What Good Is The Credit Union Difference?

I’ve seen a number of blog posts recently about the credit union principles and the credit union “difference”. Josh Jones at CUNA, for example, expressed concern that:

“The credit union difference—our voluntary community involvement, commitment to financial education, service to the under-served, and so on—is becoming lost in the shuffle. The articles I’ve read tout credit unions’ better interest rates and lower fees. Yes, these are important selling points, but they’re not the only ones that motivate people to move their money or remain loyal. We can’t lose sight of our philosophical differences—either communicating them or operating by them—even though credit unions are enjoying large scale, positive exposure.”

Josh is correct that better rates and lower fees aren’t the only reasons why people move their money or stay loyal.

But it begs the question: To what extent do people move their move their money or become disloyal because they believe that their current provider doesn’t voluntarily get involved in the community, isn’t committed to financial education, doesn’t serve the under-served,  and so on?

In other words, to what extent does the credit union “difference” really play a part in a consumer’s decision to select a financial services provider?

For a prospective CU member, I have my doubts that it has much impact.

Prospective members are prospective members, broadly speaking, because they: 1) Want to move their money from existing account(s)/provider(s) to a new one, or 2) Have identified the need for a new account/product.

Regarding reason #1, what motivates someone to switch? Lots of reasons. Towards the top of the list: 1) Camel’s back-breaking bad service; 2) Poor product performance; and 3) Personal reasons (e.g., relocation).

It’s perfectly reasonable to think that there are people out there who don’t receive bad service from their bank, are satisfied with the rates/fees on their bank’s products, aren’t moving or experiencing other personal life changes — and still decide “I don’t like the way my bank does business and treats other people, and therefore I will seek out another institution.”

I don’t have the numbers to prove this assertion, but I don’t think that accounts for a lot of people in the US. (And I base that assertion on past market research that I’ve done).

Regarding reason #2, for better or worse, Americans don’t go into relationships with financial providers with the a priori intention or belief that they will do all their financial business with one provider or that they will stay with that provider for the rest of their life.

So when prospective members identify the need for a new account or product, what goes into their decision? Lots of things. Towards the top of the list: 1) Fees and rates; 2) Referrals/references; 3) Service experience (e.g., direct experience in the sales process); 4) Service reputation (e.g., not directly experienced, but perceived based on advertising, word of mouth, third-party rankings, etc.); 5) Perceived fit (i.e., is this a firm I’m comfortable doing business with?).

The credit union “difference” clearly impacts and influences perceptions regarding the last point on this list. But, it’s just one point among a number. And we could argue all day about how important any one of those reasons — or other reasons — are in shaping a prospective member’s decision.

For existing members making a decision on a new account/product, the “difference” may play a stronger role because the member is more likely to have either experienced the “difference” or not.

But let me ask you credit union folks a question:  Regarding the elements of the “difference”  — voluntary community involvement, commitment to financial education, service to the under-served, and so on — have you ever surveyed your members and asked them 1) How important are EACH of these things to you in selecting and staying with a financial provider? and 2) How well do we deliver on EACH of the elements of the credit union “difference”?

I may be wrong, but I’m betting that few credit unions have done that. (No, instead many waste their time with that stupid Net Promoter Score stuff).

(Notes to CUES and CUNA: A national survey of CU members that asks the questions I described above would be a great study for one of the two of you to initiate. And I’d be more than willing to work with you on it. And to CUNA: If you do conduct the study, and select one of my competitors to help you with it, I’m going to come out to Madison and kick your Wimpy-Wisconsin asses).

So let’s return to the key question here: What extent does the credit union “difference” really play a part in a consumer’s decision to select a financial services provider?

My take: Not as much as many credit union folks think it does.

Which isn’t to say that there isn’t a lot of value to the “difference”.  But this “difference” might be more valuable internally to a CU, than it is externally.

I’m reminded of something I think Jack Welch said. If I’m getting it right, he said the biggest value of GE’s advertising was improving the morale of employees.

The CU “difference” is similar in that regards. Even if it doesn’t influence prospective members to switch or choose, it gives CU employees something to believe in, something to strive for, and a purpose for what they’re doing.

And in no way do I mean to downplay that.

But as a marketing tool, I’m not convinced that the CU “difference” makes a difference.


Verity Mom Lessons

I had a chance to hear Shari Storm speak today about what Verity Credit Union is doing with social media, and in particular, the Verity Mom initiative. It’s a great presentation, and I wanted to share what I took away from it.

But before I do, I have to say that, on a personal note, it was great to see Shari face-to-face. Although she and I have tweeted with each other (both publicly and privately) and exchanged emails many times over the past three years, before today I had only met Shari in person once — for about seven seconds. We introduced ourselves to each other at the 2007 Forum Symposium, and that was literally the extent of our f2f contact.

I’m not going to go into any detail about the Verity Mom initiative. You can visit the site and see what it’s all about for yourself, although I bet if you’re reading this, you already know about it.

After hearing Shari present, there were three things I took away that I think differentiate the initiative from a lot of other social media/WOM efforts:

1) It’s grounded in strategy. It’s no big secret that women manage the finances in a majority of households in the US. Yet, how many financial institutions have really overhauled their efforts to not just market to women, but design products and customer-facing processes to appeal to women?

Who are moms these days? Most likely they’re in the their late 20s (at the youngest end) to the early 40s (at the upper end). In other words, mostly Gen Xers. Not Gen Yers. Gen Xers who are hitting the prime of their earning years, and the prime of their financial needs. While the rest of the financial world drools over 25 year-olds who don’t have two nickels to rub together, Verity Mom is part of a strategy to attract a segment of customers who represent a good chunk of the demand for financial products.

2) It’s integrated into the core of the business. So many social media efforts that I hear about appear to be one-off experiments that are designed to “test the waters of social media” or let the firm check off the “we’re attempting to innovate” box.

Not at Verity. The Verity Mom initiative has led to the renaming of the CU’s checking account and the redesign of its branches. In addition, Verity Mom blog posts end up on the CU’s home page, not buried somewhere deep in the site, as it often is at other FIs.

3) It oozes with authenticity. Plenty of financial institutions have run ad campaigns over the years that purport to show “real people” who share their “stories” about the bank or CU and how great it is. In the end, I guess we could argue whether or not these attempts are successful at influencing perception, but I’ll tell you right now I’ll be arguing that they don’t. Authenticity is something that takes time to achieve. You can’t do it in a single shot, with a single ad campaign.

Over time, through consistent and persistent blogging and messaging, Verity demonstrates that it’s authentically concerned with meeting the financial needs of moms.

I’ve said this before, I’ll say it over and over: You cannot advertise your way to trust. It has to be experienced. Verity Mom gives moms the opportunity to experience Verity, and that builds trust and authenticity.

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After reading the CU Warrior’s blog post on Digging the Diggers, I thought: Great stuff, but how and why are credit unions in this situation to begin with?

My answer: They ain’t got no swagger.

Thesaurus.com defines the verb form of swagger as “walk pompously.” Noun form synonyms include audacity, bluster, and hubris.

I realize that those words might not have a positive connotation to you. But when you see some hip-hop rap star walking around with a ton of bling, and six women clinging to him, you think “that guy’s swagger just reeks success.”

It’s about the image portrayed. When I tell people how many people work at my company, I often hear “wow, I thought you guys were bigger.” Right. Because we “play bigger” than we are. Doesn’t mean we’re arrogant or anything. It’s about an image we’re trying (I think) to project and reinforce.

After reading Matt’s blog post, I thought about the image that I perceive the credit union industry (as a whole) to be projecting: Insecurity. “Oooh, we’re the little guy getting taken advantage of by the big bad banks, which is so wrong, because we’re so much better, but nobody knows it.” Oh, boo hoo.

There’s a ton of YouTube videos I could point to that all focus on “spanking the banks”, or making fun of bankers, or feeding the “little guy” image.

And let me concede that that image may very appeal to a certain segment of the market. As Matt alludes to, though, maybe that segment is just the 6% he says CUs are fighting over. Personally, I think the segment is a lot higher, but even if it’s three times greater, that still leaves more than eight in 10 consumers who aren’t going to be attracted by the “insecure little guy” image.

What do the 80% want? I don’t know. I only know what I want: To associate with winners. To do business with the best firm in the pack, not the one I feel sorry for because they’re so needy. The one with the swagger, the bling, and the beautiful women clinging on to them.

The Warrior says “We price products like we’re banks. We’re not banks.” Pretty bold. What would a CU with swagger do?  Charge for PFM access, and give away the checking account.  Require members to open a minimum number of accounts in order to maintain their status as a member. Tell members “if you want to benefit from the superior service and products we offer, then you’re going to have to earn it, beyotch.”

Of course, if you’re going to have a swagger, and project an image that you’re the best, then you better be good. With the insecurity that I perceive, I can’t help but wonder if CUs really believe their own claims about superior service.

CUs need to start “playing bigger.” Too many misinterpret this “small firm” thing. People don’t want to do business with a small business simply because it’s small, they want to do business with a smaller firm because they believe that there will be benefits — like better service, more flexible pricing, better ease of doing business, etc. — to doing business with it.

I’ve said it before, going to say it again: It’s time to move past the “big bank mistrust” thing. That’s old news, thanks to BP. Time for CUs to get aggressive and assertive about marketing. Time for CUs to get their swagger on.

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Shoveling Out From The Interchange Snowjob

If one of those big, bad companies (oh, for kicks, let’s just say it was a bank, our punching bag du jour) tried to mislead the public, what would the response be? Outrage. People would be up in arms, and politicians — especially the current administration — would be calling for legislation to punish the offender, and prevent it from happening again.

And, of course, our elected public officials would make a public spectacle out of it. Might even warrant dropping a few F-bombs, eh Carl Levin?

But what happens when those same elected officials, or some other politically-motivated individual, spews misleading information? Not only do they get a pass, but they get a platform to deliver those messages in publications like the New York Times and Huffington Post.

Examples: In a HuffPo article from February, California state assembly member Pedro Nava wrote:

On average, consumers pay $427 annually on interchange fees without even realizing it.”

Unfortunately, that’s simply not true, at least not literally. Consumers don’t pay an interchange fee. Merchants do. Whether or not that cost gets passed on to consumers is a different question of course, but if he’s going to expand the analysis to every cost a merchant incurs that works its way back to consumers, maybe Nava should start with the 8.25% sales tax that Californians pay.

More recently, the NY Times published an article written by Albert Foer, the president of the American Antitrust Institute, who wrote:

If the United States were to reduce the interchange rate from 2.0 percent to 0.5 percent, the savings would be $36 billion per year.”

That’s a true statement, kind of. $36 billion would be saved, but it’s really not clear who would reap those savings. With retailers’ profit levels declining, do you really think the savings they would accrue in interchange fees would be passed on to consumers? It’s possible. Just not on this planet.

The other fallacy in Foer’s analysis is that when companies are faced with revenue decline, most don’t sit back and do nothing. They try to find ways to recoup those shortfalls. This involves trying to find new customers, and/or offering new products, but may involve raising prices and fees in other areas. So, in the long run, those savings never materialize.

I’ll repeat that: Those savings never materialize.

If the same elected officials who are spewing falsehoods continue to (or try to) regulate firms’ ability to price their products and services, the outcome may be lower prices, but with a cost: Lower employment levels. As a firm’s revenue declines, so does its employment count.

But I should stop this rant — I’m probably preaching to the choir. If you’re reading this, you likely work in the financial services industry for a bank or credit union and agree with me.

The question that needs to be addressed: What should FIs do about this?

If there ever was a good opportunity for a national education/advertising campaign, this is it.

Callahan & Associates recently alerted credit unions to the potential impact of a cut in interchange fees:

If credit union’s interchange income was reduced in total by 75 percent (from Foer’s stated 2.0 to 0.5 percent), the lost revenue would drastically affect credit union non-interest income and the eventual value returned to members. Do your members know how interchange helps the credit union and subsidizes the true cost of providing debit and credit services?”

This is too narrow a view, though. The impact to credit union members is much broader than just the impact on their CU’s payout.

FIs — banks and CUs —  need to educate the public about what the interchange fee is. What it’s there for, who pays it, and how it helps pay for the rewards that consumers get on their credit and debit cards, and how it helps (will increasingly help) to keep checking account fees low, if not free. And how it’s a fee that merchants pay because it enables merchants to reduce the amount of cash they handle, reduces their billing costs, and helps prevent fraudulent activity.

As a VP of operations at a credit union was quoted as saying in American Banker “the current fee system puts financial institutions of all sizes on the same playing field in setting interchange rates. It allows the credit unions to compete with the largest national banks.”

This may cause a bit of a quandary for credit unions, however. After spending so much time and effort over the past 18 months distancing themselves from the larger institutions, I can’t help but wonder if this will cause some PR embarrassment for credit unions.

It doesn’t matter, though. This issue is too important.

Credit Unions' Biggest Enemy

I really like credit unions.

No wait, I take that back. Truth be told, I couldn’t care less about credit unions. I like credit union people. It’s because I like them that I like to see credit unions succeed.

You see, I don’t believe that credit unions are inherently good. Anybody can claim that their mission is to help people. The proof is in the pudding.

This also means that I believe that banks (big ones, in particularly) aren’t inherently bad. Got news for some of you: I do business with a large bank. Have done so for many years. It treats me very well. And guess what: I’m not that delusional that I believe that I’m the only person it treats well (and you shouldn’t be, either).

But try telling that to the media, or to credit union people. They won’t hear it. Instead, it’s a constant stream of tweets with links to the MoveYourMoney thing. Or today, it’s a link to a CNNMoney article that says consumers’ relationships with big banks is the “equivalent of a dysfunctional relationship.”

What’s the reason for the perpetuation of this “dysfunctional” relationship? According to the article, it’s because “switching banks is simply too much of a hassle for many Americans.”

This is wrong. Absolutely wrong.

Switching banks is a piece of cake. One of the simplest things you can do. There is no shortage of banks that will be more than happy to make it a painless process. And if I’m not mistaken, there might even be a few firms that offer tools to banks and CUs to help them help consumers switch banks.

The overwhelming reason why consumers — make that some consumers — persist with a “dysfunctional” relationship is that they simply don’t care.

They don’t care enough about managing their money, or managing their financial life, or their relationships with their financial providers to switch. They’d rather spend their time researching the differences between guitar picks, or camera lenses, or whatever, than they would figuring what bank (or credit union) is best for them.

Credit unions’ biggest enemy isn’t the big banks. And it isn’t the difficulty of switching banks.

Credit unions’ biggest enemy is APATHY. When people care enough about managing their financial lives, they will care enough to find the right providers. (Which may — or may not — be credit unions).

The paradox here is that money is really really important to us, but managing it? Not so much.

For credit unions to succeed on a far grander scale, they have to get more people to care about managing their money. And not setting up big banks as some kind of Golem to be despised and shunned.

The trends are in CUs’ favor. There are three forces in play here: 1) The economy has forced people to become a lot more disciplined about managing their finances; 2) The tools available to manage one’s finances continue to evolve, and thanks to the Internet, they’re easier than ever to get data into and use; and 3) Gen Yers are whole lot more involved in the management of their financial lives than previous generations were at that age.

And yes, public sentiment against the big banks is clearly helping the CUs’ cause, as well.

But public sentiment is a fleeting thing. Consumers have an incredibly short span of attention. We have an amazing to forget and forgive. One teary confession and everything is back to normal (ain’t that right, Jimmy Swaggart?)

It’s time for credit unions — no, make that credit union people — to quit bashing the big banks, and to start focusing on their real enemy.

[Note: I’m not the only one who believes this. See this blog post from The Long Tail of Banking]