Four Ways GoBank Threatens your Credit Unions

By Henry Meier, Credit Union Association of New York

Nothing divides the credit union industry blogosphere more than technology. For the Brett King disciples technology is fundamentally changing the way things are done and if the industry doesn’t change it will die.  On the other side of the debate are the incrementalists.  They know that technology changes things but believe that at the end of the day banking always has been and will be about providing an efficient means for spenders and savers to come together.  This will  always be done at a branch and it will always involve building personal relationships.

I’m an unabashed member of the change or die crowd.   Last week, prepaid debit card pioneer Green Dot unveiled GoBank, which provides the latest and best example of how technology is changing everything and credit unions better start changing in a hurry.

You access GoBank exclusively via an app.  As pointed out by Liz Gomez in the All Things Digital Blog, a lot of startups think they can fix banking only to realize that banking is really hard, so they end up partnering their technology with an established bank.  GoBank is trying to “bridge these two worlds.”  Last year, the company bought Bonneville Bancorp, a small bank holding company in Utah.  Members will have FDIC accounts with free Visa debit cards and access to an extensive network of ATMs.  Sending money has never been easier.  The app is designed to facilitate person-to-person transfers to your friends who paid for your drinks the night before.  Its target audience is the under 40 set, who use their mobile phones to check balances as religiously as previous generations balanced their checking accounts.  The app has a “Fortune Teller” feature that can help you stay within your budget.  The only mandatory fees are for using out-of-network ATMs or overseas transactions.  You can pay to have your debit card customized and, most surprisingly, you can pay a voluntary monthly membership fee, the amount of which you determine, but don’t have to.

So why do I think this is such a big deal for credit unions?

First, think of how constraining our existing regulatory structure is. We have to obtain regulatory approval every time we want to serve a larger community or take in a new select employee group and, of course, only members of those groups can join.  In contrast, GoBank can literally market to anyone, anywhere in the country and  anyone in the country can open an account with the click of a button.

Second, if the business model works, then many of the built in advantages that credit unions have as not-for-profit, member-owned cooperatives will disappear about as quickly as Manti Te’o’s

online girlfriend.  You are encouraged to provide a monthly fee, but are not required to do so.  The bank recognizes that it will get punished for bad service, but hopes it will get rewarded for the good.  This is a for-profit model that is clearly member-driven with the added advantage that it has a continuous feedback loop.

Third, Steve Streit, the president and CEO of Green Dot, points out at that the bank was designed as a mobile banking platform, as opposed to a mobile banking platform created by a bank. You really are going to start seeing innovation in this area explode when entrepreneurs, who aren’t bound to a traditional banking mindset, start weighing in with ideas.  Let’s be honest, fresh faced innovation is not a credit union strong suit.  What are we doing to attract the innovators to our industry?  If we have them, are they being given the freedom to try new things in an industry dominated by experienced veterans and board members?

Fourth, the bank demonstrates that there is a middle ground between those who need the security blanket of a branch and those members who never step inside one.

One of the clips I read yesterday was a post from the always-informative Financial Brand detailing the results of a survey indicating that members of all ages expect their financial institutions to have a branch presence.  Listen, surveys are like websites:  if you look hard enough you can find one that confirms all of your opinions.  Even if this survey is accurate, it doesn’t follow that people expect branches to be fancy or even that they plan to visit them all that often.  Over time, people are going to come to value a credit union’s app more than its branch.

I think Apple shows us where the branch is headed.  I love going to Apple Stores, but I wouldn’t have ever stepped foot in one if ITunes didn’t introduce me to a new generation of Apple technology.  Over time, I wouldn’t be surprised if today’s GoBanks build branches but they will be, first and foremost, online banks with all the savings that come with not having to maintain and staff branches.

Let’s face it the future is here.