future forces in technology: how to thrive in a world of...
TRANSCRIPT
Joseph H. Cady, CMCManaging Partner
(858) [email protected]
NAFCU 48th Annual Conference, 2015
JP Nicols, President, innosect
Future Forces in Technology: How to Thrive in a World of Digital Disruption
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Scope
CUs; 2021 & beyond (next 5-10 years)
Convergence of trends, thoughts, & forces at play in and with technology
Agenda: Future forces & relationship with technology; future of digital disruption, including threats and opportunities; possible responses
“Banking” terminology
Welcome your thoughts at end
Updated slides and related articles available
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Audience Poll
How impactful are/will the following digital capabilities be to your CU now and over the next 5-10 years?
– P2P/Marketplace Lending
– Digital only “Neobanks”
– Blockchain, BitCoin and cybercurrencies
– Digital payment and money movement
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Quotes“Banking is still a simple business. It’s the environment
around us that is now much more complex.”
– Strategist & futurist Joseph Cady
“A long and storied history provides little protection
against disruption.”
– Innovation expert JP Nicols
“In the next 10 years, we’ll see more disruption and
changes to the banking and financial industry than we’ve
seen in the preceding 100 years.”
– Author & Moven co-founder Brett King
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Five Future Forces & Impact of Technology
Regulation
Economy
Shifting needs of consumers & businesses
Competition
Technology
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Regulation
# of CUs in steady decline
– 6,398 CUs EOY 2014, down from nearly 8,000 in 2008 [CUNA]
– 3% annual decline for CUs; no hockey stick yet
– Regulation & competition are primary driving forces
– Technology requirements for competing also contributing
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Economy
Credit unions with lower earnings over past 15-20 years (graphic)
– Why?• Regulation• Competition (many with advanced technology)• Savvy members with available information from online technology• New normal needs
– Working harder & making less $
– Weak CU ROAs now back to pre-recession levels (.80), but forecasted to plateau [CUNA]
• Q1 loan growth 10.6% [Callahan]
• “No worries”?
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Credit Union ROA by Asset Size (Source: SNL)
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Shifts in Member Needs
Less need for traditional CUs & banks
– Younger generations more likely to shift to P2P & niche players (graphic)
– 75% of workforce will be Millenials by 2025 [PCBB, 4/15]
• 71% have little/no knowledge of CUs [CUNA, 2015]
• Use of technology generational dependent
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Younger Gens: No need for CUs?
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Technology
Role of & need for branches
– Sales, service, transactions, troubleshooting?
– With lower earnings & higher costs (FFF), can you afford B networks?• Member cost $390/yr.; 85% are money losers [C Nichols]
– Less traffic & need, as members transition to mobile/online• Traffic down double digits; 35% of market share in play [Gartner]
– Can’t afford/less need in future; must transition to tech based delivery• Lower costs• Educate & incent
– Must have branches? (AB graphic, 7/14)
• USAA; BofI• Importance of “safety”? (not selling)
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Still Branching After all These Years?
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Technology (cont’d)Negatives:
– Security risks ongoing• 70% of FI execs ID as major risk [McKinsey]
• Malicious software; denial of service; ACH acct. takeover; data leakage; 3rd party/cloud vendors; mobile/web apps; project mgt [FRB]
• Digital currencies: slow to gain traction among FIs & gov’ts (KYM)
– Risk of consumer backlash; “untrustworthy”• Need for basic, secure interactions & transactions• 62% of mobile banking non-users cite security concerns [FRB, 2015]
– Verification: who you are; not what you know• USAA: 3% of members using biometrics
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Technology (cont’d)
Positives:– A must to enable efficiency & low cost delivery
• Decision making algorithms: Better decisions; less people & costs
– Using big data to better ID & address customer needs• Mass customization of services, risk mgt., & pricing given exact needs
Current capabilities of marketplace lenders• Benefit must be apparent to member (know & suggest, like Amazon)
– Mobility at member’s convenience, not ours!
– Mobile payments• 68% growth per year [CUNA]
• Maintaining our role & relevance as a financial institution• Apple Pay/iPhone: No physical plastic; need app presence &
engagement (retirement planning) [C Nichols]
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Competition
Impact of non-traditional marketplace lenders
– Limited impact on market share yet; is it their time now?
– Been predicting impact for 20+ years (e.g., Market Share Task Force, 1994)
– Why no major impact yet on full service banking?• Scale• Complexities with CU/bank charter• Less $ in full service banking
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Competition (cont’d)
Digital Disruptors
– 71% of FI executives perceive as threat [PWC]
– PayPal, Moven, Quicken, Lending Club, Prosper, Google, etc.
– Corner bookstore, hardware, CU? (consumers’ advantage)
• Digitize banking; similar to music and books
• Banking: from physical to digital
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Competition (cont’d)
Digital Disruptors (cont’d)
– Niches thus far
• FEC: convenience advantage; but higher rates than CUs for prime borrowers
Most unsecured & credit card refinancing to millennials & underbanked
• Need partnerships w/ FIs to purchase or originate loans (+ volume), hold deposits, issue cards (friend or foe?)
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Competition (cont’d)Our future with digital disruptors
– POS competition
– Pick off profitable niches
– Meaningful competition in selected LOBs
• Quicken: 3rd largest in mortgage (4.9%), highest satisfaction [JDP] , fast approval times (18 days vs. 26 ave.)
• Interest in doing 2% auto & 4% mortgage loans? • P2P investor expectations?
– Real impacts beyond direct LOB competition
• Faster, easier required
• New ways of underwriting
– Evolution, not revolution so far. Pace of change?
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Threat of New Entry
Supplier Power
BuyerPower
Threat of Substitution
Competitive Rivalry
Porter’s Five Forces
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Threat of Substitution
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Rebar Stage
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Fintech is Hot
Our Maps Don’t Match the Landscape
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New Landscape
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Friend or Foe?
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So, What Does All This Mean?
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Our Own Kodak Moment?
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Credit Union Opportunities in Technology
Provide frictionless ease to members– Shift towards digital delivery
– “Stronger” competitor
Opportunity to redefine what it means to be a member (USAA)
Leverage data to create more personally relevant experiences
Retain members who leave service areas
Leverage affinity/not for profit advantage
– Commodity low cost/ low price/ low margin business
– Reestablish emotional engagement
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How Will You Respond?
Your priorities?
– Future forces in technology
– Imagine ideal institution of the future
– Gaps?
Positioning required?
– Short term
– Long term
Possible objectives & strategies?
Tentative time lines?
Changes to your business model?
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Credit Unions, Heal Thyself
“There are those who make things happen, those who watch things happen, and those
who wonder what happened”
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For More Information…
Joseph Cady
CS Consulting Group LLC
(858) 530-8250
www.CSConsultingGroup.com
JP Nicols
innosect
(425) 522-3579
www.innosect.com