The Decision Maker

The “Big Four” vs Credit Unions – A David and Goliath Story

Posted by Austin Wentzlaff on Nov 20, 2014, 11:57:47 AM


In my most recent blog post, “A Lesson from Amazon & Uber: How to Transform Data into Your Most Valuable Asset”, I discuss the ways in which data is changing how we interact with retail institutions.  Rather than interacting with a physical, brick-and-mortar location, we now see retailers such as Amazon championing a more online/mobile approach.  The reason for this fundamental shift is the growing realization that data is the most valuable asset a company possesses.  It provides valuable insights into customer behavior at a much lower cost than physical expansion, resulting in a higher return on investment (ROI) for the company.

Big Data and Mobile Banking

As mobile banking continues to gain traction, data is generated at an alarming rate.  By leveraging Big Data/Analytics, this data will give retail banking institutions powerful insights into their members, allowing them to create relationships without the need for physical interactions.  As this happens, people will start visiting their physical branch less (much like people are doing with other retail institutions…think Amazon vs Borders Books).  A decrease in need for physical branches will require financial institutions to close down unprofitable, obsolete branches.  The resulting process is incredibly costly and is often accompanied by public or governmental backlash.

“…despite the estimate that as many as 25 to 30 percent of branches are unprofitable, many banks are holding on to branches because of expensive, long-term leases or because past renovations have not been fully depreciated. In addition, it is estimated that the cost of closing a branch is as much as $500,000.”  -- Jim Marous, Banks Can’t Close Branches Fast Enough

Credit Union Advantage: Fortunately for Credit Unions, they don’t have an extensive matrix of branches spread throughout the world like the “Big Four” banks do.  As bigger banks struggle to downsize their unprofitable branches, credit unions will be able to focus on expanding their member base through mobile.  With the use of mobile banking, members carry their branch with them wherever they are in the world. Utilizing the mobile application space allows small credit unions to acquire and retain members just as efficiently and effectively as the big banks.  It’s no longer a battle of geographical location for credit unions as long as data is a leveraged asset.

Data is the Most Valuable Asset

In terms of gathering valuable insights, more data is better.  It is much easier to make an inference about someone’s behavior when you have the data to back it up.  Because of this, it would be easy to assume that the “Big Four” banks have a serious advantage over their smaller counterparts, which they do.  On an individual basis, the “Big Four” have a plethora of data that can be leveraged to attract and retain more members through enriched relationships.  In the financial services industry as a whole, however, credit unions have a secret weapon.

Credit Union Advantage: Credit Union collaboration is an incredibly powerful advantage.  Unlike the rest of the financial services industry, credit unions want each other to succeed.  They are more focused on the bigger picture of the Credit Union Movement than their individual organizations.  Without collaboration, a single credit union doesn’t stand a chance in a one-on-one battle up against a “Goliath” bank in terms of data analysis.  But with it, The Credit Union Movement makes banks such as Citigroup much less threating. 

With an industry standard data model, it is possible for credit unions to link up and form a data pool which allows them to act as one entity.  The “Big Four” might have the lion’s share of the US market but they are working against each other.  Citigroup’s data is meaningless to Wells Fargo and vice versa.  Therefore, the data gathered by the Credit Union Movement as a whole will be comparable to that of an individual “Big Four” bank, giving credit unions a fighting chance against their larger, data-rich counterparts.

Big Data and Analytics is a Necessity

Without big data and analytics, these two credit union advantages are useless.  Big data will play a serious role in the “new” way of banking.  The insights gained from the data created through mobile banking will prove to be the most value asset any bank possesses.  Think of the valuable member information created from mobile payments (e.g. - Apple Pay).  You can either use big data and analytics to analyze your member’s data and gain a better understanding of their behavior or someone else will.

Credit unions as a collaborative industry generate a considerable amount of data that provides them with some of the greatest insights in the financial services industry.  Without big data and analytics, however, all of that data is useless.  There will be no opportunity to pool data and credit unions will be forced to compete with the Goliath banks on their own.  Credit unions need to let big data and analytics be the sling and stone in their fight against the Goliaths.

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Topics: Big Data, Digital