Is the Credit Union Business Model Broken?

It is hard to determine which is more interesting, that this was said over 25 years ago, or that Bill Gates ultimately predicted the current banking state.

The banking business model as we know it has not changed for hundreds of year, but the world and the consumer has. When we look at business sectors that are not only providing current economic profit but also long term valuation, the top 5 according to McKinsey Global Institute are:

And when we dive in a bit closer, we see that the business that is working well are fin tech software - PayPal, ANT group, stripe, and square to name a few.

What do these companies offer that makes them so different?

They make the user feel this magic. Specifically, the transaction experience is consistently seamless and ubiquitous. They also collaborate with external ventures to align with the marketplace needs. This is a different way of thinking about financial services, a more innovative and disruptive view.

Take, for example, the collaboration between Apple and Goldman Sachs.

Many would say that Apple offers an established brand priced like a luxury brand with a solid core of growing middle to high-income millennials. Goldman Sachs is also an established brand as one of Wall Street's best-known names in investment banking. While it is non-traditional for an investment bank to offer consumer offering, aka the bank issuer of the Apple card, it does allow the investment bank a foothold into a market that fits nicely into their latest offering, Marcus. Marcus is an online bank targeted to the same target that Apple serves, growing middle and high-income millennials.

The business problem that this combined offering solves is how to make the apple purchase experience an extension for their brand, specifically some new and different than anything on the market. They offer 3% cashback on apple purchases, interest-free monthly installment payments, and 2% cash back for all other purchases. It allows for several partners to merge credit lines to form a single co-owned account. The cash function is deposited daily into the apple card housed in the apple wallet app (ideally leveraged on an apple phone) or sent directly to a bank account.

The credit union exists to solve four problems for its members:

How can a credit union identify new opportunities to solve these member problems?

1. Evaluate and optimize the core business.

What are the offerings and processes that the credit union does well, and what are the ones they can optimize?

2. Identify who else is in the member's wallet.

Your member currently has a relationship with PayPal, Venmo, and possibly Robinhood. You know where they shop, what kind of car they drive. Review this goldmine of spend and financial relationship behavior and identify the trends look for member needs and potential collaborators. Perhaps a collaboration is a new rewards program for your credit and debit card that features retailers with which the members already have a relationship. Maybe a trend is financial advice about investment or debt management.

The point here is how to think differently about two things. 1) your members' use of current products and services and how they align to the members' needs 2) who is a current disruptor that could also be a collaborator. To accomplish this shift takes innovative thinking and openness to new opportunities, which is precisely what successful startups are doing.

We believe that data transformation doesn't have to feel overwhelming or expensive to be impactful. After helping over 600 credit union leaders launch their data journeys, we have identified several consistent knowledge gaps. We have worked hard to fill these gaps with a variety of educational artifacts:

Curious about the output of these classes? Here is a quick summary!