A Credit Union without Deposits and Loans?

I have always seen credit unions as being consumer advocates. I mean, aside from typically offering great rates, low/few fees, and a wide portfolio of personal finance solutions, our job is to help members become better savers, better investors, and better money managers. Doing what is best for members is supposed to be what's best for the credit union, right?

Well, according to our current business model, that's not necessarily true.

If a member wants to open a new savings account, employees are compelled to offer the credit union's best possible product to fit the member's deposit profile and term requirement. There's nothing wrong with that. But what if the member can get a better rate elsewhere? What if the member can get a MUCH better rate at another financial institution? This situation puts the credit union's mission, and its bottom line, in a precarious position.

Could a credit union model emerge to address situations like this? Not just a gentle paradigm shift...a dramatic change? I mean, what about a credit union without deposits...without loans?

What I'm proposing is adapting the travel agency model and the Progressive Insurance model to the financial services world. This new credit union's purpose is completely selfless: find members the best possible pricing on all financial services, whether it's in house or not. For an annual fee, members basically get a completely unbiased advocate who scours the marketplace to find the best deal.

This credit union could generate operating income by negotiating contracts with major financial institutions. Because in a small way this credit union becomes a marketing arm for these financial institutions' services, it would be worth paying some sort of "subscription" or "broker" fees to be included in the search process. Membership dues, educational seminars, and a dramatically reduced operating budget as compared to traditional credit unions would further help this model work.

To avoid conflicts of interest or "pay to play" scenarios all relationships with any financial institutions would be disclosed to members up front. As the credit union builds capital, future deposit and loan products could be offered...but only if they are priced at on a "price match" basis. In other words, if the credit union cannot offer (based on current spreads) the best possible price on a product they simply lead the member to the market leader.

This model saves members time, money, and gives them something they don't necessarily have in today's marketplace: a totally non-biased, trusted guide through the complicated world of personal finance.

CUWarrior Featured on the CU Soapbox

A funny thing happened this week when sending out a press release about my credit union's Holiday Skip-a-Pay program...Jimmy Marks at Digital Mailer, facilitators for the CU Soapbox, asked if he could feature the story on the blog. Of course I agreed, happy to see this wonderful reminder of credit union magic get some publicity.

This program was not unlike many Skip-a-Pay programs you have seen at other financial institutions...except one very important detail: we had absolutely no fee attached. Members were allowed to skip any non-mortgage loan payment for the month of November or December just as a courtesy to help their families through a tough holiday season. The results were amazing, over 20% of our loan agreements were amended for a total over $870,000.

To me, these results were made even more amazing (remember, I work for a $200 million credit union) by comparing them to the results of a recent ING promotion (thank you to Jeffry Pilcher for the heads up on this one). ING forgave January mortgage payments for 500 lucky customers. Now, keep in mind that having your payment forgiven is a much better deal than simply skipping a payment and extending the term. So, in that light, ING's program was a better deal for those select few who won. But our program was open to everyone. And, the fact that we gave up the monthly cash flow from over 4,000 of our loans outstanding is no small feat in this or any other economic environment.

To read more about this story, please visit the CU Soapbox. This is a great forum for passionate people in around the credit union movement to sound off on topics ranging from TARP to Blago, and everything in-between.

Unique Banking Needs? Hogwash.

A topic I have become increasingly consumed with is the misconception and overestimation of financial services market fragmentation. There is great focus these days on the emerging Gen Y market and all of their "unique" and "distinct" needs and preferences. I have no doubt whatsoever that this generation is unlike any that has come before - if for no other reason in the way we integrate technology, especially communications technology, in our lives.

I have had trouble, however, agreeing that our needs and preferences are all that "unique" and "distinct" as they pertain to financial services. We need loans, payment vehicles, investment vehicles, convenient access to our cash, and financial advice all at the best price possible...just like every other generation. We'd prefer not to be forced to deal with a financial institution.

So, to me it is the financial institutions, and particularly our marketers, that have fragmented (or tried to fragment) the market. I believe, to the contrary, we are a very mature industry with a very stagnant set of customer/member needs and wants.

This isn't exactly a bad thing for credit unions. I think we have unique ways with which we can deliver and price these services - dictated by our ownership structure. But let's not fool ourselves into overestimating this generation's uniqueness in terms of their financial service needs.