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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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
SPEAKER_00 (00:00):
Welcome to the CU2.0 podcast.
SPEAKER_02 (00:05):
Hi, and welcome to the CU2.0 podcast with big new
ideas about credit unions andconversations about innovative
technology with credit union andfintech leaders.
This podcast is brought to youby Quillo, the real-time loan
syndication network for creditunions, and by your host,
longtime credit union andfinancial technology journalist,
(00:27):
Robert McGarvey.
And now, the CU2.0 podcast withRobert McGarvey.
SPEAKER_00 (00:33):
This show started out as an exploration of Jack
Henry's seventh annual strategybenchmark survey, where CEOs of
credit unions and banks revealwhat really matters to them.
It's a data-rich survey, andthere's a link to it in the show
notes.
I point out that link becausethe talk with Lee Wetherington,
senior director of corporatestrategy at Jack Henry, quickly
(00:55):
veered into what's happening inWashington, D.C., and how
changes, especially at CFPB, mayimpact credit unions.
Along the way, we discuss howthis is an age where data rules.
Open banking is coming at you,ready or not.
You probably don't know yourmembers really as well as you
think, and that's a fact.
(01:15):
And lastly, small businessrelationships probably aren't
what you think.
They may well be critical to thefuture of many credit unions.
Does that spicy stew have yourtaste buds dancing with
excitement?
It should, because this is ashow that plunges into the
unexpected, but it's stuff youneed to know about banking
tomorrow.
(01:37):
Listen up.
So in this report, there's anote about the CFPB changes in
that, how that is changing awhole bunch of things.
SPEAKER_03 (01:51):
It is,
SPEAKER_00 (01:52):
yeah.
And...
A, what's it changed, and B,have things gotten more in flux
because of the uncertaintiesaround NCUA, et cetera, et
cetera?
SPEAKER_03 (02:04):
Yes and yes are the short answers to those
questions.
Are we recording yet, or is thisjust prep
SPEAKER_00 (02:10):
talk?
Oh, I never do prep, man.
I just get into the thing.
SPEAKER_03 (02:17):
Okay, yeah, so the short answers to both is yes and
yes.
For my money, Robert, I thinkthat the biggest strategic blind
spot in the moment we're in isthe impact of this regulatory
(02:38):
upheaval that we're in themiddle of, but specifically and
particularly what's happeningwith the CFPB.
You know, the top line, and Ican speak to this because we
asked our CEOs in the benchmarksurvey about their concerns.
And this was the first time, Ithink, in the history of our
(03:02):
seven-year benchmark whereregulatory burden, regulatory
legislative concern did notbreak the top five.
It fell off the map.
And in fact, last year, 30% ofour CEOs named regulatory
legislative concerns a toppriority, whereas this year only
(03:23):
15% did.
So it dropped by half.
And that's understandable giventhe superficial take of where we
are, right?
A lot of folks, credit unionsand banks for that matter, a lot
of issues with the CFPB, withthe overreach of Director
Chopra, et cetera.
(03:44):
So if you're just kind ofskimming across the headlines,
you think, well, the CFPB is nowbeing gutted, it's being
defanged.
At the beginning, we had Elonsaying it was gonna be deleted
wholesale.
So it suddenly fell off the mapof top concerns for most
financial institutions.
Unfortunately, the CFPB, And inspecific, one of the most recent
(04:10):
rules that it put into effect onJanuary 17 is setting the stage
for a structured approach toopen banking in the United
States, right?
So this is the personalfinancial data rights rule, or
1033 as we sometimes refer toit.
Given that that rule is aboutfinancial data exchange in the
(04:33):
United States, and given thatdata is at the base of
everything, interesting,compelling going forward.
For financial institutions tosuddenly think they don't need
to be paying attention isreally, really dangerous.
In fact, if you're a financialinstitution, a credit union
below 850 million in assets,you're technically exempted from
(04:56):
the personal financial datarights rule.
And so we're seeing a lot offinancial institutions take that
and some other flags in terms ofwhat's going on in and around
the dismantling of theregulatory apparatus as a sign
to sort of just sit on yourhands until you see how
everything plays out.
(05:17):
Whereas the most progressiveplayers, this is both chartered
and non-chartered in thefinancial services space, are
seeing this as an opportunity toget really aggressive with data
plays with data strategy withdata aggregation because those
players understand that thewinners of these data wars that
(05:38):
are ongoing right now are theones who will be so far ahead of
everybody else in the three tofive year frame that it will be
difficult for everybody else tocatch up and so this is again i
think the biggest strategicblind spot Credit unions and
other financial institutions aretaking their eye off the ball
(06:00):
when it comes to regulation.
I should say this, banks more sothan credit unions.
Credit unions are suddenlypaying attention because their
tax exempt status is on theline.
So I think since GAC, that hasbeen front and center for credit
unions.
And so they're paying attentionto what's going on in D.C.
because that is an existentialthreat to most credit unions.
(06:23):
Now, we can talk about that ifyou like.
But This writ large to me is thebiggest blind spot,
strategically, is thinking that,great, Trump is giving the
regulators hell.
We're gonna see a softening ofsupervision systemically.
We don't necessarily have toworry about that regulatory
front for a while, when in myview, it seems to be maybe the
(06:47):
single most important thing youshould be worrying about,
especially if you look closelyand lean in and know that
sitting on President Trump'sdesk right now, are rather two
CFPB rules that had not yet goneinto effect, but are being
rescinded outright by Congressand got voted on by both the
(07:08):
Senate and the House.
One is the cap on overdraftfees, right?
Everybody was really, reallyconcerned about that cap.
So great, that rule has beenrescinded.
Trump's gonna sign that any daynow.
But the other rule sitting onhis desk is the one that is
really, I think, even moreimportant, perhaps, than the
(07:30):
recension of the cap onoverdraft fees, and that is the
recension of the CFPB's officialassertion that it has
supervisory authority overnon-chartered big fintechs,
payment apps, digital wallets,etc.
Back in In the December, Januarytimeframe, my friend Ron Shevlin
(07:53):
at Cornerstone fielded a survey.
He asked the credit unions andthe banks in that survey, who is
the competitor of most concern?
Which competitor or categorycompetitor presents the greatest
threat to your franchise?
And the overwhelming response inthat survey was big fintech.
(08:16):
So I say that now to contrastwhat's about to happen when
President Trump signs therecension of that second CFPB
rule, it's basically givingfintechs, the competitors, I
think, and in my own view, theseare the most threatening
competitors to chartered creditunions and even banks are these
(08:40):
big fintechs.
And so they're now looking at afour-year run, a four-year
stretch at a minimum in whichthey can really stretch their
wings and compete without anykind of material federal
scrutiny being brought to bearon them.
And in fact, the new lawyer forthe CFPB recently said, hey,
(09:05):
after we get finished guttingthe CFPB, the 200 employees that
will be left, they're going tobe focusing 70% of their time
and attention and scrutiny ontraditional financial
institutions, that is to saycredit unions and banks.
And specifically, they're notgoing to be supervising or
looking at or scrutinizingFinTech in any way.
(09:28):
So this to me is a really ironictwist.
It's a turn that I think mostfinancial institutions have not
yet paid attention to becauseagain, they're focused on other
things thinking, They don't haveto worry about the regulatory
environment or burden the waythey have in years past.
SPEAKER_00 (09:47):
I agree with that.
For some years, I've askedcredit union CEOs who their
competitors are, and they givethe obvious answer, and it's
wrong in every case.
Is the credit union down thestreet?
Is the community bank down thestreet?
No, man, it's not.
It's FinTechs and it's JPMorganChase.
Exactly.
If you don't measure thoseentities, you just don't get the
(10:09):
game.
Look at the home mortgagemarket, which used to be owned
by banks and credit unions.
Now it's owned by RocketMortgage, etc.
SPEAKER_03 (10:18):
Yeah.
And, you know, Robert, yourpoint is validated by our
strategy benchmark.
When we asked about competitorsof note, our bank and credit
union CEOs both pointed to eachother.
As the primary competitor ofnote, not the big fintechs, not
the big techs who have differentfinancial services and digital
(10:39):
wallets that they're bringing tobear that look and feel and
smell like what a credit unionwould offer.
They're pointing to othercommunity financial
institutions.
And I think you're exactlyright.
I think that is a very, very bigblind spot.
By the way, let me mentionsomething that I think is also
not fully understood in theindustry quite yet.
(11:01):
And that is this question of GenZ, you know, credit unions for,
I mean, for as long as I canremember, every year, it's, you
know, you ask them about theirtop concerns.
Typically, they're in the topthree is new member acquisition.
Right.
Because the membership isgraying.
And what are we doing tobackfill members that die off
(11:24):
with new membership coming in?
SPEAKER_00 (11:25):
This started with millennials.
Not much progress was made withmillennials.
So now the focus is on
SPEAKER_03 (11:33):
Gen Z.
Now it's on Gen Z.
And the reason why the focus ison Gen Z is because Gen Z is in
that window in which Americanshistorically.
decide who their primaryfinancial service provider is
gonna be.
Gen Z is still in that window.
Now, what is not understood isthat over the last two years,
you mentioned Chase, basicallyGen Z in terms of financial
(11:58):
service provider relationshipshas been dominated by the big
banks, the mega banks.
That has begun to turn in thelast two years.
Not a lot of people understandthat, but big bank grip on Gen Z
has has loosened in the last twoyears.
And you see those numbersbeginning to come down.
Now, the question is, where arethose displaced Gen Zs from big
(12:23):
banks?
Where are they going?
Well, they're not going tocredit unions.
They're not going to communitybanks.
They're going to payment apps.
In fact, many of them think thatpayment apps are banks, right?
Or are the equivalent of acredit union.
Two things are happening at thesame time.
One, Gen Z is still in play.
in terms of staking them forprimary financial service
(12:46):
provider status.
But at the same time, they'rebeing drawn to the payment apps.
And then if you read thatcorrectly, you would understand
that also Gen Z is the mostpayment intensive generation.
They create and generate,originate more payments per
capita than by far, than anyother generation.
(13:07):
So if you're hoping to get atoehold If you're hoping to
acquire Gen Z, the one thing youhave 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 boxthat you can check for Gen Z.
Moreover, if you're looking toacquire them, you've also got to
(13:28):
get the account opening doneright.
And what I mean by that for GenZ specifically, this also goes
for Gen Alpha, by the way, whichwe're beginning to have
conversations around them too.
If you want to acquire newmembers in that Gen Z spot, by
the way, even whatever's left ofGen Y for you to grab and Gen
Alpha coming up, you've got tohave sub three minute mobile
(13:50):
only account opening thatdoesn't require any kind of
manual KYC process that theyhave to thumb through.
And otherwise they will abandonwhatever other flavor of account
opening you're offering or
SPEAKER_00 (14:05):
attempting.
Now you just told 95% of creditunions don't even bother.
You're not going to get any ofthose customers.
No, no, no.
They do not offersub-three-minute mobile account
opening.
This is the rub.
Essentially, you just said, hey,guys, I mean, hang it up.
(14:25):
No,
SPEAKER_03 (14:27):
I'm
SPEAKER_00 (14:28):
not
SPEAKER_03 (14:33):
saying that.
(14:55):
frictionless money movementbetween accounts, that and among
accounts.
That's what Gen Z is.
If you look at just theirbehavior, their money behavior,
that's what they want.
So no, I'm not saying that.
In fact, if anything, I'm sayingnow that this is a known
formula.
Understanding the type ofmobile-only account opening that
(15:16):
I just described, that is aknown formula.
It is not beyond the grasp ofany credit union.
You can do that, but oncethey're in the door, or actually
sometimes even to get them tocome through the door, you have
to make payments easy,effortless.
You have to make sure that theycan still use, not only use all
(15:37):
the disparate payment apps,fintech apps, Coinbase, PayPal,
Venmo, Cash App, whatever.
But what you want to do throughopen banking, this gets back to
1033 and the personal financialdata rights rule.
You want to be leaning into thatrule.
You don't want to be waiting onyour official compliance
(16:00):
deadline in 2028 or 2029 as acredit union before you begin
really fully plumbing yourdigital banking platform into
these open banking rails.
So that, why?
So that you can be first andbest at asking your members for
permission to aggregate all ofthat information across those
(16:23):
disparate financial serviceproviders and apps back to
credit unions so that throughthat one pane of glass at the
credit union, they can not onlysee where they stand across all
of those apps, they can movemoney in and among and between
those apps at will from thecredit union focal point.
That to me is what we callachieving first app status.
(16:46):
And that should be the strategicgoal, especially if you
understand the importance ofdata and what must be done in
the context of this otherwisehopelessly fragmented financial
ecosystem in which the averagemember has relationships with
between 15 and 20 differentservice providers, apps, et
cetera.
SPEAKER_00 (17:06):
Yeah.
Yeah, I mean, to me, that's thebiggest change in my lifetime
was that for many, many, manygenerations, people had
monogamous relationships withfinancial institutions.
Now it's total polygamy.
SPEAKER_03 (17:19):
I agree with you.
I've been around a while myself,Robert.
How we got here is also reallyinteresting.
It's this paradox where over adecade, a couple of decades- you
find yourself in these specificsituations with specific people
in which specific amounts ofmoney need to change hands.
(17:40):
And there's one app that we'lldo 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 moneybetween and among each other,
right?
And then you fast forward andthen it's Cash App and you fast
forward and then it's Zelle.
Then you fast forward and thenit's PayPal and you fast.
(18:01):
And so this is what I call theaggregation of spot
conveniences.
actually in the end,cumulatively result in absolute
inconvenience.
You've got money, little bits ofmoney spread out over all of
these disparate apps andproviders.
And 70% of the Americanpopulation are not financially
(18:23):
healthy.
That is to say, in order toensure that an upcoming payment
event or bill payment orfinancial obligation can be met,
they're skirting across ahandful of those apps in which
they have small amounts ofmoney.
And they're logging in, by theway, it's three seconds.
They average a three secondlogin in each of these financial
(18:44):
apps.
Average smartphone has 14financial apps on it.
They're logging into each ofthose for three seconds to
figure out what the balances arein each of them respectively.
They're doing back of the napkinmath to figure out how much
money that is.
And then they're desperatelyfiguring out how much of that
money they can move as quicklyas possible to wherever the bill
payment is going to happen orthe financial obligation is
(19:06):
going to draw.
It's just a nightmare for theaverage person.
But it's weird that we got thereout of pulling the trigger on
these spot conveniences.
And now it's this completeopacity that prevents the
average person in the UnitedStates from really understanding
where they are with their moneyin any given movement.
That's what's so powerful about1033 is it finally standardizes
(19:27):
and makes more secure the APIsby which financial data gets
exchanged.
And it also eliminates thescourge of our industry, which
is sharing your credentials withthird parties to do screen
scraping.
That, to me, is actually thefirst biggest benefit that we're
all going to get by fullyplumbing into these
(19:48):
standardized, more secured openbanking rails.
SPEAKER_00 (19:51):
And that is the future of banking.
And credit union executives, Ithink, have to embrace that and
say, like it or not, this is thefuture.
SPEAKER_03 (20:02):
Right.
You have to recognize that wehave already been in the open
banking era for a while.
But in my view, it's just beenconsecrated by the structure
provided by the PFDR from theCFPB.
And then we quickly get intoquestions about politics and
(20:23):
whether or not the CFPBsurvives.
And what that means.
So a couple of points on that,Robert, just to make sure your
listeners are clear.
Rule 1033, the personalfinancial data rights rule, it
went into effect on January 17.
So it carries the weight of law.
The only way that rule getsrescinded is if Congress, like
(20:44):
it did with the The cap onoverdraft fees and with
rescinding the CFPB's assertionthat it has supervisory
authority over non-bank fintechsand payment apps, etc.
That mechanism, the CRAmechanism at the congressional
level is the only mechanism byand through which the PFDR could
(21:09):
get rescinded.
So the question then is, whatare the odds of that happening?
And the odds of that happeningare very, very slim for the
following reasons.
One, the open banking rule, thatpersonal financial data rights
rule enjoys broad bipartisan andbicameral support in DC.
Two, the megabanks that we weretalking about just a moment ago
(21:32):
have poured extraordinaryresources into building out
their own open bankinginfrastructure and building out
also a standard for financialdata exchange called, by the
way, the Financial Data Exchangeor the FDX standard, right?
They are loathe, the megabanksare loathe to see those
(21:53):
investments wasted or go by thewayside by rescinding the CFP
CFPB's 1033 rule, PFDR.
So for that reason, I don'tthink that we will see a
recension of the PFDR, the 1033rule.
We will see revisions to thatrule.
Now, the real question therecomes into who's going to take
(22:16):
the CFPB through the publicrulemaking 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 tobe 200 people working at the
CFPB versus 1,700 people workingat the CFPB, I don't know that
(22:37):
you have enough people there totake any rule through a public
rulemaking process veryeffectively, much less quickly.
There's a lot of things up inthe air, but I don't think this
rule is going anywhere.
It lays the basis for thisdata-driven era of financial
services.
(22:57):
And so those who...
don't have these blinders on andcan see there's so much chaos
and drama and flux with thisadministration that it's easy to
get distracted and morespecifically it's easy to just
sit on your hands to wait waitit out and see how it all plays
out my concern for most creditunions is that if you do that
it's your death now if you dothat and you wait these data
(23:21):
wars are going to be won andlost by the time your compliance
deadline in 2028 or 2029 rollsaround.
So that was a really good firstquestion that you asked, Robert.
SPEAKER_00 (23:34):
You mentioned briefly, let's elaborate a bit
on this, credit union tax exemptstatus.
What do you see as the futurefor that?
SPEAKER_03 (23:42):
My little birds in DC tell me, I do not see all
credit unions suddenly beingtaxed.
I don't see that.
SPEAKER_00 (23:54):
What I've said to credit unions for a generation
now is, 90% of you don't makeenough money to be taxed.
Hire a decent accountant, you'llbe fine.
SPEAKER_03 (24:05):
I think you're right.
Now that gets to a point that Ithink about a lot, which is,
especially if you look at all ofthe credit unions below 500
million in assets, right?
You look at their...
Key performance indicators, youlook at their ratios, they're
already skating on very thinice.
So suddenly to have theirfederal tax exempt status taken
(24:28):
away would be anywhere from a15% 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 justthose smaller credit unions, but
even many others that are largerthan that.
They're not accustomed to thesort of profitability
(24:52):
discipline, for lack of a betterphrase, that shareholder-driven
organizations like banks do.
you know, have to master as amatter of course.
So it would be a, like I said, Ithink an existential painful, I
ran some analysis on this acouple of months ago.
I think you see a thousandcredit unions, you know, and
(25:12):
again, this is if suddenly allcredit unions lose their tax
exempt, federal tax exemptstatus.
I think you lose a thousandcredit unions within a very
short amount of time toconsolidation and
SPEAKER_00 (25:24):
acquisition.
Yeah, that's interesting becauseI've talked to some people now
who are predicting that if thetax exempt status goes, what
will happen is there'll be twotiers of credit unions.
There'll be the big ones over abillion dollars, maybe over like
3 billion.
And then there'll be the littletiny ones under 250 million and
(25:46):
the middle will get hollowedout.
There'll be a lot of mergers.
They'll just close shop, morelikely merge one way or another
with big ones.
I had never thought of that.
But when I started to hear it, Isaid, and these are
well-informed credit unionpeople.
There might be some truth.
SPEAKER_03 (26:03):
There might be.
And I think that's a validforecast.
Now, back to the point, I don'tthink all credit unions are
going to lose money.
tax exempt status.
I just politically don't thinkthat that can be pulled off even
by this particular Congress andadministration.
Why?
Because there's 140 plus millioncredit union members around the
(26:25):
country.
I mean, in some cases, you beginto wonder whether this
administration really caresabout political damage that it
does to itself.
But I think even that is a
SPEAKER_00 (26:37):
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 pollingdata.
I don't care how MAGA I am.
I'm looking at this polling datasaying, I got to run in 18
months or something, man.
It's bad.
Yeah,
SPEAKER_03 (26:56):
that's exactly right.
So back to my little birds inD.C., my connections sort of
inside the Beltway tell me thatIf anything happens on this
front, it's going to be a tieredtargeted approach to elimination
of the tax exemption for creditunions, either over a billion or
maybe it might be higher thanthat.
(27:19):
But even if it was just creditunions above a billion in
assets, I mean, that's stillwhat 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 madefor that.
Well, they're more akin to thesize of average banks now.
They behave more akin to the waybanks behave, so let's tax them
(27:44):
the same way.
The thing that I think a lot offolks don't understand that are
not inside the credit unionindustry is how the tax
structure is is related to theownership structure, is related
to that ownership structurebeing tied to local communities
and geography.
So removing one of those thingsand still having, suddenly
(28:07):
taxing them, but they still havethe other two constraints,
again, is an existential threat,especially to credit union
leadership and boards who aren'tused to managing for sort of
bottom line positions efficiencyor trying to managing around
maximizing revenue, return toshareholders, etc.
(28:29):
They're just trying to maximize,you know, the way I try to
bottom line this for people whoaren't familiar is, you know,
banks are structured literallyto maximize return to
shareholders, whereas creditunions are structured to
minimize costs to member owners.
And so these are two completelydifferent kinds of mindsets and
(28:50):
approaches to management And itwould be a huge monkey wrench to
adjust to, to recover from forthose credit unions who might,
again, in those higher assettiers, suddenly have their
exempt status taken away.
SPEAKER_00 (29:08):
Now, what people who know a lot about credit unions
tell me, were the big creditunions to lose their tax exempt
status?
And let's say it's$10 billionand above, just a fairly select
group.
SPEAKER_01 (29:21):
Sure.
SPEAKER_00 (29:22):
Many of them would choose to demutualize as quickly
as they could learn to spelldemutualize.
Right.
SPEAKER_03 (29:33):
I think you're right.
The real question would becomewhat advantage, if that happens,
for those credit unions above$10billion in assets?
SPEAKER_00 (29:43):
As one CEO said to me, we'd have to change our
entire business model.
to function in a world wherewe're paying taxes.
And he wasn't really- In otherwords, we have to function
exactly like a bank.
Exactly.
So if we're doing that, whydon't we become a bank?
SPEAKER_03 (29:59):
Why not become a bank?
Yeah, I don't see, the mathdoesn't make sense.
If you suddenly are having topay taxes, but don't have, but
suddenly still have, and stillhave to maintain your sort of
cap on ability to raise capital,That makes no sense.
Now you're hand tied against thebanks and other entities that
(30:25):
you're competing against.
So why would you do that?
I don't think you would.
I think you'd see massconversion of those credit
unions to bank charters.
I
SPEAKER_00 (30:33):
think we'd see more of the very large mergers, which
Jack Henry has a role in FirstTech and digital credit unions.
Right.
Which when that was announced,it was like an earthquake.
It's like two big, healthycredit unions doing this.
SPEAKER_03 (30:51):
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 commonthing for sure.
SPEAKER_00 (30:57):
And particularly if they lose tax exempt status or
so I hear.
Because now suddenly you needreal scale to compete with with
the big boys on the block.
Which is
SPEAKER_03 (31:09):
interesting.
That was the number one.
finding.
That was in aggregate.
Now, if you put all of the bankCEOs and the credit union CEOs
who answered our benchmark, inaggregate, the number one
strategic priority for 2025 and2026 is efficiency.
The credit union world doesn'tthink about efficiency in the
(31:30):
same way.
In fact, you don't even seeefficiency as an
SPEAKER_00 (31:34):
official sort of track.
In a credit union, you have abig AI initiative.
And I've And you say to theexecutive who's implementing
this, well, let's lead to staffreductions.
They go, no, no, no, no staffreduction.
Then they usually say, well, youknow, there'll be normal
attrition.
And we won't fill thosepositions.
(31:56):
But the idea of firing someoneis anathema.
JPMorgan Chase does itroutinely.
It's like Jamie Dimon flossinghis teeth.
You don't want to do it, but youdo it.
Exactly.
SPEAKER_03 (32:07):
That's exactly right.
And it gets to those disparatemindsets between a bank
structure and a credit unionstructure.
You're absolutely right.
Now, the one asterisk to that isthat even in the seven-year
history of our benchmark...
Credit unions, relative tobanks, have always given
(32:28):
outsized investment to dataanalytics, automation, and even
newer, later forms of AI.
ML has always been big.
Why?
The reason why credit unionshave to actually use those tools
is because, historically,they're much less efficient.
(32:50):
That is to say, they're issuinga greater volume of lower dollar
retail loans relative to banksthat have a commercial focus are
originating fewer, higher dollarloans to commercial entities.
So for every dollar originated,a credit union really has to be
intentional.
And that is, another way ofsaying that, is efficient to
(33:11):
ensure that they can get as muchcost basis out of every dollar
originated to their retailmembers 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 oursurvey, we saw a double digit
increase for the first time inbank CEOs declaring that they
were going to increaseinvestments dramatically.
(33:31):
in AI this year.
I think that to me is anindication of everybody
beginning to wake up to the factthat we're in this data-driven
era.
And this is another hilariouspoint.
I should say hilarious.
It's probably a littlejudgmental.
On the front end of our survey,we ask to describe or
characterize your posture, yourcredit union's posture relative
(33:54):
to technology.
We ask the same thing of banks.
We ask the same question ofeverybody.
And I think it's something likeover 60% said, we're a fast
follower.
You've got 20% who are kind ofsober and honest and say, well,
we're laggards.
But most everybody says we're afast follower.
I don't think it's possible toeven be a fast follower where we
(34:16):
are in this transition to thedata-driven era, because what's
happening now is if you see areally sexy AI-driven product or
feature come out from acompetitor and you go, all
right, well, let's go just buythat off the shelf and put that
in at our credit union.
It doesn't work that wayanymore.
You have to have the right datain the right form and the right
(34:40):
place available in real time tofeed the particular model or
models that are behind thatparticular feature, product, or
service that you saw that was socompelling.
So suddenly the advent of AI hasbacked the entire industry for
the first time into having toget really serious and sober and
smart about data and about datastrategy.
And most of them have neveruttered the phrase data
(35:03):
strategy, much less have it be aregular mantra in their board
meetings.
SPEAKER_00 (35:08):
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 (35:17):
Right.
Yeah.
And then I'll tell you where, asthey're backed into those
serious and sobering questionsabout data, here's what they
learn and they realize and theyfind out is that they only have,
the average credit union, thesame for an average bank, only
has at best maybe 20 to 25% oftheir existing members' total
(35:41):
financial data.
A lot of them don't understandthat.
They think, by the way, I knowthat they think they have more.
I...
worked on a couple of surveyslast year in which I made sure
that we raised this question.
The average credit union thinksthat they have somewhere between
25% and 75% of their existingmembers' total financial data,
(36:02):
when in reality they have atbest 20% to 25%.
This is a big problem because ifyou claim to be member-centric
and you claim to be reallyserious about member service,
But you suddenly realize, wait,we only know 25% of our existing
members' financial lives andpatterns and behaviors and
preferences.
(36:24):
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 the75% of their financial data
that's scattered across these 15to 20 financial apps?
That's open banking.
That's 1033.
That's being first and best atasking for permission of your
members to aggregate back tocredit union that otherwise
(36:47):
disparate 75% of member datathat you don't have.
Because you've got to get to apreponderance of member data if
you want to do what manyconsider to be one of the most
compelling things is getting tojust sort of hyper-personalized
service and recommendations.
You can't feed a model 20% ofwhat Robert McGarvey is doing
(37:09):
with his money and then expectthat model to recommend to
Robert something that's going tobe relevant.
In fact, it may be insulting,right?
You would say, you feed thatmodel 20% of Robert McGarvey's
data, and then it's going tosuggest to Robert that he, you
know, hey, Robert, we see youdon't have an emergency savings
account.
(37:29):
Click here to open oneimmediately.
And Robert's thinking, have youlost your mind?
I've got two emergency savingsaccounts.
It's just that they're not withthis 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 allabout member-centric service and
et cetera, et cetera.
So a lot of these disconnectsare being surfaced by the AI
(37:53):
imperative of, And theneverybody backing their way into
getting sober about what datathey have, what data they don't.
And once they realize what datathey don't, then they suddenly
get very serious about how arewe going to plug aggressively
into open banking, be first andbest at asking our members for
permission to aggregate databack to credit union, and then
(38:13):
beginning to execute andprioritize on these lowest
hanging sort of use cases forour members relative to what AI
can do to make their livesbetter.
SPEAKER_00 (38:22):
Now, is your sense that some of the biggest credit
unions get what you're talkingabout.
I know many of the smaller onesdo not.
SPEAKER_03 (38:32):
So yeah, do more of the bigger ones get what I'm
saying?
Yes, absolutely that's the case.
But generally, has everybody putall of these pieces and parts
together to get a very clearstrategic window on what the
three to five year future lookslike?
No, I don't think so.
Why?
Because we've got all of thischaos and distraction.
(38:52):
around us right now.
Usually, if you think about whatis the usual stance of a credit
union or any other charteredfinancial institution with any
new rule or regulation thatcomes down the pike, it's like a
roll of the eye, a sigh, Andthen 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
(39:13):
everybody else is doing?
Figure out the cheapest, youknow, way to check that
compliance box right before mycompliance deadline matures.
That's the usual stance.
This is why I think thestrategic blind spot is so big
relative to PFDR is because thenature of what PFDR is
regulating is at the base ofwhether or not you survive in
(39:34):
the three to five year frame.
That is data.
And so that's what I'm mostconcerned about is that we
haven't connected all these dotsto why PFDR itself is so
unusually and singularlystrategic and important for the
survival of not just creditunions, but almost any player
(39:56):
going forward.
SPEAKER_00 (39:57):
Well, you made a fascinating point a minute or so
ago that credit unions thinkthey know their members, but
often they really don't.
And a couple of years ago, I hada problem.
I had a checking account withChase and I had a problem.
And the bank, the branch managerwas talking to me and she looked
(40:18):
me up on her computer.
She knew vastly more about methan my principal credit union
did.
It was all in her computer.
She said, oh, you have apersonal banker.
I said, he calls me every sooften.
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 wasvalid.
Once she looked me up, she said,okay, fine.
I'll see if I can help you.
(40:38):
My credit union couldn't dothat, sadly enough.
It really couldn't.
SPEAKER_03 (40:43):
Well, that really captures what's at stake here.
Because look, each of these 15to 20 little apps, they have
even less data on that member atthe credit union than the credit
union does.
If the credit union has 20 to25% of that member's total
financial data, that littlepayments app that they use every
(41:03):
once in a while to move moneyaround when it's convenient and
efficient, it might have 2%.
Or 3%.
SPEAKER_00 (41:10):
I have a Capital One credit card I only use at REI.
Only at REI.
SPEAKER_01 (41:16):
There you
SPEAKER_00 (41:16):
go.
I have a Chase credit card thatI only use at Amazon because I
get 5% back.
SPEAKER_01 (41:21):
Because you get 5% back, yeah.
SPEAKER_00 (41:23):
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 (41:29):
That's exactly right.
My point there is that that'sgood news.
So there's two ways, right?
Suddenly there's thisstomach-dropping realization
that you don't have nearly asmuch data on your existing
members as you thought you did.
But then the second and the sortof relief valve for that is
that, oh, wait, I have much moredata than any other of the 15 to
(41:54):
20 financial service providersand apps that my members are
using.
So it's going to be much easierfor me to ask first and best for
permission to aggregate back theremainder of that data scattered
across that financial ecosystemback to the credit union than it
is for any one of thoseindividual apps or fintechs to
ask, to aggregate everythingback to it.
(42:17):
So this is what I call the artand compliance of permissioning.
Those who understand what's atstake, Understand that,
therefore, there's urgency inthis and are the first and best
to ask.
Now, what do I mean by best?
Credit unions need to lever thetrust that they've built over
all of these decades, right?
(42:38):
Because if they realize thatthey are trusted and that they
would get a higher rate ofconsent, that of, yes, I am okay
for my credit union to aggregateback data from all these other
little apps to put it in oneplace so that the member can see
it in one place.
Yeah.
Robert, thank you so much.
(43:11):
We've noticed because we havebasic payment analytics running
in the background.
We've noticed, Robert, that youhave relationships with Venmo
and Cash App and PayPal andblah, blah, blah.
Would you like for us toaggregate, bring all that data
in so that you could see it inone place and also so that we
can detect fraud better in realtime when it occurs on your
(43:36):
account?
Robert is probably 90 pluspercent going to say yes to
that.
Yeah, there's a benefit for meand it's going to make me safer.
Great.
Now, a month goes by, that samecredit union says, hey, Robert,
Remember, we've brought all thisdata home.
You've already given uspermission to do that.
Now we'd like your permission toalso use that data to do what?
(43:59):
To make sure that we're onlyproviding you with the most
relevant recommendationsrelative to your money or
relative to next best product orservice.
Is that okay?
Robert's going to say yes tothat.
So there's this sort of buildingof permissions based first on
trust, in which credit unionsare going to be a much higher
consent rate on those permissionrequests than any of those
(44:21):
fragmented little entities thatare only holding 1% of your data
or the credit card entity, likeyou mentioned, that is only used
every great once in a while atREI.
That's a much tougher hill toclimb than the one the credit
union has to climb based on thefact that it already has at
least 20% to 25% and just needsto get a preponderance of the
(44:42):
remainder.
SPEAKER_00 (44:43):
I do think.
the big banks are much moreaggressive about trying to use
data to their best advantagethan credit unions are.
SPEAKER_03 (44:53):
For sure.
Within that week in October,when the CFPB's personal
financial data rights rule waspassed, was approved and
finalized by the CFPB, Iimmediately, I won't name them,
but I've got accounts all overthe place, including at a couple
of large banks to just monitorwhat's going on.
(45:16):
And that week, I got two datapermission requests, data
sharing permission requests fromone of those big banks.
They understand what's going on.
They understand what's in play.
They understand what they needto do to get more of the data
that they don't have.
So again, they can do morecompelling things with it to
build out those relationshipsand make them much, much more
(45:38):
sticky.
And so this is my clarion callto credit unions, wake up to
this and leverage the trust thatyou've built over all of these
decades to get those higherconsent rates, bring that
fragmented data home to thecredit union and begin
delivering even more real valueto your members who you've
(46:02):
dedicated your entire existenceto.
SPEAKER_00 (46:05):
Some credit unions have a kind of paranoid streak
where they're afraid that ifthey send you a letter saying,
hey, we've noticed that you useVenmo many times a month.
And we've noticed that you useZelle many times a month.
We have these here services thatwe think are just as good or
even better to solve theseproblems.
(46:28):
Okay, the credit union kicks insaying, won't the member be
paranoid that we're spying onthem?
And I say, well, JP Morgan isspying on me.
I know that.
It's okay by me.
SPEAKER_03 (46:41):
I understand, and this is part of the art of that
permissioning that I'm talkingabout.
For instance, I'll mention thisone.
I do have an account at CapitalOne.
Capital One, it seems like nowalmost every three weeks is
sending me a notice saying, hey,just want to make sure you're
still okay with the fact thatyou're sharing information with
Venmo or you're sharinginformation through Plaid to
(47:01):
this other provider, et cetera.
And I can say yes or no.
And this is foreshadowing sortof their own compliance with
1033.
But yeah, you have to be verydelinquent and intentional with
what you're conveying with theway you ask for what you ask or
even what you notify is alreadyhappening.
(47:22):
So this is the power of this1033 rule is that the whole
purpose of this thing is to makereal what the Dodd-Frank Act
said was true, which is that theaccount holder owns his or her
account data and they can dowith it whatever they want.
Well, the first thing you've gotto do is make transparent what
(47:43):
has been opaque all of theseyears 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 threeanymore.
And inside the credit union'smobile app, I'm going to uncheck
those three entities.
I don't want to be sharing datawith them anymore, right?
(48:04):
It puts them in control.
Just giving that transparencybolsters the trust of the entity
that's providing that pane ofglass, which I'm saying should
be the credit union.
And then with that, again,bolster trust.
They know, oh, they're lookingout for me.
They want to make sure that I'mnot sharing my data with anybody
(48:25):
I don't want to be sharing.
So when they ask me a questionabout whether or not they can
use some of this data that's outthere that I am sharing and or
aggregate back to credit unionto make me safer or to help me
get a better return on my money.
If you do it right, it bolsterstrust.
It does not diminish it orintroduce the paranoia that
(48:49):
you're talking about.
Oh, it doesn't bother
SPEAKER_00 (48:52):
me at
SPEAKER_03 (48:52):
all.
Oh, I know.
Because you and I both knowprivacy kind of went out the
door a generation ago.
I
SPEAKER_00 (49:02):
think when I was still wearing short pants, as
they would say in England.
SPEAKER_03 (49:05):
I'd like to see a picture
SPEAKER_00 (49:09):
to that.
Now, in your research survey,this jumped out at me.
80% of banks and credit unionsplan to expand services for
small businesses.
SPEAKER_01 (49:19):
Right.
SPEAKER_00 (49:19):
80%.
80%.
Now, if I'm looking at that, I'dsay, and I'm the CEO of a credit
union, I'd say, you know, maybeI don't want to expand into that
because there's going to be atraffic jam of people expanding
into this.
So why am I going there?
Why don't I find something elseto do?
SPEAKER_03 (49:37):
I'll use the phrase of my friend, Ron Shevlin.
He puts it this way.
It is the salvation of communitybanking, including credit unions
in the United States, the smallbusiness relationship.
Here's why.
We were talking about Gen Z atthe top, Robert.
Gen Z is The way to, okay, let'sget back to strategic
(50:01):
priorities.
If you ask credit unions, whatare your top three strategic
priorities?
It's basically improvingoperational efficiency is number
one.
And then tied for number two isgrowing loans and growing
membership.
Okay.
Those are the credit unions' toppriorities.
If you want to do that, you haveto go through Gen Z.
(50:22):
Okay.
I mean, well, operationalefficiency is a different thing.
There's all kinds of things youcan do that don't necessarily
track through Gen Z.
But if you're wanting to growloans and grow membership and or
grow deposits, which is not ashigh a priority for credit
unions relative to banks, all ofthat goes through Gen Z, both on
the retail side and the smallbusiness side.
Here's the blind spot here,Robert, is that most credit
(50:45):
unions don't realize that thefour to five millions new small
businesses being formed everyyear in the United States are
primarily Gen Z smallbusinesses.
That is to say, Gen Z soleproprietors with a side hustle,
a gig, a worker, an independentcontractor, et cetera.
(51:08):
That is what small businessmeans now.
That is what micro and smallbusiness means.
The average credit union doesn'tknow that 13% to 35% of the
members holding retail checkingaccounts, share draft accounts
with those credit unions areactually camouflaged micro and
small business owners, that issole proprietors.
(51:32):
And because the credit uniondoesn't recognize them as micro
and small business owners,they're not providing what they
need.
By the way, we asked thatquestion in our survey as well.
What, you know, 80%, like yousaid, 80% of credit unions and
banks are planning to expandservices to small businesses.
We said, we're not What servicesare you planning specifically to
expand?
And the number one answer ispayments.
(51:54):
Why?
Because that's the first orderof business for any micro or
small business or anybusinesses.
How do I get paid quickly andefficiently and cost
effectively?
That is, without having to payexorbitant fees.
This is what credit unions aredoing.
positioned beautifully tocapitalize on.
(52:41):
Get that money in hand, if notin real time, at a minimum same
day.
This, by the way, and I'm nothere to do commercials for the
company I work for, but this iswhat's behind a new partnership
that we've struck with Move,M-O-O-V, a first of its kind
payment acquirer processorsitting on a completely modern
(53:01):
tech stack.
We've realized working togetherthat the average credit union
has already, in its core, thedata required to automate
instantaneous approval of anymember who wants to begin
accepting payments with theirphone.
Instantaneous.
This is better than the PayFactmodel of getting approved in two
(53:23):
to four days with Cash App.
It's certainly better than themodel from 20 years ago where
you had to wait for two weekswith the bank and provide a
bunch of documentation on paper.
And so this falls into thiscategory of really powerful data
strategy on behalf of creditunions is to use that data to
give their micro and smallbusiness owning members what
(53:43):
they need to collect payments,instantaneously using their
phones.
That is the credit union'smobile banking app literally as
a point of sale device.
And then those payments, what'shappening?
Those are now incoming depositsdirectly into the credit union
instead of them being collectedby that member outside the
(54:05):
credit union at one of thesethird-party payment apps.
And here's the devastating statis that only one out of every$8
collected in and across thosethird-party apps ever makes its
way back to the credit unions.
So solving for that is exactlywhy 80% of not just credit
unions, but also banks arelooking to crack the nut on
(54:27):
small business because it is,depending on sort of which
research you read, anywhere from$150 billion revenue opportunity
to a$400 billion revenueopportunity.
If you add into it what is thenmade available by providing
payment services to smallbusinesses, you can then convert
that into really, easy,compelling finance opportunities
(54:50):
based on the payment flows thatthe credit union now has direct
visibility into.
SPEAKER_00 (54:54):
Now, I'm glad you defined today's small business,
which is totally different fromthe old definition of small
business.
I think of small businesses, itwas the prime turf for community
bankers and you'd hunt forcustomers at country clubs or
Rotary Club or Kiwanis orsomething like that.
(55:15):
And this generation, probablydoesn't belong to those
fraternal organizations.
SPEAKER_01 (55:21):
No,
SPEAKER_00 (55:22):
they do not.
And probably doesn't belong to acountry club.
They might hang out at a coffeeshop.
SPEAKER_03 (55:28):
Right.
That's exactly.
The coffee shop is the countryclub 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 creditunions, actually, everybody must
understand that the way Gen Zdoes and defines business is the
(55:50):
new definition for smallbusiness in the United States.
SPEAKER_00 (55:52):
Yeah, that's the powerful thing because I was
still looking at it through thelens of the person who owns an
electrical supply store, thatkind of stuff, an actual store
where there's rent and employeesand blah, blah, blah.
SPEAKER_03 (56:10):
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 toefficiently collect payments
across different options.
SPEAKER_00 (56:26):
Most of the Uber drivers I talk to have a
full-time job.
That's exactly
SPEAKER_03 (56:30):
right.
That's one very good example.
SPEAKER_00 (56:33):
I used a task where I have a guy who actually worked
for a big brokerage company, astock broker company.
SPEAKER_03 (56:39):
I had an Uber driver last week.
This guy was a major...
oil industry executive, whobefore that was an Olympic
champion, was sort of allAmerican at college track and
field before that.
And he's driving Uber in hisretirement for fun, but he's
doing it full time.
(57:01):
He
SPEAKER_00 (57:01):
just- Oh, I was going to add, I worked for the
oil industry years ago.
And one thing the oil industrydid and still does, is they
throw money at you almost asmuch as tech companies do.
So I was saying, why is this guydoing this?
Okay, but he's retired and hewants, yeah, okay, that makes
perfect sense.
Yeah.
(57:21):
The CU2.0 Podcast.
Welcome to the CU2.0 podcast.
SPEAKER_02 (00:05):
Hi, and welcome to the CU2.0 podcast with big new
ideas about credit unions andconversations about innovative
technology with credit union andfintech leaders.
This podcast is brought to youby Quillo, the real-time loan
syndication network for creditunions, and by your host,
longtime credit union andfinancial technology journalist,
(00:27):
Robert McGarvey.
And now, the CU2.0 podcast withRobert McGarvey.
SPEAKER_00 (00:33):
This show started out as an exploration of Jack
Henry's seventh annual strategybenchmark survey, where CEOs of
credit unions and banks revealwhat really matters to them.
It's a data-rich survey, andthere's a link to it in the show
notes.
I point out that link becausethe talk with Lee Wetherington,
senior director of corporatestrategy at Jack Henry, quickly
(00:55):
veered into what's happening inWashington, D.C., and how
changes, especially at CFPB, mayimpact credit unions.
Along the way, we discuss howthis is an age where data rules.
Open banking is coming at you,ready or not.
You probably don't know yourmembers really as well as you
think, and that's a fact.
(01:15):
And lastly, small businessrelationships probably aren't
what you think.
They may well be critical to thefuture of many credit unions.
Does that spicy stew have yourtaste buds dancing with
excitement?
It should, because this is ashow that plunges into the
unexpected, but it's stuff youneed to know about banking
tomorrow.
(01:37):
Listen up.
So in this report, there's anote about the CFPB changes in
that, how that is changing awhole bunch of things.
SPEAKER_03 (01:51):
It is,
SPEAKER_00 (01:52):
yeah.
And...
A, what's it changed, and B,have things gotten more in flux
because of the uncertaintiesaround NCUA, et cetera, et
cetera?
SPEAKER_03 (02:04):
Yes and yes are the short answers to those
questions.
Are we recording yet, or is thisjust prep
SPEAKER_00 (02:10):
talk?
Oh, I never do prep, man.
I just get into the thing.
SPEAKER_03 (02:17):
Okay, yeah, so the short answers to both is yes and
yes.
For my money, Robert, I thinkthat the biggest strategic blind
spot in the moment we're in isthe impact of this regulatory
(02:38):
upheaval that we're in themiddle of, but specifically and
particularly what's happeningwith the CFPB.
You know, the top line, and Ican speak to this because we
asked our CEOs in the benchmarksurvey about their concerns.
And this was the first time, Ithink, in the history of our
(03:02):
seven-year benchmark whereregulatory burden, regulatory
legislative concern did notbreak the top five.
It fell off the map.
And in fact, last year, 30% ofour CEOs named regulatory
legislative concerns a toppriority, whereas this year only
(03:23):
15% did.
So it dropped by half.
And that's understandable giventhe superficial take of where we
are, right?
A lot of folks, credit unionsand banks for that matter, a lot
of issues with the CFPB, withthe overreach of Director
Chopra, et cetera.
(03:44):
So if you're just kind ofskimming across the headlines,
you think, well, the CFPB is nowbeing gutted, it's being
defanged.
At the beginning, we had Elonsaying it was gonna be deleted
wholesale.
So it suddenly fell off the mapof top concerns for most
financial institutions.
Unfortunately, the CFPB, And inspecific, one of the most recent
(04:10):
rules that it put into effect onJanuary 17 is setting the stage
for a structured approach toopen banking in the United
States, right?
So this is the personalfinancial data rights rule, or
1033 as we sometimes refer toit.
Given that that rule is aboutfinancial data exchange in the
(04:33):
United States, and given thatdata is at the base of
everything, interesting,compelling going forward.
For financial institutions tosuddenly think they don't need
to be paying attention isreally, really dangerous.
In fact, if you're a financialinstitution, a credit union
below 850 million in assets,you're technically exempted from
(04:56):
the personal financial datarights rule.
And so we're seeing a lot offinancial institutions take that
and some other flags in terms ofwhat's going on in and around
the dismantling of theregulatory apparatus as a sign
to sort of just sit on yourhands until you see how
everything plays out.
(05:17):
Whereas the most progressiveplayers, this is both chartered
and non-chartered in thefinancial services space, are
seeing this as an opportunity toget really aggressive with data
plays with data strategy withdata aggregation because those
players understand that thewinners of these data wars that
(05:38):
are ongoing right now are theones who will be so far ahead of
everybody else in the three tofive year frame that it will be
difficult for everybody else tocatch up and so this is again i
think the biggest strategicblind spot Credit unions and
other financial institutions aretaking their eye off the ball
(06:00):
when it comes to regulation.
I should say this, banks more sothan credit unions.
Credit unions are suddenlypaying attention because their
tax exempt status is on theline.
So I think since GAC, that hasbeen front and center for credit
unions.
And so they're paying attentionto what's going on in D.C.
because that is an existentialthreat to most credit unions.
(06:23):
Now, we can talk about that ifyou like.
But This writ large to me is thebiggest blind spot,
strategically, is thinking that,great, Trump is giving the
regulators hell.
We're gonna see a softening ofsupervision systemically.
We don't necessarily have toworry about that regulatory
front for a while, when in myview, it seems to be maybe the
(06:47):
single most important thing youshould be worrying about,
especially if you look closelyand lean in and know that
sitting on President Trump'sdesk right now, are rather two
CFPB rules that had not yet goneinto effect, but are being
rescinded outright by Congressand got voted on by both the
(07:08):
Senate and the House.
One is the cap on overdraftfees, right?
Everybody was really, reallyconcerned about that cap.
So great, that rule has beenrescinded.
Trump's gonna sign that any daynow.
But the other rule sitting onhis desk is the one that is
really, I think, even moreimportant, perhaps, than the
(07:30):
recension of the cap onoverdraft fees, and that is the
recension of the CFPB's officialassertion that it has
supervisory authority overnon-chartered big fintechs,
payment apps, digital wallets,etc.
Back in In the December, Januarytimeframe, my friend Ron Shevlin
(07:53):
at Cornerstone fielded a survey.
He asked the credit unions andthe banks in that survey, who is
the competitor of most concern?
Which competitor or categorycompetitor presents the greatest
threat to your franchise?
And the overwhelming response inthat survey was big fintech.
(08:16):
So I say that now to contrastwhat's about to happen when
President Trump signs therecension of that second CFPB
rule, it's basically givingfintechs, the competitors, I
think, and in my own view, theseare the most threatening
competitors to chartered creditunions and even banks are these
(08:40):
big fintechs.
And so they're now looking at afour-year run, a four-year
stretch at a minimum in whichthey can really stretch their
wings and compete without anykind of material federal
scrutiny being brought to bearon them.
And in fact, the new lawyer forthe CFPB recently said, hey,
(09:05):
after we get finished guttingthe CFPB, the 200 employees that
will be left, they're going tobe focusing 70% of their time
and attention and scrutiny ontraditional financial
institutions, that is to saycredit unions and banks.
And specifically, they're notgoing to be supervising or
looking at or scrutinizingFinTech in any way.
(09:28):
So this to me is a really ironictwist.
It's a turn that I think mostfinancial institutions have not
yet paid attention to becauseagain, they're focused on other
things thinking, They don't haveto worry about the regulatory
environment or burden the waythey have in years past.
SPEAKER_00 (09:47):
I agree with that.
For some years, I've askedcredit union CEOs who their
competitors are, and they givethe obvious answer, and it's
wrong in every case.
Is the credit union down thestreet?
Is the community bank down thestreet?
No, man, it's not.
It's FinTechs and it's JPMorganChase.
Exactly.
If you don't measure thoseentities, you just don't get the
(10:09):
game.
Look at the home mortgagemarket, which used to be owned
by banks and credit unions.
Now it's owned by RocketMortgage, etc.
SPEAKER_03 (10:18):
Yeah.
And, you know, Robert, yourpoint is validated by our
strategy benchmark.
When we asked about competitorsof note, our bank and credit
union CEOs both pointed to eachother.
As the primary competitor ofnote, not the big fintechs, not
the big techs who have differentfinancial services and digital
(10:39):
wallets that they're bringing tobear that look and feel and
smell like what a credit unionwould offer.
They're pointing to othercommunity financial
institutions.
And I think you're exactlyright.
I think that is a very, very bigblind spot.
By the way, let me mentionsomething that I think is also
not fully understood in theindustry quite yet.
(11:01):
And that is this question of GenZ, you know, credit unions for,
I mean, for as long as I canremember, every year, it's, you
know, you ask them about theirtop concerns.
Typically, they're in the topthree is new member acquisition.
Right.
Because the membership isgraying.
And what are we doing tobackfill members that die off
(11:24):
with new membership coming in?
SPEAKER_00 (11:25):
This started with millennials.
Not much progress was made withmillennials.
So now the focus is on
SPEAKER_03 (11:33):
Gen Z.
Now it's on Gen Z.
And the reason why the focus ison Gen Z is because Gen Z is in
that window in which Americanshistorically.
decide who their primaryfinancial service provider is
gonna be.
Gen Z is still in that window.
Now, what is not understood isthat over the last two years,
you mentioned Chase, basicallyGen Z in terms of financial
(11:58):
service provider relationshipshas been dominated by the big
banks, the mega banks.
That has begun to turn in thelast two years.
Not a lot of people understandthat, but big bank grip on Gen Z
has has loosened in the last twoyears.
And you see those numbersbeginning to come down.
Now, the question is, where arethose displaced Gen Zs from big
(12:23):
banks?
Where are they going?
Well, they're not going tocredit unions.
They're not going to communitybanks.
They're going to payment apps.
In fact, many of them think thatpayment apps are banks, right?
Or are the equivalent of acredit union.
Two things are happening at thesame time.
One, Gen Z is still in play.
in terms of staking them forprimary financial service
(12:46):
provider status.
But at the same time, they'rebeing drawn to the payment apps.
And then if you read thatcorrectly, you would understand
that also Gen Z is the mostpayment intensive generation.
They create and generate,originate more payments per
capita than by far, than anyother generation.
(13:07):
So if you're hoping to get atoehold If you're hoping to
acquire Gen Z, the one thing youhave 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 boxthat you can check for Gen Z.
Moreover, if you're looking toacquire them, you've also got to
(13:28):
get the account opening doneright.
And what I mean by that for GenZ specifically, this also goes
for Gen Alpha, by the way, whichwe're beginning to have
conversations around them too.
If you want to acquire newmembers in that Gen Z spot, by
the way, even whatever's left ofGen Y for you to grab and Gen
Alpha coming up, you've got tohave sub three minute mobile
(13:50):
only account opening thatdoesn't require any kind of
manual KYC process that theyhave to thumb through.
And otherwise they will abandonwhatever other flavor of account
opening you're offering or
SPEAKER_00 (14:05):
attempting.
Now you just told 95% of creditunions don't even bother.
You're not going to get any ofthose customers.
No, no, no.
They do not offersub-three-minute mobile account
opening.
This is the rub.
Essentially, you just said, hey,guys, I mean, hang it up.
(14:25):
No,
SPEAKER_03 (14:27):
I'm
SPEAKER_00 (14:28):
not
SPEAKER_03 (14:33):
saying that.
(14:55):
frictionless money movementbetween accounts, that and among
accounts.
That's what Gen Z is.
If you look at just theirbehavior, their money behavior,
that's what they want.
So no, I'm not saying that.
In fact, if anything, I'm sayingnow that this is a known
formula.
Understanding the type ofmobile-only account opening that
(15:16):
I just described, that is aknown formula.
It is not beyond the grasp ofany credit union.
You can do that, but oncethey're in the door, or actually
sometimes even to get them tocome through the door, you have
to make payments easy,effortless.
You have to make sure that theycan still use, not only use all
(15:37):
the disparate payment apps,fintech apps, Coinbase, PayPal,
Venmo, Cash App, whatever.
But what you want to do throughopen banking, this gets back to
1033 and the personal financialdata rights rule.
You want to be leaning into thatrule.
You don't want to be waiting onyour official compliance
(16:00):
deadline in 2028 or 2029 as acredit union before you begin
really fully plumbing yourdigital banking platform into
these open banking rails.
So that, why?
So that you can be first andbest at asking your members for
permission to aggregate all ofthat information across those
(16:23):
disparate financial serviceproviders and apps back to
credit unions so that throughthat one pane of glass at the
credit union, they can not onlysee where they stand across all
of those apps, they can movemoney in and among and between
those apps at will from thecredit union focal point.
That to me is what we callachieving first app status.
(16:46):
And that should be the strategicgoal, especially if you
understand the importance ofdata and what must be done in
the context of this otherwisehopelessly fragmented financial
ecosystem in which the averagemember has relationships with
between 15 and 20 differentservice providers, apps, et
cetera.
SPEAKER_00 (17:06):
Yeah.
Yeah, I mean, to me, that's thebiggest change in my lifetime
was that for many, many, manygenerations, people had
monogamous relationships withfinancial institutions.
Now it's total polygamy.
SPEAKER_03 (17:19):
I agree with you.
I've been around a while myself,Robert.
How we got here is also reallyinteresting.
It's this paradox where over adecade, a couple of decades- you
find yourself in these specificsituations with specific people
in which specific amounts ofmoney need to change hands.
(17:40):
And there's one app that we'lldo 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 moneybetween and among each other,
right?
And then you fast forward andthen it's Cash App and you fast
forward and then it's Zelle.
Then you fast forward and thenit's PayPal and you fast.
(18:01):
And so this is what I call theaggregation of spot
conveniences.
actually in the end,cumulatively result in absolute
inconvenience.
You've got money, little bits ofmoney spread out over all of
these disparate apps andproviders.
And 70% of the Americanpopulation are not financially
(18:23):
healthy.
That is to say, in order toensure that an upcoming payment
event or bill payment orfinancial obligation can be met,
they're skirting across ahandful of those apps in which
they have small amounts ofmoney.
And they're logging in, by theway, it's three seconds.
They average a three secondlogin in each of these financial
(18:44):
apps.
Average smartphone has 14financial apps on it.
They're logging into each ofthose for three seconds to
figure out what the balances arein each of them respectively.
They're doing back of the napkinmath to figure out how much
money that is.
And then they're desperatelyfiguring out how much of that
money they can move as quicklyas possible to wherever the bill
payment is going to happen orthe financial obligation is
(19:06):
going to draw.
It's just a nightmare for theaverage person.
But it's weird that we got thereout of pulling the trigger on
these spot conveniences.
And now it's this completeopacity that prevents the
average person in the UnitedStates from really understanding
where they are with their moneyin any given movement.
That's what's so powerful about1033 is it finally standardizes
(19:27):
and makes more secure the APIsby which financial data gets
exchanged.
And it also eliminates thescourge of our industry, which
is sharing your credentials withthird parties to do screen
scraping.
That, to me, is actually thefirst biggest benefit that we're
all going to get by fullyplumbing into these
(19:48):
standardized, more secured openbanking rails.
SPEAKER_00 (19:51):
And that is the future of banking.
And credit union executives, Ithink, have to embrace that and
say, like it or not, this is thefuture.
SPEAKER_03 (20:02):
Right.
You have to recognize that wehave already been in the open
banking era for a while.
But in my view, it's just beenconsecrated by the structure
provided by the PFDR from theCFPB.
And then we quickly get intoquestions about politics and
(20:23):
whether or not the CFPBsurvives.
And what that means.
So a couple of points on that,Robert, just to make sure your
listeners are clear.
Rule 1033, the personalfinancial data rights rule, it
went into effect on January 17.
So it carries the weight of law.
The only way that rule getsrescinded is if Congress, like
(20:44):
it did with the The cap onoverdraft fees and with
rescinding the CFPB's assertionthat it has supervisory
authority over non-bank fintechsand payment apps, etc.
That mechanism, the CRAmechanism at the congressional
level is the only mechanism byand through which the PFDR could
(21:09):
get rescinded.
So the question then is, whatare the odds of that happening?
And the odds of that happeningare very, very slim for the
following reasons.
One, the open banking rule, thatpersonal financial data rights
rule enjoys broad bipartisan andbicameral support in DC.
Two, the megabanks that we weretalking about just a moment ago
(21:32):
have poured extraordinaryresources into building out
their own open bankinginfrastructure and building out
also a standard for financialdata exchange called, by the
way, the Financial Data Exchangeor the FDX standard, right?
They are loathe, the megabanksare loathe to see those
(21:53):
investments wasted or go by thewayside by rescinding the CFP
CFPB's 1033 rule, PFDR.
So for that reason, I don'tthink that we will see a
recension of the PFDR, the 1033rule.
We will see revisions to thatrule.
Now, the real question therecomes into who's going to take
(22:16):
the CFPB through the publicrulemaking 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 tobe 200 people working at the
CFPB versus 1,700 people workingat the CFPB, I don't know that
(22:37):
you have enough people there totake any rule through a public
rulemaking process veryeffectively, much less quickly.
There's a lot of things up inthe air, but I don't think this
rule is going anywhere.
It lays the basis for thisdata-driven era of financial
services.
(22:57):
And so those who...
don't have these blinders on andcan see there's so much chaos
and drama and flux with thisadministration that it's easy to
get distracted and morespecifically it's easy to just
sit on your hands to wait waitit out and see how it all plays
out my concern for most creditunions is that if you do that
it's your death now if you dothat and you wait these data
(23:21):
wars are going to be won andlost by the time your compliance
deadline in 2028 or 2029 rollsaround.
So that was a really good firstquestion that you asked, Robert.
SPEAKER_00 (23:34):
You mentioned briefly, let's elaborate a bit
on this, credit union tax exemptstatus.
What do you see as the futurefor that?
SPEAKER_03 (23:42):
My little birds in DC tell me, I do not see all
credit unions suddenly beingtaxed.
I don't see that.
SPEAKER_00 (23:54):
What I've said to credit unions for a generation
now is, 90% of you don't makeenough money to be taxed.
Hire a decent accountant, you'llbe fine.
SPEAKER_03 (24:05):
I think you're right.
Now that gets to a point that Ithink about a lot, which is,
especially if you look at all ofthe credit unions below 500
million in assets, right?
You look at their...
Key performance indicators, youlook at their ratios, they're
already skating on very thinice.
So suddenly to have theirfederal tax exempt status taken
(24:28):
away would be anywhere from a15% 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 justthose smaller credit unions, but
even many others that are largerthan that.
They're not accustomed to thesort of profitability
(24:52):
discipline, for lack of a betterphrase, that shareholder-driven
organizations like banks do.
you know, have to master as amatter of course.
So it would be a, like I said, Ithink an existential painful, I
ran some analysis on this acouple of months ago.
I think you see a thousandcredit unions, you know, and
(25:12):
again, this is if suddenly allcredit unions lose their tax
exempt, federal tax exemptstatus.
I think you lose a thousandcredit unions within a very
short amount of time toconsolidation and
SPEAKER_00 (25:24):
acquisition.
Yeah, that's interesting becauseI've talked to some people now
who are predicting that if thetax exempt status goes, what
will happen is there'll be twotiers of credit unions.
There'll be the big ones over abillion dollars, maybe over like
3 billion.
And then there'll be the littletiny ones under 250 million and
(25:46):
the middle will get hollowedout.
There'll be a lot of mergers.
They'll just close shop, morelikely merge one way or another
with big ones.
I had never thought of that.
But when I started to hear it, Isaid, and these are
well-informed credit unionpeople.
There might be some truth.
SPEAKER_03 (26:03):
There might be.
And I think that's a validforecast.
Now, back to the point, I don'tthink all credit unions are
going to lose money.
tax exempt status.
I just politically don't thinkthat that can be pulled off even
by this particular Congress andadministration.
Why?
Because there's 140 plus millioncredit union members around the
(26:25):
country.
I mean, in some cases, you beginto wonder whether this
administration really caresabout political damage that it
does to itself.
But I think even that is a
SPEAKER_00 (26:37):
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 pollingdata.
I don't care how MAGA I am.
I'm looking at this polling datasaying, I got to run in 18
months or something, man.
It's bad.
Yeah,
SPEAKER_03 (26:56):
that's exactly right.
So back to my little birds inD.C., my connections sort of
inside the Beltway tell me thatIf anything happens on this
front, it's going to be a tieredtargeted approach to elimination
of the tax exemption for creditunions, either over a billion or
maybe it might be higher thanthat.
(27:19):
But even if it was just creditunions above a billion in
assets, I mean, that's stillwhat 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 madefor that.
Well, they're more akin to thesize of average banks now.
They behave more akin to the waybanks behave, so let's tax them
(27:44):
the same way.
The thing that I think a lot offolks don't understand that are
not inside the credit unionindustry is how the tax
structure is is related to theownership structure, is related
to that ownership structurebeing tied to local communities
and geography.
So removing one of those thingsand still having, suddenly
(28:07):
taxing them, but they still havethe other two constraints,
again, is an existential threat,especially to credit union
leadership and boards who aren'tused to managing for sort of
bottom line positions efficiencyor trying to managing around
maximizing revenue, return toshareholders, etc.
(28:29):
They're just trying to maximize,you know, the way I try to
bottom line this for people whoaren't familiar is, you know,
banks are structured literallyto maximize return to
shareholders, whereas creditunions are structured to
minimize costs to member owners.
And so these are two completelydifferent kinds of mindsets and
(28:50):
approaches to management And itwould be a huge monkey wrench to
adjust to, to recover from forthose credit unions who might,
again, in those higher assettiers, suddenly have their
exempt status taken away.
SPEAKER_00 (29:08):
Now, what people who know a lot about credit unions
tell me, were the big creditunions to lose their tax exempt
status?
And let's say it's$10 billionand above, just a fairly select
group.
SPEAKER_01 (29:21):
Sure.
SPEAKER_00 (29:22):
Many of them would choose to demutualize as quickly
as they could learn to spelldemutualize.
Right.
SPEAKER_03 (29:33):
I think you're right.
The real question would becomewhat advantage, if that happens,
for those credit unions above$10billion in assets?
SPEAKER_00 (29:43):
As one CEO said to me, we'd have to change our
entire business model.
to function in a world wherewe're paying taxes.
And he wasn't really- In otherwords, we have to function
exactly like a bank.
Exactly.
So if we're doing that, whydon't we become a bank?
SPEAKER_03 (29:59):
Why not become a bank?
Yeah, I don't see, the mathdoesn't make sense.
If you suddenly are having topay taxes, but don't have, but
suddenly still have, and stillhave to maintain your sort of
cap on ability to raise capital,That makes no sense.
Now you're hand tied against thebanks and other entities that
(30:25):
you're competing against.
So why would you do that?
I don't think you would.
I think you'd see massconversion of those credit
unions to bank charters.
I
SPEAKER_00 (30:33):
think we'd see more of the very large mergers, which
Jack Henry has a role in FirstTech and digital credit unions.
Right.
Which when that was announced,it was like an earthquake.
It's like two big, healthycredit unions doing this.
SPEAKER_03 (30:51):
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 commonthing for sure.
SPEAKER_00 (30:57):
And particularly if they lose tax exempt status or
so I hear.
Because now suddenly you needreal scale to compete with with
the big boys on the block.
Which is
SPEAKER_03 (31:09):
interesting.
That was the number one.
finding.
That was in aggregate.
Now, if you put all of the bankCEOs and the credit union CEOs
who answered our benchmark, inaggregate, the number one
strategic priority for 2025 and2026 is efficiency.
The credit union world doesn'tthink about efficiency in the
(31:30):
same way.
In fact, you don't even seeefficiency as an
SPEAKER_00 (31:34):
official sort of track.
In a credit union, you have abig AI initiative.
And I've And you say to theexecutive who's implementing
this, well, let's lead to staffreductions.
They go, no, no, no, no staffreduction.
Then they usually say, well, youknow, there'll be normal
attrition.
And we won't fill thosepositions.
(31:56):
But the idea of firing someoneis anathema.
JPMorgan Chase does itroutinely.
It's like Jamie Dimon flossinghis teeth.
You don't want to do it, but youdo it.
Exactly.
SPEAKER_03 (32:07):
That's exactly right.
And it gets to those disparatemindsets between a bank
structure and a credit unionstructure.
You're absolutely right.
Now, the one asterisk to that isthat even in the seven-year
history of our benchmark...
Credit unions, relative tobanks, have always given
(32:28):
outsized investment to dataanalytics, automation, and even
newer, later forms of AI.
ML has always been big.
Why?
The reason why credit unionshave to actually use those tools
is because, historically,they're much less efficient.
(32:50):
That is to say, they're issuinga greater volume of lower dollar
retail loans relative to banksthat have a commercial focus are
originating fewer, higher dollarloans to commercial entities.
So for every dollar originated,a credit union really has to be
intentional.
And that is, another way ofsaying that, is efficient to
(33:11):
ensure that they can get as muchcost basis out of every dollar
originated to their retailmembers 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 oursurvey, we saw a double digit
increase for the first time inbank CEOs declaring that they
were going to increaseinvestments dramatically.
(33:31):
in AI this year.
I think that to me is anindication of everybody
beginning to wake up to the factthat we're in this data-driven
era.
And this is another hilariouspoint.
I should say hilarious.
It's probably a littlejudgmental.
On the front end of our survey,we ask to describe or
characterize your posture, yourcredit union's posture relative
(33:54):
to technology.
We ask the same thing of banks.
We ask the same question ofeverybody.
And I think it's something likeover 60% said, we're a fast
follower.
You've got 20% who are kind ofsober and honest and say, well,
we're laggards.
But most everybody says we're afast follower.
I don't think it's possible toeven be a fast follower where we
(34:16):
are in this transition to thedata-driven era, because what's
happening now is if you see areally sexy AI-driven product or
feature come out from acompetitor and you go, all
right, well, let's go just buythat off the shelf and put that
in at our credit union.
It doesn't work that wayanymore.
You have to have the right datain the right form and the right
(34:40):
place available in real time tofeed the particular model or
models that are behind thatparticular feature, product, or
service that you saw that was socompelling.
So suddenly the advent of AI hasbacked the entire industry for
the first time into having toget really serious and sober and
smart about data and about datastrategy.
And most of them have neveruttered the phrase data
(35:03):
strategy, much less have it be aregular mantra in their board
meetings.
SPEAKER_00 (35:08):
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 (35:17):
Right.
Yeah.
And then I'll tell you where, asthey're backed into those
serious and sobering questionsabout data, here's what they
learn and they realize and theyfind out is that they only have,
the average credit union, thesame for an average bank, only
has at best maybe 20 to 25% oftheir existing members' total
(35:41):
financial data.
A lot of them don't understandthat.
They think, by the way, I knowthat they think they have more.
I...
worked on a couple of surveyslast year in which I made sure
that we raised this question.
The average credit union thinksthat they have somewhere between
25% and 75% of their existingmembers' total financial data,
(36:02):
when in reality they have atbest 20% to 25%.
This is a big problem because ifyou claim to be member-centric
and you claim to be reallyserious about member service,
But you suddenly realize, wait,we only know 25% of our existing
members' financial lives andpatterns and behaviors and
preferences.
(36:24):
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 the75% of their financial data
that's scattered across these 15to 20 financial apps?
That's open banking.
That's 1033.
That's being first and best atasking for permission of your
members to aggregate back tocredit union that otherwise
(36:47):
disparate 75% of member datathat you don't have.
Because you've got to get to apreponderance of member data if
you want to do what manyconsider to be one of the most
compelling things is getting tojust sort of hyper-personalized
service and recommendations.
You can't feed a model 20% ofwhat Robert McGarvey is doing
(37:09):
with his money and then expectthat model to recommend to
Robert something that's going tobe relevant.
In fact, it may be insulting,right?
You would say, you feed thatmodel 20% of Robert McGarvey's
data, and then it's going tosuggest to Robert that he, you
know, hey, Robert, we see youdon't have an emergency savings
account.
(37:29):
Click here to open oneimmediately.
And Robert's thinking, have youlost your mind?
I've got two emergency savingsaccounts.
It's just that they're not withthis 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 allabout member-centric service and
et cetera, et cetera.
So a lot of these disconnectsare being surfaced by the AI
(37:53):
imperative of, And theneverybody backing their way into
getting sober about what datathey have, what data they don't.
And once they realize what datathey don't, then they suddenly
get very serious about how arewe going to plug aggressively
into open banking, be first andbest at asking our members for
permission to aggregate databack to credit union, and then
(38:13):
beginning to execute andprioritize on these lowest
hanging sort of use cases forour members relative to what AI
can do to make their livesbetter.
SPEAKER_00 (38:22):
Now, is your sense that some of the biggest credit
unions get what you're talkingabout.
I know many of the smaller onesdo not.
SPEAKER_03 (38:32):
So yeah, do more of the bigger ones get what I'm
saying?
Yes, absolutely that's the case.
But generally, has everybody putall of these pieces and parts
together to get a very clearstrategic window on what the
three to five year future lookslike?
No, I don't think so.
Why?
Because we've got all of thischaos and distraction.
(38:52):
around us right now.
Usually, if you think about whatis the usual stance of a credit
union or any other charteredfinancial institution with any
new rule or regulation thatcomes down the pike, it's like a
roll of the eye, a sigh, Andthen 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
(39:13):
everybody else is doing?
Figure out the cheapest, youknow, way to check that
compliance box right before mycompliance deadline matures.
That's the usual stance.
This is why I think thestrategic blind spot is so big
relative to PFDR is because thenature of what PFDR is
regulating is at the base ofwhether or not you survive in
(39:34):
the three to five year frame.
That is data.
And so that's what I'm mostconcerned about is that we
haven't connected all these dotsto why PFDR itself is so
unusually and singularlystrategic and important for the
survival of not just creditunions, but almost any player
(39:56):
going forward.
SPEAKER_00 (39:57):
Well, you made a fascinating point a minute or so
ago that credit unions thinkthey know their members, but
often they really don't.
And a couple of years ago, I hada problem.
I had a checking account withChase and I had a problem.
And the bank, the branch managerwas talking to me and she looked
(40:18):
me up on her computer.
She knew vastly more about methan my principal credit union
did.
It was all in her computer.
She said, oh, you have apersonal banker.
I said, he calls me every sooften.
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 wasvalid.
Once she looked me up, she said,okay, fine.
I'll see if I can help you.
(40:38):
My credit union couldn't dothat, sadly enough.
It really couldn't.
SPEAKER_03 (40:43):
Well, that really captures what's at stake here.
Because look, each of these 15to 20 little apps, they have
even less data on that member atthe credit union than the credit
union does.
If the credit union has 20 to25% of that member's total
financial data, that littlepayments app that they use every
(41:03):
once in a while to move moneyaround when it's convenient and
efficient, it might have 2%.
Or 3%.
SPEAKER_00 (41:10):
I have a Capital One credit card I only use at REI.
Only at REI.
SPEAKER_01 (41:16):
There you
SPEAKER_00 (41:16):
go.
I have a Chase credit card thatI only use at Amazon because I
get 5% back.
SPEAKER_01 (41:21):
Because you get 5% back, yeah.
SPEAKER_00 (41:23):
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 (41:29):
That's exactly right.
My point there is that that'sgood news.
So there's two ways, right?
Suddenly there's thisstomach-dropping realization
that you don't have nearly asmuch data on your existing
members as you thought you did.
But then the second and the sortof relief valve for that is
that, oh, wait, I have much moredata than any other of the 15 to
(41:54):
20 financial service providersand apps that my members are
using.
So it's going to be much easierfor me to ask first and best for
permission to aggregate back theremainder of that data scattered
across that financial ecosystemback to the credit union than it
is for any one of thoseindividual apps or fintechs to
ask, to aggregate everythingback to it.
(42:17):
So this is what I call the artand compliance of permissioning.
Those who understand what's atstake, Understand that,
therefore, there's urgency inthis and are the first and best
to ask.
Now, what do I mean by best?
Credit unions need to lever thetrust that they've built over
all of these decades, right?
(42:38):
Because if they realize thatthey are trusted and that they
would get a higher rate ofconsent, that of, yes, I am okay
for my credit union to aggregateback data from all these other
little apps to put it in oneplace so that the member can see
it in one place.
Yeah.
Robert, thank you so much.
(43:11):
We've noticed because we havebasic payment analytics running
in the background.
We've noticed, Robert, that youhave relationships with Venmo
and Cash App and PayPal andblah, blah, blah.
Would you like for us toaggregate, bring all that data
in so that you could see it inone place and also so that we
can detect fraud better in realtime when it occurs on your
(43:36):
account?
Robert is probably 90 pluspercent going to say yes to
that.
Yeah, there's a benefit for meand it's going to make me safer.
Great.
Now, a month goes by, that samecredit union says, hey, Robert,
Remember, we've brought all thisdata home.
You've already given uspermission to do that.
Now we'd like your permission toalso use that data to do what?
(43:59):
To make sure that we're onlyproviding you with the most
relevant recommendationsrelative to your money or
relative to next best product orservice.
Is that okay?
Robert's going to say yes tothat.
So there's this sort of buildingof permissions based first on
trust, in which credit unionsare going to be a much higher
consent rate on those permissionrequests than any of those
(44:21):
fragmented little entities thatare only holding 1% of your data
or the credit card entity, likeyou mentioned, that is only used
every great once in a while atREI.
That's a much tougher hill toclimb than the one the credit
union has to climb based on thefact that it already has at
least 20% to 25% and just needsto get a preponderance of the
(44:42):
remainder.
SPEAKER_00 (44:43):
I do think.
the big banks are much moreaggressive about trying to use
data to their best advantagethan credit unions are.
SPEAKER_03 (44:53):
For sure.
Within that week in October,when the CFPB's personal
financial data rights rule waspassed, was approved and
finalized by the CFPB, Iimmediately, I won't name them,
but I've got accounts all overthe place, including at a couple
of large banks to just monitorwhat's going on.
(45:16):
And that week, I got two datapermission requests, data
sharing permission requests fromone of those big banks.
They understand what's going on.
They understand what's in play.
They understand what they needto do to get more of the data
that they don't have.
So again, they can do morecompelling things with it to
build out those relationshipsand make them much, much more
(45:38):
sticky.
And so this is my clarion callto credit unions, wake up to
this and leverage the trust thatyou've built over all of these
decades to get those higherconsent rates, bring that
fragmented data home to thecredit union and begin
delivering even more real valueto your members who you've
(46:02):
dedicated your entire existenceto.
SPEAKER_00 (46:05):
Some credit unions have a kind of paranoid streak
where they're afraid that ifthey send you a letter saying,
hey, we've noticed that you useVenmo many times a month.
And we've noticed that you useZelle many times a month.
We have these here services thatwe think are just as good or
even better to solve theseproblems.
(46:28):
Okay, the credit union kicks insaying, won't the member be
paranoid that we're spying onthem?
And I say, well, JP Morgan isspying on me.
I know that.
It's okay by me.
SPEAKER_03 (46:41):
I understand, and this is part of the art of that
permissioning that I'm talkingabout.
For instance, I'll mention thisone.
I do have an account at CapitalOne.
Capital One, it seems like nowalmost every three weeks is
sending me a notice saying, hey,just want to make sure you're
still okay with the fact thatyou're sharing information with
Venmo or you're sharinginformation through Plaid to
(47:01):
this other provider, et cetera.
And I can say yes or no.
And this is foreshadowing sortof their own compliance with
1033.
But yeah, you have to be verydelinquent and intentional with
what you're conveying with theway you ask for what you ask or
even what you notify is alreadyhappening.
(47:22):
So this is the power of this1033 rule is that the whole
purpose of this thing is to makereal what the Dodd-Frank Act
said was true, which is that theaccount holder owns his or her
account data and they can dowith it whatever they want.
Well, the first thing you've gotto do is make transparent what
(47:43):
has been opaque all of theseyears 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 threeanymore.
And inside the credit union'smobile app, I'm going to uncheck
those three entities.
I don't want to be sharing datawith them anymore, right?
(48:04):
It puts them in control.
Just giving that transparencybolsters the trust of the entity
that's providing that pane ofglass, which I'm saying should
be the credit union.
And then with that, again,bolster trust.
They know, oh, they're lookingout for me.
They want to make sure that I'mnot sharing my data with anybody
(48:25):
I don't want to be sharing.
So when they ask me a questionabout whether or not they can
use some of this data that's outthere that I am sharing and or
aggregate back to credit unionto make me safer or to help me
get a better return on my money.
If you do it right, it bolsterstrust.
It does not diminish it orintroduce the paranoia that
(48:49):
you're talking about.
Oh, it doesn't bother
SPEAKER_00 (48:52):
me at
SPEAKER_03 (48:52):
all.
Oh, I know.
Because you and I both knowprivacy kind of went out the
door a generation ago.
I
SPEAKER_00 (49:02):
think when I was still wearing short pants, as
they would say in England.
SPEAKER_03 (49:05):
I'd like to see a picture
SPEAKER_00 (49:09):
to that.
Now, in your research survey,this jumped out at me.
80% of banks and credit unionsplan to expand services for
small businesses.
SPEAKER_01 (49:19):
Right.
SPEAKER_00 (49:19):
80%.
80%.
Now, if I'm looking at that, I'dsay, and I'm the CEO of a credit
union, I'd say, you know, maybeI don't want to expand into that
because there's going to be atraffic jam of people expanding
into this.
So why am I going there?
Why don't I find something elseto do?
SPEAKER_03 (49:37):
I'll use the phrase of my friend, Ron Shevlin.
He puts it this way.
It is the salvation of communitybanking, including credit unions
in the United States, the smallbusiness relationship.
Here's why.
We were talking about Gen Z atthe top, Robert.
Gen Z is The way to, okay, let'sget back to strategic
(50:01):
priorities.
If you ask credit unions, whatare your top three strategic
priorities?
It's basically improvingoperational efficiency is number
one.
And then tied for number two isgrowing loans and growing
membership.
Okay.
Those are the credit unions' toppriorities.
If you want to do that, you haveto go through Gen Z.
(50:22):
Okay.
I mean, well, operationalefficiency is a different thing.
There's all kinds of things youcan do that don't necessarily
track through Gen Z.
But if you're wanting to growloans and grow membership and or
grow deposits, which is not ashigh a priority for credit
unions relative to banks, all ofthat goes through Gen Z, both on
the retail side and the smallbusiness side.
Here's the blind spot here,Robert, is that most credit
(50:45):
unions don't realize that thefour to five millions new small
businesses being formed everyyear in the United States are
primarily Gen Z smallbusinesses.
That is to say, Gen Z soleproprietors with a side hustle,
a gig, a worker, an independentcontractor, et cetera.
(51:08):
That is what small businessmeans now.
That is what micro and smallbusiness means.
The average credit union doesn'tknow that 13% to 35% of the
members holding retail checkingaccounts, share draft accounts
with those credit unions areactually camouflaged micro and
small business owners, that issole proprietors.
(51:32):
And because the credit uniondoesn't recognize them as micro
and small business owners,they're not providing what they
need.
By the way, we asked thatquestion in our survey as well.
What, you know, 80%, like yousaid, 80% of credit unions and
banks are planning to expandservices to small businesses.
We said, we're not What servicesare you planning specifically to
expand?
And the number one answer ispayments.
(51:54):
Why?
Because that's the first orderof business for any micro or
small business or anybusinesses.
How do I get paid quickly andefficiently and cost
effectively?
That is, without having to payexorbitant fees.
This is what credit unions aredoing.
positioned beautifully tocapitalize on.
(52:41):
Get that money in hand, if notin real time, at a minimum same
day.
This, by the way, and I'm nothere to do commercials for the
company I work for, but this iswhat's behind a new partnership
that we've struck with Move,M-O-O-V, a first of its kind
payment acquirer processorsitting on a completely modern
(53:01):
tech stack.
We've realized working togetherthat the average credit union
has already, in its core, thedata required to automate
instantaneous approval of anymember who wants to begin
accepting payments with theirphone.
Instantaneous.
This is better than the PayFactmodel of getting approved in two
(53:23):
to four days with Cash App.
It's certainly better than themodel from 20 years ago where
you had to wait for two weekswith the bank and provide a
bunch of documentation on paper.
And so this falls into thiscategory of really powerful data
strategy on behalf of creditunions is to use that data to
give their micro and smallbusiness owning members what
(53:43):
they need to collect payments,instantaneously using their
phones.
That is the credit union'smobile banking app literally as
a point of sale device.
And then those payments, what'shappening?
Those are now incoming depositsdirectly into the credit union
instead of them being collectedby that member outside the
(54:05):
credit union at one of thesethird-party payment apps.
And here's the devastating statis that only one out of every$8
collected in and across thosethird-party apps ever makes its
way back to the credit unions.
So solving for that is exactlywhy 80% of not just credit
unions, but also banks arelooking to crack the nut on
(54:27):
small business because it is,depending on sort of which
research you read, anywhere from$150 billion revenue opportunity
to a$400 billion revenueopportunity.
If you add into it what is thenmade available by providing
payment services to smallbusinesses, you can then convert
that into really, easy,compelling finance opportunities
(54:50):
based on the payment flows thatthe credit union now has direct
visibility into.
SPEAKER_00 (54:54):
Now, I'm glad you defined today's small business,
which is totally different fromthe old definition of small
business.
I think of small businesses, itwas the prime turf for community
bankers and you'd hunt forcustomers at country clubs or
Rotary Club or Kiwanis orsomething like that.
(55:15):
And this generation, probablydoesn't belong to those
fraternal organizations.
SPEAKER_01 (55:21):
No,
SPEAKER_00 (55:22):
they do not.
And probably doesn't belong to acountry club.
They might hang out at a coffeeshop.
SPEAKER_03 (55:28):
Right.
That's exactly.
The coffee shop is the countryclub 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 creditunions, actually, everybody must
understand that the way Gen Zdoes and defines business is the
(55:50):
new definition for smallbusiness in the United States.
SPEAKER_00 (55:52):
Yeah, that's the powerful thing because I was
still looking at it through thelens of the person who owns an
electrical supply store, thatkind of stuff, an actual store
where there's rent and employeesand blah, blah, blah.
SPEAKER_03 (56:10):
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 toefficiently collect payments
across different options.
SPEAKER_00 (56:26):
Most of the Uber drivers I talk to have a
full-time job.
That's exactly
SPEAKER_03 (56:30):
right.
That's one very good example.
SPEAKER_00 (56:33):
I used a task where I have a guy who actually worked
for a big brokerage company, astock broker company.
SPEAKER_03 (56:39):
I had an Uber driver last week.
This guy was a major...
oil industry executive, whobefore that was an Olympic
champion, was sort of allAmerican at college track and
field before that.
And he's driving Uber in hisretirement for fun, but he's
doing it full time.
(57:01):
He
SPEAKER_00 (57:01):
just- Oh, I was going to add, I worked for the
oil industry years ago.
And one thing the oil industrydid and still does, is they
throw money at you almost asmuch as tech companies do.
So I was saying, why is this guydoing this?
Okay, but he's retired and hewants, yeah, okay, that makes
perfect sense.
Yeah.
(57:21):
The CU2.0 Podcast.
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