How To Not Just Penetrate, But 'Embrace' Young Prospects

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Credit unions' lowest penetration rate is in the 18-to-24-year-old age group. But one expert says CUs can use technology to make inroads with younger people - and can do so in spite of limited resources.

Scott Klososky, an Internet entrepreneur, told a general session audience at the California and Nevada CU Leagues' Big Valley Educational Conference here people choose their primary financial institution by age 25, and the relationship lasts an average of 15 years. This makes it vital for credit unions to attract younger people, he said, because the average age of a CU member has risen steadily in the last two decades: from 40.4 in 1985 to 42 in the mid-1990s to 47 in May 2004.

Many credit unions assume they cannot compete with "Goliath" when it comes to technology, but Klososky said he has a plan for CUs.

"Citibank, Bank of America and Wells Fargo are huge institutions with huge IT budgets, and they can buy things many credit unions can't do," he said. "But, as Microsoft learned, small teams can do magic. Credit unions are less bureaucratic and can move faster than big banks."

Credit unions should use the "embrace and extend" paradigm, also known as "copy and improve," he continued.

"'Embrace and extend' sounds better, but the result is the same. Study every competitor in the financial services industry, regardless of persuasion, and learn how they do things. It is not necessary to spend as much as the big institutions because software is an art, not a science. The main thing is: credit unions have to be willing to innovate."

One example Klososky offered is the creation of a "member information sheet." He said CUs should ask members to answer a series of questions to obtain the name of their favorite restaurants, number of children, birthdays of family members and other personal details.

"Extend the relationship deeper than it is now by using technology. Put the answers in a database and use the information to provide benefits and services," he advised. "Send your members a birthday card and put in a gift certificate to their favorite restaurant. When people buy a new car, send them a coupon for a car wash, or a maintenance spreadsheet. All of this can be done automatically by electronic tools, and by doing these things, people will be less likely to leave their credit union."

According to Klososky, the problem with technology today is the dysfunction between the IT department that understands it and the executives who make decisions on purchasing it.

"Executives don't understand well enough to make wise decisions," he said. "And most employees don't understand how to use the technology the company has to make their jobs easier."

Klososky suggested companies should think of IT as plumbing. The information flow should work like water moving around the building. He said IT people should be able to use a white board to draw a picture demonstrating this flow, plus any dysfunctions.

A corollary to the plumbing/information flow diagram is the creation of a "single point of failure report." He said IT people should be able to let executives know where, if one thing breaks, everything in the "plumbing" breaks down. For example: if the router fails, all communication is down for a day. This will allow management to make better decisions.

One trend for CUs to keep an eye on is the increasing use of Web services. Klososky predicted other financial institutions soon will follow Countrywide's example and refuse to purchase new software unless it is Internet based.

"In five years, computers won't have hard drives or need installed software, because applications will be hosted online. Google just bought Writely to compete with Microsoft Word. It is online word processing."

Another development CUs can use to their advantage is industry utilities, he said. "One company will do services, and thousands of credit unions can buy into it. Also, be aware there are games people play using handheld devices that reward visits to certain locations, such as Starbucks. Credit unions should go to these game manufacturers and get built into the game."

CUs also can use the web to reach younger people by offering online financial education. Klososky suggested web-based tools, simulated bill pay and micro loans as a way to introduce kids to credit unions.

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