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The CU2.0 Podcast
This podcast explores contemporary, critical thinking and issues impacting the nation's credit unions. What do they need to be doing to not just survive but prosper?
The CU2.0 Podcast
CU 2.0 Podcast Episode 351 Jack Henry's Lee Wetherington on What Credit Union CEOs Think Really Matters -- and What in fact Really Matters
This show started out as an exploration of Jack Henry’s 7th annual Strategy Benchmark Survey where CEOs of credit unions and banks reveal what really matters to them. It’s a data trich survey, there’s a link in the show notes and I say that because the talk with Lee Wetherington – Senior Director of Corporate Strategy at Jack Henry quickly veered into what’s happening in Washington DC and how changes - especially at CFPB - may impact credit unions.
Along the way we discuss how this is an age where data rules, open banking is coming at you ready or not, you probably don’t know your members nearly as well as you think, and small business relationships probably aren’t what you think but they may well be critical to the future of many credit unions.
Does that spicy stew have your taste buds dancing with excitement? It should because this is a show that plunges into the unexpected but it’s stuff you need to know about banking tomorrow.
Listen up.
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Welcome to the CU2.0 podcast.
SPEAKER_02:Hi, and welcome to the CU2.0 podcast with big new ideas about credit unions and conversations about innovative technology with credit union and fintech leaders. This podcast is brought to you by Quillo, the real-time loan syndication network for credit unions, and by your host, longtime credit union and financial technology journalist, Robert McGarvey. And now, the CU2.0 podcast with Robert McGarvey.
SPEAKER_00:This show started out as an exploration of Jack Henry's seventh annual strategy benchmark survey, where CEOs of credit unions and banks reveal what really matters to them. It's a data-rich survey, and there's a link to it in the show notes. I point out that link because the talk with Lee Wetherington, senior director of corporate strategy at Jack Henry, quickly veered into what's happening in Washington, D.C., and how changes, especially at CFPB, may impact credit unions. Along the way, we discuss how this is an age where data rules. Open banking is coming at you, ready or not. You probably don't know your members really as well as you think, and that's a fact. And lastly, small business relationships probably aren't what you think. They may well be critical to the future of many credit unions. Does that spicy stew have your taste buds dancing with excitement? It should, because this is a show that plunges into the unexpected, but it's stuff you need to know about banking tomorrow. Listen up. So in this report, there's a note about the CFPB changes in that, how that is changing a whole bunch of things.
SPEAKER_03:It is,
SPEAKER_00:yeah. And... A, what's it changed, and B, have things gotten more in flux because of the uncertainties around NCUA, et cetera, et cetera?
SPEAKER_03:Yes and yes are the short answers to those questions. Are we recording yet, or is this just prep
SPEAKER_00:talk? Oh, I never do prep, man. I just get into the thing.
SPEAKER_03:Okay, yeah, so the short answers to both is yes and yes. For my money, Robert, I think that the biggest strategic blind spot in the moment we're in is the impact of this regulatory upheaval that we're in the middle of, but specifically and particularly what's happening with the CFPB. You know, the top line, and I can speak to this because we asked our CEOs in the benchmark survey about their concerns. And this was the first time, I think, in the history of our seven-year benchmark where regulatory burden, regulatory legislative concern did not break the top five. It fell off the map. And in fact, last year, 30% of our CEOs named regulatory legislative concerns a top priority, whereas this year only 15% did. So it dropped by half. And that's understandable given the superficial take of where we are, right? A lot of folks, credit unions and banks for that matter, a lot of issues with the CFPB, with the overreach of Director Chopra, et cetera. So if you're just kind of skimming across the headlines, you think, well, the CFPB is now being gutted, it's being defanged. At the beginning, we had Elon saying it was gonna be deleted wholesale. So it suddenly fell off the map of top concerns for most financial institutions. Unfortunately, the CFPB, And in specific, one of the most recent rules that it put into effect on January 17 is setting the stage for a structured approach to open banking in the United States, right? So this is the personal financial data rights rule, or 1033 as we sometimes refer to it. Given that that rule is about financial data exchange in the United States, and given that data is at the base of everything, interesting, compelling going forward. For financial institutions to suddenly think they don't need to be paying attention is really, really dangerous. In fact, if you're a financial institution, a credit union below 850 million in assets, you're technically exempted from the personal financial data rights rule. And so we're seeing a lot of financial institutions take that and some other flags in terms of what's going on in and around the dismantling of the regulatory apparatus as a sign to sort of just sit on your hands until you see how everything plays out. Whereas the most progressive players, this is both chartered and non-chartered in the financial services space, are seeing this as an opportunity to get really aggressive with data plays with data strategy with data aggregation because those players understand that the winners of these data wars that are ongoing right now are the ones who will be so far ahead of everybody else in the three to five year frame that it will be difficult for everybody else to catch up and so this is again i think the biggest strategic blind spot Credit unions and other financial institutions are taking their eye off the ball when it comes to regulation. I should say this, banks more so than credit unions. Credit unions are suddenly paying attention because their tax exempt status is on the line. So I think since GAC, that has been front and center for credit unions. And so they're paying attention to what's going on in D.C. because that is an existential threat to most credit unions. Now, we can talk about that if you like. But This writ large to me is the biggest blind spot, strategically, is thinking that, great, Trump is giving the regulators hell. We're gonna see a softening of supervision systemically. We don't necessarily have to worry about that regulatory front for a while, when in my view, it seems to be maybe the single most important thing you should be worrying about, especially if you look closely and lean in and know that sitting on President Trump's desk right now, are rather two CFPB rules that had not yet gone into effect, but are being rescinded outright by Congress and got voted on by both the Senate and the House. One is the cap on overdraft fees, right? Everybody was really, really concerned about that cap. So great, that rule has been rescinded. Trump's gonna sign that any day now. But the other rule sitting on his desk is the one that is really, I think, even more important, perhaps, than the recension of the cap on overdraft fees, and that is the recension of the CFPB's official assertion that it has supervisory authority over non-chartered big fintechs, payment apps, digital wallets, etc. Back in In the December, January timeframe, my friend Ron Shevlin at Cornerstone fielded a survey. He asked the credit unions and the banks in that survey, who is the competitor of most concern? Which competitor or category competitor presents the greatest threat to your franchise? And the overwhelming response in that survey was big fintech. So I say that now to contrast what's about to happen when President Trump signs the recension of that second CFPB rule, it's basically giving fintechs, the competitors, I think, and in my own view, these are the most threatening competitors to chartered credit unions and even banks are these big fintechs. And so they're now looking at a four-year run, a four-year stretch at a minimum in which they can really stretch their wings and compete without any kind of material federal scrutiny being brought to bear on them. And in fact, the new lawyer for the CFPB recently said, hey, after we get finished gutting the CFPB, the 200 employees that will be left, they're going to be focusing 70% of their time and attention and scrutiny on traditional financial institutions, that is to say credit unions and banks. And specifically, they're not going to be supervising or looking at or scrutinizing FinTech in any way. So this to me is a really ironic twist. It's a turn that I think most financial institutions have not yet paid attention to because again, they're focused on other things thinking, They don't have to worry about the regulatory environment or burden the way they have in years past.
SPEAKER_00:I agree with that. For some years, I've asked credit union CEOs who their competitors are, and they give the obvious answer, and it's wrong in every case. Is the credit union down the street? Is the community bank down the street? No, man, it's not. It's FinTechs and it's JPMorgan Chase. Exactly. If you don't measure those entities, you just don't get the game. Look at the home mortgage market, which used to be owned by banks and credit unions. Now it's owned by Rocket Mortgage, etc.
SPEAKER_03:Yeah. And, you know, Robert, your point is validated by our strategy benchmark. When we asked about competitors of note, our bank and credit union CEOs both pointed to each other. As the primary competitor of note, not the big fintechs, not the big techs who have different financial services and digital wallets that they're bringing to bear that look and feel and smell like what a credit union would offer. They're pointing to other community financial institutions. And I think you're exactly right. I think that is a very, very big blind spot. By the way, let me mention something that I think is also not fully understood in the industry quite yet. And that is this question of Gen Z, you know, credit unions for, I mean, for as long as I can remember, every year, it's, you know, you ask them about their top concerns. Typically, they're in the top three is new member acquisition. Right. Because the membership is graying. And what are we doing to backfill members that die off with new membership coming in?
SPEAKER_00:This started with millennials. Not much progress was made with millennials. So now the focus is on
SPEAKER_03:Gen Z. Now it's on Gen Z. And the reason why the focus is on Gen Z is because Gen Z is in that window in which Americans historically. decide who their primary financial service provider is gonna be. Gen Z is still in that window. Now, what is not understood is that over the last two years, you mentioned Chase, basically Gen Z in terms of financial service provider relationships has been dominated by the big banks, the mega banks. That has begun to turn in the last two years. Not a lot of people understand that, but big bank grip on Gen Z has has loosened in the last two years. And you see those numbers beginning to come down. Now, the question is, where are those displaced Gen Zs from big banks? Where are they going? Well, they're not going to credit unions. They're not going to community banks. They're going to payment apps. In fact, many of them think that payment apps are banks, right? Or are the equivalent of a credit union. Two things are happening at the same time. One, Gen Z is still in play. in terms of staking them for primary financial service provider status. But at the same time, they're being drawn to the payment apps. And then if you read that correctly, you would understand that also Gen Z is the most payment intensive generation. They create and generate, originate more payments per capita than by far, than any other generation. So if you're hoping to get a toehold If you're hoping to acquire Gen Z, the one thing you have to get done well and right is payments. It's got to be easy. It's got to be fast. It's got to be a no-brainer box that you can check for Gen Z. Moreover, if you're looking to acquire them, you've also got to get the account opening done right. And what I mean by that for Gen Z specifically, this also goes for Gen Alpha, by the way, which we're beginning to have conversations around them too. If you want to acquire new members in that Gen Z spot, by the way, even whatever's left of Gen Y for you to grab and Gen Alpha coming up, you've got to have sub three minute mobile only account opening that doesn't require any kind of manual KYC process that they have to thumb through. And otherwise they will abandon whatever other flavor of account opening you're offering or
SPEAKER_00:attempting. Now you just told 95% of credit unions don't even bother. You're not going to get any of those customers. No, no, no. They do not offer sub-three-minute mobile account opening. This is the rub. Essentially, you just said, hey, guys, I mean, hang it up. No,
SPEAKER_03:I'm
SPEAKER_00:not
SPEAKER_03:saying that. frictionless money movement between accounts, that and among accounts. That's what Gen Z is. If you look at just their behavior, their money behavior, that's what they want. So no, I'm not saying that. In fact, if anything, I'm saying now that this is a known formula. Understanding the type of mobile-only account opening that I just described, that is a known formula. It is not beyond the grasp of any credit union. You can do that, but once they're in the door, or actually sometimes even to get them to come through the door, you have to make payments easy, effortless. You have to make sure that they can still use, not only use all the disparate payment apps, fintech apps, Coinbase, PayPal, Venmo, Cash App, whatever. But what you want to do through open banking, this gets back to 1033 and the personal financial data rights rule. You want to be leaning into that rule. You don't want to be waiting on your official compliance deadline in 2028 or 2029 as a credit union before you begin really fully plumbing your digital banking platform into these open banking rails. So that, why? So that you can be first and best at asking your members for permission to aggregate all of that information across those disparate financial service providers and apps back to credit unions so that through that one pane of glass at the credit union, they can not only see where they stand across all of those apps, they can move money in and among and between those apps at will from the credit union focal point. That to me is what we call achieving first app status. And that should be the strategic goal, especially if you understand the importance of data and what must be done in the context of this otherwise hopelessly fragmented financial ecosystem in which the average member has relationships with between 15 and 20 different service providers, apps, et cetera.
SPEAKER_00:Yeah. Yeah, I mean, to me, that's the biggest change in my lifetime was that for many, many, many generations, people had monogamous relationships with financial institutions. Now it's total polygamy.
SPEAKER_03:I agree with you. I've been around a while myself, Robert. How we got here is also really interesting. It's this paradox where over a decade, a couple of decades- you find yourself in these specific situations with specific people in which specific amounts of money need to change hands. And there's one app that we'll do that best for that particular situation. So in that situation, it's okay. You two have Venmo. I don't, I'll download Venmo. Now we can move the money between and among each other, right? And then you fast forward and then it's Cash App and you fast forward and then it's Zelle. Then you fast forward and then it's PayPal and you fast. And so this is what I call the aggregation of spot conveniences. actually in the end, cumulatively result in absolute inconvenience. You've got money, little bits of money spread out over all of these disparate apps and providers. And 70% of the American population are not financially healthy. That is to say, in order to ensure that an upcoming payment event or bill payment or financial obligation can be met, they're skirting across a handful of those apps in which they have small amounts of money. And they're logging in, by the way, it's three seconds. They average a three second login in each of these financial apps. Average smartphone has 14 financial apps on it. They're logging into each of those for three seconds to figure out what the balances are in each of them respectively. They're doing back of the napkin math to figure out how much money that is. And then they're desperately figuring out how much of that money they can move as quickly as possible to wherever the bill payment is going to happen or the financial obligation is going to draw. It's just a nightmare for the average person. But it's weird that we got there out of pulling the trigger on these spot conveniences. And now it's this complete opacity that prevents the average person in the United States from really understanding where they are with their money in any given movement. That's what's so powerful about 1033 is it finally standardizes and makes more secure the APIs by which financial data gets exchanged. And it also eliminates the scourge of our industry, which is sharing your credentials with third parties to do screen scraping. That, to me, is actually the first biggest benefit that we're all going to get by fully plumbing into these standardized, more secured open banking rails.
SPEAKER_00:And that is the future of banking. And credit union executives, I think, have to embrace that and say, like it or not, this is the future.
SPEAKER_03:Right. You have to recognize that we have already been in the open banking era for a while. But in my view, it's just been consecrated by the structure provided by the PFDR from the CFPB. And then we quickly get into questions about politics and whether or not the CFPB survives. And what that means. So a couple of points on that, Robert, just to make sure your listeners are clear. Rule 1033, the personal financial data rights rule, it went into effect on January 17. So it carries the weight of law. The only way that rule gets rescinded is if Congress, like it did with the The cap on overdraft fees and with rescinding the CFPB's assertion that it has supervisory authority over non-bank fintechs and payment apps, etc. That mechanism, the CRA mechanism at the congressional level is the only mechanism by and through which the PFDR could get rescinded. So the question then is, what are the odds of that happening? And the odds of that happening are very, very slim for the following reasons. One, the open banking rule, that personal financial data rights rule enjoys broad bipartisan and bicameral support in DC. Two, the megabanks that we were talking about just a moment ago have poured extraordinary resources into building out their own open banking infrastructure and building out also a standard for financial data exchange called, by the way, the Financial Data Exchange or the FDX standard, right? They are loathe, the megabanks are loathe to see those investments wasted or go by the wayside by rescinding the CFP CFPB's 1033 rule, PFDR. So for that reason, I don't think that we will see a recension of the PFDR, the 1033 rule. We will see revisions to that rule. Now, the real question there comes into who's going to take the CFPB through the public rulemaking process to even do the to PFDR. If there's only going to be, depending on what happens in the courts, if there's only going to be 200 people working at the CFPB versus 1,700 people working at the CFPB, I don't know that you have enough people there to take any rule through a public rulemaking process very effectively, much less quickly. There's a lot of things up in the air, but I don't think this rule is going anywhere. It lays the basis for this data-driven era of financial services. And so those who... don't have these blinders on and can see there's so much chaos and drama and flux with this administration that it's easy to get distracted and more specifically it's easy to just sit on your hands to wait wait it out and see how it all plays out my concern for most credit unions is that if you do that it's your death now if you do that and you wait these data wars are going to be won and lost by the time your compliance deadline in 2028 or 2029 rolls around. So that was a really good first question that you asked, Robert.
SPEAKER_00:You mentioned briefly, let's elaborate a bit on this, credit union tax exempt status. What do you see as the future for that?
SPEAKER_03:My little birds in DC tell me, I do not see all credit unions suddenly being taxed. I don't see that.
SPEAKER_00:What I've said to credit unions for a generation now is, 90% of you don't make enough money to be taxed. Hire a decent accountant, you'll be fine.
SPEAKER_03:I think you're right. Now that gets to a point that I think about a lot, which is, especially if you look at all of the credit unions below 500 million in assets, right? You look at their... Key performance indicators, you look at their ratios, they're already skating on very thin ice. So suddenly to have their federal tax exempt status taken away would be anywhere from a 15% or higher hit to the bottom line. They can't afford that. It falls apart. It's an existential threat. I would say not even for just those smaller credit unions, but even many others that are larger than that. They're not accustomed to the sort of profitability discipline, for lack of a better phrase, that shareholder-driven organizations like banks do. you know, have to master as a matter of course. So it would be a, like I said, I think an existential painful, I ran some analysis on this a couple of months ago. I think you see a thousand credit unions, you know, and again, this is if suddenly all credit unions lose their tax exempt, federal tax exempt status. I think you lose a thousand credit unions within a very short amount of time to consolidation and
SPEAKER_00:acquisition. Yeah, that's interesting because I've talked to some people now who are predicting that if the tax exempt status goes, what will happen is there'll be two tiers of credit unions. There'll be the big ones over a billion dollars, maybe over like 3 billion. And then there'll be the little tiny ones under 250 million and the middle will get hollowed out. There'll be a lot of mergers. They'll just close shop, more likely merge one way or another with big ones. I had never thought of that. But when I started to hear it, I said, and these are well-informed credit union people. There might be some truth.
SPEAKER_03:There might be. And I think that's a valid forecast. Now, back to the point, I don't think all credit unions are going to lose money. tax exempt status. I just politically don't think that that can be pulled off even by this particular Congress and administration. Why? Because there's 140 plus million credit union members around the country. I mean, in some cases, you begin to wonder whether this administration really cares about political damage that it does to itself. But I think even that is a
SPEAKER_00:Well, aside from the administration, there's people who have to run for House seats. That's right. In 2026. I'm looking at this polling data. I don't care how MAGA I am. I'm looking at this polling data saying, I got to run in 18 months or something, man. It's bad. Yeah,
SPEAKER_03:that's exactly right. So back to my little birds in D.C., my connections sort of inside the Beltway tell me that If anything happens on this front, it's going to be a tiered targeted approach to elimination of the tax exemption for credit unions, either over a billion or maybe it might be higher than that. But even if it was just credit unions above a billion in assets, I mean, that's still what a few hundred credit unions out of the four billion. 4,400 or so that are out there. And there's a case to be made for that. Well, they're more akin to the size of average banks now. They behave more akin to the way banks behave, so let's tax them the same way. The thing that I think a lot of folks don't understand that are not inside the credit union industry is how the tax structure is is related to the ownership structure, is related to that ownership structure being tied to local communities and geography. So removing one of those things and still having, suddenly taxing them, but they still have the other two constraints, again, is an existential threat, especially to credit union leadership and boards who aren't used to managing for sort of bottom line positions efficiency or trying to managing around maximizing revenue, return to shareholders, etc. They're just trying to maximize, you know, the way I try to bottom line this for people who aren't familiar is, you know, banks are structured literally to maximize return to shareholders, whereas credit unions are structured to minimize costs to member owners. And so these are two completely different kinds of mindsets and approaches to management And it would be a huge monkey wrench to adjust to, to recover from for those credit unions who might, again, in those higher asset tiers, suddenly have their exempt status taken away.
SPEAKER_00:Now, what people who know a lot about credit unions tell me, were the big credit unions to lose their tax exempt status? And let's say it's$10 billion and above, just a fairly select group.
SPEAKER_01:Sure.
SPEAKER_00:Many of them would choose to demutualize as quickly as they could learn to spell demutualize. Right.
SPEAKER_03:I think you're right. The real question would become what advantage, if that happens, for those credit unions above$10 billion in assets?
SPEAKER_00:As one CEO said to me, we'd have to change our entire business model. to function in a world where we're paying taxes. And he wasn't really- In other words, we have to function exactly like a bank. Exactly. So if we're doing that, why don't we become a bank?
SPEAKER_03:Why not become a bank? Yeah, I don't see, the math doesn't make sense. If you suddenly are having to pay taxes, but don't have, but suddenly still have, and still have to maintain your sort of cap on ability to raise capital, That makes no sense. Now you're hand tied against the banks and other entities that you're competing against. So why would you do that? I don't think you would. I think you'd see mass conversion of those credit unions to bank charters. I
SPEAKER_00:think we'd see more of the very large mergers, which Jack Henry has a role in First Tech and digital credit unions. Right. Which when that was announced, it was like an earthquake. It's like two big, healthy credit unions doing this.
SPEAKER_03:Right. You don't see that. It's a it's a it's rare. That's a that's a rare thing. But it may become a more common thing for sure.
SPEAKER_00:And particularly if they lose tax exempt status or so I hear. Because now suddenly you need real scale to compete with with the big boys on the block. Which is
SPEAKER_03:interesting. That was the number one. finding. That was in aggregate. Now, if you put all of the bank CEOs and the credit union CEOs who answered our benchmark, in aggregate, the number one strategic priority for 2025 and 2026 is efficiency. The credit union world doesn't think about efficiency in the same way. In fact, you don't even see efficiency as an
SPEAKER_00:official sort of track. In a credit union, you have a big AI initiative. And I've And you say to the executive who's implementing this, well, let's lead to staff reductions. They go, no, no, no, no staff reduction. Then they usually say, well, you know, there'll be normal attrition. And we won't fill those positions. But the idea of firing someone is anathema. JPMorgan Chase does it routinely. It's like Jamie Dimon flossing his teeth. You don't want to do it, but you do it. Exactly.
SPEAKER_03:That's exactly right. And it gets to those disparate mindsets between a bank structure and a credit union structure. You're absolutely right. Now, the one asterisk to that is that even in the seven-year history of our benchmark... Credit unions, relative to banks, have always given outsized investment to data analytics, automation, and even newer, later forms of AI. ML has always been big. Why? The reason why credit unions have to actually use those tools is because, historically, they're much less efficient. That is to say, they're issuing a greater volume of lower dollar retail loans relative to banks that have a commercial focus are originating fewer, higher dollar loans to commercial entities. So for every dollar originated, a credit union really has to be intentional. And that is, another way of saying that, is efficient to ensure that they can get as much cost basis out of every dollar originated to their retail members as possible. So we've seen that. This is the first year, in fact, this year in 2025 that we've seen on the bank side of our survey, we saw a double digit increase for the first time in bank CEOs declaring that they were going to increase investments dramatically. in AI this year. I think that to me is an indication of everybody beginning to wake up to the fact that we're in this data-driven era. And this is another hilarious point. I should say hilarious. It's probably a little judgmental. On the front end of our survey, we ask to describe or characterize your posture, your credit union's posture relative to technology. We ask the same thing of banks. We ask the same question of everybody. And I think it's something like over 60% said, we're a fast follower. You've got 20% who are kind of sober and honest and say, well, we're laggards. But most everybody says we're a fast follower. I don't think it's possible to even be a fast follower where we are in this transition to the data-driven era, because what's happening now is if you see a really sexy AI-driven product or feature come out from a competitor and you go, all right, well, let's go just buy that off the shelf and put that in at our credit union. It doesn't work that way anymore. You have to have the right data in the right form and the right place available in real time to feed the particular model or models that are behind that particular feature, product, or service that you saw that was so compelling. So suddenly the advent of AI has backed the entire industry for the first time into having to get really serious and sober and smart about data and about data strategy. And most of them have never uttered the phrase data strategy, much less have it be a regular mantra in their board meetings.
SPEAKER_00:But JT Morgan Chase, Jamie Dimon's mantra is data strategy, data strategy. Other people are saying, ah, he's saying data strategy.
SPEAKER_03:Right. Yeah. And then I'll tell you where, as they're backed into those serious and sobering questions about data, here's what they learn and they realize and they find out is that they only have, the average credit union, the same for an average bank, only has at best maybe 20 to 25% of their existing members' total financial data. A lot of them don't understand that. They think, by the way, I know that they think they have more. I... worked on a couple of surveys last year in which I made sure that we raised this question. The average credit union thinks that they have somewhere between 25% and 75% of their existing members' total financial data, when in reality they have at best 20% to 25%. This is a big problem because if you claim to be member-centric and you claim to be really serious about member service, But you suddenly realize, wait, we only know 25% of our existing members' financial lives and patterns and behaviors and preferences. That's a big, big wake-up call. So then the question becomes, well, how do we get the rest of that data? How do we get the rest of the 75% of their financial data that's scattered across these 15 to 20 financial apps? That's open banking. That's 1033. That's being first and best at asking for permission of your members to aggregate back to credit union that otherwise disparate 75% of member data that you don't have. Because you've got to get to a preponderance of member data if you want to do what many consider to be one of the most compelling things is getting to just sort of hyper-personalized service and recommendations. You can't feed a model 20% of what Robert McGarvey is doing with his money and then expect that model to recommend to Robert something that's going to be relevant. In fact, it may be insulting, right? You would say, you feed that model 20% of Robert McGarvey's data, and then it's going to suggest to Robert that he, you know, hey, Robert, we see you don't have an emergency savings account. Click here to open one immediately. And Robert's thinking, have you lost your mind? I've got two emergency savings accounts. It's just that they're not with this particular credit union. But you don't know that because, oh, and it just is dawning on Robert, you don't know him. You don't know me. And you said that you were all about member-centric service and et cetera, et cetera. So a lot of these disconnects are being surfaced by the AI imperative of, And then everybody backing their way into getting sober about what data they have, what data they don't. And once they realize what data they don't, then they suddenly get very serious about how are we going to plug aggressively into open banking, be first and best at asking our members for permission to aggregate data back to credit union, and then beginning to execute and prioritize on these lowest hanging sort of use cases for our members relative to what AI can do to make their lives better.
SPEAKER_00:Now, is your sense that some of the biggest credit unions get what you're talking about. I know many of the smaller ones do not.
SPEAKER_03:So yeah, do more of the bigger ones get what I'm saying? Yes, absolutely that's the case. But generally, has everybody put all of these pieces and parts together to get a very clear strategic window on what the three to five year future looks like? No, I don't think so. Why? Because we've got all of this chaos and distraction. around us right now. Usually, if you think about what is the usual stance of a credit union or any other chartered financial institution with any new rule or regulation that comes down the pike, it's like a roll of the eye, a sigh, And then trying to figure out, okay, when do I have to comply? How long can I wait, you know, to the 11th hour to see what everybody else is doing? Figure out the cheapest, you know, way to check that compliance box right before my compliance deadline matures. That's the usual stance. This is why I think the strategic blind spot is so big relative to PFDR is because the nature of what PFDR is regulating is at the base of whether or not you survive in the three to five year frame. That is data. And so that's what I'm most concerned about is that we haven't connected all these dots to why PFDR itself is so unusually and singularly strategic and important for the survival of not just credit unions, but almost any player going forward.
SPEAKER_00:Well, you made a fascinating point a minute or so ago that credit unions think they know their members, but often they really don't. And a couple of years ago, I had a problem. I had a checking account with Chase and I had a problem. And the bank, the branch manager was talking to me and she looked me up on her computer. She knew vastly more about me than my principal credit union did. It was all in her computer. She said, oh, you have a personal banker. I said, he calls me every so often. I don't talk to him. But she had all this data there. And it was like tons of stuff. And she knew my complaint was valid. Once she looked me up, she said, okay, fine. I'll see if I can help you. My credit union couldn't do that, sadly enough. It really couldn't.
SPEAKER_03:Well, that really captures what's at stake here. Because look, each of these 15 to 20 little apps, they have even less data on that member at the credit union than the credit union does. If the credit union has 20 to 25% of that member's total financial data, that little payments app that they use every once in a while to move money around when it's convenient and efficient, it might have 2%. Or 3%.
SPEAKER_00:I have a Capital One credit card I only use at REI. Only at REI.
SPEAKER_01:There you
SPEAKER_00:go. I have a Chase credit card that I only use at Amazon because I get 5% back.
SPEAKER_01:Because you get 5% back, yeah.
SPEAKER_00:I don't know what I get anyplace else because I haven't used it anyplace else. I know it's not 5%. Right.
SPEAKER_03:That's exactly right. My point there is that that's good news. So there's two ways, right? Suddenly there's this stomach-dropping realization that you don't have nearly as much data on your existing members as you thought you did. But then the second and the sort of relief valve for that is that, oh, wait, I have much more data than any other of the 15 to 20 financial service providers and apps that my members are using. So it's going to be much easier for me to ask first and best for permission to aggregate back the remainder of that data scattered across that financial ecosystem back to the credit union than it is for any one of those individual apps or fintechs to ask, to aggregate everything back to it. So this is what I call the art and compliance of permissioning. Those who understand what's at stake, Understand that, therefore, there's urgency in this and are the first and best to ask. Now, what do I mean by best? Credit unions need to lever the trust that they've built over all of these decades, right? Because if they realize that they are trusted and that they would get a higher rate of consent, that of, yes, I am okay for my credit union to aggregate back data from all these other little apps to put it in one place so that the member can see it in one place. Yeah. Robert, thank you so much. We've noticed because we have basic payment analytics running in the background. We've noticed, Robert, that you have relationships with Venmo and Cash App and PayPal and blah, blah, blah. Would you like for us to aggregate, bring all that data in so that you could see it in one place and also so that we can detect fraud better in real time when it occurs on your account? Robert is probably 90 plus percent going to say yes to that. Yeah, there's a benefit for me and it's going to make me safer. Great. Now, a month goes by, that same credit union says, hey, Robert, Remember, we've brought all this data home. You've already given us permission to do that. Now we'd like your permission to also use that data to do what? To make sure that we're only providing you with the most relevant recommendations relative to your money or relative to next best product or service. Is that okay? Robert's going to say yes to that. So there's this sort of building of permissions based first on trust, in which credit unions are going to be a much higher consent rate on those permission requests than any of those fragmented little entities that are only holding 1% of your data or the credit card entity, like you mentioned, that is only used every great once in a while at REI. That's a much tougher hill to climb than the one the credit union has to climb based on the fact that it already has at least 20% to 25% and just needs to get a preponderance of the remainder.
SPEAKER_00:I do think. the big banks are much more aggressive about trying to use data to their best advantage than credit unions are.
SPEAKER_03:For sure. Within that week in October, when the CFPB's personal financial data rights rule was passed, was approved and finalized by the CFPB, I immediately, I won't name them, but I've got accounts all over the place, including at a couple of large banks to just monitor what's going on. And that week, I got two data permission requests, data sharing permission requests from one of those big banks. They understand what's going on. They understand what's in play. They understand what they need to do to get more of the data that they don't have. So again, they can do more compelling things with it to build out those relationships and make them much, much more sticky. And so this is my clarion call to credit unions, wake up to this and leverage the trust that you've built over all of these decades to get those higher consent rates, bring that fragmented data home to the credit union and begin delivering even more real value to your members who you've dedicated your entire existence to.
SPEAKER_00:Some credit unions have a kind of paranoid streak where they're afraid that if they send you a letter saying, hey, we've noticed that you use Venmo many times a month. And we've noticed that you use Zelle many times a month. We have these here services that we think are just as good or even better to solve these problems. Okay, the credit union kicks in saying, won't the member be paranoid that we're spying on them? And I say, well, JP Morgan is spying on me. I know that. It's okay by me.
SPEAKER_03:I understand, and this is part of the art of that permissioning that I'm talking about. For instance, I'll mention this one. I do have an account at Capital One. Capital One, it seems like now almost every three weeks is sending me a notice saying, hey, just want to make sure you're still okay with the fact that you're sharing information with Venmo or you're sharing information through Plaid to this other provider, et cetera. And I can say yes or no. And this is foreshadowing sort of their own compliance with 1033. But yeah, you have to be very delinquent and intentional with what you're conveying with the way you ask for what you ask or even what you notify is already happening. So this is the power of this 1033 rule is that the whole purpose of this thing is to make real what the Dodd-Frank Act said was true, which is that the account holder owns his or her account data and they can do with it whatever they want. Well, the first thing you've got to do is make transparent what has been opaque all of these years in the screen scraping world, which is, wait a minute, oh, I forgot that I'm sharing data with these five, seven, 10, 14 different entities. Oh yeah, I don't use these three anymore. And inside the credit union's mobile app, I'm going to uncheck those three entities. I don't want to be sharing data with them anymore, right? It puts them in control. Just giving that transparency bolsters the trust of the entity that's providing that pane of glass, which I'm saying should be the credit union. And then with that, again, bolster trust. They know, oh, they're looking out for me. They want to make sure that I'm not sharing my data with anybody I don't want to be sharing. So when they ask me a question about whether or not they can use some of this data that's out there that I am sharing and or aggregate back to credit union to make me safer or to help me get a better return on my money. If you do it right, it bolsters trust. It does not diminish it or introduce the paranoia that you're talking about. Oh, it doesn't bother
SPEAKER_00:me at
SPEAKER_03:all. Oh, I know. Because you and I both know privacy kind of went out the door a generation ago. I
SPEAKER_00:think when I was still wearing short pants, as they would say in England.
SPEAKER_03:I'd like to see a picture
SPEAKER_00:to that. Now, in your research survey, this jumped out at me. 80% of banks and credit unions plan to expand services for small businesses.
SPEAKER_01:Right.
SPEAKER_00:80%. 80%. Now, if I'm looking at that, I'd say, and I'm the CEO of a credit union, I'd say, you know, maybe I don't want to expand into that because there's going to be a traffic jam of people expanding into this. So why am I going there? Why don't I find something else to do?
SPEAKER_03:I'll use the phrase of my friend, Ron Shevlin. He puts it this way. It is the salvation of community banking, including credit unions in the United States, the small business relationship. Here's why. We were talking about Gen Z at the top, Robert. Gen Z is The way to, okay, let's get back to strategic priorities. If you ask credit unions, what are your top three strategic priorities? It's basically improving operational efficiency is number one. And then tied for number two is growing loans and growing membership. Okay. Those are the credit unions' top priorities. If you want to do that, you have to go through Gen Z. Okay. I mean, well, operational efficiency is a different thing. There's all kinds of things you can do that don't necessarily track through Gen Z. But if you're wanting to grow loans and grow membership and or grow deposits, which is not as high a priority for credit unions relative to banks, all of that goes through Gen Z, both on the retail side and the small business side. Here's the blind spot here, Robert, is that most credit unions don't realize that the four to five millions new small businesses being formed every year in the United States are primarily Gen Z small businesses. That is to say, Gen Z sole proprietors with a side hustle, a gig, a worker, an independent contractor, et cetera. That is what small business means now. That is what micro and small business means. The average credit union doesn't know that 13% to 35% of the members holding retail checking accounts, share draft accounts with those credit unions are actually camouflaged micro and small business owners, that is sole proprietors. And because the credit union doesn't recognize them as micro and small business owners, they're not providing what they need. By the way, we asked that question in our survey as well. What, you know, 80%, like you said, 80% of credit unions and banks are planning to expand services to small businesses. We said, we're not What services are you planning specifically to expand? And the number one answer is payments. Why? Because that's the first order of business for any micro or small business or any businesses. How do I get paid quickly and efficiently and cost effectively? That is, without having to pay exorbitant fees. This is what credit unions are doing. positioned beautifully to capitalize on. Get that money in hand, if not in real time, at a minimum same day. This, by the way, and I'm not here to do commercials for the company I work for, but this is what's behind a new partnership that we've struck with Move, M-O-O-V, a first of its kind payment acquirer processor sitting on a completely modern tech stack. We've realized working together that the average credit union has already, in its core, the data required to automate instantaneous approval of any member who wants to begin accepting payments with their phone. Instantaneous. This is better than the PayFact model of getting approved in two to four days with Cash App. It's certainly better than the model from 20 years ago where you had to wait for two weeks with the bank and provide a bunch of documentation on paper. And so this falls into this category of really powerful data strategy on behalf of credit unions is to use that data to give their micro and small business owning members what they need to collect payments, instantaneously using their phones. That is the credit union's mobile banking app literally as a point of sale device. And then those payments, what's happening? Those are now incoming deposits directly into the credit union instead of them being collected by that member outside the credit union at one of these third-party payment apps. And here's the devastating stat is that only one out of every$8 collected in and across those third-party apps ever makes its way back to the credit unions. So solving for that is exactly why 80% of not just credit unions, but also banks are looking to crack the nut on small business because it is, depending on sort of which research you read, anywhere from$150 billion revenue opportunity to a$400 billion revenue opportunity. If you add into it what is then made available by providing payment services to small businesses, you can then convert that into really, easy, compelling finance opportunities based on the payment flows that the credit union now has direct visibility into.
SPEAKER_00:Now, I'm glad you defined today's small business, which is totally different from the old definition of small business. I think of small businesses, it was the prime turf for community bankers and you'd hunt for customers at country clubs or Rotary Club or Kiwanis or something like that. And this generation, probably doesn't belong to those fraternal organizations.
SPEAKER_01:No,
SPEAKER_00:they do not. And probably doesn't belong to a country club. They might hang out at a coffee shop.
SPEAKER_03:Right. That's exactly. The coffee shop is the country club for Gen Z. That's exactly right. Yeah. And if you don't, this is, you're really hitting it on the head, Robert, is that credit unions, actually, everybody must understand that the way Gen Z does and defines business is the new definition for small business in the United States.
SPEAKER_00:Yeah, that's the powerful thing because I was still looking at it through the lens of the person who owns an electrical supply store, that kind of stuff, an actual store where there's rent and employees and blah, blah, blah.
SPEAKER_03:Yeah, we think in brick and mortar, but we are now primarily a service economy. In the United States. And that's why you can have one, two, three different side hustles, side gigs, et cetera. And you need to be able to efficiently collect payments across different options.
SPEAKER_00:Most of the Uber drivers I talk to have a full-time job. That's exactly
SPEAKER_03:right. That's one very good example.
SPEAKER_00:I used a task where I have a guy who actually worked for a big brokerage company, a stock broker company.
SPEAKER_03:I had an Uber driver last week. This guy was a major... oil industry executive, who before that was an Olympic champion, was sort of all American at college track and field before that. And he's driving Uber in his retirement for fun, but he's doing it full time. He
SPEAKER_00:just- Oh, I was going to add, I worked for the oil industry years ago. And one thing the oil industry did and still does, is they throw money at you almost as much as tech companies do. So I was saying, why is this guy doing this? Okay, but he's retired and he wants, yeah, okay, that makes perfect sense. Yeah. The CU2.0 Podcast.