P2I2I2P Lending? Why Not Just Return to Our Credit Union Roots?

I really like the idea of Peer-to-Peer lending. Based on what I know of the history of credit unions, that's pretty much what we were formed to do: cooperatively save money to provide ourselves with an affordable source of credit. Member owners (peers) lend to other member owners (peers). Of course, there's an intermediary - whether that be credit union loan officers, a branch manager, or a paid/unpaid (perhaps elected) credit committee. But it's still P2P lending.

I'm told that this isn't as sexy as allowing an individual member to select an individual borrower, using a credit union as an intermediary (taking a percentage of the transaction as compensation). As an individual investor or potential borrower, I totally get that. This is precisely why I have always been a fan of the P2P models that have come to the United States in the past several years. I've just never seen them as true P2P arrangements. Instead, they are more like Peer-to-Intermediary-to-Peer lending (P2I2P).

Why do I spend any time at all pointing out this distinction? Because it indicates that this mindset is somehow different from what credit unions, by definition, already do - albeit Peers-to-Intermediary-to-Peer as opposed to Peer-to-Intermediary-to-Peer lending. Truth is, most loans in the supposed P2P landscape are Peers-to-Intermediary-to-Peer arrangements anyway. (I'd even argue that the current P2P models are really P2I2I2P arrangements, but that's another topic for another day). The mindset is exactly the same as the credit union model.

"Wait, you idiot," you're thinking, "credit union members don't get to pick an individual borrower. That's a big difference."

True. But there's nothing stopping us from doing that. In fact, early credit unions kind of did pick individual borrowers. They knew their members and used credit committees to evaluate potential borrowers' risk profiles (used to be known as the 4 C's of credit - collateral, capacity, character, and capital). It was members loaning to members - arguably even more intimately than today's P2P models. There's nothing stopping a credit union from returning to the days of credit committees comprised of members who are empowered to make lending decisions.

"That's the dumbest thing I've ever heard," you laugh...considering clicking away from this post. "What do members know about making loans? Loan decisions should be made by trained loan officers."

I agree. In fact, Desjardins himself said that there is no greater responsibility a credit union has than making smart lending decisions. Loans are investments, and there is no quicker way to bring down a financial institution than poor investments. I wonder, though, why couldn't members be the trained loan officers? Why couldn't they be taught how to make smart lending decisions and enjoy the rewards and risks of their actions?

"Uhhh...that's what the P2P models do, dummy."

I guess that's what I was suggesting last year when I proposed that credit unions allow members to form sub-credit unions:

I’ve always wanted to do that as a promotion at my credit union: “Start your own credit union.” Part P2P lending, part membership “pods,” I think it would be neat to allow users/members/etc. to form their own “virtual credit unions” housed within an existing credit union.

Here’s how it would work. Joe Blow and his softball team want to create “Raging Rhino Credit Union.” They pool their money together (say, $10,000) and deposit it into ABC Credit Union under the name “Raging Rhino Credit Union” (RRCU). ABC facilitates transactions, prints statements, etc. in exchange for a monthly fee based on assets within the RRCU (say, two basis points annually, charged on a monthly basis). Collections and other CU functions can be charged at separate rates.

RRCU as a sub-credit union with its own board can set deposit types/rates and loan types/rates in any way they see fit as long as they have the assets to support their decisions. This way, a parent credit union could contain hundreds of “pod” CU’s operating semi-autonomously. Their own websites. Their own marketing. Their own corner of the cooperative universe.

My point is simply that we aren't embracing the principles that originally attracted members to credit unions. The fact that many people don't see credit unions already as P2P lenders highlights this point. That's exactly what we are (should be). It doesn't matter if you decide that a Kiva, Prosper, LendingClub, etc. model is right for your credit union/members, my crazy idea about virtual credit unions may work, or that business as usual satisfies the public that you are a P2P lender. We must make sure that that's what we are seen as: financial institutions that empower members, through democratic control and cooperation, to help each other save and borrow more affordably. It's mutual self-help: precisely what we should have been promoting all along.

Friends of Ed - Marketing Lessons from Dairy Farmers

I just saw an ad for Borden cheese. Come to find out, Borden is a cooperative of dairy farmers. In the ad, Borden boasts "Our cooperative is 100% farmer-owned. That means 100% of our proceeds go to American dairy farmers." On the accompanying website, friendsofelsie.com (named after Borden's mascot, a cow named Elsie), visitors can read about the spirit of cooperatives and how supporting Borden supports the community.

"What does it mean to be a friend of Elsie?" the site rhetorically asks:

It means you choose to support dairy farmers who work hard every day to put the best the American farm has to offer on your table. That’s because Borden® Cheese is made by a cooperative of dairy farmers. And since our cooperative is 100% farmer-owned, 100% of our proceeds go back to American dairy farmers. Some probably near you. So, be a friend, and look for Elsie the Cow. She’s a long-standing symbol of good things from the farm and good things for families and communities everywhere.

The site lets users share recipes, stories about important contributions to the community, and even has a cool interactive map of dairy farmers and other fellow "Friends of Elsie."

It's a social network built around cheese.

My take? It works. My opinion of Borden cheese, which was, frankly, non-existent two hours ago, is now quite positive. They do a great job assuming the "little guy" role, make a "local" connection, state their purpose clearly, and make you want to root for their success. Credit unions can take a cue from this. The ad doesn't mention price. It doesn't even mention quality per se. What it does do, quite effectively, is highlight the impact of doing business with Borden. Powerful stuff.

What also strikes me is that in the marketplace for pre-sliced cheese, there really isn't a bad guy. I mean, there's the big guy - Kraft. But last I checked Kraft didn't fleece Americans for billions of dollars in fees, billions more dollars in bailouts, and reward themselves with billion dollar bonuses. Should be easier for credit unions to make this message resonate, shouldn't it?

Wouldn't You Like to Get Away...

It's a loose connection, but here goes: Woody Harrelson went to school at Hanover College in Hanover, Indiana. I grew up in Scottsburg, Indiana, about 20 miles from Hanover. Woody's character on the sitcom Cheers was from a small town in Indiana. I love Indiana. I love Cheers.

I've always enjoyed the idea of living in a small town, knowing my neighbors, having conversations with people I love and respect, feeling influential, and feeling connected to my surroundings. I enjoyed those feelings growing up in southern Indiana. I experienced those precious gifts night in and night out, whether it took the form of a waving neighbor as you're driving by, a "long time no see" beer on the house at Hardy's Cafe, or a trip to the grocery store that took 30 minutes too long because you talked to everyone in the store.

- Cue the music. -

Making your way in the world today
takes everything you've got.
Taking a break from all your worries,
sure would help a lot.

Wouldn't you like to get away?

Sometimes you want to go
where everybody knows your name.
And they're always glad you came.
You want to be where people know,
people are all the same.
You want to be where everyone knows your name.

Twitter used to be Cheers for me. It was this little hole in the wall that connected me with some of the brightest and most interesting minds in the credit union world. We'd talk about credit union innovation. About technology. About the world of financial news. About politics. We made each other think, laugh, grow, and achieve. It had nothing to do with self-promotion...it had everything to do with self improvement.

Those days seem to be gone. Not the connections...those are here to stay. But Twitter is no longer Cheers. Shari Storm recently wrote on the CUES Skybox blog that Ashton Kutcher and CNN deserve a lot of the blame for making Twitter less special. In her post, Shari asks a wonderful question:

"Which is better, having a small group of people who love you a lot or a large group of people who are familiar with you?"

Without question, I'd rather have a small group of people I love (and that loves me) a lot. I have no doubt that's simply small-town Indiana coming out in me, but that's what made Twitter special to me. I still love Twitter, but in a much different way. It's now Facebook, MySpace, LinkedIn, and the countless other social networking sites that have popped into our lives as the new flavor of the month. Each has been bastardized by self-promoters, sales people trying to sell to salespeople, "Britney Spears" sex tape SPAM, and "[fill in the blank] has sent you a gift" messages. Each, I have no doubt, will be replaced by the new flavor of the month when it arrives.

I have written several times on this blog about how much I disagree with some credit unions' "grow or go away" mentality. What I feel about Twitter these days only highlights my argument. The more popular things become, the less special they become. We each have a maximum number of relationships that we can maintain well. That number differs greatly from person to person, but I can almost assure you that it is much fewer than the number of followers you have right now on Twitter. I have created well-researched, graphical depictions of this phenomenon below:

Your value shouldn't be measured by the size of your network. Instead, you should focus on the strength of your connections. If you are able to manage more than my Cheers size network, so be it. Norm, Cliff, and I are content with the usual.

Oprah, Chicken, and the Future of Credit Unions

Wednesday, I had the honor of speaking at the 75th Anniversary of the Federal Credit Union Act Symposium hosted by the Honorable Gigi Hyland from the NCUA. I was asked to discuss what I thought credit unions needed to focus on to make sure the next 75 years are as good as, or better than, the last.

There were many things I wanted to discuss, but only 15 minutes were alotted to each speaker on my panel before it was opened up to Q & A. So, I focused on communications, attracting new markets, forming new credit unions, and relevancy.

Promoting Thrift in an Age of Excess

Just thought I'd make the following presentation available to everyone. I was lucky enough to be asked to present on this topic for the CUES Experience webinar series. If you have any questions about this topic, or would like to brainstorm ideas on how your credit union can promote thrift please let me know.

Thriftinageofexcess

View more PDF documents from Matt Davis.

Credit Union Cookies?

In Reader's Digest's June 2009 publication, a little blurb in the "Hello/Goodbye" section caught my eye. It seems that the Girl Scouts are battling declining membership (an 8% decrease since 1999). To rebrand the organization into one that will be more attractive to modern girls, they plan on de-emphasizing badges, stuffy textbook-based learning, and having moms as troop leaders in favor of focusing on web-based learning, computer literacy, the environment, engineering, and...wait for it...financial literacy.

I've always thought that credit unions should be THE force behind mandating financial literacy courses and standardized testing. I've also argued that credit unions should prepare, teach, and pay for the educational content.

But lookie what we have here! If the Girl Scouts are correct that financial literacy education can help them reverse their membership trends, maybe this is a more manageable first step? Studies show that women are typically their household's CFO, so why not reach out to the future CFO's through the Girl Scouts? Clearly this won't entirely solve America's overall lack of financial literacy education, but it would be one heckuva start.

Plus, I love Caramel Delights...

and Thin Mints...

Is "I'm Dull" Marketable?

“Banking should not be exciting,” Clay W. Ewing, president of retail financial services at German American Bancorp, a community bank in Jasper (Indiana), told The Times. “If banking gets exciting, there is something wrong with it.”

The preceding quote was taken from a New York Times article "We're Dull, Small Banks Say, But [at] Least We're Profitable." As a marketer for a $200 million credit union, I'm not sure how to take this statement. On one hand, Ewing is absolutely correct. The flashiest financial institutions (read: WaMu, Bank of America, Lehman Brothers, Citi, Bear Stearns, Wachovia, et al.) who made high-priced gambles on mergers, acquisitions, lending, investments, and promotions took the hardest falls in the credit crisis. By trying to be "exciting" (read: wildly profitable), these banks took on wild risks that have clearly proven to be devastating to the world economy.

Sure, small banks and credit unions have felt the collateral damage from the credit crisis. Rising unemployment, investment losses, lost consumer confidence, and their associated effects were virtually unavoidable for all businesses, financial institution or not. But these scrapes have been very minor in nature compared to the blows goliath, more "exciting," banks and credit unions have suffered. The financial institutions that took the conservative (read: boring) approach to lending and investments over the past 20 years are the ones to escape this banking crisis with the cleanest balance sheets, the least public disdain, and the more promising futures.

On the other hand, my family's livelihood (and I'd argue the livelihood of our credit union) depends on my ability to help make banking (err, credit unioning) exciting...or at least more exciting. I work for a credit union that carefully controls operating expenses, makes conservative lending decisions, and invests in only the safest instruments on the market. But that doesn't stop us from trying to make our organization as "exciting" as possible.

So the question is this: Can a financial institution, long-term, be exciting AND profitable? Is "dull" the best way to run a credit union? If so, why don't we have more than our current, paltry share of the nation's deposits?