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Disruption in Agenda Financial Services

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Disruption in Agenda Financial Services 1 1 Overview of disruption in Agenda financial services 2 Possible signs of disruption 3 Moving beyond disruption 2 Section I What is Disruption? 1. What Is Disruption??? 3 4 How Fast Can an Industry Change? 5 6 7 8 Successful Disruption: GPS Devices 2004 2009 2014 Garmin StreetPilot 2620 TomTom iPhone Navigation Google Maps App App Cost: $100 Cost: Free Cost: $1,516 Source: CUNA Mutual Group Analysis 9 Kodak Could Have Been The Disruptor George Eastman with an early First digital camera developed Kodak camera model by Kodak in 1974 10 Successful Disruption: Smartphones Source: CUNA Mutual Group Analysis 11 Source: CUNA Mutual Group Analysis 12 “It took 22 years to sell 55 million MACs. It took 5 years to sell 22 million iPods and 3 years to sell as many iPhones. And so…its on a trajectory that’s off the charts.” Tim Cook, Apple CEO 13 SECTION 2 Overview Of Disruption In Financial Services 1414 The Battleground: Financial Institutions Non-Bank Retailers Competitors Financial Services Savings Lending Card Platform Companies Payments Players Investments Insurance Telecoms New Entrants Alternative Payments Source: CUNA Mutual Group Analysis 15 Themes In Retail Financial Services Disruption Disruptors seek to: • Use technology-driven business models, e.g., platform strategies Source: CUNA Mutual Group Analysis 16 Themes In Retail Financial Services Disruption Disruptors seek to: • Use technology-driven business models, e.g., platform strategies • Have a lower cost structure Source: CUNA Mutual Group Analysis 17 Themes In Retail Financial Services Disruption Disruptors seek to: • Use technology-driven business models, e.g., platform strategies • Have a lower cost structure • Find ways to bypass relevant laws and regulations Source: CUNA Mutual Group Analysis 18 Themes In Retail Financial Services Disruption Disruptors seek to: • Use technology-driven business models, e.g., platform strategies • Have a lower cost structure • Find ways to bypass relevant laws and regulations • Utilize low cost ways of moving money Source: CUNA Mutual Group Analysis 19 Themes In Retail Financial Services Disruption Disruptors seek to: • Use technology-driven business models, e.g., platform strategies • Have a lower cost structure • Find ways to bypass relevant laws and regulations • Utilize low cost ways of moving money • Aggregate customer data and monetize it Source: CUNA Mutual Group Analysis 20 Themes In Retail Financial Services Disruption Disruptors seek to: • Use technology-driven business models, e.g., platform strategies • Have a lower cost structure • Find ways to bypass relevant laws and regulations • Utilize low cost ways of moving money • Aggregate customer data and monetize it • Enter a single financial service before moving to other categories Source: CUNA Mutual Group Analysis 21 22 Startups Are To Credit Unions & Banks … 23 … What Piranhas Are To Water Buffalos 24 On The Surface Membership Growth Seems Robust Credit Union System Membership Trend In millions 114.0 109.2 105.0 101.5 98.4 96.0 94.0 92.0 92.6 89.3 90.7 87.0 88.2 05 06 07 08 09 10 11 12 13 14 15 16 17 Source: CUNA Economics & Statistics and CUNA Mutual Group - Economics 25 Below The Surface We See Some Signs of Disruption % of CUs With No or Negative Membership Growth: 2011-2017 Asset Category 70% 53% 31% 10% 9% 3% < $20M $20M-$100M $100M-$500M $500M-$1B $1B-$5B $5B+ Source: NCUA 5300 Call Report Data, CUNA Mutual Group analysis 26 Disruptive Startups Trying To Unbundle CUs & Banks Source: “How Retail Banking Should Take A Few Cues From The Software Industry”, People. Paper. Electrons, 1/30/2015 27 Disruptive Startups Trying To Unbundle CUs & Banks Source: “How Retail Banking Should Take A Few Cues From The Software Industry”, People. Paper. Electrons, 1/30/2015 28 Disruptive Startups Partnering with Financial Institutions Source: “How Retail Banking Should Take A Few Cues From The Software Industry”, People. Paper. Electrons, 1/30/2015 29 30 Nearer-Term Threat: Disruptive Financial Institutions 31 Share of Originated Personal Loan Balances Traditional Timeframe/Lender Banks Credit Unions FinTechs Finance 2017 (Through 29% 24% 32% 15% June) Full year 2016 26% 23% 30% 21% Full year 2015 27% 22% 28% 23% Full year 2012 35% 32% 4% 29% 32 Source: Transunion 11/17 Disruption Example: Florida CU Member *Note: Includes direct mail, email, online display ads Source: Competiscan; CUNA Mutual analysis 33 Demographics vs Psychographics 34 Disruption Example: Florida CU Member *Note: Includes direct mail, email, online display ads Source: Competiscan; CUNA Mutual analysis 35 SECTION 3 Signs Your CU is Being Disrupted 3636 Possible Signs Of Disruption 1 Your MEMBER VALUE PROPOSITION membership has been declining in recent years MEMBERSHIP Source: CUNA Mutual Group Analysis 37 Possible Signs Of Disruption NET OPERATING 2 INTEREST < EXPENSES Your assets INCOME per branch CAPITAL & EXPENSES have been falling steadily tied up can’t be in inefficient redeployed to branch provide new networks products & services Source: CUNA Mutual Group Analysis 38 Possible Signs Of Disruption 3 PRIMARY FINANCIAL The percentage INSTITUTION of members metric having share draft accounts MEMBER has been declining value proposition Source: CUNA Mutual Group Analysis 39 Possible Signs Of Disruption 4 EARLY WARNING SIGN Your average of disruption number of products per NEGATIVE FEEDBACK member loop has declined Source: CUNA Mutual Group Analysis 40 Possible Signs Of Disruption FUTURE BORROWER PIPELINE 5 IS IN JEOPARDY The share of members Gen Y (18-34) Loan to Share < 30 years old = Baby boomers has dropped (52-70) in recent years = = = = L/S >YOA >ROA >ROE >Asset Growth Source: CUNA Mutual Group Analysis 41 Possible Signs Of Disruption 6 WHICH “PIRANHAS” Your members’ are your members using? outbound ARE DISRUPTIVE ACH payees FINANCIAL INSTITUTIONS include Lending Club, gaining a foothold with your members? Prosper, Sofi, Wells Fargo, Chase, etc. Source: CUNA Mutual Group Analysis 42 Possible Signs Of Disruption 1 2 3 Your Your assets The percentage membership per branch of members having has been declining have been share draft accounts falling steadily in recent years has been declining 4 5 6 Your average The share Your members’ number of products of members outbound per member < 30 years old ACH payees has declined has dropped include Lending Club, in recent years Prosper, Sofi, Wells Fargo, Chase, etc. Source: CUNA Mutual Group Analysis 43 SECTION 4 Moving Beyond Disruption 4444 Disruptive Financial Strive to provide a true Institutions: 1 omnichannel experience Defining Deliver a simple, convenient 2 Characteristics user experience 3 Optimize branch networks 4 Provide tools that deliver value 5 Leverage data analytics extensively 6 Actively engage in experimentation 7 Invest, acquire and engage in strategic partnerships 45 Imitation Is The Sincerest Form Of Flattery 46 Embrace Member Centricity Provide a robust, consistent multi-channel experience Optimize branch networks Become an “analytical credit union” Actively engage in and How Can support experimentation Credit Unions Create More Make strategic build / buy / partner / Member Value? collaborate decisions Source: CUNA Mutual Group Analysis 4747 PFM Embrace Tools / Financial Patronage Dividends Rewards Member Education Programs Centricity: Examples Competitive Rates Relationship Underwriting / Pricing 48 Member Centric Experience: Reducing Anxiety is Key 49 Embrace Member Centricity Provide a robust, consistent multi-channel experience Optimize branch networks Become an “analytical credit union” Actively engage in and How Can support experimentation Credit Unions Create More Make strategic build / buy / partner / Member Value? collaborate decisions Source: CUNA Mutual Group Analysis 5050 Provide A Robust Multi-Channel Experience Percent of Individuals Using Each Channel by Interaction Type Online Mobile In person ATM PAY BILLS 69% 21% 16% 0% DEPOSIT CHECK (entire amt.) 5% 17% 60% 30% OPEN DEPOSIT 33% 19% 73% 0% ACCT. % OF CU’S* OFFERING 98% 84% 100% 97% * Credit unions with total assets > $20M Source: “Channel Effectiveness For Financial Services”, The Nielsen Company, 6/1/2016; NCUA 5300 Call Report Data 51 Embrace Member Centricity Provide a robust, consistent multi-channel experience Optimize branch networks Become an “analytical credit union” Actively engage in and How Can support experimentation Credit Unions Create More Make strategic build / buy / partner / Member Value? collaborate decisions Source: CUNA Mutual Group Analysis 5252 CU Branch Networks: Greater Efficiencies Needed 53 Embrace Member Centricity Provide a robust, consistent multi-channel experience Optimize branch networks Become an “analytical credit union” Actively engage in and How Can support experimentation Credit Unions Create More Make strategic build / buy / partner / Member Value? collaborate decisions Source: CUNA Mutual Group Analysis 5454 Data & Analytics: Financial Services Applications Customer Operational Insight Efficiency Customer Risk Centricity Management Adapted from: “Banking on Big Data: Harnessing Big Data to Drive valuable Big Decisions,” Cognizant, July 23, 2014 Underpinned by a Robust Data & Analytics Capability 55 Embrace Member Centricity Provide a robust, consistent multi-channel experience Optimize branch networks Become an “analytical credit union” Actively engage in and How Can support experimentation Credit Unions Create More Make strategic build / buy / partner / Member Value? collaborate decisions Source: CUNA Mutual Group Analysis 5656 Research
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