By Brian Scott
While financial technology (fintech) disrupters and innovators were perceived initially as threats to credit unions’ business models (think Dwolla, PayPal and Starbucks), it is worth considering instead the opportunities they present for credit unions to compete more effectively and win in their markets.
Instead of viewing them as threats, the credit union community needs to ask itself, “Who are our true competitors, and who are our allies?”
Most people would not name the U.S. government, for example, as an ally to the financial services industry. But the current regulatory environment does, in fact, represent a huge barrier to entry for new competitors. Imagine the struggles and hurdles a new entrant in the payments space would face trying to comply with regulations that most credit unions and their providers know so well. In addition, the government is always seeking to regulate new entrants and new products in the financial services space. Innovators like Dwolla face these challenges every day. Thanks to the infrastructure they already have in place to manage regulatory compliance activities, credit unions have a distinct advantage over newer payments providers.
In addition to being an innovator in the area of bank transfer platforms and networks, Dwolla also became a disrupter to traditional lenders through a partnership with a group called Lenny, Inc. Lenny developed a microlending mobile app that leverages Dwolla’s white-label API to make small loans to Millennials based on their educational background and grade point average. Users pay a small monthly fee to borrow $500 through the app and by paying back the loan, begin the journey to building a solid credit history. Interestingly, Veridian Credit Union (Waterloo, Iowa) saw the opportunity that Dwolla represented and years ago made a decision to invest in the company. This is a great example of partnering with instead of fearing those that could be disruptors.
'Phenomenal Traction'
Starbucks’ mobile app has gained phenomenal traction, use and loyalty among users, but does it represent a threat to credit unions? While members may indeed be whipping out the Starbucks app at the point of sale instead of using the credit union’s own app, members may actually be paying their barista with their credit union card and even earning interchange in the process. This example underscores the importance of making sure credit union cards are loaded in app in every place possible. “In app” is the new top of wallet.
Beyond the actual transaction, Starbucks earns enduring engagement and loyalty by setting itself apart and having fun with consumers, which is precisely what it did when it recently gave people the ability to tweet someone a coffee. The pilot program was wildly successful.
So what could gamification of payments look like?
A good example of creative engagement by a credit union is the “Thirsty Thursday” promotion Purdue Federal Credit Union sponsors at Purdue University. Members can show their Purdue Federal credit or debit card and get a free Pete Pop at the University Book Store. While many students may just cash in on the freebie, guess what card they are going to use to pay for anything else they may be purchasing? Correct: the one they already have handy – their credit union card.
'Wonderfully Useful App'
LevelUp created a wonderfully useful app for merchants that lets its customers place mobile orders and receive special offers at hundreds of breakfast and lunch spots. It is perfect for merchants who want to send out offers or giveaways to drive traffic through their doors during times when business is slow instead of offering a coupon that is typically used when traffic is high. For example, traffic at restaurants is typically slower on rainy days. LevelUp allows the restaurant to gamify its business by offering discounts, controlled by the merchant, that must be redeemed during specific times. This is a big departure from a Groupon-type offer.
Fintech disrupters should be carefully considered not only for the superficial threat they may appear to present, but also – and more importantly – for the upside of how they can enable credit union success and inspire new ways of thinking about member engagement.
As SVP of Business Alliances at PSCU, Brian Scott partners with industry leaders in payments and community financial institutions (FIs) to create competitive payments programs. Brian helps credit unions position themselves competitively in their own communities and maintain profitability throughout their payments programs.