August 22, 2012

Credit Union Management magazine’s Web-only “Tech Time” column runs the fourth Wednesday of the month.

Making a phone call is the fifth ranking use of a smartphone. “How long will we call it a phone?” asked Brett King, author of Bank 2.0: How Customer Behavior and Technology Will Change the Future of Financial Services. King spoke at World Council of Credit Union’s 2012 Annual Convention in Gdansk, Poland.

Eighty-five percent of the population has a mobile phone while 60 percent of the world is unbanked, King said. Traditional financial institutions must take note that consumers in less developed countries leapfrog those in more developed countries in adopting new technology because they don’t have the drag of legacy systems. Examples:

• Poland’s card market is 80 percent contactless while the U.S. market is less than 5 percent.

M-Pesa, a mobile payment system, was launched not by a financial institution but by Safaricom, a mobile phone company serving consumers in Kenya. In some villages, residents share a mobile phone yet each has a sim card for making payments. In one month, M-Pesa now processes more transactions domestically within Kenya than Western Union does globally, and provides mobile banking facilities to more than 70 per cent of the country’s adult population,” according to the International Monetary Fund’s October 201 outlook on the African economy. (See a documentary about the program.)

• The United Nations has said Internet access is a basic human right.

The technological changes will continue:

• Within two years, 80 percent of the Chinese population will own a smartphone.
• By 2020 half of consumers will be GenY, and by 2015 70 percent of those young people will have started their banking lives by doing a mobile banking transaction. That is, before they do any traditional banking, they will first do mobile banking.
• By 2016 digital interactions at credit unions will outnumber those in branches.

All this will affect credit unions:

• CUs can no longer rely on branches for member recruitment or cross-selling. King predicts a 50 percent reduction in branches in the next five years.
• Credit card transactions are less secure than those on a mobile device, and companies like iTunes and Starbucks already have a large volume of mobile transactions.
• Financial institutions should rent rather than purchase ATMs, since younger consumers will have less demand for cash.
• Marketing messages via traditional channels like TV or newspaper ads have plummeted. Credit union leaders need to ask how they will get members.
  • Some financial institutions are experimenting with Apple Store-type branches or sales center branches without cash.
  • The best bank in the United States gets 800 views a week on its website, while Glitzy Glam, a fashion shopping site founded by two sisters, gets 1.7 million. Consumers “trust the crowd.” King recommended using YouTube instead of brochures.
• Mobile device location services can be leveraged. King shared examples of people shopping for a car or touring a home for sale receiving push information on loans from their financial institution. Advice needs to be where they are.

King encouraged credit union leaders in attendance to anticipate the changes. “This is financial inclusion.”

Barb Kachelski, CAE, is CUES’ SVP/chief operating officer.