NEW ORLEANS — Credit unions: don't be like Blockbuster.
That was the message from Sally Myers and Rob Johnson, two of the four owners of Phoenix-based c. myers corporation. They warned attendees of the CUNA CFO Council's Annual Conference here to always be aware of threats.
In 2004, Blockbuster had 9,000 stores and $5.9 billion in revenue. Just nine years later, in 2013 the company was down to 300 stores and $120 million in revenue. What happened? Netflix and Redbox happened.
But the better question, according to Myers, is: What did Blockbuster do wrong?
The now-defunct company mistook its delivery system for content, she said. More importantly, Blockbuster "did not realize the battlefield had changed — it was no longer competing with other video stores. In the financial industry, there is threat after threat after threat. But threats can be turned into opportunities."
Added Johnson, "Blockbuster tried to compete. It came up with its own streaming service and it added blue kiosks in front of its stores, but it still had huge operating expenses with all those physical facilities."
"The earlier you see pressures, the earlier you prepare for them, the better. Don't be like Blockbuster," Johnson advised.
Forward-Thinking Meetings
Chief financial officers can help their credit unions identify threats ahead of time, and bring the rest of the team along, Myers noted.
"The point at which you address a problem is directly related to the number of options you have to solve it," she said. "Credit unions will have to make changes to keep a relevant business model that is differentiated from the competition."
Myers suggested improvements to ALCO meetings by changing them into forward-thinking meetings — by "rehearsing tomorrow today" rather than the meetings being "history lessons." She said all participants should estimate and simulate financial implications of different scenarios.
"Nothing happens in isolation, so combine events," she said.
For example, attendees were given a potential future scenario: it is 2020, and Apple and Google have acquired bank charters. This is causing intense competition for deposit and loan volume. What would that mean for traditional FIs?
The answer: the entry of Apple and Google into the financial space would impact just about every area. Johnson noted share drafts could reasonably be expected to decline to 5% of assets, as could regular shares.
"That could mean aggressive pricing," he warned.
Wary Millennials
Meanwhile, millennials now number 84 million, and surveys have found 53% do not think their financial institution offers anything different than competitors. Another scary fact: 71% of millennials would rather go to the dentist than listen to what CUs and banks are saying.
"They are saying it is painful to do business with a credit union or bank," Myers assessed.
Nearly 75% of millennials say they would be more excited to see financial services provided by Google, Amazon, Apple, PayPal or Square. According to Myers, this tells CUs they need to be aware of the threat.
"Google Wallet funds are now FDIC-insured, this is a sign the battlefield is changing," she said.
Millennials are twice as likely to choose non-traditional payment companies than someone older than 50 — because it is easy.
Myers asked CUs to ponder a future if Millennials are cautious of owning homes. She noted 63% of Millennials do not have a credit card, compared to 35% of adults 30 and over. Some 23% of Millennials have only one credit card.
"This is an opportunity for innovation," she said. "Give them counseling, let them know they do not have to be afraid of credit — swipe it and pay it off. Show them the importance of building their credit score for when they want to buy a car."
Myers said Gen. George Patton had a very important quote: "If everyone is thinking alike, then someone is not thinking." She said CUs need to take this to heart and use every opportunity to plan for different future scenarios in their planning sessions.
"Have a strategic discussion; make it a debate," she said. "Often people do not want to be 'naysayers,' but these meetings will need people to argue both sides."
The only unacceptable answer, she said, is, "We have time. We will figure it out later."
"Do not underestimate changes in the battlefield, as Blockbuster did," she said. "Changes take place little by little, and one day companies wake up and they are non-competitive."
