Well, for me, this just happened again.

I just had the opportunity to try USAA's new check Deposit@Home (see USAA site and flash demo) and I can't say enough positive about the experience. I am now convinced this will be a new sought after online capability in 2007 (perhaps especially given the focus on share growth). My educated guess is that this will become extremely popular in the coming months as more and more financial institutions recognize the opportunities to add significant convenience to members and further reduce high cost in-branch check deposit transactions.

You do need a scanner which will limit some adoption in the short-term (I used a 2 year old $50 scanner from BestBuy...$10 now on eBay)...however, for many the time/effort saved will be reason enough to purchase a scanner.

The process couldn't be more simple (see my screen shots 1 - 2 - 3 - 4):

This process differs from some recently popular trust-based web deposit services that allow members to type in the check details online (and show the deposit in the account) but still require members to send the check in the mail for proper processing. I argue that at least in the short-term these 'hybrid' online deposit services (like the model provided by PSECU's UPost) will continue to have a higher adoption given the scanner requirement of USAA's Deposit@Home. Time will tell if members are willing to buy new equipment for enhanced banking capability. But, for me, I'm not going back.

Another milestone, as best as I can tell, is that this represents the first time this capability has been put in the hands of average consumer/member accounts. There are a few previous examples among credit unions (eg. Visions Credit Union) and some banks offering this kind of remote scanning for business accounts but these services typically used expensive Check 21 compliant hardware and software -- limiting roll-out only to certain businesses.

So, scratch off another big item on the shrinking list of key transaction capabilities that can't be done easily (or fully) via 24x7 online banking. We may be waiting for "CashWithdrawl@Home" for some time.

I’m running a little fast and loose with my goals on this. Still, my hope is to start sharing some ideas and thoughts about a key asset: credit union employees.

My background is in human resources and project management, and I spent eight years working in a non-profit highway safety campaign. And while the basics are still the same – hiring, training, workplace issues, etc. – the environment is entirely different. Even within the credit union community, there are several variations on a theme when it comes to staffing needs.

One such variation centers on staffing and managing a credit union within an already established retail environment.

When you’re opening a credit union inside a supermarket or department store, it’s almost as if you’re another department within it – deli meats, electronics, cleaning supplies, and cooperative financial services. There’s a blending of identities and customer base – and some of this is what the credit union is trying to capture. If everyone’s shopping here, why not see if we can help them with the checking and savings needs, too?

How different?

That’s what I’m trying to find out.

Does the directional shift into more of a sales culture for credit unions mean that our employees will spending less and less time behind the counter and more time shaking hands, kissing babies, and pointing out that Mountain-Spring Tide is on sale down on aisle four?

I think it’s a distinct possibility. Actually, I think it’s veering steadily toward a certainty.

But that’s just my opinion. I’m looking for yours.

Is there such a difference? Can the same employee work in a stand-alone credit union AND a branch office in your local Albertsons? Can you manage those two locations the same way?

Or is this just a fad? Will we be closing down the credit union branches in Wal-Mart in 10 years for some reason?

Still, from my perspective, progress on the solution side in rolling-out truly rich mobile banking products, as well as low adoption demand among individual credit unions, has been very slow. This could be a wait-and-see approach given prior expensive experiments in 'mobile banking' in the dot-com glory days. However, Firethorn (a vendor I'm not currently familiar with) is referenced in the article as being a leading downloadable mobile application solution that has captured recent attention from some banks. What is also interesting is that Firethorn has partnered with Cingular Wireless and Checkfree to enable financial institutions to leverage the nation's largest mobile network and bill pay platform for enhanced transactions.

So what is the "Credit Union Opportunity"?

I contiune to be very enthusiastic with the opportunities available through...

So, why not mobile banking? Will we see a collective credit union solution developed to make the necessary national partnerships, deliver a best-of-breed product to members, and position credit unions as the leaders in the mobile finance space ahead of the coming adoption wave? If so, I'd argue that it needs to happen within credit unions and not necessarily though those that cater to all types of financial institutions.

One idea: Any reason why this capability cannot come through the shared branching/atm networks? I imagine if these networks existed in the early-mid 1990's we might have seen some important leading credit union home banking connectivity solutions from these camps. The reason:

* Connectivity to the data isn't an issue if you are already on the platform;
* Pricing point can be low if the networked users share the costs;
* Easy implementation on the part of the CU;
* Negotiated national partnerships with major providers possible through combined scale;

Imagine the possibilities in forming a credit union system partnership with the leading mobile phone providers. What if a credit union designed mobile application were pre-installed on all new cell phones and other mobile devices. What if we also subsidized wireless data access through the application with the aim of helping consumers find a credit union they can instantly join and conduct mobile credit union account transactions?

Could be a major opportunity to reach out to Gen-Y in the short-term and share the credit union difference.

Why not?

However, to me, it is most interesting to look at how ING designed Electric Orange to meet the basic checking account service needs of online banking consumers -- a group that is already approximately a third of all U.S. households and growing steadily.

If I read the announcement correctly this account offers:

This is fascinating because it raises a key question: If you were starting a credit union today from scratch, how might you design (or re-design) a core traditional product service offering like the checking account? ING seems to think because the physical check processing days are numbered (at least in the long-run) that a significant base of consumers are finally ready to forgo the paper check entirely in exchange for purely electronic transactions and a higher rate of return. Is the market ready for this or is ING a bit too far ahead of the curve on this one (remember Wingspan Bank)? We'll see.

For me this wouldn't quite foot the bill. It is true that I turn to the checkbook much less often than I did five or ten years ago. However, I still use paper checks and their flexibility in lieu of cash-on-hand in many circumstances where electronic payment is not ideal. For example, Electric Orange seems to fall short when I need to pay someone immediately who is not a web transaction adopter (eg. paying the nanny, home repair service calls, attending charity donation events, etc). I could use online bill pay to pay in these circumstances but the lag in issuance and time it takes to receive the paper check from the bill payment vendor is not ideal for many situations. Perhaps I'm behind the curve on this one…or perhaps ING's success goals with this service aren't what I think they are.

Still, it is interesting how they put this account together and I'm especially interested in seeing the P2P details of this model.

* note: ING still does not reference the product on their website. This e-mail appears to have been sent just to existing ING customers for now.

When it comes to our members in the "e" channel, most of us still employ the mass audience, or one-to-many, approach to communication. Banner ad messages and text hyperlink promotions, for example, are often deployed to convey the general promotions of the period to all members regardless of specific relevance to the individual member.

While this serves to convey the credit union’s marketing needs in a “one-to-many” (or ‘shotgun’) practice, I believe we’re still missing a vital opportunity to more effectively serve our individual members’ needs. This is especially true given the limited time we typically have to communicate with members in the online channel and our general desire to fulfill a trusted financial advisor role.

The irony is that for years many credit unions have operated sophisticated MCIF systems to segment and deliver highly targeted messages to members. Ask a person in your credit union’s marketing department today and they are likely to say that the MCIF capability is viewed as an essential resource in the toolbox. We know how these techniques are widely used to segment groups for product specific outbound campaigns (letter & e-mail). In addition, member data is now commonly used within branch or call center core systems to empower front-line staff to convey targeted advice and education while they are interacting with members. Why aren't we using this to help our online members?

I applaud the lead taken by a few credit unions including Fort Belvoir FCU and New England FCU. These credit unions have deployed systems capable of delivering targeted messages to members in all areas of the Internet channel. Methods include displaying pre-selected ‘stacks’ of graphical or text messages in a ranked order based on the individual member’s unique characteristics and anticipated interest needs. This is accomplished by authenticating the individual member (eg. via home banking) while referencing core system and MCIF data to determine the relevant message delivery ‘stack’. It can also happen outside of authenticated channels, without knowing who the visitor is, by analyzing a specific site visitor’s behavioral patterns and history to hone-in on a visitor’s needs and deliver more relevant message content.

While these initiatives are fairly new they are a huge step in the right direction for credit unions. Bravo!

...“Everyone who would like access to a credit union should be able to do so through the network. Problems are identified too often, and this would be a good solution. After people had drawn their cash by means of whatever follows the Post Office card account—a similar arrangement, I hope—they could save through credit unions. That would provide all the advantages that the socially excluded do not currently have, and we ignore it at our peril.”

Not until the second or third paragraph in the above article do you realize that this is a UK credit union news release. However, before you dismiss it as irrelevant to US credit unions, I feel it serves as a prime example of the benefits of looking outside our own industry “box” for innovation. It made me think about similar “why not” opportunities for credit unions here in the U.S.

Too often, we focus only on internal industry partners for enhancing service & capability when external practices and relationships may present as much, or greater, opportunity. For example, there are numerous online service strategies & lessons to be learned from consumer e-commerce websites. Yet, I know of only a couple credit unions who attend the conferences regarded as important events for the B2C e-commerce industry.

Instead, we tend to focus on “best practice” and “innovation” only when it directly applies to our industry. This doesn't just apply to individual credit unions but also to the vendors or CUSOs who serve them (Callahans not excluded). Imagine the possibilities of a similar partnership among credit unions and the US Postal Service…or, any other nationwide retail organization?

Think it can't happen? Have a look at USAA Bank's QuickPost service offering "over 4,200 nationwide deposit drop off locations" where deposits "are generally credited the next business day." This innovation is from a relatively new bank that doesn't have a single brick & mortar branch or ATM.

Who is negotiating to give U.S. credit unions this level of community presence?

What are the other opportunities that could be explored outside our industry?

Zopa, a UK-based company, in particular is championing the P2P lending model here in the U.K. using the internet to facilitate the process and create what it calls "a community of like-minded individuals and lend to them and borrow from them in a trusting but secure way." A new online marketplace. An eBay for savers and borrowers.

Presumably this is a new looming threat to the several hundred year-old traditional banking model. Their goal is to pool individuals savings and lend to other individuals at mutually favorable rates after spreading out the risk among enough people. Sounds good to me. But wait a minute, isn't this the credit union core model and advantage in the financial marketplace? As Doug points out in his blog:

Isn't this the same as credit unions? We take money in for deposit to loan it out, right?

Doug is right. But if this is 'our' model and advantage why haven't we had more success at gaining market share over the bankers? Why hasn't a seemingly superior model completely overturned the system in the last hundred years? Can it be that it will take a for-profit company leveraging technology to champion this concept and bring the bankers to their knees?

I doubt it. Here is why:

The CU Experience
I believe Zopa is truly innovating by making the existing traditional CU saving/lending process more transparent to the end member/user and by leveraging the low-cost Internet channel, but I'm not convinced the overarching competitive value proposition is different from what is supposed to be happening in the background at a credit union - pooling member savings to lend out at favorable rates and increase savings rates. Admittedly, however, the execution of this has typically not been as successful or efficient as possible for many credit unions. Likely this is a result of a desire or need to provide other non-vanilla offerings & services that increase operational expenses and reduce the 'rate' return received by the members.

Or, in the worst case, simply poor management or lack of bottom-line focus on the member at some organizations (see Callahan's Return to the Member scoring).

Does Zopa execute the cooperative model more effectively? Possibly...we'll see. Technology developments in the last 10-20 years have certainly created new efficiencies and the credit union industry is also adopting to make the cooperative model even more compelling...I'll be the first to agree that the evolution and embrace could be faster. But rate competitiveness alone comes at a cost.

Vanilla vs. Double Scoop Peanut Butter Chocolate (w/sprinkles)
Zopa or industry darling ING Direct can compete on rates because they are embracing a plain vanilla approach -- no expensive to administer high transaction service offerings (like checking accounts), no expensive brick and mortar presence, and very few selective product offerings within any given product category. For example, ING only offers three Mortgage options (all ARMs). For the rate shoppers among us (admittedly I am one) we may be willing to make this trade off for some products. Others, possibly the majority of the population (?), may be willing to take slightly less competitive rates for more complete service offerings, local branch access, and security. This is particularly true among people who are not as financially independent or accustomed to self-service banking (note: probably not the typical reader of this blog).

P2P lending lends itself (no pun intended) to those financially savvy individuals who are at least partly familiar with the banking business process of saving and lending. This is not the same as a familiarity with saving or borrowing with a financial institution. This could inherently limit the pool of people who may choose to participate in P2P lending. You have to respect the plain-vanilla, self-service, internet-only model for Zopa and the recent success it has had for ING Direct, but this approach will not cater to everyone, and credit unions should be careful in in how they emulate this or they risk alienating a large segment base of existing loyal full-service members. On the other hand, we clearly need an effective response to plain vanilla or risk losing another key segment of members.

Progressive credit unions are already adapting to the ING rate advantages with potentially greater impact on rate performance -- demonstrating the strength of the P2P cooperative model with not-for-profit advantages. I was inspired when I learned about Sunmark FCU's ($419M, NY) new 'RateEdge' division as a response to members who are willing to make some sacrifices for a superior rate (4.5% savings rate according to their website). As time goes on, I will be surprised if ING or anyone else can maintain their competitiveness purely on rate.

Risk
Perhaps the thing that troubles me most is the apparent positioning of P2P lending by Zopa as a comparable product to insured savings accounts. For example, the website marketing pitch states: "Lenders are, on average, getting better rates than savings accounts and with more predictable returns than shares." and includes a comparison to a specific insured savings product "typically 30% higher than going with ING Direct." Unless I'm missing something this is not an apples-to-apples comparison.

The best I can make out: participating in P2P lending in this format is significantly closer to an unsecured open-market fund investment. We know that savings or CD deposits are backed by government or institution guarantee. The motivations and risk tolerance for a saver are not the same as a market investor. While Zopa's statements are technically true, I feel this is awfully close to deceptive marketing designed to attract the uninformed saver who will naturally be interested in a better looking savings (ie. not investment) deal.

In the end, this is a new market with a real learning curve for those uninitiated with banking processes (eg. credit scoring, etc). Even if someone is familiar with stocks/bonds, but not banking processes and risk, they may still be in for an uncomfortable learning period.

No Middle Man?
Zopa claims: "Zopa cuts out the middleman" but I'd argue that a 1% 'exchange fee' on the process is not exactly a process without a third party extracting profits. Am I missing something here? I perfectly respect that any organization (for profit or non-profit) needs revenue to provide these services but this still makes Zopa an intermediary player taking a slice of the action. The 1% probably isn't going back to Zopa's 'members.' Another opportunity for some progressive credit unions to 'one-up' Zopa's take on the P2P lending model?

Crossing the Pond
Apparently Zopa plans to make a big U.S. splash in the early part of this year. I'm sure the press will pick up on this and run. They are likely to attract quite an audience and I feel confidant they will have at least some initial success.

However, I'm unsure about the long term impact on the financial services industry as a whole. What will your credit union's response be? Do we need an industry response? Are there additional lessons to be learned from Zopa's model that can help us improve our own?

Overall, I think this should be a wake up call for CUs to leverage their advantages from the banking and for-profit models more effectively. Credit unions have the ability to offer superior rates and service. Who will execute?

I recently dropped by the local NatWest Bank branch office. NatWest (part of the RBS Group) is the second largest capitalized bank in Europe and had £196B in total assets at year-end 2004 (the parent RBS Group has a combined £757B in total assets...insane I say!).

While waiting in the branch I picked up a brochure for a product they call "Offset Banking." I had heard of this before from some research Callahan had done a year or two ago on the 'One Account' concept but I honestly didn't pay much attention at the time (sorry guys!).

The NatWest brochure begins with the following pitch:

"Just think how clever it would be if all your different bank accounts began to 'talk to each other' in order to achieve one common goal - to save you time and money when paying back your mortgage."

Okay, You've got my interest but how does it work and where's the catch?

Basically, in the simplest scenario, checking and savings account balances are combined to 'offset' the current mortgage loan balance (for mortgage interest payment calculation purposes only). The interest payments on your mortgage are based on the reduced offset value, not based on the actual higher mortgage balance. For example, if my mortgage is $100K and my combined savings/checking are $10K then I only pay interest on $90K of the mortgage.

As a customer I would have to give up the interest I would be earning on my savings/checking accounts but since mortgage loan rates are typically higher and I've eliminated taxes on interest earned on these accounts this also seems to be a benefit. Since the mortgage monthly payments themselves are fixed, any surplus (interest saved) in a given month is used to pay down the mortgage principal. As a result, in theory, I should be able to pay off the mortgage faster.

This seems brilliant (note: this word is used entirely too much here in the UK but I'm adapting) and I guess I don't really see a catch unless you feel you can do better yourself by choosing other higher yielding investment vehicles for your checking/savings or if the offset mortgage rates are significantly higher than your other options. However, at the end of the day, most of us do have checking and savings account balances and it seems this would be a far better return on that money than it would otherwise have been.

For NatWest this innovative product makes a compelling case for why I would choose their mortgage/savings/checking over other comparable options. Heck, even if the mortgage rate wasn't quite as good I'd still likely consider this after doing some number crunching. Plus, this also would seem to encourage increased share balances.

So, in theory for NatWest, this should mean:
+ new mortgage loans
+ increased savings
+ new business accounts
+ stickiness to Natwest’s relevant products and services
I guess they just need to be sure they're maximizing these new relationships beyond these three products and not giving up more interest than otherwise is gained in new product adoption?

It is a fascinating proposition and I don't really understand why this model hasn't been picked up in the U.S.? Or has it? Am I missing something here?