MADISON, Wis. – It would behoove credit unions to take an eyes-wide-open approach to the potential for disruption in financial services, according to one analyst.
John Lass, SVP, Strategy and Business Development with CUNA Mutual Group, told participants in the company’s Discovery Conference there is a lot of money – and smart people – attempting to get financial products and services into the hands of consumers using alternative business models and delivery systems.
“Lending Club, one example of a potential disruptor to credit unions, is on a path to originate more than $4 billion in unsecured personal loans this year,” Lass said. “They aren’t content with personal loans and will expand their reach. They are already looking at getting into business lending.”
Lending Club is a peer-to-peer online loan marketplace that matches borrowers with investors. The company doesn’t fund loans, noted Lass, and instead pairs up borrowers with investors, who want to buy the loans.
“The whole notion of better and cheaper is something credit unions need to be wary of,” Lass said. “A real concern is the disruptor that does it all, one that offers lending, investments, insurance, deposits and checking better and cheaper than banks and credit unions.”
Lass also recommended guidelines for fighting disruptors, including being alert and paying attention to the clock. “When disruption occurs, it happens fast,” he said, pointing to GPS devices being replaced by smartphones and digital technology replacing traditional camera film in just a few years as examples.
A Defensive Strategy
Mounting blocking challenges against a disruptor is a defensive strategy, Lass said. When Walmart sought banking status in 2005, public outcry, led by a coalition of banks and credit unions, forced them to withdraw their bank charter application in 2007. But Walmart is back in the market with a checking account-like product that has one analyst telling CUToday.info that up to two-million CU accounts could be lost (http://www.cutoday.info/Fresh-Today/Will-GoBank-Steal-2-Million-CU-Accounts).
“Being a fast follower and acquiring the disruptor are other defensive approaches,” Lass said. “Create a credit union answer that mimics the disruptor, or if you see a disruptor as a threat, buy them. A Texas bank saw ‘Simple,’ an online checking account alternative, as a threat and bought them.”
Offensively, Lass recommended re-examining priorities to preserve a CU’s core. “Credit unions should identify where they have pockets of non-consumption. For instance, who isn’t using your products or services. Are there barriers for Millenials and how do you fix it?”
Lass also advised credit unions not to be afraid to cannibalize their own business because others are trying to do it. “A classic example is iPod vs. the iPhone. iPhone is burying the iPod Classic.”
In fighting disruptors, Lass urged credit unions to realize the need for collective action, much like airlines did when they collaborated to create Orbitz to compete against Priceline’s and Expedia’s online booking tools.
“Collective action is the key to fighting disruption. Otherwise, we risk fragmentation,” Lass said. “No single credit union solution will get the scale needed to take on serious disruption. It’s going to take industry leadership, vision and commitment to create a truly disruptive credit union model that competes against disruptors.”