The Ultimate Category Killer. Carolinas Credit Union League 2015 Leadership Conference October 23, 2015

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1 The Ultimate Category Killer Carolinas Credit Union League 2015 Leadership Conference October 23, 2015

2 By definition A category killer is a product, service, brand, or company that has such a distinct, sustainable competitive advantage that competing firms find it almost impossible to operate profitably in that industry (or in the same local area).

3 By deed

4 The ultimate category killer Wal-Mart is a classic example of a category killer. By being cheaper, bigger, more convenient, and more well-known, it has an advantage over smaller stores and specialty stores. A wide selection of merchandise is a common characteristic of a category killer

5 Scale Each week, one-third of the U.S. population visits a Walmart store Largest U.S. employer and the biggest employer in 25 states 2+ million employees $500 billion annual sales

6 New and off the shelf

7 GoBank Will approve anyone over 18 Green Dot Bank Checking w/mc Debit Card No overdraft, minimum balance or monthly fees (with qualifying direct deposit) 5,000 U.S. locations, online, mobile $2.95 starter kit immediate access to MC debit card Transparent fee structure Financial advice mobile budgeting tool Send money instantly Money Vault

8 Bluebird Prepaid Direct deposits Add checks with the Bluebird mobile app Set up sub-accounts (Christmas club?) No annual fees, no minimum balance requirements and perhaps most importantly No overdraft fees. NO hidden fees there is a $2 card load fee and a $2 ATM fee (without direct deposit). No-fee MoneyPass ATM withdrawals (22,000 ATMs and growing) Free bill pay on the go Transfer money send money to and receive money from friends, family, anyone Add cash on line or at any Walmart (4,500 US locations) Easy to open and there are no credit reviews alerts

9 Who shops at Walmart? According to the data, the average Walmart shopper is a white, 50-year-old female with an annual household income of $53,125.

10 Walmart target markets Lower to middle income Millennials Credit challenged Minority

11 321 Walmart Locations in the Carolinas Compared to 931 CU branches

12 Carolina s Lower Income According to the NCUA, 63 Carolina credit unions (42%) have been designated as lowincome. More than half of a credit union s members live in census tracts that have a median family income below 80% of the Area Median Family Income (AMFI) or individual income less than 80% of Area Median Income (AMI) for a single individual.

13 Millennials The Pew Research Center defined "adult Millennials" as those who are 18 to 33 years old, born According to Pew, "Millennials are detached from institutions and networked with friends. Have higher levels of student loan debt and unemployment.

14 What the Heck?!? According to Think Finance 92% report using a bank 45% have supplemented banking activities with some form of AFS within the past year Identify the products as more convenient (42%) Lower or more predictable fees (31%) The products generally better meet their needs (30%). They were satisfied with their experience when using AFS and consider them important tools.

15 Credit challenged According to the 2014 CFED Assets and Opportunity Scorecard. 57.7% of NC and 63.6% of SC consumers have sub-prime credit

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17 Why it matters CU overdraft and interchange fee income is largest source of non interest income What happens to the bottom lines of the majority of our credit unions, those with less than $100 million in assets and lower ROAA? Walmart's entry demonstrates that FI services are just a commodity. Walmart is widely perceived as the low cost leader. Many of the product features/benefits are targeted to the fastest growing market demos: Millennials, lower income and minority.

18 How can credit unions compete vs. category killer? Offer products, services and convenience that matter for consumers AND emerging target markets: Leverage member loyalty by extending credit that builds the greatest loyalty Communicate that account opening isn t subject to ChexSystems (unless fraud record) Seek out local underserved or overlooked groups EASY no hassle account opening that take minutes and provides instant issue debit cards Prepaid debit cards Great alternative for overdraft fee conscience consumers and millennials P2P payments

19 Credit Unions and the Ultimate Category Killer Three Key Strategic Questions: How easy is it to qualify for a checking account? What percent of requests are approved/denied? Are there any underserved/overlooked groups to market to within the potential field of membership? How could the credit union compensate for declining checking/interchange fee income?

20 Thank You! Scott Butterfield, CUDE, CUCE, CCUE Your Credit Union Partner