What's your business model going to be for the 21st century?
As Ron Shevlin, senior analyst at the Boston-based Aite Group, recently told CU Water Cooler Symposium attendees, it's time for a credit union business model reboot.
Here's why:
- Declining return on equity, which for the financial services industry as whole has hovered at about 8% since dropping from an industry high of 13% to 15% from 1993-2007.
- For credit unions in particular there has been a decline in overall gross income, with revenue falling nearly 4% during a period when membership was actually growing.
- Across the generations three in 10 have simply not been involved in their financial lives. Gen Y at 33%, turned out to be the most highly engaged in their financial lives.
"Those are warning signs and growth, cost reduction and pricing changes aren't going to cut it," Shevlin says. "I don't think today's business model is going to provide the engine to get us back to historical levels of ROE. We as a society have changed and the paradox here is as we become a more highly educated, affluent, self-service do-it-yourself, few of us are actively managing our financial lives."
Shevlin sees three big changes in the financial services industry over the next few years – the death of checking accounts, separation of production and distribution, and a refocus on financial performance – and explains why they represent opportunities for a 21st century business model reboot. Checking: RIP
It's time for a new type of account.
- The "de-banked" represent 15 million consumers who have left or are about to leave the traditional banking system.
- New Approach Example: Movenbank's CRED
Created the concept of CRED as an alternative to a FICO score. Result: Consumers have a single account that evolves based not on their credit worthiness but debit worthiness. Blending prepaid, credit and debit capabilities, as their CRED score goes up, customers get additional capabilities that grow with their needs.
"For the first time in 60 years, it's not a given that when individuals reach adult age they will open a checking account," Shevlin says. "There is a new set of consumers, highly educated consumers who are working or if they aren't working it's because they are still in school, choosing to opt out of the traditional banking system, which includes credit unions," he says. The Levis Factor
Take a cue from Levis, which has a strong brand, yet distributes its jeans to be sold by others, Shevlin advises.
- Credit unions should make the most of standalone branded marketing programs, third-party products such as Kasasa, and mobile apps.
- Financial mobile apps represent a $1 billion opportunity.
"This concept by and large is a foreign idea to the financial industry, you develop, sell market a core set of products yourselves," the Aite analyst says.
"I don't think your revenue will come from building and developing apps. I think it will come from helping consumers make the decision on which apps they should be downloading and using and taking a cut on those sales," he says.
"A look in the app store, financial apps that start with the letter A run about six pages long. How does a consumer know which financial apps are okay? No one has vetted them. How do they know which apps can be integrated with their financial institution.
"You can help do that and take a cut in those sales. Developers would work with you to get it out to the consumers. So what this becomes is a marketing platform, more service through apps." Rethink Opportunity
Old Moments of Opportunity: Save & Borrow Model
- having a baby
- needing a new car loan or mortgage.
New Moments of Opportunity: Advise & Perform Model
- Given the availability of technology and a new, more highly engaged generation, the financial services industry can add more value.
"We need to get beyond just personal financial management to financial performance management," Shevlin says.
"People need to know how much have you helped them save and tracking that, how is their money doing and what should they do with it?"
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