Tuesday, May 15, 2018
By Robert McGarvey
One message came through loudly at the recent CO-OP Think18 conference in Phoenix: this is not your father’s CO-OP.
“We are in a revolution inside CO-OP,” said Todd Clark, who has logged two years as CEO of the nation’s largest CUSO.
“We are sprinting towards change. We are driving this hard,” said Samantha Paxson, CO-OP’s chief marketing and experience officer.
“We are positioning CO-OP to move forward,” agreed Nick Calcanes, CO-OP’s chief information officer who just may be the busiest CO-OP executive because so much of what is planned is in the digital arena, an area where CO-OP had proceeded cautiously in much of this century, a time when big banks - and at least some big credit unions - had already doubled down on digital.
It was about time for CO-OP to take the digital plunge. And now executive after executive at Think18 sang from the same hymnal: CO-OP is in the midst of a digital transformation, driven by the perception that the credit union movement needs this, that it needs a leader that draws on the sharing and communal culture that distinguishes credit unions from their for profit brethren banks.
That leader, said CO-OP, will be it. “Our goal is to be a world class technology company,” said Calcanes.
These changes won’t happen with the snap of the fingers. “Digital transformation is a continuous process. You don’t just wake up one morning and go ‘We did it! We’re transformed,’” warned James Wester, research director for IDC Financial Insights, a Think18 mainstage speaker. His message was aimed at the audience - executives from some 400 credit unions - as they contemplate their own organization’s transformation but it could just as well be an invocation to look at CO-OP’s transformation with a measure of patience.
Just what is going on at CO-OP which most in the credit union universe know for its 30,000+ fee-free ATM network and its shared branching network which consists of 5600 credit union branches where members at a participating credit union can walk into another credit union’s branch and do many of the transactions they can do at their home credit union? Many experts have cited these cooperative ventures as a credit union secret sauce that gives members access to a bigger ATM fleet (twice the size of Bank of America’s and Chase’s) and a branch system second only to Wells Fargo’s 6000+.
Count them as great achievements. But - realistically - it is the tech frontier where the financial services wars will be fought and won or lost.
“The future of banking will be mobile,” said futurist Thomas Frey, another mainstage speaker. He added that “over 20% of branches will disappear by 2022. We are now closing three branches every day. That number will go up.”
CO-OP, under Clark, knows this. And it has taken some bold steps -- for instance, the acquisition of all of The Members Group from the Iowa Credit Union League for $100 million in 2017. (CO-OP had been a minority owner.) That instantly gave CO-OP significant digital payments credibility. It also triggered big changes inside CO-OP because Clark’s aim with TMG has been to integrate it into CO-OP, to meld the TMG culture in with the more traditional CO-OP culture. In the acquisition press release, he said: "We are creating a new CO-OP that embraces technology and best-in-class service delivery to create a seamless, secure and personalized experience for our clients and their members, however they choose to interact with their credit union using a CO-OP product."
Specifics about that vision have been scant, however - until Think18 where CO-OP’s leadership got busy communicating significant substance about the CUSO’s way forward. Understand: the CO-OP reinvention is a work in progress. But a takeaway from Think18 is that CO-OP’s leadership is promising that the $424 million in revenues CUSO is thinking big - and about what will be needed for credit unions to thrive tomorrow.
Already there is big news about a new fraud initiative from CO-OP - as well as good news about Zelle, the p2p payment tool that last year processed a staggering $75 billion, twice what fintech darling Venmo moved.
About Zelle - which already has a handful of credit unions in its go live queue - Clark said the company is eager to enroll credit unions but it wants all but the biggest to go through a third party. Enter CO-OP. “CO-OP will be an intermediary for credit unions,” said Clark.
The industry understands this from Apple Pay. Few credit unions - possibly only Navy Federal - worked directly with Apple. Others went through third parties such as TMG, CO-OP, Fiserv, and First Data. Expect similar with Zelle but, stressed Clark, Zelle is a no brainer. “P2p is an important engagement channel,” he stressed and with its mushrooming name recognition, Zelle is becoming a tool digitally aware credit unions want to offer members.
Bigger, more tangible news from CO-OP revolves around what it calls COOPER which CO-OP described this way in a press statement: “COOPER is CO-OP’s largest technology initiative, in which the company is investing millions of dollars to provide state-of-the-art machine learning and artificial intelligence to its client credit unions across the CO-OP ecosystem.”
Clark added: “COOPER is a major piece in our strategy to bring greater security throughout our products and services, while providing the most seamless experience to credit union members. COOPER will allow us to constantly improve upon the fight against fraud by enabling the understanding of huge amounts of data and detecting complex patterns rapidly.”
COOPER is built around what’s called machine learning which means it’s a smart system that keeps on learning. It’s based on technology developed by machine learning company Feedzai, which has focused on fighting fraud in financial services and which counts First Data among its clients.
Clark said COOPER will be rolled out to the shared branching system in June. Wider roll outs follow.
“Credit unions are waiting for what we are doing to make a difference for them,” said Clark - and he clearly is betting that COOPER will be an answer to the worried prayers of many credit union executives who increasingly face armies of very smart, very skilled fraudsters.
Fotis Konstantinidis, a senior vice president at CO-OP charged with overseeing fraud products, elaborated: “Effective fraud prevention is a competitive issue for FIs. Our ultimate goal is to democratize AI and give credit unions the technology to compete with big banks.”
Another CO-OP initiative - still taking shape - was hinted at by Clark. He wants to put CO-OP to work monetizing the huge data lakes, as he called them, that CO-OP and many credit unions already have. Said Clark: “The data we have can give you a real picture of what your member is doing if you use the data correctly.”
The initial steps are using data to attack fraud (a la Cooper).
Then it may get a lot more interesting.
“The power of this data is amazing,” said Clark.
This kind of data is how Netflix knows what you want to watch before you do. It’s how Amazon knows what you need to buy before you do. Trust this: big banks have been all over this for at least five years. They are getting very good at knowing more about end-users than they may in fact know about themselves.
Credit unions - the vast majority - are not on this bus. Many don’t even know it’s out there.
Your future may hinge on getting smart about the data you have. The answers you need already are there, if you know where to look.
CO-OP believes it is in a position to be the credit union wagon master on the trail through this digital wilderness of big data. In this bargain, what CO-OP has, via its partner credit unions, is lots of info about what we spend on, how much money we have, what our interests are, that’s a good place to be.
“We can use data to optimize member engagement, to anticipate their needs and deliver what they want before they know they want it,” said Paxson.
CO-OP has big dreams about how to monetize those data lakes so watch this space. The big data play may be the most transformative initiative at CO-OP.
There’s more percolating at CO-OP. Matt Maguire, chief data officer, noted that what credit unions members want - want all of us want - is what he called “a GAFA experience.”
He suggested that CO-OP wants to play a lead role in helping credit unions rise to the excellence of GAFA.
Because that just may be the bare necessity needed for a financial institution to thrive in the coming years of the 21st century.
Don’t know what GAFA is? Look it up. Because just that is a perfectly 21st century gambit, and not bothering is just so 20th century.
Back at CO-OP chief marketer Samantha Paxson noted, “Amazon is our muse. It’s critical that we behave like Amazon.”
What’s the credit union response to CO-OP’s plans? Maybe the most succinct view belonged to Chuck Purvis, CEO of Coastal Federal in North Carolina, who said: “CO-OP has scale and reach that will entice fintechs to work with them.”
That’s key because, frankly, outside help - for instance, from companies like Feedzai in machine learning - will be needed. And CO-OP is getting that help. The new CO-OP plainly has signaled that it will reach out to leaders and experts in order to better meet the needs of CO-OP members and their members.
It's also moving faster. And that now is critical.
Warned Purvis: “If we don’t develop urgency about change we won’t be around. We need to embrace change.”
The clock is ticking, it ticks for you.
By Robert McGarvey
For Credit Union 2.0
It’s been over three years since Apple Pay rolled out the nation’s first beefy mobile payments system and today’s blunt question has to be: does anyone still care?
Into that fray has stepped Pymnts which recently offered up a detailed look at mobile wallet usage, along with trends.
Be ready to question your own institution’s wallet strategy.
Be ready to ask if it’s in fact time for an institution that offers Apple Pay, et. al. to dump them.
The data just may surprise you.
For good reason. Apple Pay was birthed amid loud and wide clamoring for it. I remember the panic that beset many credit unions three years ago when Navy Federal was the first - and only - credit union invited to the launch party by Apple. I had many talks with credit union CEOs and even more CIOs who wanted Apply Pay, like right now. And Apple put all of them in a deliberate queue where it took many weeks, sometimes months, before more credit unions joined the Apple Pay legions.
Every credit union wanted Apple Pay - even though they had spurned a very similar Google Wallet a few years earlier. I had first used Google Wallet to pay at a Whole Foods in Scottsdale AZ in, I believe, 2013 which had Mastercard touch and pay installed on its registers and sometimes it worked with Google Wallet, sometimes it didn’t.
But few credit union execs paid much mind to Google Wallet. It was Apple’s marketing genius that spawned a feeding frenzy where every institution craved a contactless payment solution.
Apple nowadays regularly updates its list of institutions that offer Apple Pay but I don’t think anybody much cares anymore. More credit unions don’t offer Apple Pay than do - should they care?
That’s where the Pymnts data come in.
The article reminds reader of the famous S Curve, via Harvard Business prof Theodore Levitt, which posited that three years in, a new consumer product’s adoption should be at the top of the S curve. Where does Apple Pay stand? Here’s what Pymnts says: “Apple Pay’s adoption since its launch in Oct. 2014 looks more like a flat line than an S-curve. In fact, the overall growth in Apple Pay transactions is almost certainly the result of more merchants installing near-field communication (NFC) terminals than iPhone users getting more interested in Apple Pay itself.”
Read that again - and remember that, per Apple CEO Tim Cook, Apple Pay is now accepted at more than half of all US retail locations. It’s very easy to use at most places you shop.
And yet even Cook said that mobile payments have “taken off slower than I personally would have thought if you asked me sitting here a few years ago.”
How bad is it? According to Pymnts, under 30% of Apple iPhone owners have activated and tried Apple Pay. That’s terrible but just 17% of Samsung owners have activated and tried Samsung Pay. And only 13% of all Android users have activated and tried Android Pay (nee Google Pay, nee Google Wallet).
Remember Levitt’s curve. These are awful adoption rates.
Pymnts tossed out more gloomy data. Just 23% of Apple Pay users used it for their last transaction at store where they could use it.
And a dismal 17% of Android Pay users did likewise.
(Pyments, by the way, is reasonably bullish on WalMart Pay and its adoption. I don’t shop at WalMart so I defer to other opinions.)
Bottomline: Apple Pay has its fan base but it definitely isn’t huge. Data is no more compelling for Android Pay and Samsung Pay. There is a user cohort - but, really, mobile wallets are still not wowing that many consumers with their alleged advantages over plastic cards.
The big question: if you don’t presently offer Apple Pay and Android Pay should you? That depends upon your demographic, now and also the one you want five or ten years from now. If members want mobile payments, give them what they want.
Which bring us to should you dump the mobile wallets? Absolutely not, multiple credit union senior execs told me. They in fact expressed delight that the mobile wallets are not much used - Apple Pay for instance charges a significant premium over a credit card as such and no credit union is thrilled about paying the difference. And yet credit unions that offer Apple Pay, etc. nonetheless get to proclaim themselves on the tech cutting edge and that’s a potent marketing platform, especially with Millennials.
For some credit unions, the present situation is win - win. They brag about their techie cred and yet they aren’t stuck with paying the premiums involved in mobile wallet usage.
So don’t diss non use of the mobile wallets. It just may be exactly what most credit unions honestly prefer.
By Robert McGarvey
Big banks have rushed to embrace Zelle - the new breed person to person payment tool - and credit unions too are joining the queue.
And now there is news about rising rates of fraud and criminality involving Zelle.
Time for a rethink?
First off, why Zelle? Part of the answer is in the immensity of its primary backers, such as Chase, Bank of America, Citi, Capital One, Wells Fargo, USAA, and a handful of credit unions including BECU, First Tech, Schools First, Star One. Many more institutions - credit unions included - are in the queue to go live.
Zelle makes it very easy to send money to anyone with an email account or mobile phone number and a bank account. No Zelle account is needed.
For the sender, a key Zelle plus is that it typically is easy for an institution to integrate it into the mobile banking app. No need for a seperate, standalone p2p app.
Some years ago I tried an experiment where I sent small payments to people using services such as Dwolla and the redemption rate was about zero. I asked why. People asked me if I’d been co-opted by Nigerian scammers. They just did not want to pick up money involving a service they hadn’t heard of.
Zelle is hard to not have heard of. A lot of TV ads and digital ads support it.
And then there’s how easy it is to get the cash.
Consider this a death warning to legacy but clunky services such as PopMoney.
But the trigger that launched Zelle was the PayPal fueled fire around Venmo which, out of nowhere, had emerged as the p2p tool of choice. Bankers had snorted at tools like PopMoney but Venmo was different - users liked it, it had fintech heritage, and suddenly p2p was gaining the kind of enthusiasm many had predicted for it but that had stubbornly not materialized.
Bankers decided they needed their own weapon and thus Zelle, which in 2017 moved an estimated $75 billion, twice as much as Venmo, and the scariest bit is that this is plainly early days for Zelle. Thought of a trillion dollar market is not far-fetched. Pymnts offered this dazzling buffet of Zelle stats: “Earlier this year, Zelle revealed that on average, close to 100,000 customers signed up each day for 2017. It also said it processed more than 247 million payments last year, which marks a 45 percent jump from 2016. It handled a total of $75 billion in peer-to-peer (P2P) payments in 2017, a significant increase from the $55 billion it made the year before.”
And now there are the stories about Zelle as a platform for fraudsters. The New York Times dropped the biggest bomb in a piece that began this way: “Big banks are making it easy to zap money to your friends. Maybe too easy.”
The Times continued: “Interviews with more than two dozen customers who had their money stolen through Zelle illustrate the weaknesses that criminals are using in targeting the network. While all financial systems are susceptible to fraud, aspects of Zelle’s design, like not always notifying customers when money is transferred — some banks do; others don’t — have contributed to the system’s vulnerability.”
Time to re-think Zelle? Not so fast. Three years ago I wrote a piece for The Street headlined: “Are Peer-to-Peer Money Transfer Apps Unsafe to Use? Worries Focus on Venmo.”
The story started this way: “The Internet has been abuzz for a couple weeks with chatter about documented cases of theft of money from accounts of users of Venmo, the p2p (peer-to-peer) money transfer app that had been the the fast growing darling of Millennials.
One user, in a story reported in Slate, had $2,850 looted from a Chase checking account.”
Sound familiar? Indeed, it sounds exactly like the Zelle growing pains. Regarding Venmo back then, PayPal told me they had moved fast to put in more security. File this under problem solved was their message.
Similar is getting said about Zelle. Lou Anne Alexander, head of payments at Early Warning which runs Zelle, told the New York Times: “When there is a problem, we and the banks are proactive. It’s not something we’re putting our heads in the sand about.”
A lot is riding on Zelle for the banks and credit unions that embrace it.
There’s no present reason for a financial institution to panic about Zelle. If fraud reports continue and multiply, by all means, get worried. But for now this all sounds like growing pains and there are enough grown ups in the room to put in the needed fixes.
Color me optimistic.