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Mobile Banking, Evolving Member Behavior and Your Bottom Line

Logically, providing members with on-demand information at their fingertips will influence their decisions and behavior.  Consider these insights on mobile usage reported by the Federal Reserve in a 2012 study:
  • 87% of the U.S. adult population has a mobile phone
  • 64% of mobile banking users have checked their account balance before making a large purchase in the past 12 months, and half of them decided not to purchase as a result of their account balance
  • 42% of smartphone users comparison shop using their phones at retail stores; 64% have changed where they purchased the product as a result
The moral of the story is that more informed consumers will be able to make decisions in their best interest more easily.  For some credit unions that have seen increased usage of mobile services, there has also been an inverse trend in courtesy pay income and late fees. Coincidental or not, the potential relationship is noteworthy.  Nobody will argue that helping members make more informed decisions is a good objective.  However, decision-makers should consider the impact mobile services can have on their institution.

 

Consider the following:
  • If you have members who spend less on courtesy pay or postpone purchases because they are more informed, how will your credit union’s revenue be affected?
  • Will the convenience of offering mobile services attract enough new members to offset the potential loss in the credit union’s revenue?
  • If you attract enough new members to offset revenue loss, will operating expenses increase materially to support the higher volume of members and accounts?
Source:  Consumers and Mobile Financial Services 2013, Board of Governors of the Federal Reserve System, March 2013
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Hot Money In Waiting

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Many credit unions continue to see higher levels of deposit growth despite lowering rates—and even a rising stock market—as members choose safety and certainty over return.  While the flight to safety has been discussed at length, the gradual shift from CDs to share products has received less attention.

Over the past 6 to 12 months, many credit unions have seen decreases in CD balances with a corresponding increase in share balances, in addition to the increase in overall deposit balances.  Such a trend suggests that members are willing to park their money in a lower-paying share account rather than lock their money up in a higher-paying CD in order to have the flexibility to reinvest their money when a better alternative presents itself.  As a result, these balances could be hot money in waiting.

Credit unions should evaluate the change in their liability mix over the last year and consider how any shifts might affect their liquidity concerns, product needs and cost of funds going forward—especially in different rate environments.  Likewise, it would be prudent for institutions to incorporate this additional rate sensitivity into their modeling, particularly if a clear shift can be identified.  Modeling the hot money as 30-50% more sensitive than other share balances is a good place to start.

Whether the impact is large or small, the credit union will be better positioned to handle the reinvestment of hot money should it occur.