The Battle for the American Consumer - CUNA Mutual …/media/cunamutual/select-cu/public/...The...

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CUNA Mutual Group Proprietary Reproduction, Adaptation or Distribution Prohibited © CUNA Mutual Group

The Battle for the American Consumer Select Credit Union Council

Presented by:

Steve Heusuk

Sr. Manager, Competitive & Market Intelligence

September 26, 2014

Agenda

• Who are the players battling to provide financial products and services to American consumers?

• Why is customer centricity the common battle cry? • How can we achieve cooperative member centricity?

I. The Battleground

Financial Institutions

Retailers

Platform Players

New Entrants

Alternative Payments

Telecoms

Card Companies

Non-Bank Competitors

The Battleground

Savings Lending

Investments Insurance

Financial Services

Payments

Source: CUNA Mutual analysis

Key Competitors - 2014

New Entrants Telecoms

Retailers

Alternative Payments Source: CUNA Mutual analysis

Platform Players

Financial Institutions

Card Companies

Non-Bank Competitors

Case Study: Financial Institutions

• Banking • Get account balances • View account history • Transfer funds • Pay bills • Remote deposit

• Insurance • View policy details • Review coverages and

discounts • Get an auto ID card • Pay your premium • View past statements

• Investing • View real-time stock quotes • View market activity • Place a trade

• Advice and planning • Articles • Videos

Source: American Banker and USAA

Case Study: Retailers

Source: www.currentc.com

Case Study: Platform Players

Site: https://www.apple.com/iphone-6/apple-pay/

Case Study: Platform Players

Source: Google Ventures

Examples of financial services investments:

Building an open Bitcoin exchange

Online provider of loans to small businesses

Provides equity-based crowdfunding for

private consumer companies

Online alternative to payday loans

Mobile payments app with 1M users

Mobile payments solution for both merchants

& consumers

Online P2P lender with >$4B in originations

Case Study: New Entrants

Source: Lending Club

0100M200M300M400M500M600M700M800M900M

Q22011

Q32011

Q42011

Q12012

Q22012

Q32012

Q42012

Q12013

Q22013

Q32013

Q42013

Q12014

Q22014

Lending Club facilitated $1.0 billion in new loans in Q2 2014

Proliferation of Peer-to-Peer and Online Lenders

Source: http://www.orchardplatform.com/blog/

Case Study: Telecoms

• Marketed as a checking account substitute – Issuer is Bancorp Bank – Servicer is Blackhawk Network

• Combines a smartphone app (iOS or Android) with a branded prepaid Visa card

• No maintenance fees, minimum balances or activation fees

• Also, no fees for: – Bill payments – Remote check deposits – Withdrawals at one of T-Mobile’s 42,000 in-network

ATMs – Reloads at T-Mobile stores (non-T-Mobile customers

would pay additional fees) – Funds transfers to other T-Mobile Mobile Money users

Source T-Mobile

One View of the Future of Retail Financial Services

“We are moving away from a banking relationship defined by

the goal of being a customer's primary financial institution to

one where we focus on becoming their primary financial

application.”

- Brad Leimer, Head of Digital Banking, Mechanics Bank

Case Study: Financial Institutions

Crédit Agricole’s New App Store

II. Customer Centricity

Customer Centricity Bandwagon

Customer Centricity Defined

“A way of banking based on trust and fairness

that uses knowledge of customers to meet

their needs and achieve sustainable, valuable,

long-term relationships.”

- Boston Consulting Group

Why The Need For Customer Centricity?

Increased competitive pressure

Shifting product needs & channel preferences

Need for financial advice, tools and guidance

Declining loyalty / wallet share challenges

Consumers Want Financial Advice, Tools and Guidance

71% do not think their relationship with their bank is

advice or relationship driven, rather it is focused

on simple transactions

51% want their bank to proactively

recommend products / services which they

may find useful, taking into

consideration the accounts they already have

48% are interested in real-time, forward-looking analysis of

their spending

Per Accenture’s 2014 Digital Banking Survey of North American Consumers:

Declining Loyalty For Banks

Yes No, but I amplanning to

change

Have you ever changed your main banking provider?

2011 2012

One Two Three Four orMore

How many banks do you bank with?

2011 2012

Source: “The Customer Takes Control - Global Consumer Banking Survey 2012”, Ernst & Young, 2012. http://www.ey.com/Publication/vwLUAssets/Global_Consumer_Banking_Survey_2012_The_customer_takes_control/$FILE/Global_Consumer_Banking_Survey_2012.pdf

For CUs, Loyalty Does Not Translate Into Wallet Share

$3,000

$6,000

$9,000

$12,000

$15,000

Highly Loyal Members Less Loyal Members

CU Members’ Average $ in Outstanding Loans With CUs vs. Banks

Loans Outstanding with Credit UnionsLoans Outstanding with Banks

Source: “Loyalty Drives Profitability”, Credit Union Magazine, Aug. 2013

Total Loans Outstanding / Member by Asset Band

Source: NCUA 5300 Call Report data and CUNA Mutual analysis

Banks Responding With Customer Centric Positioning

Customer-centric, not product-centric

We start with what the customer needs—not with what we want to sell them. We also want to

offer our products to customers in ways that are most convenient to them.

Bank like you live

We’ve never thought of ourselves simply as a bank.

We’re really more like knowledgeable neighbors, the kind you invite over for a cup of coffee, seek advice from and chat with over the fence. And

we’re here to help you bank like you live.

When was the last time your bank made you feel valued?

At Webster, we’re more than your bank. We’re your partner. We work with you to understand

your needs, listen to your concerns, and help meet your

goals.

Source: Company websites

Peppers & Rogers’ Journey to Customer Centricity

Insight • Customer Data

Strategy

• Customer Segmentation

• Customer Behavior Prediction

• Customer Lifetime Value Analysis

• Retention Analysis and Prevention Strategies

• Campaign Analytics

• Segment Investment Planning

Strategy

• Corporate Strategy and Business Unit Strategy

• Customer Centricity Roadmap

• Portfolio Management Strategy

• Contact Center Strategy

• Business Planning and Feasibility Studies (Business Case Development)

Business Design

• Customer Experience Management

• Sales / Service Model

• Channel Management

• Distribution Network Management

• Sales Force Management

• Campaign Management and Marketing Programs

• Loyalty Programs

Capabilities Development

• Organizational Structuring

• Customer-centric Processes

• Business Requirements Gathering

• Performance Management

• Customer Centricity Metrics

• Cultural Change Management

• Business Change Management

Deployment

• Program Management Office

• Deployment Management

• Organizational Transformation and Alignment

• Training and Empowerment

Custom

er Focus Pro

Source: “Retail Banking: A Transformational Model for Growth Using a Customer-Centric Approach”, Peppers & Rogers Group. 2011. http://www.peppersandrogersgroup.com/DocumentDownload.aspx?Doc_ID=33296

III. Seven Steps to Cooperative Member Centricity

Seven Steps To Cooperative Member Centricity

1. Implement a data strategy

2. Understand members’ differentiated needs & behaviors

3. Anticipate and meet member needs

4. Adhere to a sustainable financial model

5. Deliver service excellence

6. Enliven member democratic control

7. Don’t forget about product & price

Step 1: Implement A Data Strategy

1. What data elements should be collected?

2. How long should it be retained?

3. Where and how should the data be stored?

4. How will the data be analyzed and used?

5. What policies / guidelines are needed to govern data use?

Big Data: Volume, Variety and Velocity

Source: “The Digital Universe in 2020: Big Data, Bigger Digital Shadows, and Biggest Growth in the Far East”, IDC, 12/2012

Velocity: Flow of data continues to accelerate

Variety: More sources /

types of data than ever

Volume: Amount of data

growing exponentially

Examples Of Applied Data

Source: “Customer Analytics Is Key To Growth In Banking”, Bank Marketing Strategy blog, June 6, 2013; IBM; Celent

Step 2: Understand Members’ Differentiated Needs & Behaviors

Segments can be defined by:

• Attitudes

• Behaviors

• Demographics

“Segmentation is the firm’s response to a fundamental

market feature – heterogeneity.” - Jerry (Yoram) Wind, Wharton School of Business

Segmentation process: 1. Define segments 2. Determine which segments

resonate with your value proposition

3. Target those segments

Example Of Attitudinal Segmentation

Segment X Segment Y Average Household Income

$105K $101K

Age (% 45+ years old)

56% 46%

Attitude About Finances I am in control of my finances (% agreeing)

98% 62%

Generally, I live from paycheck to paycheck (% agreeing)

14% 67%

% Having a Checking Account Through a: Bank 83% 72%

Credit Union 27% 33% % Obtaining Their Auto Loan Through a: Bank 19% 26% Credit Union 13% 14%

Average Savings / Investable Assets $236K $98K

Source: Ipsos; CUNA Mutual analysis Note: Above results are for illustrative purposes only. Findings are dated (2009). Significant difference are bolded.

Successful Segmentation

A successful segmentation should answer these questions:

• What is our share of wallet across segments today?

• Which consumer segments are most profitable?

• How should we prioritize the various growth opportunities within and across segments?

• What messages, product offerings and service levels will command the attention of our target?

Source: “Consumer Segmentation”, The Boston Consulting Group, 7/22/2008

Step 3: Anticipate And Meet Member Needs

Source: “Wells Fargo Beta Tests Cash-Flow Projection Tool for Consumers”, American Banker, 2/20/2012

• Predicts how customers’ financial situation will look 30 days out

• Leverages available customer data, e.g., scheduled bill payments and direct deposits

• Can augment with customer’s own data

Wells Fargo’s Cash Flow Monitor

Predictive Modeling: Wells Fargo’s Predictive ATMs

• 500 deployed across the country in February with all 12,000 Wells Fargo ATMs to be converted by the end of May

• Touchscreen ATMs with 5 customizable buttons based on the customer’s ATM usage and preferences

Source: “Wells Fargo ATMs Can Predict What People Want”, thefinancialbrand.com, 2/20/2012

Step 4: Adhere To A Sustainable Financial Model

Objective: Ensure your financial model supports sustainable growth for the long term Key: • Your cost structure and revenue model must support your

value proposition • Emphasize lifetime value of the member

– Treacy & Wiersema: Companies that excel at Customer Intimacy focus on customers that have deep relationship potential

ROE Represents The Sustainable Growth Rate

ROA Leverage ROE

Net Income Assets

Assets Capital

Net Income Capital

ROE = Sustainable Growth The fastest a CU can grow assets without affecting its capital ratio.

~ Inverse of Net Worth Ratio Profit Margin * Asset Turnover

Key Theme: Struggle to Achieve Scale

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013<$20M $20M-$100M $100M-$500M$500M-$1B $1B-$5B >$5B

Source: NCUA 5300 Call Report Data and CUNA Mutual analysis

Deep Customer Relationships

“Deeper, long-lasting customer relationships can

mean greater revenue, higher customer lifetime

value, lower relative customer acquisition costs

through lower churn, and greater share of wallet.”

- “How Customer Intimacy Is Evolving To Collective Intimacy, Thanks To Big Data”, Forbes.com, Joe Weinman, 6/4/2013

Step 5: Deliver Service Excellence

Baseline: Ensure you have the channels in place your members prefer Objective: Provide consistent, excellent service across all products and channels Measurement: Monitor member satisfaction in a way that is quantifiable and actionable

Building Sustainable Trust

“The consistency of the customer experience is key, because

consistency enables trust, and trust is a fundamental

enabling condition for the development of productive and

authentic relationships”

- Rita Clifton et al., Brands and Branding

Prioritization Is Key – Prof. Frances Frei Im

Low High

Performance Relative to Competition

1 2 3 4 5 1 2 3 4 5

Excellence Mediocrity

“If you try to be good at everything, you will run out of money long before you will succeed. Not a recipe for success.”

What have you decided to not be good at? Source: “Credit Union Financial Sustainability: A Colloquium at Harvard University”,

Filene Research Institute/Prof. Frances Frei, 2011 http://filene.org/assets/pdf-reports/231_Harvard_Sustainability.pdf

Step 6: Enliven Democratic Member Control

Democratic Member Control “Co-operatives are democratic organisations controlled by

their members, who actively participate in setting their

policies and making decisions. In primary co-operatives

members have equal voting rights (one member, one vote)

and co-operatives at other levels are also organised in a

democratic manner.”

- International Co-operative Alliance

Cooperative Principles: How Differentiating to Consumers?

Cooperative Principles Bank Analogues

Voluntary and Open Membership • American Express • USAA

Members’ Economic Participation • Discover Card 5% Cashback Bonus • Dollar Bank’s Rewards Checking

Autonomy and Independence • Community banks across the U.S., e.g., Bangor Savings Bank – Maine’s largest independent bank

Education, Training and Information • U.S. Bank – “Financial Genius” program • Bank of America – Financial education website

Cooperation among Cooperatives • Bank Innovators Council • The Clearing House

Concern for Community • U.S. Bank Foundation • B of A’s Susan G. Komen® Credit Card

Democratic Member Control • NONE for stock banks

Low Member Participation Has Long Been An Issue

Source: The Credit Union Bridge, Jan. 1956

Key Questions

• Is democratic member control a true differentiator? – If “Yes”, how can we build upon this competitive advantage?

– If “No”, what, if anything, could be done to make it a meaningful differentiator?

Step 7: Don’t Forget About Product & Price

Source: The Discipline of Market Leaders, Michael Treacy & Fred Wiersma, 1995

Cooperative Member Centricity

Middle ground of mediocrity: Trying to lead

on all fronts

Product Innovation Leadership

Operational Efficiency

Leadership

Customer Centricity

1) Requires Full Product Set Relevant to Customer Segments

2) Requires Competitive Pricing Based on Competitive Cost Structure

Customer Intimacy Comes Full Circle

“Customer intimacy begins with putting the

customer at the heart of the organization.”

Heena Jethwa, Senior Product Marketing Manager, IBM

Important Disclaimer

CUNA Mutual’s analysis is based upon certain publicly available information and data, including NCUA 5300 Reports, and is subject to risks, uncertainties and other factors which could cause actual results or performance to differ from the future results or performance expressed or implied in this analysis. We disclaim any representation or warranty, express or implied, as to the accuracy or completeness of our analysis, as well as any obligation to update our analysis. Each recipient should conduct its own independent analysis of relevant information and data, and should base any business decisions upon such independent analysis.

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