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CUNA Mutual Group Proprietary Reproduction, Adaptation or Distribution Prohibited © CUNA Mutual Group
The Battle for the American Consumer
Utah Credit Union AssociationAnnual Meeting and Convention
Steve Heusuk, Sr. Manager StrategyMarch 14, 2014
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Agenda
• Who are the players battling to provide financial products and services to American consumers?
• Why is customer centricity the common battle cry?
• How can we achieve cooperative member centricity?
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I. The Battleground
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Financial Institutions
Retailers
Platform Players
New Entrants
Alternative Payments
Telecoms
Card Companies
Non-Bank Competitors
The Battleground
Savings Lending
Investments Insurance
Financial Services
Payments
Source: BDU Analysis
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Key Competitors - 2014
New EntrantsTelecoms
Retailers
Alternative Payments Source: BDU Analysis
Platform Players
Financial Institutions
Card Companies
Non-Bank Competitors
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Case Study: Retailers
Source: MCX, BDU Analysis
Ambitious Plans Speed Bumps or Deal Breakers?
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Case Study: New Entrants
• Leading P2P lender– Provides loans to prime consumers that are funded by investors at the time of origination– Loans originated by WebBank, a Utah-based ILC
• Google took a $125M stake in the company in May 2013
• Majority (81%) of borrowers using their loans to consolidate debt / pay off credit cards
• Facilitated $258M of new loans in January 2014
Source: Lending Club, lendacademy.com
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Case Study: Alternative Payments
"We challenged ourselves to find a better experience than swiping a credit card. We figured the only better way to pay would be to do nothing. Just walk in a store, and, like magic, when you're ready to
pay, money is transferred securely. No wallet. No card.
Not even touching your phone.“
- David Marcus, President, PayPal
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Case Study: Telecoms
• Marketed as a checking account substitute– Issuer is Bancorp Bank– Servicer is Blackhawk Network
• Combines a smartphone app (iOS or Android) with a branded prepaid Visa card
• No maintenance fees, minimum balances or activation fees
• Also, no fees for:– Bill payments– Remote check deposits– Withdrawals at one of T-Mobile’s 42,000 in-network
ATMs– Reloads at T-Mobile stores (non-T-Mobile customers
would pay additional fees)– Funds transfers to other T-Mobile Mobile Money users
Source T-Mobile
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Case Study: Non-Bank Competitors
Source: Mercedes Benz, credit.ford.com, CAT Financial
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II. Customer Centricity
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Customer Centricity Bandwagon
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Customer Centricity Defined
“A way of banking based on trust and fairness
that uses knowledge of customers to meet
their needs and achieve sustainable, valuable,
long-term relationships.”
- Boston Consulting Group
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Why The Need For Customer Centricity?
• Increased competitive pressure
• Declining loyalty
– Increased switching between financial institutions
– Growing number of banking relationships per consumer
• Shifting product needs
– Economic conditions
– Changing attitudes and demographics
• Convenience driving channel shifts
– Mobile growing rapidly (but, traditional channels remain important)
Source: BDU Analysis
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Declining Loyalty For Banks
0%
10%
20%
30%
40%
50%
60%
Yes No, but I amplanning to
change
No
Have you ever changed your main banking provider?
2011 2012
0%
10%
20%
30%
40%
50%
60%
One Two Three Four orMore
How many banks do you bank with?
2011 2012
Source: “The Customer Takes Control - Global Consumer Banking Survey 2012”, Ernst & Young, 2012.http://www.ey.com/Publication/vwLUAssets/Global_Consumer_Banking_Survey_2012_The_customer_takes_control/$FILE/Global_Consumer_Banking_Survey_2012.pdf
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CUs Enjoy High Levels Of Consumer Trust
0% 20% 40% 60% 80%
National Banks
Local Banks
Credit Unions
Dec. 2012 Dec. 2009
0% 20% 40% 60% 80%
PNC
ING Direct
Regions
TD Bank
A Credit Union
USAA
Chicago Booth / Kellogg SchoolFinancial Trust Index 2013 Temkin Trust Ratings
Source: Chicago Booth / Kellogg School Financial Trust Index; 2013 Temkin Trust Ratings, Temkin Group
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But Struggle With Wallet Share
$-
$3,000
$6,000
$9,000
$12,000
$15,000
Highly Loyal Members Less Loyal Members
CU Members’ Average $ in Outstanding Loans With CUs vs. Banks
Loans Outstanding with Credit UnionsLoans Outstanding with Banks
Source: “Loyalty Drives Profitability”, Credit Union Magazine, Aug. 2013
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Customer Centric Positioning
Customer-centric, not product-centric
We start with what the customer needs—not with what we want to sell them. We also want to
offer our products to customers in ways that are most convenient to them.
Bank like you live
We’ve never thought of ourselves simply as a bank.
We’re really more like knowledgeable neighbors, the kind you invite over for a cup of coffee, seek advice from and chat with over the fence. And
we’re here to help you bank like you live.
When was the last time your bank made you feel valued?
At Webster, we’re more than your bank. We’re your partner. We work with you to understand
your needs, listen to your concerns, and help meet your
goals.
Source: Company websites
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Peppers & Rogers’ Journey to Customer Centricity
Insight
• Customer Data Strategy
• Customer Segmentation
• Customer Behavior Prediction
• Customer Lifetime Value Analysis
• Retention Analysis and Prevention Strategies
• Campaign Analytics
• Segment Investment Planning
Strategy
• Corporate Strategy and Business Unit Strategy
• Customer Centricity Roadmap
• Portfolio Management Strategy
• Contact Center Strategy
• Business Planning and Feasibility Studies (Business Case Development)
Business Design
• Customer Experience Management
• Sales / Service Model
• Channel Management
• Distribution Network Management
• Sales Force Management
• Campaign Management and Marketing Programs
• Loyalty Programs
Capabilities Development
• Organizational Structuring
• Customer-centric Processes
• Business Requirements Gathering
• Performance Management
• Customer Centricity Metrics
• Cultural Change Management
• Business Change Management
Deployment
• Program Management Office
• Deployment Management
• Organizational Transformation and Alignment
• Training and Empowerment
Custom
er FocusPro
duct
Foc
us
Source: “Retail Banking: A Transformational Model for Growth Using a Customer-Centric Approach”, Peppers & Rogers Group. 2011.http://www.peppersandrogersgroup.com/DocumentDownload.aspx?Doc_ID=33296
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III. Seven Steps to Cooperative Member Centricity
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Seven Steps To Cooperative Member Centricity
1. Implement a data strategy
2. Understand members’ differentiated needs & behaviors
3. Anticipate and meet member needs
4. Adhere to a sustainable financial model
5. Deliver service excellence
6. Enliven member democratic control
7. Don’t forget about product & price
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Step 1: Implement A Data Strategy
Factors driving “Big Data”:
• Volume – growing exponentially
– Walmart alone has captured 2.5 petabytes (PB) of data » 1 petabyte = 1 quadrillion bytes = 20 million filing cabinets of text
• Variety – more data types and sources than ever
• Velocity – accelerated data flow converging on real-time
- By 2014 ~2/3 of data analytics will be done in real time
- Customer demographics
- Account balances
- Transactional
- Product usage
- Click streams / browsing data
- Social media
- Geo-locational
Source: “Peer Research - Big Data Analytics”, Intel IT Center, Aug. 2012
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Data Volume Growing Exponentially
Source: “The Digital Universe in 2020: Big Data, Bigger Digital Shadows, and Biggest Growth in the Far East”, IDC, 12/2012
Digital Information:Measurement Units
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0
200
400
600
800
Util
ities
Tran
spor
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n
Insu
ranc
e
Edu
catio
n
Ret
ail
Pro
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iona
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ervi
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Secu
ritie
s an
dIn
vest
men
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ervi
ces
Hea
lth C
are
Pro
vide
rs
Ban
king
Com
mun
icat
ions
/M
edia
Peta
byte
s*
Stored data by U.S. Industry, 2009
Data Capture By Industry
* 1 Petabyte = 1M Gigabytes Source: “Big data: The next frontier for innovation, competition, and productivity”, McKinsey Global Institute, June 2011
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Examples Of Applied Data
Source: “Customer Analytics Is Key To Growth In Banking”, Bank Marketing Strategy blog, June 6, 2013; IBM; Celent
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Step 2: Understand Members’ Differentiated Needs & Behaviors
• Two segments may perceive different value from the same product
• Segments are defined by:
– Attitudes
– Behaviors
– Demographics
• Segmentation process:
– Define segments
– Determine which segments resonate with your value proposition
– Target those segments
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Penetration of Credit Union MembersConsumer Segments
Example Of Demographic Segmentation
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Example Of Attitudinal Segmentation
Segment X Segment YAverage Household Income
$105K $101K
Age (% 45+ years old) 56% 46%
Attitude About FinancesI am in control of my finances (% agreeing)
98% 62%
Generally, I live from paycheck to paycheck(% agreeing)
14% 67%
% Having a Checking Account Through a:Bank 83% 72%Credit Union 27% 33%
% Obtaining Their Auto Loan Through a:Bank 19% 26%Credit Union 13% 14%
Average Savings / Investable Assets $236K $98K
Source: Ipsos; CUNA Mutual AnalysisNote: Above results are for illustrative purposes only. Findings are dated (2009). Significant difference are bolded.
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Successful Segmentation
“At the very minimum, a segmentation should answer the following questions in order to be successful:
• Which consumer segments represent the largest profit pools in our category?
• What is our share of wallet across segments today?
• How should we prioritize the various growth opportunities within and across segments?
• What messages and offerings will command the attention of these consumers?
• What changes in product offerings, service, and brand perception should we make in order to increase share among targeted segments? How are these changes best achieved?”
- “Consumer Segmentation”, The Boston Consulting Group, 7/22/2008
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Step 3: Anticipate And Meet Member Needs
Source: “Wells Fargo Beta Tests Cash-Flow Projection Tool for Consumers”, American Banker, 2/20/2012
• Predicts how customers’ financial situation will look 30 days out
• Leverages available customer data, e.g., scheduled bill payments and direct deposits
• Can augment with customer’s own data
Wells Fargo’s Cash Flow Monitor
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Predictive Modeling: Wells Fargo’s Predictive ATMs
• 500 deployed across the country in February with all 12,000 Wells Fargo ATMs to be converted by the end of May
• Touchscreen ATMs with 5 customizable buttons based on the customer’s ATM usage and preferences
Source: “Wells Fargo ATMs Can Predict What People Want”, thefinancialbrand.com, 2/20/2012
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Step 4: Adhere To A Sustainable Financial Model
Objective: Ensure your financial model supports sustainable growth for the long term
Key:• Your cost structure and revenue model must support your
value proposition• Emphasize lifetime value of the member
– Treacy & Wiersema: Companies that excel at Customer Intimacy focus on customers that have deep relationship potential
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ROE Represents The Sustainable Growth Rate
X
ROA Leverage ROE
Net IncomeAssets
AssetsCapital
Net IncomeCapital
=
ROE = Sustainable GrowthThe fastest a CU can grow assets without affecting its capital ratio.
~ Inverse of Net Worth RatioProfit Margin * Asset Turnover
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Key Theme: Lack Of Scale
Note: Each dot represents a single credit union Source: NCUA Q4 2012 5300 call report data and CUNA Mutual Group analysis
Operating Expense/Average Assets by Total Assets: Top 1,500 CUs
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Deep Customer Relationships
“Deeper, long-lasting customer relationships can
mean greater revenue, higher customer lifetime
value, lower relative customer acquisition costs
through lower churn, and greater share of wallet.”
- “How Customer Intimacy Is Evolving To Collective Intimacy, Thanks To Big Data”, Forbes.com, Joe Weinman, 6/4/2013
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Step 5: Deliver Service Excellence
Baseline: Ensure you have the channels in place your members prefer
Objective: Provide consistent, excellent service across all products and channels
Measurement: Monitor member satisfaction in a way that is quantifiable and actionable
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Building Sustainable Trust
“The consistency of the customer experience is key, because
consistency enables trust, and trust is a fundamental
enabling condition for the development of productive and
authentic relationships”
- Rita Clifton et al., Brands and Branding
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Prioritization Is Key – Prof. Frances Frei
Impo
rtanc
e to
the
cust
omer
Impo
rtanc
e to
the
cust
omer
High
LowHigh
High
LowHigh
Performance Relative to Competition
Performance Relative to Competition
1 2 3 4 5 1 2 3 4 5
1
2
3
4
5
1
2
3
4
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Excellence Mediocrity
“If you try to be good at everything, you will run out of money long before you will succeed. Not a recipe for success.”
What have you decided to not be good at?Source: “Credit Union Financial Sustainability: A Colloquium at Harvard University”, Filene Research Institute/Prof. Frances Frei, 2011http://filene.org/assets/pdf-reports/231_Harvard_Sustainability.pdf
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Focus Investments On Members With Most Potential
“I don’t know the key to success, but the key to
failure is trying to please everybody”
- Bill Cosby
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Step 6: Enliven Democratic Member Control
Key: This is the one item banks cannot touch
Question: Is democratic member control a true differentiator?
Question: If so, how can we build upon this competitive advantage?
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Cooperative Principles: How Differentiating to Consumers?
Cooperative Principles Stock Company Analogues
Voluntary and Open Membership • Sam’s Club• American Express
Members’ Economic Participation • Discover Card 5% Cashback Bonus• My Starbucks Rewards
Autonomy and Independence• Some community banks, e.g., West Shore Bank’s
core value of “independence”• LPL Financial – “largest independent broker-dealer”
Education, Training and Information • US Bank – “Financial Genius” program• Bank of America – Financial education website
Cooperation among Cooperatives • Costco Services – Ameriprise Insurance, Aetna• Walmart – MetLife, Greendot, Amex
Concern for Community • Target’s Take Charge of Education program• Ronald McDonald House Charities
Democratic Member Control • NONE
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Structural Differences
For–ProfitCustomer Centric Attributes Cooperative
Member Centric
Shareholders Ownership Members
One Share, One Vote Governance One Member, One Vote
Potentially High Concentration ofControlling Interests Low
Return to Equity Economic Participation Return to Member
Stock Price Key Driver Member Value
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Step 7: Don’t Forget About Product & Price
Middle ground of mediocrity:Trying to lead
on all fronts
Source: The Discipline of Market Leaders, Michael Treacy & Fred Wiersma, 1995
Product InnovationLeadership
Operational Efficiency
Leadership
CustomerCentricity
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A Distinct Value Proposition
CooperativeMemberCentricity
Middle ground of mediocrity:Trying to lead
on all fronts
Product InnovationLeadership
Operational Efficiency
Leadership
CustomerCentricity
1) Full Product Set Relevant to Customer
Segments
1) Full Product Set Relevant to Customer
Segments
2) Competitive Pricing Based on Competitive Cost Structure2) Competitive Pricing Based on Competitive Cost Structure
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Customer Intimacy Comes Full Circle
“Customer intimacy begins with putting the
customer at the heart of the organization.”
Heena Jethwa, Senior Product Marketing Manager, IBM
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Recap: Seven Steps To Cooperative Member Centricity
1. Implement a data strategy
2. Understand members’ differentiated needs & behaviors
3. Anticipate and meet member needs
4. Adhere to a sustainable financial model
5. Deliver service excellence
6. Enliven member democratic control
7. Don’t forget about product & price
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Important Disclaimer
CUNA Mutual’s analysis is based upon certain publicly available information and data, including NCUA 5300 Reports, and is subject to risks, uncertainties and other factors which could cause actual results or performance to differ from the future results or performance expressed or implied in this analysis. We disclaim any representation or warranty, express or implied, as to the accuracy or completeness of our analysis, as well as any obligation to update our analysis. Each recipient should conduct its own independent analysis of relevant information and data, and should base any business decisions upon such independent analysis.
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