When are Credit Unions Responsible for Financial Literacy?
In this Grow Your Credit Union episode, hosts Joshua Barclay and Becky Reed chat with Scott Prior, CEO of Connection Credit Union. They tackle the future of checking accounts, the effects of "buy now, pay later" on lending, and the crucial role of financial literacy in credit union growth. Prior shares insights on digital strategies for small budgets and the importance of financial education.
List of Resources
The Banking Crisis of 2023 is Over — Time to Get Back to the Crisis of the ’20s
The rising trend of the Buy Now, Pay Later market: How credit unions can respond
Banks and Credit Unions Must Break the Chains of Vendor Contracts
Rediscovering the value in financial education programs
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Full Transcript
Joshua Barclay:
Is the checking account still the key to unlocking a deeper, more rewarding relationship with your members? Could buy now, pay later options disrupt traditional lending models, reshaping the future of finance? Plus, we explore the untapped potential of member wellness and financial literacy as catalysts for credit union growth.
[Music]
Joshua Barclay:
You’re listening to Grow Your Credit Union – a podcast that takes you on an epic leadership quest. I am your host, Joshua Barclay, and my cohost is CU legend, Becky Reed, who did not shed a tear when the Dallas Cowboys beat the Buffalo Bills two years in a row. Becky, what’s going on?
Becky Reed:
Oh my gosh, you had to bring up the Dallas Cowboys, didn’t you? Hi, everybody. Yes, I’m a Dallas Cowboys fan. I admit it. True blue, win or lose, Dallas Cowboys fan.
Joshua Barclay:
Let’s get into the show, Becky. We are delighted to welcome our guest, the president and CEO of Connection Credit Union, Scott Prior. Scott, welcome to Grow Your Credit Union.
Scott Prior:
Thank you very much. I really appreciate the opportunity to hang out with you guys and talk fun stuff.
[Music]
Joshua Barclay:
We’re all talking about how do we get more members, how do we create a deeper relationship with the member, more product, share of wallet. I’m reading this article that talks about how in the first half of 2023, nearly half of all new checking accounts were opened with digital banks and fintechs. Not credit unions and banks. And Ron Shevlin, chief research officer at Cornerstone, said, “Banks have learned or are learning that the checking account isn’t the anchor product for a broader relationship they once thought it was.” Certainly Ron’s comment is relevant in the credit union space as well. Becky, I’m going to kick this one to you. Is the checking account still the anchor product to get a deeper relationship with your members?
Becky Reed:
What the heck if a checking account? What are checks? Do we still write checks anymore? That’s kind of my first comment. My second comment is, yes, it is an anchor product still, and it probably doesn’t need to be called a checking account. It probably needs to be called a spending account or something like that, because people still need a place to put their direct deposit, their paycheck. What they really do with the checking account now is connect all of these other things into it. It's kind of that gateway to everything that they want to do to live their life.
So, the reason banks and credit unions are losing the checking account relationship is because we make it so dang hard. Have you tried to open an account with a bank or credit union lately? It’s clunky. It’s difficult. It’s time consuming. It doesn’t make a lot of sense. It isn’t seamless. What’s happening is these neobanks and these fintechs do provide that seamless experience, right? But at the end of the day, even though you’re seeing your money in the app, it’s sitting at a bank or a credit union anyway. [Laughs] So, I’d be interested to hear Scott’s take on that.
Scott Prior:
We would love or checking to be an anchor product for us, but the reality is due to our size, it’s really hard to do that. And what we’ve found is loans are probably the anchor product. We’ve always been a lending shop, and credit unions our size, we survive off of loan interest income. Interchange income, yeah, who knows what’s going to happen there. Overdraft fee income, yeah, I’ve never relied on it, and I’m glad that I don’t rely on it.
But we do a lot of $500 credit cards and small dollar auto loans. And we do have checking accounts, and we try to keep them super simple. But we’ve found that checking is second. The loan product first, and then we try and add the checking. And we’ve found that our chances of them saying yes go up significantly because we just gave you a loan. Of course you’re going to say yes. And so we use that as a way to get that checking account. Set up direct deposit. Set up automatic payment. Make it easy to open a checking account with us.
Joshua Barclay: Scott, how do we bring in loan products first?
Scott Prior:
Well, for us, we get referrals, and that’s part of our efforts in the community and building relationships and those people that refer things to us. I’m the only small credit union in my community, and I do things differently than others do. And I give people a chance when others put up a bunch of roadblocks. So, often times, it’s that. It’s referral from either another member or a community organization. That’s, a lot of times, where those first loan products come in.
And often times, it is the $500 credit card. Our credit card is a little unique in that it’s a fixed rate. It’s 13.5 fixed rate. That’s the most you’re going to pay. And so that’s very appealing to a lot of people. We don’t do rewards. I will lose the reward game every time. So, it’s just a straightforward, simple credit card. And even with people with less than perfect credit, I look at it like if you go bad on that credit card, it’s going to hurt you worse than it’s going to hurt us.
[Music]
Joshua Barclay:
Picture this – you’re shopping online, and you stumble upon a trendy gadget you’ve been eyeing for weeks. But here’s the twist – you don’t have to pay the whole amount up front. Not only does it usually skip the dent on your credit score, but many lenders also don’t charge a dime in interest. I’ll give this one to you first, Scott. Given the allure of buy now, pay later, is it compelling credit unions to rethink and revamp their lending offerings?
Scott Prior:
I don’t think so, because I look at it like we have a job to educate our members on the true cost of buy now, pay later. If you’re not building your credit profile, you’re not building wealth. You’re not building for your future. And really, I don’t know of many real estate loans that you can a real estate loan without a decent credit score or at least some type of credit profile. So, we just try to help our members understand how money works, and where does your money go.
And we, often times, are pulling members out of those situations and really kind of getting them into the mainstream financial accounts and just kind of help them make better decisions and understanding the true cost of buy now, pay later. Because there are costs. It’s hidden. You got to dig in there. But ultimately, it’s kind of moving away from the, “I have to have it right now,” to, “Let’s think about these financial decisions we have to make and put a little more effort into them instead of just, “I have to have it right now.”
Joshua Barclay:
Could we dig really quickly into those hidden costs?
Scott Prior:
Really, the hidden cost is you are not building your credit profile at all with those buy now, pay laters. And the reality is that’s a cost because you don’t have the history. You don’t have something showing that you are trustworthy. And mainstream financial institutions still look at that credit report, so you’re not showing that you can make those payments on time. Now, there are some alternative credit scoring models that are out there that can help, but it still hasn’t replaced the typical credit score. So, it’s more of probably a lost opportunity cost, I think, more than anything.
Joshua Barclay: Becky, let’s throw it over to you.
Becky Reed:
All right, so buy now, pay later, I kind of rolled my eyes and thought that that was a fad and just a new way to wrap an old product, which is a signature loan. Okay, maybe it’s not as sexy that it has an eight percent fixed rate of 12 months or whatever. To Scott’s point, it certainly is helping to build your credit, which is something that credit unions strive to do for their members always. But the hidden cost really at the end of the day is somebody is paying for that loan.
Who do you think is paying for that? If you’re not paying interest as the consumer then the merchant might be paying for buy now, pay later so that when you come to the counter or when you’re shopping online, you see a little icon next to it that says, “Hey, you can actually finance this.”
But they don’t call it financing, but you can borrow the money to pay for this now. So, let’s talk a little bit about when the merchant or whoever is offering to sell you something offers a buy now, pay later product. So, they’re paying a software company to make the process really easy for you to buy their product. Well, they sell their product.
That’s great. They have to pay that software company for that integration and that seamless experience that the consumer has when they are visiting the store, visiting the website. Might the consumer be paying higher prices for whatever it is they’re buying in order to offer a software product that allows you to pay it over time? Yes.
And now has all your data. Right? [Laughs] Now, they have your banking account information. They have your name, your address, your social security number, blah, blah, blah. Everything that the credit union would have. But who do you trust more? The credit union or some software company that the merchant is paying to offer this product to you? Data breaches, happen much? Uh, yeah. So, that’s the real cost of buy now, pay later. So, you’re paying for it one way or another.
[Music]
Joshua Barclay:
I keep hearing a reoccurring theme – smaller credit unions are being priced out of digital transformation. What can small credit unions do to implement successful digital transformation strategies on a small budget? Becky, I’ll start with you.
Becky Reed:
All right, well, I say all the time… And Scott is going to elaborate on this topic because he has really figured this out in a very grassroots way, which I love. But credit unions are collaborative. Collaboration is our superpower. I say this all the time. CUSOs happen to be the superheroes in that particular scenario. But how might our collaborative superpower help us with vendor pricing? Scott, I’m going to hand that right over to you, my friend.
Scott Prior:
This is a fun one. It really starts with the core, and there is still so much old technology out there. Just these large providers with these legacy cash cows still dominate the small credit union market. And if you’re still peddling old tech like DAS based systems and AS/400s … I had a conversation with a guy at a conference, and he was touting the fact that they just got brand new AS/400s and how stable and secure that is. I’m like, “Are you freaking kidding me?” That is technology from the ‘80s. And I’m like our credit unions and our members deserve much better. And so we tackle this…
One, we got rid of our old legacy core about ten years ago. But a few years ago, we needed a new digital banking provider, so we went to the market. We wanted something that was decent, and we got pricing that was not affordable. So, we kind of took a step back and took a different approach. And so we joined together with six other credit unions on the same core and then went out to the market for pricing. And recognizing that the vendor wants to do six different implementations, and we said, “Well, it’s not six different implementations. In reality, it’s one implementation. 90% of the implementation is going to be the same for each of the credit unions, so price it that way.”
And what we got back was just significantly better pricing. And it’s interesting that our six came on kind of one after another each month, and so that worked really well for the vendor standpoint. I think that reflected in the good pricing, is they can bring on a group of credit unions not all at once but on a timeframe that reflects some negotiation between the vendor and the credit union. And so that is mutually beneficial. And then it’s interesting that six more credit unions from the same core came onto that same digital banking provider based on what we had done together as a group, that vendor got six more out of the same core.
And so to me, that’s like a proof of concept that this works. And so now we’re going to take that, and we’re going to go after the large legacy providers, and our focus is do not auto-renew your contract. That’s what kills so many small credit unions is the autorenewal of the contract. They don’t have the time, or the effort, or the bandwidth to renegotiate it. And some of these contracts are really tricky. But I think we can get help from some of the larger credit unions that can help with that negotiation and dissecting the contracts to figure out the keys to get in there. Those are two real strategies.
[Music]
Joshua Barclay:
I’m looking at some stats from the Milken Institute, and they’ve found that a whopping 75% of teens are shaky on personal finance basics. 41% are in the dark about what a 401K is, and 1/3rd can’t tell a credit card from a debit card. And adults aren’t faring much better. Becky, what do you think you could do to better get the word out to educate people?
Becky Reed:
This is one of those hot button topics for me, certainly. Education is important. However, I think what we have to do is, yes, certainly educate. But let’s start bringing some more modern tools, and modern products, and modern services. I talked earlier about why do we call it a checking account – because anybody who is over the age of 20 or under the age, I guess I should say, of 20, probably 25, don’t even know what a check is. They’ve never had a checkbook.
They don’t even know how to write a check. You’d have to give them a class just to write a check. Why would we do that? So, instead, why don’t we offer educational products that meet people where they are? Saving money is important. We see an epidemic in this country where people have $400 in their savings account, that’s it. It’s certainly not enough to handle something catastrophic. Then they go to predatory lenders and things like that and don’t turn to their credit union, necessarily, to help them.
Scott Prior:
One of the frustrations that we have, at least here in Washington State, is there is no financial education requirement in schools. So, we get people that go into the world at 18 and follow up on the credit offer that they got, and get sucked into a really bad world. My friend is 22 years old, and he got an offer in the mail – he was preapproved for a $4,000 unsecured loan. And how easy it is to get this unsecured loan. And all you got to do is click on the QR code, no in branch hassles.
And you read the fine print, and it’s 203% interest. So, helping people understand the fine print and education is really the best idea. We find that opportunity best after they’ve screwed something up. They’ve messed up a credit card. They have collections. And they come to us at 22, 23 years old, and maybe we help them with get restarted with an auto loan and maybe a small dollar credit card as a way to reestablish that credit. Then as we’re doing that and us willing to do that, they’re willing to listen much more than if they’re coming out and think they know everything and get caught into a bad situation with bad products.
Joshua Barclay:
It seems to me like you’re reaching people at the personal level when they have a bad outcome. Is there a way to scale this education?
Scott Prior:
I think so, and I certainly hope so. I think getting into schools is important. I had an opportunity to teach a group of eighth graders at a charter school, but it ended up being a great way to introduce a lot of the concepts. And to your point, yes, we need to all do a lot more. But the challenge is a lot of people don’t start paying attention until they think that they need something. Then they might pay attention a little bit. I see a lot of credit unions spend a lot of time and effort trying to get the attention of people on financial education, but it’s a struggle a lot of times until you really need it. And then when you really need it, then you’re going to pay attention. So, I think it’s being there in those moments when they’re open to learn. That’s where the opportunity is.
Becky Reed:
Josh, one of the things that we did at Lonestar that was kind of interesting as it relates to education… So, if you’re educating somebody on the front end… And Scott mentioned. They haven’t really run into a problem, they might not be as receptive to education. But when they have a problem, when they got into an overdraft situation, where their checking account is negative, or they haven’t paid their car loan in a month, what we found was the collections department was actually a fantastic avenue to educate people. The collector… And we even renamed it to member support. So, the member support advisor would call the member and say, “Hey, here’s the situation. Let me give you some advice. Let me provide you with some help.”
That really was a game changer, and I actually saw our member support advisor manager have a member come in and give him flowers and give him a hug, and tell him that he changed her life. Because she was going to lose her home, and he helped her go through a process… No judgement. We’re not here to judge.
We’re here to help. If you’ll just listen to me and pick up the phone, or if you’ll just talk to me and not hide then we can work together through this. And that’s a great place that some credit unions potentially miss. That’s an area that’s often see as a negative area of the credit union that people don’t like. But it’s really a place, I think, where the rubber meets the road from an educational perspective.
Scott Prior:
I’m going to add onto that. We’ve renamed our collectors account solutions, and our collectors are certified credit union financial counselors. We found that as a really good education piece for them because they are providing that education and helping members through it. So, very similar to what Becky does is we’ve invested in our collectors and making sure that they know how to provide the financial education to our members. Because, again, that’s when they’re going to listen, as compared to other times.
Joshua Barclay:
Let’s get into the end of the show. I want to thank my guest, Scott Prior, and of course my cohost, Becky Reed. Scott, do you have any final thoughts, and how can our listeners get in touch with you?
Scott Prior:
You can go to connectioncu.org is our website. My email address is scottp@connectioncu.org. No S. There is a Connections Credit Union in Pocatello, Idaho. That’s not us. And I just appreciate the opportunity of kind of share this information and what we’re trying to do. I’m excited for the future of small credit unions. I think we…there is tremendous untapped potential for us to join together and also to join with larger credit unions.
We’ve had some success there. And just kind of break down some of the barriers and walls that are in our industry and just be able to help our small credit unions. And in turn, that’s going to really help our communities in ways that no one else can. That’s what I don’t think people realize about the small credit unions is we’re engrained and integrated into the communities and do things in our communities that no one else wants to do.
For example, I’m working on a program for people recently released from incarceration and a fresh start banking program, and I am super excited about that. But I can only do that by partnering and joining with others, and that’s the fun part of the job.
Joshua Barclay:
Becky, last thoughts.
Becky Reed:
Scott is a true leader and the epitome of grassroots collaboration at a financial cooperative. I think that we can learn some leadership lessons from Scott because he doesn’t just talk, he walks the walk. And I think that’s pretty special.
Joshua Barclay:
I want to give a special thanks to our listeners. If you like the podcast, please subscribe and share the show with your colleagues or friends. And if there is a topic you’d like us to discuss on the show, you can email us at info@growyourcreditunion.com. Take it easy, and we’ll see you on the next show.
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