The Aite Group LLC reported that 33 percent of credit unions with over $100 million in assets are planning to convert to mutual savings banks. Likely these converted credit unions will ultimately become for-profit, stockholder-owned financial institutions.

One-third of this class of credit union represents $193.8 billion in assets, assuming the 33 percent of converting credit unions is spread across the 1200 representative credit unions in this class evenly. In turn that represents over a quarter (27 percent to be exact) of all credit union assets. One-quarter of the money in credit unions is on its way out the door.

In 2006, fee income exceeded return on average assets (page 4 of the 2006 report, if you’re interested) credit union-wide for the first time ever as CUs looked for ways to replace money drained away by compressed interest margins. Banks are using the same tactic.

At the same time, Nobel Peace Prize winner Muhammed Yunus is considering starting a credit union in the U.S. There are movements of varying size and momentum, but movements nonetheless, to provide alternatives to banks through such things as peer-to-peer lending, democratically-run, socially responsible banks, and account aggregation and financial planning using social networks.

Isn’t the message credit unions preach differentiating themselves from banks now even more relevant – even hip?

So, then…why leave?

Denise Wymore sent me this blog post about Alliant Credit Union. Dave’s comment at 2:42 AM, January 18, 2008 summed it up:

I had the same problems. It is difficult for me to put my money in an institution that:

1) cannot even get their application process to work correctly, and

2) cannot be clear on who can be a member who who cannot.

Even though 5.40% is a good rate, I will also find another credit union or bank to park my money.

I think it amplifies the point I tried to make with my last post: CU websites should be operations oriented, not just sales oriented. Make the online experience as close to the in-person experience as possible.”

Why can’t the credit union staff use the online application form while taking applications in-person? This solves several problems:

1. It streamlines the application process for operations 2. It familiarizes employees with the online processes (a CSR laughing and admitting the online application isn’t reliable…really?) 3. It tests the system. It’s easier to fix a problem if you can replicate it on the spot.

Dave’s second point is salient. Most CU’s provide FOM information on their sites, and I think they should continue to work to make it crystal clear who can or cannot be a member. I think this also helps the credit union remind itself of who it is serves.

It touches a branding point, too. I’m not a fan of the diaphanous CU name. Be who you are. Alliant was United Airline’s Employee’s Credit Union. I understand the need to grow and diversify. But moving completely away from who you are as a CU is disconcerting. Why not build the brand around your original sponsor SEG and grow from there? When picking a new name, why not put more effort into staying close to your primary SEG or community?

Of course, I also don’t think sports teams should not have mascots/names that can’t be pluralized.

One of the saving graces of the leftover-filled dead week between Christmas and New Year’s Day are the year-end wrap-ups. No wrap-up story ever won a Pulitzer, but they’re interesting to read. So, to the pot-luck of lists and reprisals, I’m going to add my own.

This being a blog, and therefore collaborative, I’m eager to hear everyone else’s contributions to and opinions on the OpenSourceCU.com Top Credit Union Stories of 2007 (Now With Resolutions!). During this week of warmed-over dressing, think of this list as a sizzling sirloin steak, hot from the fire, ready for you to tuck into (for you vegetarians, think of it as whatever it is you tuck into that’s really satisfying…salad maybe? potatoes? tofu?)

My seven top credit union stories of 2007…bon appetit!

No. 7: The iPhone

It has its flaws. It’s wildly expensive. It’s great-grandfather was the Newton. But this zeitgeist-expanding gadget moves the bar for mobile computing and, ultimately, mobile banking services. It also allows for easy use of social media and opens the number of communication channels. Think about the annoyed member posting to a blog while in line to wait on a member service representative to fix a mistake another MSR made. If someone using a iPhone actually stands in lines waiting for MSR’s.

Resolution: It’s an antiquated attitude that technology and social media are just toys. I would love credit union staffers to open their minds to new technology and look at it from a perspective of early adopters and ask some simple questions: How is this used? How does this impact me? How could this impact my credit union?

Sub-Resolution: Personally, I need to avoid being a curmudgeon myself and open my own mind and ask similar questions. Keeping up with technology is hard, but invaluable.

No. 6: Gigi Hyland’s calling for a more consumer-centric approach to products.

Said Ms. Hyland in January: “The main themes of my remarks were to urge credit unions to continue to be consumer-centric in product and service delivery and to provide insight into the regulatory perspective on current issues, such as BSA and membership growth.”

Okay, this isn’t earth-shattering, and there are discussions like this all the time, but it’s validation from the top that CU’s need to approach their products and pricing the same way other companies do – with a focus on what the market demands.

Resolution: Credit Unions need to leverage that tax-exempt status to continue (or in some CU’s cases start to) offer cost-competitive pricing, provide dividends and serve immigrants and under-served communities. I’d also like to see credit unions trim their product offerings to better serve their membership and community. If you cannot profitably provide dozens of products and services, then take a good, hard look at your product mix and eliminate those that are underperforming or aren’t profitable. Don’t keep up with the Jones’s. Keep up with your field of membership.

On the surface, this is an oxymoronic request, but really, it’s about finding a niche and drilling down and serving it. Some CU’s can profitably operate wide. Most cannot and need to focus on their core membership, find what that it needs and really serving it in ways banks and other CU’s can’t.

No. 5: Hackers steal 45.7 million credit card numbers from TXJ Companies

The breach of security is the largest in history and reflects the importance of CU ID theft prevention policies. Given that credit unions have a 3.8 percent market share in revolving credit, the breach affected over 1.7 million credit union members. And that’s just credit cards. Debit cards, with fewer consumer protections, were likely part of that mix and even a small percentage would be thousands if not millions of debit card numbers.

Resolution: Credit Unions should treat debit card fraud the same way they treat credit card fraud. See top story No. 4 for support of this resolution. Members need to know all their transactions are secure, credit or debit. From my experience in credit union operations, I know this is expensive, but a credit union should act in the best interest of its members.

No. 4: CURIA momentum

At latest count, 141 members of the House of Representatives are signed on as co-sponsors of H.R. 1537. By raising the percentage of assets from 12-ish to 20 percent, this will allow CU’s to better serve under-served areas and small businesses, which in turn creates wealth in a community.

Resolution: Credit Unions need to mobilize staff and, in turn, membership to ensure members of Congress support H.R. 1537 and understand the difference and mission of credit unions. An adage of advertising says that when the marketing director of a company is tired of hearing his/her advertising message, it’s at that point that its impacting the consumer. Talk about it until you’re sick of it.

No. 3: Wings/Continental credit union flap

Nasty, nasty stuff.

Resolution: Stop doing this.

No. 2: Zopa

Peer-to-peer lending could be a threat to credit unions, given credit unions’ philosophical mission. Instead, Zopa is partnering with credit unions, each improving each other’s credibility and reach. I’m excited about this partnership.

Resolution: Like the No. 7 resolution, credit union staff needs to be more plugged into technology and how it affects their products, services as well as how members use it. It’s a competitive advantage to embrace it and folly to ignore it.

No. 1: The housing bust

Although credit unions didn’t seriously contribute to the questionable practices that puts the country on the precipice of recession, every credit union every member will be affected. As much as credit unions need to compete, they also must council and advice as part of their financial services product mix.

Resolution: With a tax-exempt status, strong capitalization (in general) and sound, conservative policies and procedures, credit unions are primed to be part of the solution, right?

There you have it, my year-end list complete with a side of resolutions, served hot and fresh. Enjoy!

Discussion of branding – major, national brands in particular – is akin to a lively discussion of battle. The players are intriguing. Heroes and states engaged in a struggle for life and death tear at each other for wealth and power. Indeed, Sun Tzu is often referenced in marketing classes. Which is silly or inspiring depending on your viewpoint.

CUNA just released a white paper that takes a measured look at a nationwide credit union brand. Currently, major brands are struggling with how to engage customers more deeply and relevantly; it’s a little baffling that a national credit union branding campaign is something discussed.

A national branding campaign is expensive. It’s terribly wide. It requires an existing infrastructure. And technology is coming into existence design to create communities and thwart mass marketing.

For CU’s to engage in a national branding campaign is akin to storming onto the battlefield, weapons drawn. Without sufficient resources (if you’re in battle, that would be other people, and in business, that would be capital), the campaign is doomed to fail. And failure in the case of a national campaign is in terms of wasted dollars and wasted impressions. And in a movement with limited resources, failure is harder to absorb.

Not only is it expensive on the national media side, any branding campaign must be activated at a local level. Unless credit unions spend money in addition to the campaign (a rule of thumb is that activation is three times as costly as the sponsorship), there is no direct tie to the actual credit union, and the message is lost.

Control the Battlefield

In any great story of underdog triumph, strategy and cleverness trumps sheer strength. Leonidas knew not to fight the Persians on their terms and met the invading force at Thermopylea. Paris would’ve failed fighting the immortal Achilles head on.

It’s time credit unions stopped envying the mighty and, instead, become crafty and wise.

The solution lies apart from the Siren’s song of a national campaign. Credit unions should invest in creating real competitive advantages:

• Improve infrastructure through shared branching and ATM networks
• Create community-specific products
• Train staff in the specific needs of the community and SEG

What do credit union’s know best? They know their SEG’s. They know their communities. They know their members. No big banking brands have this knowledge. Credit unions can do what banks do (provide services); banks cannot do what credit unions can do (know their members):

• Use social media to communicate deep, not wide
• Design branches to reflect the membership
• Revive the membership drive and go meet with SEGs
• Leverage annual meetings as a celebration of the CU and its members
• Invest in local businesses by using their services

That’s the credit union’s battle ground: local not national. Getting sucked into a national campaign is costly, difficult and ultimately, nearly impossible to win.

It’s not the Beatles at Shea. Eventually, it could be bigger.

Zopa launched in limited release today in the US with a wider launch next week. Sure, the peer-to-peer lending site Prosper is already a player in the US market, strumming its own eBay-inspired, populace-driven power-ballads out for nearly two years. Zopa’s British Invasion brings a slightly different model to these shores.

Borrowers can apply for a five-year loan, with interest rates ranging from 8.75% to 16.99%, depending on their credit profiles. If approved, borrowers can get their funds immediately. From there, they can create profiles to explain their reasons for borrowing and can promote their profiles on the Zopa Web site, their own blog or other social-networking sites to appeal to friends, family and others willing to help them with their loans.”

Wall Street Journal, November 28, 2007

Six credit unions, including Forum Credit Union, will be matching the Zopa lenders and borrowers. In addition to P2P lending, US lenders can purchase Zopa-branded CDs to mitigate risk, an option not available to Prosper. Borrowers secure loans from this capital. It’s a familiar three chords, no?

It combines social media in a way Prosper hasn’t. It mitigates risk for lenders. It’s working through the CU movement. The Beatles borrowed from Elvis and Buddy Holly, and Zopa is innovating in its niche as well.

Of course, we’ve been listening to bootlegs and waiting for it to launch in these shores for over a year. Our fearless leader Matt provided some numbers in his September 2006 post. Netbanker.com says it could be a $9 billion market by 2017.

Keep in mind, too, that Zopa’s cost structure is significantly lower than banks and CUs, which has led Zopa to compare itself favorably with its US partners. Working with credit unions as a point of entry is a good strategic move for both Zopa, who gets regulatory assistance and the credit unions, who align themselves with a potentially industry-changing technology.

This invasion may not have the screaming teenagers or Ed Sullivan, but it is causing a small but significant uproar.

Christopher describes a current i3 project on the Nexus blog -

Here’s the general idea. Create a credit union island in Second Life, an online virtual world created by its “residents,” that would function as a central online location for the industry. Participating credit unions can set up a portal to the island through their Web sites. Check out the video below.

The island itself will include financial management games, virtual stock market tickers (yes, there really are virtual stock markets in SL), and a simulated currency-exchange-rate display. Even cooler is that credit union members will be able to use a virtual ATM to convert their Linden dollars (the virtual currency of SL) to U.S. dollars and deposit them directly in their CU accounts. No one else does that, not even Wells Fargo, which was an early adopter of virtual worlds.

The comment thread is where it gets even more interesting. Take a gander.

BTW, I love the idea of the ATM but not the idea of actual staffing. Also, I’m not too jazzed about the financial management games idea, but effective implementation could change my mind.

Just my two lindens.

Well, I hope everyone had a happy 4th of July and are reading your emails this morning with all your digits. Mine was excellent despite my back seizing up while I wheeled the smoker out of the garage. He fought me, but the sign clearly read, “No Smoking: Violators will be wheeled out.” BA-DUM! Get it?

But SRSLY, folks.

It’s our custom to keep up with all the bits of the social media we can manage so we can make right-on recommendations to you. One of the communities I’m in is on a video sharing site called Vimeo. It’s very different from YouTube in that you are only allowed to upload a video you made, no TV shows, no commercials, no viral marketing. It’s genuinely just a bunch of folks sharing their videos with each other and their families. They have excellent privacy options if you don’t want everyone to see everything (i.e. baby’s first bath is only for family).

But I’m not just recommending a fun site to surf. They recently redesigned (It’s gorgeous by the way, but not my point either.) and added some new features, and with any major overhaul there comes hiccups. Last Sunday their upload page broke and no one could upload their videos. They got it fixed and the site’s creator wrote a blog post apologizing for the hiccup. His apology and the responses are what I’d like to recommend your reading. The own-uppins from the founder and the love and understanding from the community is an excellent example of cultivating a loyal community. But it doesn’t read like a guy following “best practices” for web community management, but rather like a guy honestly responding to a group of people he’s built a relationship with.

Here’s what I saw when I logged in for my Monday morning surf: Blazing Notification. It was right there in my face when I logged in, not buried in an internal page.

Here’s a little snip of the post:

I want to personally apologize for the problems with the site in the past few days, especially with uploads. It’s the result of a small, careless technical error that had wide-reaching consequences. We screwed up.

And the closing sentence:

If you have any questions, please post them in the comments below and I will address them directly.

Which he did. You can read the whole thing here and see the responses and his directly answering their questions.

So, who cares, right? They aren’t a credit union. But they are members of a community. And the people in charge of that community are very reachable and very visible and shoot straight with their members. Can credit unions learn something from this? Can your CEOs be more reachable, more visible? When you need to address your members, can you do it easily and conspicuously so they don’t have to hunt for it? When they have questions, is it easy for them to get those questions to you and hope for a direct response from someone, or are the sent to an FAQ page?

Bonus Round! Because I have neither the emotional nor social nerve-endings that stop most people from making fools of themselves, I’ll give you my latest video contribution: Don’t Go No Farther (with out-takes).

Have good days.

Wade Lagrone just introduced the concept of Zopa to the audience at the TAPS Lending Symposium. As our readers know, we’ve been excited about peer-to-peer (P2P) lending since we first learned about it.

I won’t rehash the “what is Zopa?” discussion here as you can learn about it at their website, but I must say that Zopa truly understands the credit union industry and is actively working to establish partnerships with credit unions. The level of partnership will largely depend on the participation they receive from CUs, but if CUs recognize this opportunity then the partnership opportunity is HUGE. Imagine if all new Zopa members in the US were asked to join a credit union in order to participate!

I’m going to ask Wade if he will write a post for Open Source CU outlining the benefits for credit unions, but here’s a few remarkable numbers:

• P2P membership growth is growing at 11-25% a month for Zopa in the UK and loan growth in P2P lending in the US (I’m guessing this is based on Prosper’s loan growth since they’re the only ones in the US market now) is growing at 25% PER MONTH.
• The average Zopa member is 36 years old with 59% of members in the 18-34 demographic. Compare this to credit union members at an average age of 47 with 23% between the ages of 18 and 34.
• Instead of paying an average of $327 per new member (as of 2005), credit unions could actually get paid for new members.

I’ll let Wade fill in the details (hopefully), but just know that he understands and believes in the credit union movement. I’m excited about the possibilities!

Productivity website Lifehacker just linked to an MSN Money article citing The top 10 online banks, which cites features consumers should expect from their financial institutions when shopping for online banking.

Internet-only banks are giving the big bank sites a run for their money and adding customers quickly. Because of low overhead, they often pay better rates on savings accounts. For example, a Citibank money-market account with $15,000 recently paid 1.5%. A similar account at First Internet Bank of Indiana paid 3.04%.

By the way, Sunmark FCU’s RateEdge savings account (see yesterday’s post) is currently at 4.50% APY - with no minimum requirement to earn interest, the ability to open an account online with $5, and no monthly service fees, hidden charges or term requirements. Talk about innovative!

For the first time since the Great Depression, consumers are spending more than they earn. According to today’s online edition of The Credit Union Journal (“Members Drain CU Accounts To Pay For Spending Binge”),

Data compiled by the Federal Reserve shows that consumers will spend more than they earn this year for the first time since 1933 at the height of the Great Depression. The second trend, according to Hampel, is credit unions are continuing to keep their rates near all-time lows, discouraging new deposits. While the Fed has pushed rates up on money market accounts above 4%, credit unions have kept their money market rates around 1.9. Rates paid on regular shares have also stayed historically low. The result is low savings growth, he said.

A few weeks ago, our friend Doug True wrote about attracting new deposits in a great post on his Credit Union Lending blog -

At our lending shop we are sitting at 130%+ loan-to-share and we really need deposits and from my conversations with other credit unions many of you are in the same predicament. So, what is the answer?

The articles I read all were based on the same strategy – duplicate what ING Direct (the orange brand – 5 years – $51 billion) has mastered. An excellent article on the ING Direct story is in the latest edition of Bank Technology News. The ING Direct strategy is simple, different and honest – you gotta respect it. These banks have established Internet only divisions of the bank that simply offer money market and CD rates with no access to their brick and mortar outlets or any other services.

This strategy allows them to offer an ultra competitive money market rate to attract new deposits without having to reprice their existing money market portfolio. This innovative approach is not new in the banking world, but it is in infancy in credit union land.

Sunmark FCU has started such a division called RateEdge. My friend at Sunmark FCU says it is too early to report results, but knowing this credit union they will be successful.

The article “Low Member Data Puzzles Dollar” in the August 10th print edition of Credit Union Times states:

Like others in the movement, former NCUA Chairman Dennis Dollar is expressing puzzlement at the stagnancy in membership growth of U.S. credit unions – a miniscule 1.4% increase in 2004 – despite more branches “and access points.”

Dollar said the “build it and they will come” theory is not working exactly, referring to the proliferation of new CU branches and shared operations.

“Maybe the public is simply not aware of the value of the access or the access is in the wrong place,” he observed in a talk which was an update on industry trends.

Matt, Brent and I subscribe to the 37signals blog, Signal vs. Noise. (We use their Basecamp project management software religiously. In 2004 they developed Ruby on Rails, an open source web application framework that makes us very happy in a nerdy kind of way.)

Last week a post on their blog proclaimed Banks are the new corner stores -

It seems everywhere I look a vacant retail space is being snapped up by a bank. They’re opening branches everywhere. Sometimes there are branches of the same bank within just a few blocks in a residential area (we’re not talking downtown Chicago). It’s strange – banks are generally cutting tellers and emphasizing online interactions over human interactions, yet they seem to be growing their retail presence at an unprecedented rate. Something doesn’t feel right about this.

The conversation in the comments has worked its way to discussing credit unions, where one former CU employee remarked,

I’m coming off 11 years working at Arizona’s largest credit union, which was about the size of a decent community bank. When I started out, everything was about service. Towards the end of my tenure (perhaps around 6 years), that definitely shifted. We started getting complaints that we were too bank-like and I think they were premature though well-founded. I was never anything but an observant peon.

In the first five years, we opened perhaps four branches total. In the five years after that, we opened 10. In the last year, we opened 10 more. They were talking about 20 openings next year. Most of them were within Wal-Mart Super Centers. (That always amazed me. There are two Wal-Mart Super Centers within five miles of me in north Phoenix and three more regular Wal-Marts within 10 miles.)

The reason we were always given for the rapid expansion was that in-store branches were considerably less expensive than standalone ones, that we wanted the visibility that being in a Wal-Mart could give us, and that we were following demographics. I think it was mostly the Wal-Mart visibility because the first and last reasons had existed since I started.

Other comments offered some pretty interesting guesses as to why so many new branches are popping up. Maybe the answer is that just like members are expecting free ATMs, free checking, and free online banking, they’re also expecting more branches – and credit unions, like banks, are obliging.