ACUC: More Sunshine, More Talk of Disruption
June 29, 2016 8:00 AM
SEATTLE Disruptionboth positive and negativewas on display at America's Credit Union Conference Tuesday, with intelligence from the man who brought us the Genius Bar and selling Tesla vehicles at the mall, to how the new NCUA chairman is disrupting some long-standing traditions at the agency, how "Brexit" is disrupting the economy and how conference host Credit Union National Association is looking to disrupt the way Americans think of credit unions.
Jim Nussle, president and CEO of CUNA, noted disruption is everywhere, in every type of marketplace: Netflix versus cable, Google versus everybody. Increasingly, he said, people are looking for instant gratification. They shop on Amazon Prime or use the "Dash" button to quick-order household goods. "What is going to be a Dash button for credit unions?" he asked.
"America's credit unions know their members," said Nussle. "They see them every day. I get frustrated being lectured by policy makers or by [CFPB Director] Richard Cordray about 'consumer protection.' Credit unions have been about protecting consumers before these people were born. I'm tired of these regulations being pushed down on credit unions."
But of even greater concern to Nussle is not the ever-growing compliance burden, but the burden of relevance. "I worry how we are going to maintain our relevance into the future," he told attendees. "I worry about delivering 360-degree advocacy along with our league partners. Second is awareness. I am tired of explaining what a credit union is. Not because I am not proud, but because people should know. Third, disruption. The biggest pain point for converting someone from a bank to a credit union is filling out forms, so perhaps technology can help us. Let's actually be the disruptors in the marketplace. Either we are going to be disruptors or we are going to get disrupted. Fourth, we have to grow. Growing is winning, to me. If we can't serve generations into the future, that is not success."
"America's credit unions know their members," said Nussle. "They see them every day. I get frustrated being lectured by policy makers or by [CFPB Director] Richard Cordray about 'consumer protection.' Credit unions have been about protecting consumers before these people were born. I'm tired of these regulations being pushed down on credit unions."
But of even greater concern to Nussle is not the ever-growing compliance burden, but the burden of relevance. "I worry how we are going to maintain our relevance into the future," he told attendees. "I worry about delivering 360-degree advocacy along with our league partners. Second is awareness. I am tired of explaining what a credit union is. Not because I am not proud, but because people should know. Third, disruption. The biggest pain point for converting someone from a bank to a credit union is filling out forms, so perhaps technology can help us. Let's actually be the disruptors in the marketplace. Either we are going to be disruptors or we are going to get disrupted. Fourth, we have to grow. Growing is winning, to me. If we can't serve generations into the future, that is not success."
George Blankenship has worked as executive with The Gap, Apple and Tesla Motors. During his two decades with The Gap, it was "embedded in me that as long as you take really good care of the customers, really good things happen." Steve Jobs offered him a job at Apple to develop Apple Stores. At Apple, his first step was to evaluate the challenge. He went to where Apple products were sold and stood there for hours. Roadblocks abounded, starting with consumer assumptions that Apple computers were only for those in the Apple "cult." Blankenship's solution was to "ambush" consumers when they are not thinking about a computer by opening stores in high traffic shopping centers.
In 2007 Apple brought out the first iPhone, which Blankenship said was the turning point for the company. "In 2000 people knew they didn't want Apple products. In 2007 people lined up for two days to buy an iPhone. People buy Apple products because they WANT them." Blankenship listed four keys to Apples success: innovation, design, simplicity and the ownership experience. "You have to keep people coming back. For credit unions, figure out how to make a long-term connection with your members. Let them know you are available and they are important. For Apple, it is the Genius Bar. The priority focus has to be on the experience. It is not enough to be good, you have to dig deep and understand the way things happen. Think about all the things you can do to help your members: pay for college, get a car, buy a house. Figure out what is driving them."
After six years at Apple, Elon Musk hired Blankenship in 2010. He was given the task of selling cars as Apple sells computers in malls. He worked for Tesla Motor three years, creating numerous Tesla Stores that radically redesigned the car-buying experience.
To reach Millennials, Blankenship said CUs need to know what they own is less important than what they experience. "They take selfies everywhere. You will know you have reached this group when they take a selfie at your credit union. Millennials want to be part of something bigger, so make them part of something bigger." Millennials also want to save time. They love shopping via Amazon Prime and Prime Now, he continued. "Be able to visualize innovating business opportunities. 'What ifs' are a way of life at Tesla What if shopping for a car could be made fun? Almost everything we did was considered 'impossible.' To change the world, sometimes you have to do the impossible. Impossible just means it has not been done yet."
If you try to push sales on people, they become defensive, Blankenship said, but if you engage them, if you create an emotional connection, then you get them involved. "Sometimes you have to explain why you are better, as Tesla did. Tell people why your credit union is better here, here and here."
Blankenship asked CUs to ponder a scary question: What if Amazon starts offering financial services to all of its Prime members worldwide? "Somebody is going to redefine your industry sometime in the next 10 years," he warned. "There is only one question: Will it be you?"
To reach Millennials, Blankenship said CUs need to know what they own is less important than what they experience. "They take selfies everywhere. You will know you have reached this group when they take a selfie at your credit union. Millennials want to be part of something bigger, so make them part of something bigger." Millennials also want to save time. They love shopping via Amazon Prime and Prime Now, he continued. "Be able to visualize innovating business opportunities. 'What ifs' are a way of life at Tesla What if shopping for a car could be made fun? Almost everything we did was considered 'impossible.' To change the world, sometimes you have to do the impossible. Impossible just means it has not been done yet."
If you try to push sales on people, they become defensive, Blankenship said, but if you engage them, if you create an emotional connection, then you get them involved. "Sometimes you have to explain why you are better, as Tesla did. Tell people why your credit union is better here, here and here."
Blankenship asked CUs to ponder a scary question: What if Amazon starts offering financial services to all of its Prime members worldwide? "Somebody is going to redefine your industry sometime in the next 10 years," he warned. "There is only one question: Will it be you?"
Rick Metsger, chairman of the board of the National Credit Union Administration, told attendees, "I am pleased to be the chairman of NCUA. The last few days, people have been wondering what the impact of Brexit will be. Of course, no one knows. The good news is, the financial system is so well capitalized for risk, there is no panic a far cry from what we saw in 2008. My job at NCUA is to make sure the system works in a conservative, safe and sound manner and is ready to serve."
Metsger said upon taking the reins at NCUA, he thought it was "very important" to move quickly on issues that are important to credit unions, "especially putting decisions back in your hands. We are not going to micromanage your decisions," he said to vigorous applause. "We are about to make massive changes to field of membership that will allow you to make decisions about your credit union membership on a board level."
Metsger said upon taking the reins at NCUA, he thought it was "very important" to move quickly on issues that are important to credit unions, "especially putting decisions back in your hands. We are not going to micromanage your decisions," he said to vigorous applause. "We are about to make massive changes to field of membership that will allow you to make decisions about your credit union membership on a board level."
Mike Schenk, CUNA's VP of economics and statistics, and Bill Hampel, chief policy officer, led a popular breakout session on the outlook for the U.S. economy and its impact on credit unions. Schenk said it would take months or years to determine the full impact of the vote by Britain to leave the European Union. "The short-term impact will be a great deal of uncertainty," he said. "No one knows what the future will look like, and we will not have any clarity for a while. We are in for a wild ride. There will be interest in buying Treasury securities, which will keep interest rates down and the U.S. dollar up. Having said that, we have not changed our quarterly economic forecast that much. Biggest change probably will be in the Federal Reserve's actions, which probably will be put off."
CUs should continue to expect modest economic growth, tame inflation and labor markets near full employment, Schenk advised. He said to expect 2.25% GDP growth in 2016, followed by 2.5% in 2017. That will be lower than the 2.6% average since 1980, and lower than most recoveries. Expect 2.0% inflation in 2016 and 2.25% in 2017. "As long as inflation remains low, the Federal Reserve has wiggle room to increase short-term interest rates at a modest pace," Schenk said. "The headline numbers obscure a lot of the pain and suffering in a lot of American households."
CUs should continue to expect modest economic growth, tame inflation and labor markets near full employment, Schenk advised. He said to expect 2.25% GDP growth in 2016, followed by 2.5% in 2017. That will be lower than the 2.6% average since 1980, and lower than most recoveries. Expect 2.0% inflation in 2016 and 2.25% in 2017. "As long as inflation remains low, the Federal Reserve has wiggle room to increase short-term interest rates at a modest pace," Schenk said. "The headline numbers obscure a lot of the pain and suffering in a lot of American households."
CUNA's Bill Hampel said credit unions should expect "only moderate" savings and asset growth 2016 into 2017. "When interest rates do start rising and Brexit probably pushes that back several months then money market rates will go back to being attractive," he said. "Loan growth has been strong because more jobs means more spending. Loan delinquencies and losses are back to normal."
Hampel foresees a "mixed outlook" for CU net income, but stable or rising net worth ratios. "Lower provision expenses have driven earnings over the past few years, but that is just about done," he warned.
Turning to the Temporary Corporate CU Stabilization Fund, Hampel said CUs have paid $10.4 billion of estimated $14 billion to $16 billion. The current loss estimates are down to $7.2 billion to $8.8 billion, therefore, CUs have overpaid from $1.6 billion to $3.2 billion. The good news: a refund is coming. The bad news: not until 2021. Will be a "very substantial" refund, possibly 20% of assets.
Hampel foresees a "mixed outlook" for CU net income, but stable or rising net worth ratios. "Lower provision expenses have driven earnings over the past few years, but that is just about done," he warned.
Turning to the Temporary Corporate CU Stabilization Fund, Hampel said CUs have paid $10.4 billion of estimated $14 billion to $16 billion. The current loss estimates are down to $7.2 billion to $8.8 billion, therefore, CUs have overpaid from $1.6 billion to $3.2 billion. The good news: a refund is coming. The bad news: not until 2021. Will be a "very substantial" refund, possibly 20% of assets.
Net interest income is slightly better than it was in 2013, but down significantly from the early 1990s, Hampel said. "Credit unions have been forced to come up with other ways to generate income in recent years, but eventually net interest income will come back up. There might be a small mortgage re-fi boom in the next month as rates have gone down again."
Debit interchange revenue will be "whittled away to next-to-nothing" over the next 10 years due to technology, Hampel predicted, adding this will affect all depository institutions, not just CUs. "If I was on the board of a credit union, when interest rates start rising, I would try to hold down the interest paid on a checking account."
For ROA, 80 basis points today is "the new 100," Hampel said. Because inflation is so low, a CU that grows 6% a year needs only 8% topline growth. "Capital is being less devalued by inflation," he explained.
Debit interchange revenue will be "whittled away to next-to-nothing" over the next 10 years due to technology, Hampel predicted, adding this will affect all depository institutions, not just CUs. "If I was on the board of a credit union, when interest rates start rising, I would try to hold down the interest paid on a checking account."
For ROA, 80 basis points today is "the new 100," Hampel said. Because inflation is so low, a CU that grows 6% a year needs only 8% topline growth. "Capital is being less devalued by inflation," he explained.
