans says can be an effective way to spread security warnings, if it’s done right. Jevans says that if phishing and other attacks are corrupting trust in the email channel, it makes sense that banks would look to Twitter and other social media to alert their customers. By using Twitter, he says banks can warn customers instantaneously, without sending emails that could be construed as a malicious phishing attempt.”

Interestingly, Mr. Jevans is quoted later on in the article as saying that using Twitter “requires banks to be aware of how the Twitter, Facebook and other sites can be used by crooks themselves. Tweets could be used to spread false security alerts, similar to how email is used by fraudsters.” (I love that: “the” Twitter). 

My take: It makes little sense to use Twitter for fraud notifications.

It’s not so much a security issue as it is a numbers game. 

Pew Research Center reported in December 2010 that 8% of Americans use Twitter, and — more importantly — that just 2% of online adults used Twitter on an average day. 

I haven’t seen any studies on this, but I would bet that the average Twitter user sees less than 10% of the messages that come through their Twitter stream. 

More numbers: As reported on

“Less than one quarter-percent (0.021%) of all big bank customers follow their bank on Twitter. That translates to an average of 208 followers for every one million customers. BofA, the largest bank in the study, had 12,315 followers out of its 55 million customers. Wells Fargo averaged one follower for every 8,635 customers.”

For credit unions, “0.65% of members are connected to their credit union on Twitter. That’s one follower for every 155 members.”

Bottom line: Your response rate on direct mail credit card offers is probably higher than the hit rate of reaching customers on Twitter with important messages.

One potential solution to this could be a centralized Twitter account (maybe the CFPB could do something useful, here) that would be verified by Twitter. Banks could notify the CFPB who would then tweet the fraud notification. In this scenario, consumers would only have to follow one account, and would be assured of the legitimacy of the message.


Are Bankers Clueless Or Realistic?

Unless you’ve been living under a rock — which I’m not knocking — you’ve probably heard that consumer sentiment regarding banks isn’t particularly favorable these days. Pick your study, it doesn’t matter, the message is the same: People hate banks.

The credit union people jump all over these findings, and consider them self-validation of their customer service superiority. Industry pundits eat up these findings as evidence for why the industry must immediately undergo some transformational change fueled by _______ [fill in the blank with the technology, consulting approach, or book they’re selling].

But what do the bankers think of these findings?

American Banker asked its readers, in an online poll: “What is the long-term effect of big banks’ poor reputation among consumers?”

The problem in evaluating the answers, however, is that American Banker doesn’t show the number of respondents to the question, nor do we have any information about who responded. So, yes, I’m very aware that we might not be talking about a representative or meaningful sample here. But if it is a good sample, then the answers are very interesting:

6%     The banks will have a harder time attracting customers and building revenue

9%     They’ll lose market share to small banks

1%     They must spend more on advertising to rehabilitate their brands

39%  All of the above

44%  None of the above. Consumers always complain about big companies but keep using them

In effect, almost half of the respondents don’t think that poor reputation hurts big banks. The numbers are on their side. In a number of markets, the large banks’ share of deposits has increased from a few years ago. And the Q1 profitability numbers show a return to pre-crisis profitability levels.

But these are just short-term gains, no? In the long-run, a poor reputation can’t possibly be sustainable, right?

It is and isn’t.

The first thing to understand when looking at the poor reputation stats (often reported as low trust) is that people have little trust in “banks, in general” but report much higher levels of trust in their bank.

While there are a number of people who get really poor service from their bank, or feel that they’ve been cheated or shafted, that number is a minority. A much larger percentage of people are forming their opinion of poor reputation or low trust based on what they see in the news: Media reports on how large banks caused the crisis, or the example of how some large bank mistakenly foreclosed on someone’s house.

The second factor to consider is that as long as core banking products are seen as commodities, a poor reputation won’t be harmful to large banks. I don’t know about you, but when I go into a restaurant and pick up the salt shaker, I don’t ask the waiter if it’s Morton’s salt before shaking it on my fries. As a result, people just don’t care enough about their checking account to make a more considered decision. An apathetic customer couldn’t care less about a firm’s reputation.

A third factor at play here is control. When people perceive that they have little control over a situation, they will not think favorably of the party or person who does have control and wields that control. To a certain extent, people feel powerless in dealing with the “big evil” banks, and therefore say they have little trust in them when the researchers ask.

So, let’s ask again: Is having a poor reputation sustainable?

As long as consumers are apathetic about their financial lives and providers, then the answer is YES. This is why credit unions have been — for the most part — unable to move the needle on deposit share. They’re barketing up the wrong tree (I just made that up). Claims and demonstrations of superior customer service and advocacy don’t mean anything to someone who just doesn’t care.

But the numbers in the market mask changes that make a poor reputation unsustainable. More and more people care. The problem for the challengers (credit unions, community banks, upstarts) is that the people who care are predominantly Gen Yers who don’t have a lot of money (at the moment) for deposits and investments, and Gen Xers who aren’t a particularly large segment of the overall consumer base.

Bottom line: The sustainability of poor reputation is declining. Maybe the 44% of respondents who said “none of the above” in the American Banker survey don’t see this.

The important questions to ask about the future is: What can big banks do to improve their reputations? and What can the challengers do to get people to care?

Technology holds the key to the answer to those questions. Technology (I’m thinking of PFM-type tools here) can be at the center of the bank/customer relationship.

I saw a demo yesterday of what I would consider to be one of the best PFM tools I’ve seen. It doesn’t just give the customer a view into accounts and ability to budget. It integrates financial education, it provides peer comparison and analysis, it aggregates rewards program activity, and it enables customer/advisor collaboration.

What does this do for customers? It engages them in their financial lives, and — this is important — it makes them feel like they have more control over their financial lives. To a large extent, I think this is what underlies the hype — oops, I mean interest — in BankSimple.  It’s about giving control — oops, I mean the illusion of control — back to the customer. 

What does this do for banks? A million things. Not the least of which is improving their poor reputation or low trust levels.

If the big banks’ — or any bank’s or credit union’s — response to the Poor Reputation situation is increasing their advertising, or G*d forbid, investing to revamp branches, then they’ll fail to either improve trust or increase share. 

Measuring Social Media (What One Credit Union Should Have Done)

As I look at the title of this post, I’m painfully aware that I really don’t know if the credit union I’m going to mention did what I think it should have done or not. If it did it, then my apologies to the marketing folks there for implying that they didn’t. If the credit union didn’t do this, then they should keep reading.

The Credit Union Journal recently reported on the Facebook efforts of Fort Knox FCU. On Facebook for about a year now, the CU attracted 4,700 fans in the first three weeks of having a Facebook page. With more than 5,500 fans now, the CU claims to be the “most popular credit union on Facebook.” The article states:

“About 70% of those friends are members, not other credit unions or industry groupies. The CU isn’t able to provide metrics that prove its approach is attracting new members or increasing sales. But [marketing manager] Stapleton said she feels Facebook has helped Fort Knox FCU diversify the membership and reach a new target demographic.”

My take: Popularity is not the goal of your social media efforts. Business results is. If it hasn’t already done so, FKFCU should put some measurement approaches into place. Ideally, it would have done so right from the start.

After its initial three-week honeymoon with Facebook, FKFCU has averaged about 16 new fans per week. Is that good or bad? I don’t know. But after averaging 1,600 new fans in its first three weeks, fandom has only grown by 1% of that weekly average since then.

My bigger concern, however, is the statement that the CU “isn’t able to prove its approach is attracting new members or increasing sales.”

What the credit union should have done (if it hadn’t or hasn’t) is:

1. Profile the initial fan base. The first step the CU should have taken is determine who these new fans are. The CU did identify 70% of them as members, but that’s not enough. The CU should determine the average tenure of those fans with the CU, average number of product owned and average balances. The initial 4,700 fans — 3,300 members, 1,400 non-members  — could have become a control group for understanding the impact of Facebook interaction.

2. Develop an engagement tracking metric/measurement approach. A year later, can marketing at FKCFU tell management how often fans interact — not just on the FB page, but in other channels as well? It should be able to do that.

3. Track bottom line results for the control group. With steps #1 and #2 in place, a year later FKFCU would be able to say “here’s how engagement/average accounts owned/average balances for our Facebook fans compares to the changes in those metrics for non-Facebook fans. In fact, they’d be able to compare active FB participants to inactive participants to see if FB participation is correlated to bottom line results.

Can PFM Help Align Cost With Value?

I’ve argued many times that banks’ biggest retail-related problem is the disconnect between cost and value. That is, what customers pay for versus the value they receive from the relationship (if you want to call it that).

Until recently, a growing percentage of banks’ retail revenue came from penalties and fees. Overdraft fees, out-of-network ATM fees, etc. These fees have not only been out of line with the actual cost the bank incurred to provide the “service”, but customers, by and large, didn’t understand or perceive the value they were getting for these “services.”

And you wonder why trust in banks has been (is?) so low.

Over the past year, I’ve given a presentation on PFM probably 15 times to various audiences at various conferences, clients, and webinars. In each of them, without fail, someone has asked me “do you think banks can charge for PFM?” My answer, without fail, has been “you’re asking the wrong question.”

Determining whether or not to charge for PFM is a question that reflects the historical banking mindset: What fees can we get away with charging the customer without causing mass attrition?

The right question banks should be asking is: How do we align the costs (fees, rates) we charge customers with the value they — and we — get from the product/service?

Now along comes Unitus Community Credit Union out of Portland, OR who will charge its members $2 per month to use its newly-implemented Geezeo-powered PFM solution. On the NetBanker blog, Jim Bruene noted:

“While online/mobile access will remain relatively fee-free, we’ll begin to see more fees for optional value-add services such as advanced financial management. Congratulations to Unitus for taking the lead on this one.”

Taking the lead? By adding yet another fee on top of the relationship for a “service” that many of the members have no idea whether or not they want and whether or not they’ll get value from?

I’ve done the research, and I know that PFM users get a lot of value from the PFM platforms they use. But PFM users only represent about 20% of the population. And if you’re a credit union with an average member age that’s higher than the average age of the overall population, then the percentage of your member base that is already using PFM — or inclined to — is probably even lower than that 20%.

Any bank or credit union that implements PFM is going to see an initial rush of enrollees. Of consumers interested in, or already using, PFM, there’s a good percentage that want it from their bank or credit union.

But what are you going to do to convince the rest of the population? PFM — in its offline form (Quicken, Money) — has been around for a long time. There are reasons why 80% of the population isn’t using it for budgeting or other types of financial management: Too much work, too little value, just not interested, etc.

Slapping a $24/year fee on PFM will be accepted by the minority of the population who get what PFM is and can do for them. But it’s going to be a major deterrent for getting the rest of the customer base to adopt it.

And that’s a really, really bad thing.

Because PFM promises to deliver — and does according to current users — more value to the customer than they’re getting today from the relationship. In the past, the value was somewhat intangible — security (I know my money will still be there when I wake up in the morning) and money movement (when I write a check, I know the money will be sent to the person/entity I’m paying).

Today’s consumers want — and need — more value from the banking relationship. They need help managing their financial lives. That’s where the tangible value lies, and what PFM promises to provide.

What banks (and credit unions) are in danger of doing is perpetuating the model/mindset of: 1) charging for the intangible value and giving away the tangible value because they’re afraid of losing customers, or 2) charging for the intangible AND the tangible, and risk losing customers.

This isn’t a sustainable model/mindset. We need a pricing model that aligns cost (price) with value.

I think Unitus should charge for PFM. But it needs to do it in a way that demonstrates that the value being derived from the account relationship is coming from the use of the PFM tool. Not that the PFM tool is some “add-on” service. Unitus — and other credit unions and banks — should actually limit the ability of customers to enroll in PFM use.

The mindset should be: Active users of this tool get a lot of value from it, and if you’re not going to be an active user, diligent about managing your financial life, then we’re not even going to let you use it. And oh, by the way, to you active PFM users: We’re going to charge you for using PFM, but give you other services for free.

What The Drop In Satisfaction Means To Credit Unions

In the ACSI’s most recent customer satisfaction survey, satisfaction among credit union members dropped four percentage points — about 5% — from 84 to 80. ACSI chalks this up to:

“Difficulties in managing rapid growth are partly to blame, as regulators have allowed credit unions to expand offerings to include more mortgage and investment banking activity. Financial losses by several individual credit unions have taken a toll. Since credit unions can’t raise capital by selling stock, the only recourse to recover losses is through cost-cutting, which usually leads to less customer service, or raising fees, which leads to higher customer cost.”

Personally, I’m not buying these reasons. Losses by “several individual credit unions” should have no material effect on CUs’ overall score, unless there is something terribly flawed in ACSI’s methodology. And I don’t think that there is. In addition, there’s no evidence to show that credit unions are providing “less customer service” (what does that mean, anyway?) or raising fees.

As a matter of fact, let’s look at some statistics from the Q3 2010 Quarterly Report published by Callahan & Associates:

  • Assets increased 3.8% year over year in Q3 2010
  • Loan originations increased 16% to $70b in Q32010 from Q2010, the highest third quarter volume in five years
  • Delinquency increased two basis points from June to 1.76%, but is down from where credit unions ended 2009.
  • Share balances increased 5.6% over the last 12months
  • Total membership rose by 440K over the last 12months to 92.0M
  • Through the third quarter, net income is up 79.2% annually to $3.0B, the highest since 2007.

With these kinds of results, I’ll take a drop in customer satisfaction. ANY DAY.

There may be folks out there who might want to paint the drop in CU satisfaction as some indicator of impending CU trouble (Keith Leggett?), but whatever troubles may be out there for CUs, they’re not being caused by declining member satisfaction.

I’m more inclined to believe that the drop in satisfaction is due to the impact of new members to the credit union movement (oh geez, I didn’t really use that term, did I?) who either:

  1. Believe that their credit union isn’t living up to the expectations they had and therefore gave lower scores to their CU than existing members, or
  2. Haven’t been with their CU long enough to reach the higher levels of satisfaction the long-standing members have.

The other thing to keep in mind here is that CU scores are head and shoulders above the top 4 banks. Wells Fargo scored 73, Citi was at 69, BofA 68, and JP Morgan Chase came in at 67.

To put things in further perspective, let’s compare the CU score of 80 to other industries reported in the June 2010 survey. As a whole, full service restaurants scored an 81, which represented a 4% drop from the previous year.  Hotels were flat at 75, and no individual hotel scored higher than 80. Airlines’ score came in at 66, and the highest rated airline, Southwest, was rated at 79.

And by the way, credit unions also beat out YouTube and Facebook, which were rated in the July 2010 survey at 73 and 64, respectively.


What does the drop in credit unions’s member satisfaction mean to CUs? Nothing. Ab-so-lute-ly nothing. Back to business as usual, ladies and gentlemen.

The Future of Member-Facing Technologies in Credit Unions

I try to keep blatant ads for my reports out of my blog posts. I’m afraid I didn’t try hard enough on this one.

Earlier in the year, Ben Rogers at the Filene Research Institute contacted me and asked me if I’d be interested in writing a report for Filene on the “future of member-facing technologies in credit unions.” I said “you bet I would, and regarding the topic, what did you have in mind?” Ben replied: “I didn’t have anything in mind. That’s YOUR job.” Got it.

After talking with a whole bunch of smart people in the credit union technology space, I began to fear that I stepped into something a little too deep. The ideas and technologies being discussed were numerous and all over the place. I stepped back and defined three areas that encompass a lot of the technologies that will define the future of member-facing technologies in credit unions:

  • Financial advice and guidance. To date, many member-facing technologies have focused on things like checking account balances, bill pay, and to a lesser extent, customer service. In other words, member-facing technologies have been predominantly account focused and transaction-oriented. The future is about advice and guidance — helping members understand how they’re doing regarding financial lives and making smarter decisions about their financial lives.  Technologies like PFM tools will evolve beyond budgeting and charting tools to become a platform for engaging members, and providing advice and guidance.
  • Social networking integration. Credit unions that focus exclusively on what to do with Facebook and/or Twitter will miss the boat. The future of member-facing technologies is about integrating social media tools and technologies into existing processes and sites.
  • Purely mobile apps. Providing existing capabilities like account access and bill pay through mobile devices is certainly needed, but the big opportunity for credit unions will come in the form of what Aite Group calls “purely mobile” apps — capabilities like location awareness, augmented reality, and mobile payments that are only available in the mobile channel.

In and of themselves, these technologies aren’t unheard of among credit unions. Anybody can tell you what technologies are coming down the road. The hard part is figuring what you need to invest, when to invest in those things, and how much to invest. That’s what I hope this report does. In it, I’ve defined a framework for credit unions to clarify their strategic priorities, and to tie those priorities to specific technologies and investments in the three areas above.

The early feedback I’ve received from the report is very positive:

“This is the best Filene report I’ve ever read.” — Ron’s mom

“I really like the pictures in the report.” — Ron’s 10 year old daughter

Check out the report on Filene’s site.

Credit Unionistas

Over at the CU Soapbox, Ron Daly suggested that credit union employees be called “credit unionists.” According to Ron:

“What is a credit unionist? Having just made it up, I’m not sure, but because so many of you hate being called bankers, we’ve got to come up with something else. If you’ve got better ideas, I’m all ears.”

I like where Ron is going with this, and I’d like to suggest a minor edit in his term.

After all, a “unionist”, at least to me, evokes the image of someone who belongs to a union like the United Auto Workers. Not that there’s anything wrong with that. I have nothing against unions (as long as they don’t strike and disrupt my life, or negotiate for things that cause the price I have to pay for stuff to go up). But it’s probably not what credit union folks are trying to portray themselves as.

I’d like to propose the term Credit Unionista (cred-it youn-ya-neesta).

I think that conjures up the notion of a cross between a Central American bandit and a Starbucks barista. Part revolutionary, part hip dude (or dudette).

After all, if — as Tim McAlpine is discussing on his blog — it’s going to be the credit union movement, and not just system, then the participants in the movement need a cool name.

@itsjustbrent and @jimmymarks can get started on developing recruiting brochures for the credit unionista army.

And since every worthwhile movement needs its own anthem, I was thinking that maybe The Disclosures could put some music to the following lyrics:

Hey, listen up Mista,
Don’t you want to be a credit unionista?
Tell your mama and your sista,
You’re gonna be a credit unionista.
Get your nephews and your niece-stas
To join the credit unionistas,
Cuz we’re gonna round up all the bankeristas,
And kick their fat old ugly keisters.

That might need a little work.

When Is A Positive A Negative For Credit Unions?

A recent study from Discover garnered the attention of a lot of credit union people when it was reported that:

“Members of credit unions have a more positive view of their personal finances than people who don’t belong to one.”

Links to articles reporting the study got tweeted and retweeted aplenty on Twitter.  I would imagine it was because credit union people saw this as positive news for credit unions.

I hate to rain on credit unions’ parade, but…’s not good news.

It’s certainly possible that the reason credit union members have a more positive view of their finances than other consumers do is because of the great financial care and advice they get from their credit unions. But since many (most?) credit union members have relationships with banks, and since many (not most?) credit union members only have a lending relationship with their credit union, I’m not sure I’d put much weight on this explanation.

I think there’s another explanation: Average age of credit union members.

The average age of credit union members is a number I’m having a tough time pinning down definitively. There are a number of references to a blog post the CU Warrior wrote back in 2008 in which he claimed the average age was 47. He didn’t cite a source, so I’m not sure where he got that number from. A CU Times article from August of this year stated the average as being in the “upper 40s”, but again, no source was cited.

More recently, I’ve seen the VP of Marketing of North Jersey Federal Credit Union in Totowa, NJ claim the average age was 57, while an article on claimed that according to the NCUA, the average age is 55+.

Regardless of whether or not the average age is 47 or 57, it doesn’t matter, as long as we agree that the average age of a credit union member is significantly higher than the average age of all US citizens, which, according to the US census bureau was 37 in 2008 (and is unlikely to have moved very much in the intervening two years).

As long as we agree on that, then we can entertain my notion that the reason that credit union members are more positive about their finances is simply due to the fact that as older consumers, they’re financial lives are more stable and secure.

In fact, a study from the Pew Research Center found that age is a pretty good predictor of recession-related hardships — while nearly seven of ten Gen Yers said that they’ve suffered some hardships from the recession, that percentage falls to just three in ten Seniors.

So I apologize again for raining on the parade, but Discover’s findings aren’t anything that credit unions can…um…take to the bank.

Thoughts On The Filene Research Institute Credit Union Sustainability Colloquium

One of the best parts about not having a real job (don’t let anybody fool you into thinking that “industry analyst” is a real job) is that I occasionally get to go to really cool events and happenings. God only knows why I get invited, but hey, I’m not going to turn down these opportunities.

I got one of those opportunities this week, when I was invited to attend Filene Research Institute’s Credit Union Sustainability Colloquium held at Harvard. Presenters included a couple of Harvard professors, a McKinsey partner, and the SVP of Strategy and Planning from CUNA Mutual. Attendees were mostly credit union senior execs, although there were a few directors there.

Peter Tufano from Harvard kicked off the session with a mostly academic discussion of the DuPont model, and a discussion of ROA and ROE using a case study that has been used at the Harvard Business School. To be honest, for me it was way too academic, but since the majority of CU attendees consider themselves to be finance people (Tufano asked them), it was probably a good refresher for them, and a lot more interesting to them than to me.

John Lass from CUNA Mutual followed this discussion by taking the conversation right into the heart of the credit union industry with a discussion of industry trends in ROA and membership growth, calling into the question of the sustainability of these trends. Until I get a copy of the slides, I’m not going to comment much on Lass’ presentation.

Following lunch was the presentation that engaged me the most. Harvard professor Frances Frei’s session was titled “Driving Excellence (and Sustainability) in Credit Union Operations.” Frei shared the four obstacles to service excellence:

1. Organizations that don’t have stomach to be bad at anything. Frei’s point was that while many firms profess to have strengths that they believe differentiate them or enable them to create competitive advantage, most firms don’t consciously decide what they shouldn’t be good at. In other words, what they shouldn’t invest as heavily in.

My take: In a report that will we published by Filene in the next couple of months on the Future of Member Facing Technologies, I argued that figuring what technologies will be coming down the pike is easy. Figuring out which technologies to invest in — and which ones to not invest in, or to invest less in — is going to be the hard part for many credit unions.

It’s reminiscent of the Peter Drucker view on strategy: That strategy is as much about figuring out what not to do as it is what to do.  That led me to define a corollary to this: That firms that don’t decide what not to do, find themselves in a lot of doo-doo.  For some reason, my corollary hasn’t caught on as much as Drucker’s definition.

2. Giving stuff to customers for free. Frei maintains hat a firm can’t sustain excellence if gives away too much free stuff (i.e., gratuitous service), because it needs a “funding mechanism.” Her point was that firms often delude themselves into thinking that additional “free” services help drive retention and loyalty, when, in effect, what it does is prevents the firm from generating income that’s need to invest in service improvements.

My take: The financial services industry is a poster child for this problem. Pat Swannick, who used to run the online channel group at KeyBank, once said to me “if every project that we invest in the name of improving customer retention actually delivered on its promise, we’d be at 800% retention.”

The past 10-15 years has seen a seemingly never-ending stream of “services” that banks and credit unions have had to determine whether to charge for or give them away: Online banking, online bill pay, e-statements, and more recently, PFM.

What was missing in this discussion, however, was the bigger issue. This isn’t simply a matter of “giving too much for free” and not being able to invest in service improvement.

It’s a fundamental business model problem. It’s the problem, or challenge, of aligning what you charge for with the value you provide to customers. And focusing on those things that are you going to make you the most money.

Frei did a great job of showing examples of the tradeoffs that a couple of firms have made in determining what to charge for/what to invest in. The problem for most organizations — especially credit unions — is that identifying and defining those tradeoffs is not an easy task, let alone making the tradeoff itself.

3. Great organizations design systems that enable typical employees — and not just the best ones — to achieve excellence. Frei pointed to Commerce Bank (now TD Commerce) as an example of this. By hiring for attitude — not aptitude — they were able to hire people who could deliver good customer service. But that wasn’t sufficient. By keeping their product set very simple, and by being upfront that they wouldn’t or couldn’t match the better rates offered by competitors, their employees didn’t need to have strong aptitude.

4. Firms have to get customers to behave differently — and keep customers liking them even more. Frei’s example of this was Starbucks who has, over time, trained customers (or tried to train them) on how to place their orders in an attempt to improve service efficiency.

My take: Again, another example where financial services could be the poster child. For years, FIs have been trying to get customers to transact and self-service online.

While Frei presented a good example of what one firm is doing, she didn’t present a framework for how credit unions should go about doing it. It’s something I’ve been calling “right-channeling” for the past ten years: The process by which you determine which behaviors need to be changed and how to go about changing those behaviors. I’ve written about this on this blog and on my prior one.


Following Frei on the agenda was Dorian Stone from McKinsey with an excellent presentation on Service Design Innovation (side note: why do so many consultants think it’s important to cram every little bit of information they have on something into every damn slide of their presentation?). Concluding the day was a discussion panel involving the speakers.

Overall, the colloquium was excellent, and hats off to Filene for doing this, and my thanks to them for letting me attend.  I’m sure the other attendees felt it was well worth their time and effort to attend, and I have to believe they came away with a lot of fodder for thought regarding the question of credit union sustainability.

To the broader topic of sustainability, however, I do want to share this thought/impression that I came away with: That many people in the industry (not to mention academia) suffer from Functional Vision.

If you know what tunnel vision is (constricted vision, narrow-mindedness) then you can easily guess what Functional Vision is: The inability to see beyond the construct of your own business function.

Both Tufano’s and Lass’ discussion of sustainability centered strictly on financial ratios. On a number of slides, Lass would present a negative trend in ratios, and ask “is this sustainable?” as if: 1) external factors regarding the overall health and direction of the financial services — not just CU — industry didn’t matter, and 2) the variation in individual CU performance comprising the industry trend didn’t matter.

My answer to his questions were “yes, they’re sustainable” because over time, the CUs that are dragging those overall ratios down are going to continue to disappear. At the end of the day, Lass shared a comment he made to a client in which he said “if we could design the CU scratch today, would we have 7,600 CUs, and 38 loan platforms…?” (he had some other stats that I failed to capture).

It’s a terrible question, and the completely wrong question to ask. It presumes or maybe even insinuates that we could design a system as complex as the credit union industry from scratch. Are you not familiar with the lessons from the USSR and Cuba? Planned economies don’t work. (Our current administration in Washington is learning this, the hard way).

So what would be better Mr. Lass? One loan platform that doesn’t meet the individual needs of every CU and forces everyone to do things one way? Should we have just five really large credit unions instead 7,605?

When you ask a question like “if we could do this from scratch, would we do it the same way?” you pose a theoretically interesting question, but a question better suited for a cocktail party with drinks than a boardroom discussion. We can always design something that’s more efficient, but — to Frei’s point about identifying tradeoffs  — would it necessarily be more effective?

The ultimate question about credit union sustainability does not boil down to a couple of financial ratios. And I strongly suspect — although I admit to having absolutely no proof of this — that the CU execs who use downward trending industry-wide statistics to sound the alarm on CU sustainability are running the CUs that are underperforming the rest of the industry.

Credit Unions' Misinterpreted News? recently published a series of slides highlighting CUs’ industry performance through the first half of 2010 (loved the pseud0-slideshow). The headline of the second slide (the first slide with data) read:

“Credit unions are gaining members, however share growth is coming primarily from existing members.”

There’s a word in that headline that hit me upside the head: However.

Using that word in the headline implies that the news, if not bad, is something less than desirable.


There is nothing that CUs should be hoping more for — or working harder for — in 2010 than deepening the relationships they have with existing members — relationships that may very well be in the early stages of development as CUs benefited from the flight to safety that occurred throughout 2009.

I know that there are a lot of credit unions fixated (obsessed would be a good word here) with lowering the average of their member base, leading to a focus on member acquisition. Here’s the reality of the situation: They can’t move the average significantly in a single year. My point is that while it’s all well and fine to launch programs designed to acquire Gen Y members, CUs can’t ignore the cross-sell opportunities they have with Gen Xers and Boomers.

As the post indicated in one of its slides, the best loan growth opportunities in the first half of 2010 were in credit cards and business loans. I could be wrong here, but I’d bet those credit card and business loan opportunities weren’t driven by Gen Yers.

I suspect — perhaps unfairly and wrongly — that the use of the word “however” in the slide title referred to above is rooted in a credit union marketing mentality that is driven by some inexplicable need to convert the unwashed masses to the credit union religion and movement.

Credit union marketers just can’t seem to accept that maybe a credit union isn’t right for everyone. That maybe not everyone is going to drink the credit union kool-aid.  Instead of lamenting that share growth was driven by existing members in the first half of 2010, CU marketers should be celebrating.