Last week I participated in a tweet chat hosted American Banker’s BankThink blog, the culmination of “The Future Model of Banking” series they ran in the last two weeks of July that explored the question:
What is the future model of banking? What products and services will tomorrow’s banks offer that truly add value and that customers will be willing, even happy, to pay for? How will banks deliver/market these services? Think big and broad – five years out at least.
It was an interesting series and a well-attended tweet chat, and many topics relevant to banks and credit unions were discussed (see Jim Marous’ storify for an overview of the tweets here). However one particular topic caught my attention more than any other: the relationship between financial instructions and startups.
As an Analyst at Andera and fellow in a two-year entrepreneurship program, I live with one foot in banking and one foot in startups, so the relationship between the two of them is near and dear to my heart. The intersection is also objectively interesting at the current moment: FinTech startups even got a feature in The Economist last week. Usually, conversations about startups within banking tend to focus on the threat startups pose to traditional banks and credit unions, but in a Future Model of Banking post BankThink deputy editor Jeanine Skowronski pointed out that startups can also be valuable partners as well, focusing particularly on the groundbreaking relationship between American Express, Wal-Mart, and Bluebird.
But Bluebird is unusual. Right now partnerships between retail banking institutions and startups are rare, and when they do occur they are almost always established by startups approaching institutions, not the other way around. (First Trade Union Bank’s partnership with the payments startup LevelUP is an exception). I think that this is a shame, and that credit unions are neglecting a big opportunity. Here are two reasons why start-ups could be a match made in heaven for credit unions:
Borrowing from Trust in Technology
The 30,000+ consumers who took the survey clearly trust technology companies more than banks, which is ironic when you think about the comparative protections put on personal data at financial institutions and say, Facebook. The exact question the Edelman survey asked was “Please indicate how much you trust companies in each of the following industries to do what is right,” which to me suggests a particular type of trust. I suspect that while consumers may trust banks more with their personal data, widespread perception of bankers as greedy, sleazy, and dishonest has dragged overall trust in the industry down. Partnering with more “popular” technology companies could give financial institutions the makeover they need.
Taking Advantage of Moore’s Law
Much ado has been made about how it’s getting more and more difficult for small institutions to compete in today’s increasingly low-margin world. Interest rates are lower, income from fees and interchange is decreasing, and members demand more and more services, from mobile banking to personal finance management. But although revenues may be shrinking for some institutions, technology has created new opportunities for cutting costs.
Moore’s Law, a favorite concept of technologists everywhere, states that computing power doubles approximately every two years. Moore’s Law describes how computers, once hulking masses of metal and wire, evolved to fit in the palm of your hand. Startups usually work at the edge of the technological frontier. Banks and credit unions however, are usually at least two, if not four, or six years behind, using technology that was built for a different computing environment. Today it’s difficult to find a startup that isn’t thinking mobile first, but most banks and credit unions are still stuck behind the desktop.
Photo credit: Wikipedia
Javelin Strategy and Research estimates that financial institutions can save up to $1.5 Billion by adopting digital channels, and that’s probably just the beginning. By partnering with startups, banks and credit unions can take advantage of new, easier ways to transfer funds, and save some headaches navigating through NACHA. They can leverage new online and mobile tools to allow customers to self-service, and focus bank and call center interactions on high value human conversations. They can even use big data to improve product recommendations for members, or optimize their risk strategy.
My wish to see more partnerships between financial institutions and startups may be motivated more by a desire bring my two worlds closer together than by actual opportunity, but I certainly think it’s something credit unions should be thinking more about.