Tapping Technology

Technology is giving credit unions a chance to be creative about getting involved in members’ financial lives.

For example, today’s CUs can deliver, collect and process car loan applications in very automated, very convenient ways. But that puts them into the car-buying game for only the final minutes. Suppose your CU could get involved right after the mechanic delivers the bad news about a failed transmission, and your member decides it’s time to replace that old car. Technology can make it possible for CUs to play such an out-of-the-box role, notes Ben Rogers, research director at Filene Research Institute, Madison, Wis.

Online car-buying services like TrueCar help CU members decide what cars to look at and where to shop. The online car-shopping app has value for the CU member and gives the CU a chance to get much more involved in its members’ financial activities than simply processing a car loan when all the decisions are made, Rogers says. So the conditions are ripe for a win-win partnership.

“The technology is there to get the CU involved in helping members make good financial decisions,” Rogers says. “The challenge is to get members to use it.” But if you do, you’re helping them choose the make and model that best suits them, steering them to the dealers that offer the best value, and increasing their perception that their CU is a trusted partner in their financial well-being. It can all be done on a smartphone. And the member can link to the car-buying app through the CU website, he points out.

The same kinds of tools—with names like Trulia and Zillow—are available for members shopping for a home. “They do the hard work of getting all the residential properties in their database,” Rogers says. “It makes sense that they’d want to work with lenders like credit unions that could provide a link to the house-shopping app on their websites,” he says.

It’s a brave new world. Breakthroughs in the collection, storage, retrieval and communication of data have created an explosion of opportunities, says Terence Roche, a principal at Cornerstone Advisors, a CUES Supplier member and strategic provider based in Scottsdale, Ariz. And now CUs must make careful choices in a confusing marketplace.

Becoming a Financial Advisor

One of the biggest opportunities for out-of-the-box technology activity lies in the use of personal financial management tools.

“There are plenty of PFM software flavors out there,” Rogers says. “The challenge is to embrace these tools and move them from reporting programs to interactive personal bankers.” (See a review of leading providers.)

Wealthy people have long hired personal bankers to take care of the hectic parts of managing their finances, he notes, but personal bankers have been too expensive for ordinary people. Now CU members of modest means can have a virtual personal banker inexpensively if their CU has the tools and gains their consent, he notes.

The software is migrating from reporting to advising. “If I regularly buy coffee at Starbucks,” Rogers illustrates, “the program can track that spending and alert me to any increase in my monthly coffee spend. It could also alert me to other coffee vendors within a half-mile radius of that Starbucks and what they charge for a cup of coffee.”

Early iterations are starting to appear and pilot testing is taking place, he notes. It’s becoming possible for CUs to help members make good financial decisions and timely adjustments, which also makes them more creditworthy, he points out.

CUs seem to have recognized that value, reports Ron Shevlin, senior analyst at Aite Group, Boston. “In our latest financial institution survey, half the CUs responding already had implemented personal financial management linked to their online and mobile banking applications. They have moved beyond reporting and funds movement to helping members with their financial lives,” he says.

The value of the advice depends on the extent of the information. CUs whose members use their PFM and do almost all of their spending with their CU cards will be well positioned with transaction data to advise that member. If Rogers buys his coffee with cash or a Starbucks card, he becomes harder to advise.

“The premise for getting into PFM is that you already have a trusted relationship with the member and he or she uses the instruments you provide for much of their spending,” Rogers explains.

Shevlin agrees. “You want to have a checking account linked to the member’s primary debit card,” he says. “That’s where you’ll usually see their spending. Young people use debit cards today at an astronomical level. Almost 40 percent of consumers have stopped writing checks.”

Available products, such as Moven, support these behaviors, Rogers reports. When you spend on a Moven debit card, you can see your spending to date by categories and how it compares to the previous year. If you start going to a card-accepting vending machine at work more often, the reports will point this out.

Much of the advice from PFM applications boils down to telling the consumer what he or she can afford. Some apps do that based on available balances in checking accounts and perhaps capacity on credit cards, Rogers explains.

If you see that Delta has round-trip tickets to Aruba priced at $650 per person and your bank balance is $1,800, the program may give you a green light. But more discerning programs are appearing that know your financial patterns. You might have an $1,800 balance, but an automatic deduction for a $1,200 mortgage payment coming up in three days and a $450 car payment the day after that could lead the program to advise you to take an in-state overnighter instead. Or you could have a direct payroll deposit of $3,200 coming, which could justify taking a longer trip, he points out.

Where’s the Revenue?

Consumers now expect technology to empower them with services that are convenient, safe and usually free. “When they run into something that displeases them, they don’t hesitate to call out the offender on social media,” notes Nicole Adams Kraus, principal of Decision Strategies International, Conshohocken, Pa.

As technology evolves, consumers think they should be able to see their financial health in one picture rather than in siloed snapshots, Kraus notes. Enter Mint.com, which Kraus personally uses. Other providers include Manilla and PowerWallet.

“Services like Mint are agnostic to whomever issues your cards, holds your investments or is considered your primary financial institution,” she explains. “Clients go through a one-time process to set up their various financial accounts and cards with Mint. After that, the service updates automatically using Mint’s Intuit technology to connect to the registered accounts.”

However, pleasing members may not do much for the bottom line. While some new technology helps to automate manual services and cut operating expenses, many of the technical innovations require financial institutions to build out additional infrastructure to support a growing number of channels—all of which improves member service at additional expense to the financial institution with vague prospects of increasing revenue, Kraus points out. The big continuing challenge is to find ways to turn technology into revenue.

Most growth indicators—membership, deposits and loans—are up for CUs. But revenue is down, Shevlin reports. “Growth is meaningless unless it’s profitable,” he insists. “The business model needs to change.” And technology-based convenience products can help, he argues.

For example, Coin simply stores information from multiple cards on one card that looks like a typical credit card, he reports. “It lets the consumer replace up to seven cards in his or her wallet with just one card. The initial product offering was priced at $50, and it sold out. Consumers want convenience and accessibility so much that they are willing to pay for it.” CUs should take note, he suggests.

Implementing high-tech products can pay off in some operating efficiency gains, says consultant Sabeh F. Samaha, president/CEO of Samaha & Associates Inc., Chino Hills, Calif. Moving activity to members’ mobile devices and desktops makes it easier to onboard and serve members; pumps more transactions through the system in less manual ways; supports more targeted marketing; and enables better executive decision-making.

“All that self-service takes steps out of the workflow up front and in the back room, which saves money as well as improves member satisfaction,” he says.

Richard H. Gamble is a freelance writer based in Colorado.