I have spent my whole career in organizations that help advance credit union ideals by helping people gain access to affordable financial services. Currently, my focus is as CEO of CU Solutions Group, a national CUSO that helps credit unions with technology, marketing and HR performance solutions.
Time and time again, I have witnessed credit unions make extraordinary impacts on people’s lives. That is probably why I am so disheartened that the United States has more than 15.6 million unbanked consumers. These are people living in households where no one has a checking or savings account, most of them live paycheck to paycheck and they often fall prey to expensive and sometimes predatory alternative financial service providers like payday lenders. This group, along with the 88 million U.S. adults who are considered underbanked, has been particularly challenging for credit unions to serve because they typically have poor credit and are unlikely to generate meaningful deposits or fees.
This was driven home for me personally a few years ago when my home handyman, Tony, had to deal with his truck breaking down. Tony’s truck is his livelihood, it is the sole means of transportation for his home repair business. I tried to help him get a loan for a truck at a credit union, but he could not qualify due to poor credit history. Ultimately, I gave him a $9,000 personal loan, which he dutifully paid back every month without being late. That experience made me realize firsthand how difficult it is for everyday people to get affordable financial services.
As more services go digital, though, smart credit unions are starting to see the potential of this large group in the U.S. and internationally. Global Findex, a World Bank program spanning more than 140 countries, launched in 2011. It studies how adults perform financial transactions across the world — how they borrow, save, make payments and manage financial risks. According to Global Findex, worldwide, 2 billion adults and 160 million small businesses lack banking access. According to a recent estimate by Accenture, bringing unbanked adults and businesses into the formal banking sector could generate $380 billion in new revenue for financial institutions.
Clearly, serving the unbanked also has benefits beyond profit. By giving people access to savings accounts, credit and loans, credit unions reconnect with what they do best: helping build and strengthen emerging middle-class populations. That, in turn, drives growth in the broader economy.
Digital technology is enabling countless new forms of access to financial services that have lower transaction costs. That is the good news. The challenge is that the worlds of tech and retail are increasingly seeing the potential. I must admit that lately, I find myself wondering if I am doing enough within my own sphere of influence to enable and encourage credit unions to keep up with this wave of fintech companies and non-bank disruptors.
In the fourth quarter of 2017, Amazon launched Amazon Cash, which allows its customers to go into retail stores and put cash into their Amazon accounts so they can shop online without a credit card. Additionally, Amazon is rumored to be in talks with JP Morgan to offer traditional checking accounts to their customers.
Green Dot Corporation, along with its wholly-owned subsidiary bank, Green Dot Bank, claims to be the largest provider of reloadable prepaid debit cards and cash-reload processing services in the United States. Green Dot’s GoBank mobile checking account is being leveraged by Walmart to offer low-cost checking accounts targeted at people who do not use traditional bank accounts.
Walmart’s MoneyCard by Green Dot mobile app uses a virtual, reloadable, prepaid Visa card that works just like a debit card. This makes it easy for users to track spending, keep tabs on account balances and even generate cashback when shopping at Walmart. The application stores money, gives real-time balances, enables person-to-person payments, bill pay and direct deposit for paychecks, benefits and tax returns. Uber also offers its drivers a customized, business account version of Green Dot’s GoBank mobile checking account, and Green Dot is the “bank” behind Apple’s Apple Pay Cash.
Several days ago, Stash, a finance app targeting first-time investors just learning the market, partnered with Green Dot and announced that they are “getting into banking.” The company will roll out a set of mobile-first banking services including FDIC-insured bank accounts with debit cards, no overdraft fees and access to a network of free ATMs across the U.S. All this in addition to financial guidance on spending, saving, investing and retirement planning.
The list goes on. Western Union offers NetSpend. Facebook, Google Wallet, Venmo and Square Cash all offer person-to-person payments. Like Amazon, Uber and Walmart, Square is rumored to be talking with banks to offer a checking account-like service complete with direct deposits from employers. These efforts all make online purchases easier for unbanked consumers.
Moreover, PayPal offers a prepaid Mastercard, and just last month announced it is expanding into traditional banking for certain groups of underbanked customers. PayPal does not have a banking license; all services are the result of bilateral agreements between PayPal and regional banks. PayPal COO Bill Ready made it clear that this is a service specifically for the underbanked when he said, “If you already have a bank account, it’s not for you.” He told Wall Street Journal that the new service was driven by the necessity of a bank account to participate in the modern economy. “If you don’t have a bank account, you can’t take an Uber ride, can’t stay in a room on Airbnb,” he said.
PayPal is a much-touted behemoth in payments with more than 210 million active users, plus an additional 10 million on its Venmo platform. One-third of all credit union members already have a PayPal account, and two-thirds of millennial credit union members who use P2P are already using Venmo.
It’s not surprising that more and more big banks are partnering with PayPal. Many are actively encouraging their customers to include their bank-issued debit card in the PayPal wallet. Wells Fargo, HSBC and Bank of America are actively marketing PayPal to their customer bases. In the case of Bank of America, its partnership includes card tokenization for ease of in-store payments with the PayPal platform, as well as simplified inclusion of Bank of America debit and credit cards in PayPal’s app.
It seems that almost every quarter, we also hear about another big bank rolling out a unique product suite for the underbanked. Most of these products are checkless accounts without overdraft fees that are tied to reloadable prepaid debit cards and offer easy ATM access. Scores of banks have tried to get in the game to project a real or perceived desire to serve the very markets that credit unions are organized to serve with their not-for-profit, tax-exempt charters.
Non-traditional apps are also emerging for bill payments, money transfers and microloans. Many fintech startups are helping with building financial literacy and repairing credit, offering easy-to-use, non-predatory services, and building and scaling small businesses.
For example, mobile app LearnLux uses interactive tools to engage millennials and connect them to meaningful resources. The Wealth Factor gears financial literacy gaming toward younger users, helping them prepare for financial success. eCreditHero is building a platform that scans credit reports for negative items and disputes false claims, which disproportionately affects women of color. Fig Loans offers non-predatory, low-interest loans using alternative credit scoring methods to gauge creditworthiness, and Interwallet provides low-cost financial services to 34 million underbanked and immigrant households.
DocuVital, an end-of-life financial planning platform, is making it easier and more affordable to prepare for one of the most expensive and stressful times in someone’s life, accounting for around 10-12 percent of healthcare costs. For unplanned costs that can threaten at-risk populations, Finova Financial has revolutionized the title loan process to help Americans gain access to emergency cash without having to worry about predatory rates or practices. To tackle the growing challenge of saving for college, Gradvisor makes it easy for employers to offer 529 plans to their employees. Upsie is rethinking extended warranties by creating a more transparent process and protecting consumers from high mark ups, and Painless 1099 is offering stability to 10.6 million freelance-working Americans by helping to automate taxes.
I do not see the same innovation coming from credit unions, but I do not think it is because credit unions lack a commitment to serve people of modest means. It is what they do every day. I do wonder though, if they are positioned well enough to affordably create digital solutions for the less fortunate. Credit unions of all sizes, especially smaller ones, lack the product development resources to keep up with the unprecedented array of mobile players branching into serving the unbanked and underbanked. In this amazing digital age, there is so much new opportunity.
CU Solutions Group is exploring ways to help credit unions build more structure in this regard. LifeSteps™ Wallet launched in November of last year, and credit unions like Flint-based Security Credit Union and Houston-based Primeway Federal Credit Union are already using the app to enhance their mobile banking services. LifeSteps Wallet provides a wealth of mobile resources to help members with life decisions that align with credit union core services — services such as credit and debit card payments, home and auto financing and insurance and financial wellness objectives like personal financial management tools, financial education and identity and document protection.
PayPal CEO Dan Schulman has created a digital ecosystem that doesn’t favor Apple, Android or any particular bank. That makes them unique among their many competitors, many of whom I previously mentioned. Similarly, CU Solutions Group has created a mobile banking enhancements platform with the LifeSteps Wallet app that is neutral with regard to core processors, mobile banking providers and card processors. The agnostic app doesn’t compete against a single mobile banking app, it enhances all of them and enables the innovative dexterity that credit unions require to experiment and serve their ever-changing member landscape. This ongoing innovation is precisely what will empower credit unions to compete against the myriad of fintech disruptors that are positioning to serve, not just the underbanked, but also mainstream banking customers in more efficient and affordable ways through digital mobile apps.
More important than the LifeSteps Wallet product is the desire we have at CU Solutions Group to create a collaboration community for our credit union partners. This helps us envision the possibilities of how great fintech apps could be incorporated into every credit union’s LifeSteps Wallet mobile banking container. Our mission to find tools that formalize the service passion that all credit unions share won’t end with the LifeSteps Wallet app. We’re excited about building or buying apps that help credit unions with their mission of financial inclusion for their members and potential members.
Smart credit unions need to move quickly to attract unbanked customers before fast-moving tech companies and retailers dominate this business. More than 80 percent of retail banking customers bank online, so credit unions need to set up pure digital, standalone channels to target people underserved by traditional financial institutions. Several alternative distribution approaches have emerged, the most powerful of these is clearly mobile financial services. This is not your mobile banking application, which is a utility that offers traditional financial services. Instead, products like CU Solutions Group’s LifeSteps Wallet doesn’t rely on traditional account access and can be fully customized to include products and services that effectively address the dormant tendencies of low-income consumers.
A true hallmark of credit unions is the passion they have for service — especially to those who are unbanked or underbanked. However, too often, for lack of specific product features, many credit unions find themselves focusing on their core products of mortgage and auto lending, credit cards and low-cost or free checking accounts.
Year after year, new players, large and small, position to serve the underbanked segment of our population. This environment should push credit unions to collaborate and find simple, easy-to-use solutions that help serve consumers’ basic financial needs. This is especially important for the 88 million underbanked Americans. CU Solutions Group looks forward to investing in new products like LifeSteps Wallet that can truly make an impact to help credit union members organize their lives to save time and money with help from their trusted credit union partner.