Dan Berger, chief executive of the National Association of Federally-Insured Credit Unions, weighs in on the collapse of Silicon Valley Bank, how credit unions are working to expand market share and regulatory changes impacting institutions of all sizes.
Transcript:
Frank Gargano:
Good afternoon everyone, and thank you for joining us for today's Leaders Forum on the Credit Union Difference. My name is Frank Gargano and I'm a credit union reporter with American Banker. Throughout my discussion with Dan Berger, president and CEO of the National Association of Federally-Insured Credit Unions, we'll touch upon the ongoing bank crisis, current regulatory campaigns impacting the credit union industry, artificial intelligence and more. Dan, thank you for taking the time to sit down with us today.
Dan Berger:
Hello, Frank it's always great to see you.
Frank Gargano:
You as well, thank you. So let's start with from the beginning. When you joined in 2006 as the senior vice president of government affairs for NAFCU, you were tasked with overseeing five divisions, including legislative affairs, regulatory affairs, research and economics, regulatory compliance and political affairs. How did that experience translate into your current role at the helm of NAFCU?
Dan Berger:
Well, I joined like as you said in 2006 and then to have almost two dozen people in the governmental affairs department, advocacy's job one here at NAFCU. So to have that focus and on advocacy and having all those different divisions also focus on advocacy with different strengths and their own individual granular focus, it really helped prepared me for the CEO role because I had been here already seven years before being appointed CEO. So it was extremely helpful. And I have the best job in Washington DC period. It's that perfect convergence and I think you and I have talked about it in the past. It's three-dimensional chess for me. This is one of those, it's politics, it's policy in its business, and it's just that intersection of all three of those things that is a really a special place to work and to be a CEO of. So yeah, it was really helpful to be here. I already knew who all the players were, I knew where the bathrooms were, I knew everything to get around the building. So it was really help pretty easy to step into that role, but there was also a lot of things that needed to be changed and improved upon, and that's kind of what we focused on.
Frank Gargano:
Got it. And I think that's an important point to note, especially now that you're celebrating, what is it, 10 years at the helm of NAFCU, which congratulations again. And I'm curious as to what the credit union industry was like when you stepped into the helm at NAFCU versus now. What have been some of the changes both good and bad that you've seen?
Dan Berger:
Well, it has really evolved and that's for certain, when I started with NAFCU, there is close to 10,000 credit unions across the country and now there's less than 4,800. So there isn't been some consolidation that's going on in financial services, not just in credit unions, but across the marketplace. And we are experiencing that as well. That's probably one of the negatives we've seen. One of the positives is membership growth. I mean now there's 135 million Americans that are members of credit unions a across the country. And so there there's positives of negatives across the board. One of the other negatives is probably Dodd-Frank still dealing with the fallout from the passage of Dodd-Frank in many aspects, especially as it pertains to the CFPB and what we feel is their overreach and things along those lines. But I tell you what, it's been much more positive than negative. Credit unions have been resilient through everything that's been going on. They've gotten through every crisis well capitalized. They've gotten through every crisis with membership growth because it's been a flight to safety. So across the board it it's been extremely positive.
Frank Gargano:
And I imagine interchange is probably a significant issue also that credit unions have been facing. And it's not also unique to credit unions. Banks as well have sort of in a rare occasion, joint forces with credit unions opposing various bills that would seek to change how interchange affects credit unions and just the financial services market as a whole.
Dan Berger:
No, you're exactly right. When the Durbin amendment passed in Dodd-Frank, that cost our industry $42 billion. And then the ramifications of that were felt by the consumers. It was felt by Main Street. People lost their debit card rewards programs in many cases across the board. It just became problematic. If you look at it, I think it was the Federal Reserve of Richmond that had a study and they talked about interchange that all these, the argument was if you put a cap on interchange, then the savings will go back to the consumer. And the Federal Reserve of Richmond did a study and said the exact opposite happened and none of the savings went back to the consumer. It went to the bottom line of the big box retailers, and that's where it all went. I mean, when I go to the 7-11, my Yoo-Hoo costs more than ever before. And it's one of those things that it didn't go down and trickle down like it was sold to us and sold to other members of Congress when it was filed. And then so now they're going after the credit card interchange, and we are locked arms with across the financial services spectrum to oppose anything going after credit card interchange for that reason.
Frank Gargano:
And one thing that I wanted to drill down on that actually segues perfectly into the next point I wanted to touch on was member growth when compared to the trend of credit union consolidation in the United States now across those 10 years you mentioned the pool of credit unions available to consumers has continued to shrink, but recent data has shown that there's a converse trend that as credit unions have continued, and when I say credit unions, I mean the overall frequency of them in the United States, the less of them that there are, the more that membership has grown and the more that American consumers are becoming more participatory in them. And what do you think that credit unions are doing differently to support this trend of increased membership?
Dan Berger:
Well, I think it comes down to the word trust, Frank. And people trust their credit union, the people who have credit unions in their communities, they trust them. They see 'em at the little league games, they see 'em sponsoring Girl Scout events, whatever it is they're seen in the community. And they also know that they're cooperatives. So they run and realize that the, there's not a analyst on Wall Street taking a look at the stock price of the big banks or even some of the regional banks and community banks that are public institutions. They know that they're really invested in their communities. They're invested in their members. And being not-for-profit financial institutions, they're really focused on their members. And so they don't have to worry about those analysts on Wall Street. They don't have to worry about those stockholders or shareholders and stuff like that. They can have a long-term view, but also really focus on what's in the best interest of the member.
Frank Gargano:
And I think that you bring up a good point in that trust is that key element within this discussion where we've seen an increased element, I would say, of distrust from some of the large players, Wells Fargo being one of them, where the ongoing scandal in 2016 drew a lot of ire from consumers wondering if their money was safe. And I want you to really delve into how credit unions are relaying this element of trust through their members to sort of strengthen that bond between both current and prospective members.
Dan Berger:
I think they convey the trust by just providing great member service, great customer service to the people that go there being seen in the communities. But what happens when those negative headlines that are out there in everybody's newspapers since the financial crisis, I mean the banking industry has been fined almost $300 billion with a B, $300 billion since the financial crisis were oh eight and oh nine, and even they continue to get dinged and you just mentioned Wells Fargo was the most recent one. And then you have the Silicon Valley Bank and other problems that have come up. Those make headlines. And so if you're in a consumer out there, where do you want to do your banking? Where do you want to get your financial services? You want to go someplace where you're, you trust that institution that's going to keep your money safe and that's going to treat you with respect. And that's what the credit union keep talking about. They prove it. It's not just talk. They prove it in their daily day actions at the institution on their online banking being involved in the community. So those actions, that's how the growth starts. I mean, that's the reason there's a flight to safety that we've seen after every banking crisis is a flight to safety, the credit unions. And every time there's hiccups in the banking industry, credit unions benefit from it.
Frank Gargano:
And I think as part of that, I think awareness is also a big facet as well, where credit unions throughout the past decade have faced a challenge where it's not the value proposition of the services that they're offering to members. Oftentimes it's just making themselves known where a lot of legacy bank consumers, where it could be children going to college for the first time, or a Gen Z and millennial consumers just building their financial portfolios. Their parents might have set up a bank account for them when they were a kid, and as they aged into it, that's just what was easier for them because it was there. And credit unions sort of, I would say, have to fight this uphill battle where they're working to address this sort of awareness gap where they're saying, Hey, we're like a bank. We offer similar services, but here's where we're different. And I wanted to draw on your expertise to talk about how credit unions are bridging that gap, how they're making themselves more known to younger consumers, and not just younger consumers, but consumers of all backgrounds.
Dan Berger:
Yeah, there's probably several different channels that they've been that they utilize Frank. One is they have their own advertising in marketing that they do to their membership, to their members at their institutions. But here at NAFCU, we have a campaign called NAFCU Nation where they tell those stories of how they're helping people in the community and in turn, and they use it and they promote it on all the various social media platforms. And so it was, NAFCU Nation has been out there now, I guess for two months, and it's just really has taken off and you've seen it all across the board and all the social media platforms, but they also just do their own marketing and advertising, but it's also done to the actions. It's just not words in advertising. It's that experience and it's that net promoter score that you always hear about that financial institutions care about so much.
And that net promoter score, people talk about their great experiences that they have at their institution, at their credit union. And if you have a bank is opening up fraudulent accounts, you don't want to do business with that institution any longer. And so they go and go somewhere where their trust is there for their banking services. But you're also seeing a generation, you saw millennials and Gen Z that they want more corporate responsibility. You've seen that across the board. And so to be socially engaged in the show, but you're a not-for-profit financial institution and that you have that trust in the community and with your credit union members, it's a really, really powerful message. And I think that's a reason a lot of the growth has come because we talked about earlier, is that trust. But those generations are really looking for people that are being socially responsible. And the more they talk about that, the more they benefit from it.
Frank Gargano:
Thank you. Now pursuant to this trend of credit union consolidation that we discussed in the last question, I want you to talk about some of the regulatory changes that you've seen in the past year or so. What are some proposals that, and this can be a question we'll start with. What are some of the proposals that you think stand to strengthen the credit union system and then the second part that we'll touch upon after? What are some that stand to weaken it?
Dan Berger:
Well, it's probably they're all intertwined, quite frankly, some of the regulations that are coming out of the CFPB, and they're overreach and they're the funding mechanism, their structure and everything is in question. We believe their term junk fees going after overdraft or courtesy pay and all those things, those affect the consumers. And so when you start affecting non-interest income at financial institutions, free checking goes away, more fees get in added to other places. And it's, it's not beneficial to the consumer in the long run yet. Sounds good. It's a wonderful sound bite for the CFPB, but we have to push back on all those things. Well, another concern is fintechs. I mean, you got fintechs getting into the marketplace and they're not under the same regulatory schematics that credit unions and banks are under. So it's really important that these fintechs don't get the bank charters that can compete and they don't have the venue shopping from a regulatory standpoint in order to compete against community financial institutions. And so you got some kid in the garage in Palo Alto, California developing an app to compete directly with financial institutions that have a very rigorous regulatory schematic to have to go through the compliance costs and the burdens are incredible. And so the fintech is something, creating a level playing field with those folks is really important. And also looking for ways for the NCUA to do a little more in terms of the safety and soundness and don't have any overreach on their end as well.
Frank Gargano:
Got it. And I think that that's an important point to note is that, and it's something we'll touch upon later is navigating partnerships between fintechs and credit union. So I'll save that for later. But now to the second part of the question is we're talking about some of the proposals that stand to benefit, which are the ones that you're seeing that you're most worried about that as they're progressing along their legislative paths and nearing the finish line might weaken the credit union system? Things that credit union executive?
Dan Berger:
Well, I think, yeah, Frank, I think the biggest one was dropped today it, it's the House of Senate bills for credit card interchange, the so-called cap and credit card interchange that was done today. That is probably the biggest concern that we have as an industry right now, all the others is noise. I don't think there's enough momentum in Congress to really make some changes or con in terms of the regulatory landscape. But the interchange bill is really a major concern. We we're going 100% opposed to it, working with the various banking trades across the spectrum and we're prepared to fight this tooth and nail. But that's our number one concern right now is that interchange loss of non-interest income.
Frank Gargano:
Got it. And I want to draw in your expertise for that and really delve a little bit more into and explain for those who may be watching from, let's say a to a lot of people coming into this from the outside might not be intimately familiar with interchange fees or if they're merely looking at it from the surface level, they might think, oh, this is good for me as the consumer, more of the savings will come back to me. But I want you to cut through all the white noise and really maybe provide, not really a step-by-step, but I guess just sort of a broad view of how it works from the perspective of the consumer and from a credit union where it really stresses what the potential impact would be if it were to pass.
Dan Berger:
Well, it, it'll allow retailers to pick what credit card process and they want to do. And some of those aren't, haven't been really tried or tested. And so we have a infrastructure that's already there that's been utilized for years with a tremendous amount of success. And if you go back to when it first came out, the first Durbin amendment passed, the whole sales pitch was it's not going to affect credit unions under $10 billion. And we all know that wasn't accurate. We were told that the consumer would benefit immediately with lower prices that absolutely didn't occur. And then the Federal Reserve Bank of Richmond proved that out as well. Consumers lost in, and oftentimes with a lot of the institutions, not necessarily credit unions, but with the banks, a lot of the free checking went away across the board. And of course, one of the most popular things that went away when it passed the first time was the rewards programs that debit cards had those went away.
That's a powerful marketing tool for a financial institution, even for retailers for that matter, there's some retailers that were against it because they had such a powerful rewards program with their card system. But so those things are major currents or concerns across the board. Those savings didn't come down. And so when you have interchange and it's the fee that that's paid for the processing, you have to maybe, if you go back, everything used to be done in cash. And so retail, they come up with the banks and the credit unions. They created Visa and MasterCard. They created a processing system where you didn't have to use cash anymore. You use a credit card or a debit card. And those, that convenience saves retailers, billions, trillions of dollars at this point, but billions of dollars every year having the convenience, not having to deal with cash, not having to deal with the security of cash. And of course there's more sales because once that card goes through, the sales is the sale is done and the retailer and the merchant gets paid right away. So it goes away and they cap it. People are going to lose their credit card rewards program, their airline miles, things along those lines. So they have to really be real serious about this, but we're fighting it because of the non-interest income component of it.
Frank Gargano:
Got it. So sort of boiled down to its essence, it's making it harder for credit or more expensive, I should say, for credit unions to keep doing business.
Dan Berger:
Yes, that's correct.
Frank Gargano:
So let's transition to something that I think is on everybody's mind and it's something that's still ongoing, is what's being referred to as the banking crisis. So the failures of Silicon Valley Bank signature and most recently First Republic have fundamentally changed how banks and credit unions are looking at their approaches to liquidity. Whether that means opting to new sources of capital or altering risk management procedures internally to hedge against possible risks to their portfolios. What are some tools that executives can employ or integrate into their own strategies to help backstop against risk
Dan Berger:
Liquidity, besides cybersecurity and fraud, liquidity is probably the number one. I mean sometimes number two concern for the CEOs that I speak to just about every day, credit unions have access to a number of different places to get additional liquidity. You got the Federal Reserve Discount window, you've got the new temporary bank term funding program, and of course the NCUA has its central liquidity facility to that they utilize. But that's the number one issue that was concerned with liquidity. But it we're a different beast. It's not for profit financial institutions. Something like 91% to 92% of all credit union deposits are insured, whereas in the banking industry, it's in the 50% to 55% range that is insured. And that's what happened where Silicon Valley Bank, 97% of their deposits were uninsured. And so there was some mismanagement, risk mismanagement at the top with the management team at SVB and then clearly the regulator out in California and missed some red flags that the bank had been cited for two or or three years.
They just weren't forced to mitigate. But it did make everybody, to your point, step back and go, let's look at our liquidity. Let's do some stress testing and our own balance sheet and see how this affects us. But with our deposits being 91% to 92% insured, as well as being well capitalized across the industry, we're in a really good place. And then the standpoint also, those banks that were taken over, they were outliers. The financial system in the states is resilient. The ecosystem here is really, really strong. You had some outliers, you had some bad eggs out there that made it difficult for everybody across financial services.
Frank Gargano:
And I think something important also to note with this conversation is something that I even recently became aware of is that a lot of executives, these tools are out there. They're there to be used to protect the safety and security of the financial institutions, but they're worried that there's a stigma around using them that if they were to see basically reaching for these safety ropes, that it might falsely signal that their financial institution is heading in the wrong direction. And what I wanted to ask you is maybe talk about why that attitude of looking at these safety nets or these backstops is detrimental to the safety of the financial institution that the best way to look at it, if I reach for these, it's going to signal to my clients and my customers that we're doing bad, but rather to approach it as we're more focused on protecting your money and protecting your accounts, and that if we reach for these, it's only in the sense that we're doing so in your best interest.
Dan Berger:
Yeah, I think it's more of a problem from banks and for credit union, especially with social media, the power of social media. I mean, that was definitely a component to what those regional banks went through, and that was not necessarily the reason they went under, and we all know what the reason was. They had too many uninsured deposits. But that social media is a pretty powerful component. But then again, you have all these people, if you're a for-profit bank and you're in the stock market, you have hundreds if not thousands of analysts watching your stock and keeping an eye on that. And that's what happens. Someone triggers it and you see it. And the people are inherently conservative with their money. And investors as well, especially if you bought a big block of bank stock and you see them doing going after one of those safety nets, they'll have to do some serious messaging to Wall Street and those analysts and stuff like that. But it affects the banking industry for sure, but a lot differently than the credit unions.
Frank Gargano:
I think that that's a good distinction to make as well is that the key when reaching for these tools is communication is essential when you're doing so is not to let you know a media fervor or anything get ahead of the game where your customers are finding out that, or in the sense of credit unions members, are finding out that their financial institution is engaging in these programs to help backstop against potential risk. That it's better to be proactive in a sense that alongside gearing up to engage with one of these backstops, it's drafting notices for members or it's being more communicative with them to say, listen, we're engaging with these tools, but it's in the best interest of your accounts because we want to make sure that no matter what happens, we're prepared for risks and that your money is as secure as it possibly can be. So I agree with you that media is an important component and communication as well.
Dan Berger:
Yeah, and when the SVB situation occurred, my colleagues in communications here at NAFCU wrote up talking points that explained what happened with Silicon Valley Bank, and here's the situation in the credit union industry, and they can customize it to how their credit union is doing. So they could respond within a couple hours when all that news was breaking and there was a run on the bank, they could respond and they sent things out publicly. They sent it to their members, they sent it to the news organizations and their communities across the country. So they responded just to let everybody know, Hey, this isn't us. We're different. Here's a situation that unfolded in California. Your money is safe. Give us a call if you have any questions. And so we were proactive or members credit unions across the country we're extremely proactive. In fact, we saw a flight, a flight to safety. We saw a lot of money come in from banks, regional banks to credit unions during that period of time.
Frank Gargano:
Got it. Now across the 10 years that you've been at the helm of NAFCU, I'm sure much has changed, but a few things have remained constant. One of which is as new legislation is introduced that helps credit unions be it easing meeting requirements or fuel of membership expansions, the tax exemption status that credit unions are afforded has constantly been under attack. And you've seen releases sent out where banking proponents will call for the revocation of that, where they say credit unions are becoming more alike to banks, and as such, that tax exempt status should be revoked. What I want you to do is, in your perspective, delve into why this status is necessity is a necessity, I should say, excuse me, for financial institutions that delve into underserved areas like credit unions.
Dan Berger:
Well, the bottom line is this, Frank, the banking industry keeps closing branches. Banks are closing 200 branches every single month. They're creating financial deserts across the country in urban areas as well as in rural areas. I mean, isn't it? They're closing branches at an astonishing rate. They don't want to serve these underserved communities. Credit unions do, but they don't want credit unions to serve these under underserved communities either. So it's speaking out of both sides of their mouth. So what we want to do is we want to serve these underserved areas. It's extremely important that we have that ability to take care of these underserved unbanked and get 'em to the financial services system. And so they go to a not-for-profit financial institution like a credit union, and their money's safe. It's protected. They know it's a very, they're not making bunches of fees off of them. They're not opening illegal accounts on them. And so to have that ability to sit there, to have more field of members, get rid of these financial deserts that are out there, it it's important to increase the field of membership authorities that credit unions have to serve the people that others don't want to serve and credit unions want to. And so to have that legislation pass would be a real powerful move movement and moment for consumers.
Frank Gargano:
And I think that it, it's almost cyclical in the sense that if you look back to the history of credit unions in the country, they were founded by immigrants. For people who were exempt from traditional financial institutions, they had no option for financial services. So they banded together to fund these institutions basically that were pools of member funds so that they can go about their lives, they can build a financial portfolio. And I think that you hit the nail on the head is that it attests to the overall function and purpose of credit unions in reaching these underserved markets where if we're seeing other financial institutions pull out and credit unions are the only game in town that from a consumer standpoint you would want to be able to access that financial institution, you want to be able to put your money in there. You want to be able to open an account because the last thing that you need, God forbid in an emergency, is having to travel to the nearest financial institution. That could be miles away. If we're taking this from the perspective of let's say a rural community where we've seen consumer concerns that a credit union is in town, but because I can't access it, the nearest bank is an hour and a half, two hours away. And from a consumer standpoint that it's a little ridiculous.
Dan Berger:
And that's the reason Congress for 90 plus years keeps reaffirming our tax exempt status. The IRS and the Treasury Department reaffirms it every year. And it's one of those things that that if you look back and you talk a little bit about the history and the founding of credit unions, you don't want to go back to the robber baron days when you have three banks controlling the entire financial services marketplace. Competition is good and then sit there and allow credit unions to coexist. If you see a credit union in a community, it helps lower the prices across the board. So I mean, you have some of the greed that's in the banking industry gets mad about it because if the credit unions weren't there or they lose a tax exemption, they can charge as much as they want. And to have credit unions in that community benefits all the consumers and benefits the community. You want as many financial institutions as possible. You want smaller community financial institution that's credit unions, community banks in areas because you just don't want three big banks controlling the entire financial services marketplace. No one wants to go back to the twenties and thirties when the robber barons were controlling everything.
Frank Gargano:
Thank you. So let's shift gears a little bit. Let's talk about technology. So for, boutique credit unions and those with smaller economies with scale, oftentimes innovating new services to reach younger consumers or new markets is a challenge, especially one figuring out even where to start. So from your perspective, how can trade groups like NAFCU sort of step in as an intermediary and help bridge the gap between many of these small credit unions and potential technological partners to really innovate these services? Especially when we're seeing regulators like the National Credit Union Administration where they're putting a very big emphasis on the small credit union market. And if we touch upon the point that we previously made, oftentimes these small credit unions are the only ones in town serving these rural communities.
Dan Berger:
Yeah, there's a couple ways. And we have a division here at NAFCU called NAFCU Services, and then they have all kinds of providers that provide solutions that help credit unions grow. And they have all different kinds of pricing mechanisms and everything else. But one of the major ways we're known as an industry for our collaboration and coordination as an industry. We help each other throughout the credit union industry, the credit union service organizations, we call 'em, that's where the credit unions get together. They invest in a technology or a fintech or they get preferred pricing and group pricing, things like that. That's helpful to everybody. So they get the technology necessary, the mobile banking app that's necessary to compete. So there's ways for that to occur and you, you've seen it across the spectrum. You're seeing lots and lots of pieces out there that's focused on helping the small credit union, whether it's in their back office systems and accounting and HR as well as in the technology space.
And so watching those unfold, but that collaboration is important for 'em to continue on and to survive. But I can introduce you to CEOs of very small credit unions that have been very successful in this realm and doing a great job and arguably a very difficult, highly competitive marketplace. So you got competition from the big banks, you got competition from the regionals and the community banks. You got competition from other credit unions, then you got all the fintechs rolling in on top of it. So the financial pressures to your point, is extremely high on the smaller credit unions that it may not have the economies to scale to compete. So that collaboration to CUSOs or through NAFCU Services is extremely important so they can continue to compete and offer the products and services to their communities.
Frank Gargano:
And one of those components that you mentioned I think is interesting is fintechs, where we were talking earlier before about how some fintechs in the market are getting into it and they're offering bank-like services, credit cards, savings accounts, things of that nature that consumers who are unaware of how they function might not be knowledgeable about the fact that they're not insured by any federal agencies. They think, oh, it's a savings account, it's safe to put my money in, but if that firm were to go belly up, that money disappears. There's nowhere you're really getting that back from. And what we've also seen, interestingly, is an increased element of collaboration between fintechs and credit unions where a lot of them both currently existing in those being started up, are getting into the credit union market purely for a collaborative sense. They want to work with credit unions, they want to provide underwriting algorithms, they want to provide mobile apps, core platforms. And what I wanted to ask you was is to really delve into how these partnerships initially on the surface might seem tenuous because of that air of competition can, if you cut through the chaff, you being credit union executives can see the benefits firsthand that working with these firms can innovate these services that we're talking about for a fraction of the cost that it would pose to them if they were to do so internally, if they can even do so.
Dan Berger:
Yeah, I think the problem that we have with fintech, it has become such a commoditized term over the years. Credit unions can't go it alone. They're not Bank of America. They can't hire 200 programmers to develop an app. So you have to partner and collaborate or with the fintech and to share that with a bunch of other credit unions, maybe not necessarily in your backyard, but across the country to reduce the cost associated with it is really helpful. But that to your point, the fintechs need to be under the ones that are competing against community financial institutions have to be under the same regulatory schematic that banks and credit unions are under. And so they have to jump to the same hoops, have the same compliance. You want to make sure that the American consumer and the taxpayer are protected from some of these money apps that are out there that are getting the financial services marketplace. They don't have the same regulatory schematic that banks and credit union have. And so to your point, but you have to have that collaboration. You have to have that partnership with fintech to be successful. Very few credit union in our industry have the financial power or the economy to scale to go it alone. So to have these partnerships with fintechs and with other credit unions is extremely helpful and necessary.
Frank Gargano:
Thank you. So tangential to that conversation, we're talking about some of the services that are being developed, and I'm sure you're well aware that a lot of younger consumers, be it Generation Z or millennials are putting their money in institutions that are more tech forward, be it mobile app developments, a more digital forward presence in terms of branch strategies, things like that. What are some offerings or products that you see at the front of the credit union industry that are really successful or on their way to being really successful for engaging with these younger consumers?
Dan Berger:
I, it's our job here at NAFCU to get as many tools in the toolbox as possible to help credit unions grow, whether it's member business lending, cryptocurrency, things like that. We don't pick and choose and recommend, "Hey, you need to do this," but if it's part of your strategic plan or your business plan and it fits your mold and you want to build a moat around your institution, I mean, if you got Robinhood out there and or other companies that are offering credit cards and stuff, they're trying to take your business. So you want to sit there and really focus and be able to offer these services because whether you like something or not, if they're leaving your institution to do business elsewhere, that hurts you. And so you want to at least have least talk about it and at least consider from a business standpoint, maybe we should take a look at this and offer it through a third-party vendor or have a relationship or collaboration with a fintech to offer these services as a third party and have that be part of the business model going forward.
But you, you're seeing a lot of that reaching out, but this is I, that's your financial institution. It's in your hand. And so you need to make sure that you have a mobile app and online banking that provides people access to the money in a frictionless capacity. They want access, they want to send money to their friends. And that's the reason Venmo and Zelle has been so powerful. Those things, you have to have those services because that's what that generation wants and quite frankly expects. But we've reached out and most of the credit unions, 99.9% of 'em have very robust mobile banking apps and online banking platforms because you have to have it to your point. But it's not just Gen Z and millennials that want it. My 84-year-old mother does her banking online with her credit union in Gainesville, Florida. I mean, that's what she does. And so everybody's doing, every generation now is doing their banking online for the most part. Yes, there's still, and we won't get in the branching versus mobile argument, but it's a big deal. So you have to have a robust mobile platform on online platform. And 99% of the credit unions have that. But to your point, you have to give them the access to their money so they can invest, pay bills, whatever it is.
Frank Gargano:
And I think one of the products that you talked about I think is particularly interesting is cryptocurrency. I mean, we're seeing the Securities and Exchange Commission currently launching a lawsuit against Coinbase, and we're seeing a lot of the fallout as a result of that. We've seen crypto inflate and pop numerous times month after month. What I'm curious is are you seeing credit unions continuing to push into the digital currency arena or are they starting to pull back in the wake of all this development?
Dan Berger:
It is kind of a little bit of pullback. Yes, we have numerous ones that tiptoed into it through a third party and they've had success with it. But the others were looking at getting involved in it, and I think they kind of put it on the back burner. But again, as long as crypto crypto's not going to go away, we can argue about digital currency and Bitcoin and everything else, but if the millennials and the Gen Z want to continue invest and play and gamble with it, and they're going to go somewhere to purchase it so they can purchase it through a third party at a credit union for lower fees, I mean, if you look at Coinbase and the fees they charge, holy cow. I mean it's unbelievable. That's fee income for a financial institution. So it's something to maybe possibly look at, but it, it's a generational thing at this point. But I've seen from across the industry, most of 'em put it on the back burner. It's still there. They're still talking about it. They're still vetting it and researching it. They haven't dove back into it quite yet.
Frank Gargano:
And I think that one of the words in that was a very key point that I think encapsulated a lot is gamble. That these currencies aren't really backed by anything. A lot of credit unions still to this day can't really handle custody of these assets that they're engaging in these third-party partnerships to sort of serve as a provider of the trading service itself, where they're not touting that they have custody of these assets at all. They're merely saying, we can provide you access to a trusted partner of ours that can provide their service to you. But make no mistake, we are not providing the service directly. We are only serving as the intermediary for you to help engage those younger consumers. And for credit unions that are playing in this arena, and if they want to stay in this arena, how can they effectively manage the risks associated with doing so?
Dan Berger:
Well, first of all, you have to have a trusted and vetted partner and really don't go after the next shiny squirrel you see out there. Go out and utilize a fintech or a vendor that has a really good track record and run the test and test it and really ask their customers or their clients, their experiences, what worked protections that they have. But to your point, I still think they're slowing down a little bit and looking at it, the ones that are in it are still in it. And I think it's worked for them because you still see people trading cryptocurrency, digital assets. That's still not going to change. But I don't think credit unions we're not, I know for a fact NAFCU is not asking the for credits to hold digital assets or Bitcoin or anything like that, but to have the ability if they want to have a third party provide that service to their credit union member that may be interested in doing it, as opposed to going to Coinbase or Robinhood or somewhere else that charges exorbitant fees going in and out of the exchange. So you want to build a mode around your institution and you see a lot of outflows going to these exchanges, these crypto digital asset exchanges. Why wouldn't you want to provide that service and get some of that fee income and keep your member at your institution?
Frank Gargano:
Thank you. And another, I would say equally focused on element in addition to digital currencies is artificial intelligence. We're seeing it creep into credit union functions where it's on the surface level as chatbots, conversational AI designed to help ease the stress on MSRs in terms of basic inquiries. I forgot my password. What's my credit card number? What does my security code look like? All the way to loan origination models where they're getting put into underwriting programs in terms of helping credit unions say yes, easier or helping to identify potentially missed opportunities using data sets that were always present but never properly utilized. Where do you see AI heading next?
Dan Berger:
Well, AI is always been for years now utilizing the credit union industry. And you see it more and more, to your point in terms of underwriting with lending, whether it's auto, mortgages, things like that, but credit cards, approvals that does one area. You're seeing a lot of AI and you're going to continue to see that chatbots [are] there. AI is here to stay. And I know everybody talks all this dangerous, and this is a concern. There needs to be some guardrails put in place. But if you look at it, the power there to really build in efficiencies into your operations at a financial institutions, you have to have some form of AI and then the various divisions of your credit union or your financial institution because it just, it'll save you money. It'll save you time to your part point. AI has been very beneficial to ease the strain on call centers.
I mean is it's been highly effective, but you have, for credit unions wanting to serve in help more people in the unbanked or underserved areas, it helps people get dive in and they check their rental payments and their medical payments. And so there's other ways to do it besides just your credit score. And AI can be extremely helpful to try to give loans and products to people who really need it, who may otherwise not receive a loan or that product or service in the past. And so AI is real powerful and it's here to stay.
Frank Gargano:
And I think that you bring up a good point is that it sort of helps further the credit union mission of, and that's the term that a lot of people have heard, often people helping people. If you've been in the industry, you've heard that term a lot. But there are a lot of risks associated with using. So I mean, we've heard from the CFPB Director Chopra, where he's worried that these models are concerned as black box algorithms. And I was wondering if perhaps you could talk about perhaps if transparency and being more open about what data is being placed into these models and how that can help assuage the doubts of regulators who, when inspectors are coming in and they're making sure that these models are on the up and up, that transparency is a big facet of helping to make sure that there's no, there's as little chance of discretion as possible.
Dan Berger:
Yeah, that's a really difficult approach because a lot of it is proprietary financial institution doesn't necessarily want to give away their secrets if it goes public somehow with the CFPB, but it needs to be looked at because it's humans that's writing the software, it's humans that's writing the code. So they'll make sure that it's not discriminatory. It's going to be extremely important that those guardrails are put in place. So if there's a way to make sure that that their black box is kept a secret from an examination standpoint, that could be a possibility. But I think the power of AI is still there that will benefit more people than the harmed people. And there's ways to, I think, for them to test it and see it through the various data and the approval ratings and everything that goes on at financial institutions that reg regulators already look at. But yeah, to your point, it will have to be looked at and people are a lot smarter than me. You're going to have to figure that out.
Frank Gargano:
So we're coming up on time here. Dan, thank you again for taking the time to speak with me today. We've covered a wide swath of topics, but before we conclude, the last question that I wanted to pose to you is if somebody is interested in, in working in the credit union industry, where do you recommend that they start and why?
Dan Berger:
I would look for a credit union in your community, just like any other employer. Everybody's looking for staff and employees looking at a credit union in your area and in your community and apply. And I'll tell you what, this industry is absolutely the best industry. We are the white hats of financial services. And so if you want to be part of a not-for-profit financial institution that really cares about the American consumer, that cares about the member of that credit union, that cares about the community that it operates in, go work at a credit union. And it is the best industry out there. I love advocating and representing credit unions because I wake up every day knowing that my members are taking care of their members. They're taking care of 135 million Americans across our country. And to be able to work for an industry that does that on a daily basis and to be part of that passion and to be part of that focus, it's a great place to work.
Frank Gargano:
And I think that that's a great note to end on. Dan, thank you again for taking the time to speak with me today. And thank you to everyone who dialed in today to watch.
