Hype fades; CUs dig into core online offerings

WEST PALM BEACH, Fla. – With the dot.com bust of 2000, it’s become fashionable to rip online offerings, but a scan of the CU industry shows online offerings have become a staple of CU operations – they’re just not getting the hype they once did. “Credit unions are doing a lot online, they’re just not jumping up and down about it anymore. It isn’t as sexy anymore. They are plugging into the technologies that make sense. Their due diligence is deeper,” said Dan Kaiser, vice president of MEMBERS Enterprise for CUNA Mutual Group. Kaiser said the online world and technology in general have permeated the CU industry so deeply that it’s now just another part of doing business. “When the core group of executives are talking about strategy, the chief officer of information technology is now one of the people in the room,” said Kaiser. That shows progress, he said. Indicative of their expanding role, credit union IT executives are also seeing the biggest pay increases in the industry. A recent CUES study found that total compensation for IT execs was up 10.42% this year, outpacing all other CU execs. While online banking, bill payment, online lending and even online brokerage services are in the “made it” category for CU online services, some other online services have faded fast. Case in point – the portal. “The portal concept didn’t have a deep enough value proposition. We knew we had to do something different,” said Todd Mason, chief operating officer of CUVillage.com. CU Village.com, now a separate company owned by the Michigan CU League, individual CUs and CUSOs, was providing portals to credit unions last year. It had a sort of two-tier system, a portal aimed at CU members and a B2B portal for vendors targeting credit unions. Mason said CUVillage.com woke up – as did many in the industry – to the fact that a portal product that looked to make money via online shopping and CU subscriber fees wouldn’t survive. Similar offerings from MembersResources.com and Total1.com have also gone extinct. “There was a lot of excitement initially last year. With the dot.com fallout of last year the mood of the country, but certainly of this industry, changed. It helped credit unions to better focus on what they expected out of their Web sites,” said Mason. CUVillage.com is now going back to its roots of Web development, which it did via the Michigan CU League’s CUSO going on six years now. Its portal service has been transformed into a content management offering, designed to give CUs fresh content within the CU’s own Web site. “We’re still supporting the old portal package, but we’ll be phasing it out over the next year,” said Mason. Mason said he’s proud the firm has survived by focusing on its core Web development competencies. “We’ve raised $2 million in capital, and we expect to be profitable this month.” Kaiser said there’s nothing wrong with CUs offering non-CU services like portals, they just shouldn’t get too caught up with them. “If they detract from what you do, if you get attached to portals too tight, you can be taking away from what you do best. There’s not a CU out there that’s going to compete with Yahoo!,” said Kaiser. Credit unions are still launching portals, they just don’t have the same expectations. “A lot of people were talking about wanting to turn portal sites into profit centers. For us, we want to keep information at our members’ fingertips and make it more convenient for them to access our financial services,” said Rodney Showmar, vice president of marketing for Arkansas FCU, Jacksonville, Ark. The CU’s just-released portal site (www.afcu.org) was designed by Digital Insight. Showmar said it has the news, stock quotes, weather and similar portal components as a Yahoo!, but the CU hopes members are attracted by the investment, insurance, autobuying, online banking and other core CU services. “It’s sort of like a financial Yahoo! site. It has our core financial offerings, then there’s shopping and travel, which are just fun and convenient things for members. If we pick up a dollar here and there on shopping, then great. If not, that’s great too,” said Showmar. Doug Benzine, senior vice president for CUNA Network Services, said the hype is gone, but there is an extremely strong e-com curve continuing in the industry. “Credit unions aren’t backing away, they’re just more selective about what services they offer. I’ve been preaching from day one for credit unions to stay focused on core competencies. Don’t worry about selling books, or selling movie tickets online,” said Benzine. Benzine said online banking, online lending, online Web chat for member service, and online brokerage are the types of products CUs should be focused on. “Let them get comfortable with that first. Everyone tried to jump out and offer everything while the majority of members were still getting comfortable online.” There’s one very important reason CUs can’t shun the online world, said Benzine. “A lot of the profitable members want it. If the top 10% of the membership say they want online lending, you better offer it,” said Benzine. Benzine sees online brokerage as a service more CUs should embrace. “That’s another source of discretionary income from members. The big credit unions are offering it, but it doesn’t take long to get down to the middle tier credit unions and see it’s not being offered,” said Benzine. In the early days of online trading, online brokers tried to out-gun each other on price, and through advertising dollars. There was the infamous commercial by E*Trade during this year’s Super Bowl where a man was being operated on for having money coming out of his wazoo. The price sales pitch isn’t as prevalent anymore. “Those were all loss leaders. A lot of those companies are being hit by lawsuits and they realize that it was a bad market to compete on price,” said Kaiser. The $1.3 billion San Antonio FCU has just introduced an online trading product through its CUSO SACU Financial Solutions, Ltd. Known as eVision, the solution is powered by E*Trade. It is a self-directed online trading tool allowing members who are savvy investors to take matters into their own hands. “It is a non-traditional investment product offered to members as an alternative to the use of a full-service broker,” said Christine Keyser-Fanick, executive vice president at SACU Financial Solutions. More CUs are offering similar services via a CUSO. Other online products that are passing muster in the industry include e-statements. “Many credit unions are excited about the real cost savings potential of e-statements,” said Benzine. Cost savings of e-statements range from 30-75% over the traditional “print it” and “mail it” method. Some credit unions are surprised at the activity they are seeing on their online lending systems. “It really is more significant than what I thought it would be. I thought at some point it would get big, but members are using the channel now,” said Don Charron, a vice president with the $2.3 billion Suncoast Schools FCU, Tampa, Fla. The CU is averaging 600 online consumer apps a month, and another 200 auto loan apps. Suncoast’s online lending solution is home-grown, but it will soon use the online mortgage lending solution from Boeing Employees CU’s PrimeAlliance joint venture. Craig Uffman, president/CEO of Appro Systems, which specializes in online lending, said CUs are out in front with online lending. “Community banks are asleep at the wheel. Credit unions are the most active,” said Uffman. He said about 10,000 of the 20,000 loan apps that Appro fields each month come in through the Internet channel, with the bulk of the other 50% coming in via call centers. Like e-statements, online lending has cost advantages over traditional methods. “Some of your more visionary credit union leaders are doing what they can to drive business to the Internet because it’s by far the lowest cost channel,” said Uffman. That thinking works best however, only if online apps can be handled without much human intervention. Uffman said about 60% of the online apps Appro receives are approved automatically. Two of the “to be determined” online offerings include account aggregation and wireless banking services. Credit unions have flocked to these services this year, but the jury is still out as to whether members are really looking for these services. Earlier this year Callahan CU Financial Services Limited Partnership, which includes about 40 credit union owners, signed a deal with aggregation firm Yodlee to offer aggregation services to its member CUs. So far eight credit unions have signed on. “One of the reasons I hear them doing it is to maintain relationships with their members. If members take the time to set up all their accounts for aggregation on the credit union’s Web site, the hope is they’ll come back to the site, instead of going to Bank of America or some other big player. It takes about 20 minutes for a member to input all of their password and account information, so they’re not going to want to do that twice,” said Sharon Simpson, director of marketing for Callahan. That same thinking was touted for bill payment, where members must spend time to input their account information. Patelco CU, San Francisco, launched aggregation in January. At press time it had just 2,200 members using it. The CU has 75,000 online banking members. As for wireless banking, many credit unions offering the service say they’re doing it just to stay on the leading edge of technology. At press time, Mazuma CU, Kansas City, became the first CU in the Kansas City-area to offer wireless banking. Its members can use a Web-enabled cell phone or a PDA to review account balances, transfer funds, and pay bills. The credit union said the new service is aimed at making it more convenient for members to access their CU accounts. Convenience is the word often used by CUs launching wireless banking, but consumers may not be ready for it. The 2001 American Banker/Gallup Consumer Survey found that 61% of respondents own or use a cell phone or PDA, but 78% of them had no interest in conducting wireless banking transactions. [email protected]