THE NEXT 10 YEARS:
INTRODUCTION The ecosystem matters, and the global financial ecosystem is incredibly large and incredibly complex
DISRUPTORS Technological disruption, increased regulation, changing consumer behaviors, and asset-growth will be topics of constant discussion for credit union leaders.
INTRODUCTION In the next 10 years, areas that will see the most dramatic changes include: Consolidation/Mergers Payments Technology Lending Regulation
CREDIT UNION FORECAST 2025
DISRUPTORS: WHAT DO THEY LOOK LIKE? CONSOLIDATION PAYMENTS REGULATION TECHNOLOGY LENDING?????
FINANCIAL SYSTEM IN 2025 2014: 315 Source: https://www.fdic.gov/bank/statistical/stats/ http://www.ncua.gov/legal/rptsplans/pages/iag.aspx
FINANCIAL SYSTEM IN 2025 Since 1998 CUs -158% Assets +242% Prediction: Credit unions will continue to decline by 10 20 credit unions per year Source: NCUA 5300, 200-2014
FINANCIAL SYSTEM IN 2025 Competing on: Corporate social responsibility Sustainable businesses Environmental impact 55% of global online consumers across 60 countries willing to pay more for products and services provided by companies committed to positive social and environmental impact Source: http://www.nielsen.com/us/en/pressroom/2014/global-consumers-are-willing-to-put-theirmoney-where-their-heart-is.html
FINANCIAL SYSTEM IN 2025 Millennials overwhelmingly believe. Businesses are focused on their own agendas rather than helping to improve society (75%) Large global businesses are unappealing in developed markets (35%) compared to emerging markets (51%) Source: http://www2.deloitte.com/content/dam/deloitte/global/do cuments/about-deloitte/gx-wef-2015-millennial-surveyexecutivesummary.pdf
FINANCIAL SYSTEM IN 2025 Source: GABV Report March 2012
FINANCIAL SYSTEM IN 2025 The most attractive segments: Consumer lending (Prosper, LendingClub) -- Peer to peer loan issuances on the two biggest networks jumped from US$26 million in 2009 to more than US$1.7 billion in 2014 Small business lending (Kabbage, OnDeck) -- Alternative lenders have higher commercial loan approval rates (62%) than small banks (50%), credit unions (43%), and big banks (21%)
FINANCIAL SYSTEM IN 2025
+ NIMBLE STARTUPS THAT MATCH MEMBERS DIGITAL SHIFTS
FINANCIAL TECHNOLOGY IN 2025 -- Rerouting Networks Mobile phones with instant Internet access don't require a traditional payment network to move money.
FINANCIAL TECHNOLOGY IN 2025 -- Those with low household incomes less likely to have home-internet access = smartphone dependency? 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1st Quintile 2nd Quintile 3rd Quintile 4th Quintile 5th Quintile Home Computer Internet Use from Home Source: Pew Research Center, 2014
FINANCIAL TECHNOLOGY IN 2025 -- Likely: Income key predictor of smartphone dependency 35 Percentage of Households by Quintile with ONLY a Cellphone (no landline) 30 25 20 15 10 5 0 First quintile Second quintile Third quintile Fourth quintile Fifth quintile Source: Pew Research Center, 2014
FINANCIAL TECHNOLOGY IN 2025 -- Goodbye ATMs As mobile rises, ATMs will phase out over the next 10 years, mainly by attrition -- A la carte Pricing Services like remittances, wires, and foreign exchange will start to come with Blockchain technologies that push the wholesale prices close to zero
FINANCIAL TECHNOLOGY IN 2025 -- Mobile identity The smartphone won't just be about transactions. Location features and the camera will allow FIs to run credible Know Your Customer screens entirely remotely
FINANCIAL TECHNOLOGY IN 2025 Source: 2013 Federal Reserve Payments Study
FINANCIAL TECHNOLOGY IN 2025
PAYDAY LENDING IN 2025 Every year, up to 2.5 million Canadians use payday loans $2.5 bln in loans = $1000 per person Source: Technology, Media & Telecommunications Predictions, 2015. Deloitte.
CREDIT UNION ECOSYSTEM IN 2025 Movement? System? Industry?
CREDIT UNION ECOSYSTEM IN 2025 -- Consolidation System will consolidate ownership of wealth management, payments, and other system-owned entities. Ownership of system entities may depart from co-operative form.
CREDIT UNION ECOSYSTEM IN 2025 Survey of CEOs: Credit Unions in 2025 Were Source: Filene Survey, 2015
CREDIT UNION ECOSYSTEM IN 2025 Survey of CEOs: Credit Unions In 2025 Had Source: Filene Survey, 2015
CONSUMER BEHAVIOR IN 2025 With their purchasing and borrowing decisions, consumers will lead financial decisions over the next 10 years. Dramatic changes in their spending, their payment behaviors, and their desires to own or simply access expensive assets like homes and cars, will make it harder for credit unions to rely on traditional products for profitability
CONSUMER BEHAVIOR IN 2025 -- Sustainability Renewable energy and resource conservation will explode in importance with the changing generations, aiding credit unions that support such initiatives at the product (not just the institutional) level Look for more loans that reward sustainable purchases and underwriting that considers environmental and social benefits
CONSUMER BEHAVIOR IN 2025 -- Mobile First (Wearables Too) Situationally aware banking apps will help members make financial/spending decisions
CONSUMER BEHAVIOR IN 2025 -- Car Ownership Shifts Millennials are less likely to own 2-3 cars. They won t go straight to Uber, but auto growth will decline
CONSUMER BEHAVIOR IN 2025 (3) Owned Autonomy High tech, individually operated Tesla, Mobileye (4) Shared Autonomy Autonomous, PODS Google, Apple, Uber 2.0 Asset Owned Asset Shared (1) Today 100 yr. old model Original equipment manufacturers, Suppliers, Rentals (2) Shared Economy Low tech, shared assets Uber, Lyft, Sidecar Source: Morgan Stanley, 2015
CONSUMER BEHAVIOR IN 2025 -- Rise of the Family Account As more families take responsibility for aging relatives and concerns about elder abuse proliferate, look for more robust family accounts. On/Off switches for viewing privileges and control privileges Source: Pew Research Center, 2014
CONSUMER BEHAVIOR IN 2025 Source: Pew Research Center, 2014
Multi-generational households on the rise here too, especially with indigenous peoples
Source: new-homes.lennar.com
Source: http://www.limra.com/posts/pr/news_releases/total_ U_S Annuity_Sales_Improve_Three_Percent_in_201 4.aspx
Source: http://www.limra.com/posts/pr/news_releases/total_ U_S Annuity_Sales_Improve_Three_Percent_in_201 4.aspx
CONSUMER BEHAVIOR IN 2025 -- emortgages QuickenLoans and aggregators like LendingTree have proven that a face-to-face transaction is no longer a given. In the United States in 2012: 50% of lenders took more than 25% of their mortgage applications online 61% of applications submitted through third-party underwriting systems were approved online
CONSUMER BEHAVIOR IN 2025 -- Algorithmic Banking Saving, spending, and revolving debt will be subjected to informational algorithms for optimized decisionmaking. Startups like Earnest, and Affirm are already exploring alternative underwriting schemes that rely on a mosaic of data beyond a traditional credit score
REGULATION IN 2025 -- Rising Leadership Standards As credit unions grow and take on different kinds of risk, regulators expect credit unions to recruit directors with the appropriate skill sets to ensure the institution's soundness. These expectations challenge the credit union s co-operative structure.
REGULATION IN 2025 -- Regulatory Burden Driven by an increasing political and economically unstable global environment, policymakers impose an increase amount of regulatory requirements around tracking the flow of money (e.g., Common Reporting Standard, AML/ATF, Privacy Legislation)
REGULATION IN 2025 -- Social Reporting As consumer protection and addressing pressing social and environmental needs continue to grab the attention of policy makers, by 2025, credit unions will be required to submit at least a few key indicators of social and environmental impact statements along with financial reporting.
REGULATION IN 2025 -- Taxation Against a broad-based policy push to simplify the federal income tax act, credit unions successfully advocate for a new tax credit that recognizes their cooperative form.
LENDING IN 2025 -- Brokers Bust? FinTech will squeeze mortgage brokers out of the equation. Front-end origination will move away from financial institutions to consumer technology innovators
LENDING IN 2025 -- Big Auto Shakeup The global auto market is a $2 trillion industry that everyone from Tesla, to Google, to Apple, to all the existing incumbents is dying to dominate. Watch as shared economy bites away first at urban dwellers and then spreads everywhere. And not too much later: autonomous cars that offer access but not ownership.
LENDING IN 2025 -- Easier Mortgages Underwriting, appraisals, insurance and many other aspects of the mortgage will be automated. Goldman Sachs: In three years, large non-banks share of mortgage originations has doubled to 42%. In mortgage servicing, non-banks share has more than tripled to 27%.
LENDING IN 2025 -- Insatiable P2P P2P lenders are a real risk to credit unions. Prosper and Lending Club are moving to add business lending to their growing consumer portfolios, and they will continue to eat their way up the value chain. -- Business Lending Potentially $178B of small business loans in the banking system is at risk of being disintermediated, with $1.6bn of banking industry profits attached to those loans Source: Goldman Sachs, 2015
CREDIT UNIONS IN 2025 Filene asked CEOs from around North America for their predictions for 2025. Here are their most compelling guesses
Imagine you are a time traveler returning from 2025, what kinds of services or technologies have credit unions abandoned?
If you were to start on just one thing right now to prepare credit unions for 2025, what would that one thing be?
Imagine you are a time traveler returning from 2025, what kinds of technologies did you see that helped credit unions remain competitive?
Imagine you are a time traveler returning from 2025, how were members in the future accessing their accounts and performing transactions?
Imagine you are a time traveler returning from 2025, what was the one, most extraordinary thing you noticed about financial institutions? Credit Unions no longer exist. Fees, fees, fees with no family relationships. No physical branches, all in cyberspace. The small financial institutions have disappeared. After major disruption from electronic theft, identity breaches, and government spying, consumers face significant losses of money and trust.
10-YEAR FORECASTS We propose four possible economic scenarios and detail what each would mean for Canadian credit unions
10-YEAR FORECAST BASELINE The continuation of recent patterns of moderate growth. It assumes no major economic or financial disturbances in coming years.
FINANCIAL CRISIS The next ten years will include another financial crisis that will result in credit unions experiencing large declines in ROA.
CREDIT BOOM Deficit spending generates economics growth which consumers leverage into more debt-fueled spending, driving a growth pattern similar to what we observed in 1982-1992 period, when deficit spending was last in vogue. We also assume that the Bank of Canada will eventually allow interest rates to rise, which will temporarily depress credit union ROA, but the economy will avoid economic and credit crises
INFLATION + RECESSION Inflation climbs somewhat quickly (to 5% by 2018); the Bank of Canada targets an overnight rate of 6.5% but then a recession takes place (-1% of GDP). The increases in unemployment will be smaller than in most recessions and loan losses correspondingly small. Following small declines and subsequent increases in interest rates, the economy stabilizes.
10-YEAR FORECASTS 60 50 40 30 20 10 Credit Union Assets Historical Data and Projections $Billions, inflation-adjusted, Logarithmac Scale Baseline Financial Crisis Credit Boom Inflation + Recession 2014 Assets: $171B $425 Bln $296 Bln $246 Bln $219 Bln 0 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019 2022 2025
10-YEAR FORECASTS 10.0% 8.0% 6.0% Credit Union Capital (Net Worth) Equity/Assets, 1989-2025 Baseline Financial Crisis Credit Boom Inflation + Recession 4.0% 2.0% 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019 2022 2025
10-YEAR FORECASTS
QUESTIONS?
CONVENTION WORKSHOPS
PRE-CONVENTION SURVEY Survey says.
RISE OF ONLINE LENDING: moderate to high urgency; need to move, or know more. 10% of respondents active in this area. Almost a third investigating About a third said low to no threat. Over half said moderate to high, or becoming high soon. Some concerns about members financial well-being. A couple of comments: it s an opportunity to build membership! Most thought players should be regulated like other FIs. Only about half think they will be. Sense of urgency to move on this, or learn more soon.
UNBUNDLING the DIGITAL WALLET: waiting for the leaders Most critical features: Ease of use, Security, ability to handle both debit and credit. About 70% said they were interested but nothing is planned yet. Many comments indicated that other critical priorities (compliance) must take precedence. Many said waiting for LCUC lead.
COMMUNICATING in a DIGITAL NATION: a priority for some, soon for others. Two thirds of respondents say the CU is using Facebook. Just under half said Twitter. LinkedIn: less than 30%, everything else limited. Over 80% of respondents said: prioritizing more highly in coming years. What resources are in place? About 40% were unsure. Of the rest, half said a part time person; 20% said a dedicated person. 40% said they had a budget.
RIGHTSIZING BIG DATA: Member data most critical. Need to act together. Member data highest importance, then Financial, then Risk & Sales data. Managing our data moderately well -- member data not so much. Opportunities: Learning together. Getting big picture. Needs: infrastructure/ process/ skills. Some said consistent core banking system. Some said: compliance costs taking precedence. Pain Points: Skills, tools, process. Strategy asking the right questions in the first place. Gathering the data in the first place, and data validity.
BRANCH OF THE FUTURE: Advice and Wealth Management. Top Challenges: Personal Devices, Member Engagement, Digital strategy (in branch) Facelift for legacy branch not a priority. Future predictions: Mobile and Online channels most important. ITMs/Branches distant third. Purposes of branches: Advisory, Wealth Mgmt. Loans and Member retention distant third. Predictions: somewhat larger percentage of Flagship and Full Service branches.
MILLENNIALS: Happiness. Values. Flexibility. Feedback. Difficult for some to respond to employee demographics questions. Top employment priorities cited: Flexibility and Professional Development. Compensation a late third. Many could not answer. Differences? Loyalty (not much) Adaptability, energy (lots) Impatience with inefficiency Perhaps a bit threatening Care & feeding feedback, support.
ALL SET?