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Staying Relevant, Becoming Prevalent

Mark Sievewright

President, Fiserv Credit Union Solutions

May 24, 2016

© 2016 Fiserv, Inc. or its affiliates. 2

Mega-Trends Facing America’s Credit Unions

Demographic shifts

will have a profound

impact on credit

union growth,

relevancy and talent

The financial

services business

model is being

redefined

New entrants are

challenging the

incumbents – new

forms of distinction

are needed

Technology is

redefining financial

services delivery

and distribution


Number of U.S. Credit Unions Decreased at a CAGR of 3.5% Between

2006 and 2014 - Consolidation is Accelerating

Number of U.S. Credit Unions, 2006-2014

Source: NCUA Call Report

Num

ber

of

Cre

dit U

nio

ns (

000s)

6,143

12/2015


The Number of U.S. Banks is in Steady Decline

0

2,000

4,000

6,000

8,000

10,000

U.S. Banks for Commercial Banks and Savings Institutions, 2002-2014N

um

ber

of

FD

IC-

Insure

d I

nstitu

tions


De Novo Banks have Virtually Disappeared

0

50

100

150

200

250

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Commercial Banks Savings Institutions

Number of De Novo Banks Created Each Year, 2003-2014N

um

ber

of

Banks


The CU Business Model is Being Redefined

Regulatory changes and related compliance are

proving to be very burdensome for credit unions,

particularly smaller credit unions


Overall Regulatory Impact on America’s Credit Unions

Total Regulatory Financial Impact (equal to 0.64% of assets) $7.2B

Annual Regulatory Cost Impacts (or 0.54% of assets) $6.1B

Lost Revenues such as interchange income (0.10% of assets)$1.1B

Increase in staff time (since 2010) spent on Regulation91%


A continuous stream of innovation is re-shaping

consumer behaviors, business models, and the

structure of the financial industry

The CU Business Model is Being Redefined

Regulatory changes and related compliance are

proving to be very burdensome for credit unions,

particularly smaller credit unions


Evolution of Technology

Technology has moved away

from being a limited-access,

specialized field and has

become a horizontal layer

across our society


Credit Unions should worry less about

becoming insolvent and much more

about becoming irrelevant

10

Evolution of Technology


Disrupters Have Had a Dramatic Impact Elsewhere


Deal activity in payments startups has increased for

5 quarters straight and funding is up 74%.

$25 Billion has been invested in 4,000 FinTech start-up

firms over the past 5 years.

The Financial Services Business Model is Being Redefined

The combination of no physical locations and limited regulatory

costs allows disrupters to keep operating costs low

and offer better terms to their clients.



• New UK Digital Bank awaiting its license

• Crowdfunding project in March, 2016

• $1.7M of funding raised in 96 seconds

• Represents a 3.3% stake

• 1,861 people invested (on average) $913


Financial Services Revenue at Risk of Disruption

26%

26%

26%

29%

29%

29%

31%

41%

50%

Sprint (U.S. Only)

AT&T Mobility…

Amazon

Google

Apple

Costco

T-Mobile (U.S.…

PayPal

Square

0% 20% 40% 60%

If These Companies Offered Banking Services How Likely Would You Be to Bank with Them?


The M.O. of Financial Services Disrupters

Disrupters are most likely to attack incumbents where the

greatest sources of friction meet the opportunity for profit

FRICTIONLESS

BANKING


Disruptors Have a Fundamentally Different Business Model

SOURCE: McKinsey & Co.

Operations &

Technology

Products

Distribution

Consumers

From…

25%

>500

100s

55

4

20%

80%

<2%

Large,

generic

segments

To…

100%

>1,000

10-20

<5

>8

<5%

<20%

>15%

Mass

personalization

Key metrics

Share of automated processes

Number of IT applications

Number of products

Days to close mortgage

Products per consumer

% of branches in network

Branch/in-person % of sales

Sales conversion ratio

Consumer segmentation

and targeting


“Financial institutions’ ability to

work with non-traditional players

will become essential to creating

new distribution channels and

enabling non-traditional services”

Partnering with Disrupters?

Jamie Dimon, Chairman & CEO, JP Morgan Chase

Letter to Shareholders, 2015


“FINTECH-GRATION”

Partnering with Disrupters?


A Rocky Road Ahead for Online Lenders?

LendingClub Boosts Projected Loan Losses, Raises Rates on Some Loans

Largest online lender will charge riskier customers more to borrow


6,143Number of Credit Unions

75bpsROA

136 bps/assetsNon-Interest Income

104Million

Memberships

$1.2 TrillionTotal Assets

7.3%Asset Growth

In 2015

The Credit Union Difference


Change Response

Responding to new kinds of

new entrants is problematic:

it requires a fundamental shift

in strategy and culture - and

culture is hard to change


What Makes Your Credit Union Distinctive?

Unique? Compelling? Defensible? Sustainable?


Social Distinction

We are operating in a world in

which the traditional sources

of differentiation might be

inadequate for future success


Creating Social Distinction

• The consumer feels as like they have activated a lever of goodness

when they make a purchase or support your business in some way

• There is a true (authentic) connection between what the business is

marketing and how the consumer is pulling the goodness lever

• The business is part of the giving, not simply a donor

• The social responsibility is so enmeshed with the core business that it’s

virtually indistinguishable

• Effective Social Media leverage and strong levels of engagement

• It helps if the model is simple and basic.


Social Distinction

To win, companies must (of course)

deliver value and be competent

but they must also compete on

purpose and authenticity


Social Distinction at TOMS


Social Distinction at Warby Parker


BranchBranch

Call Center

Branch

Call Center

ATM

Branch

Call Center

ATM

Web

Branch

Call Center

ATM

Web

Mobile

Branch

Call Center

ATM

Web

Mobile Tablet

Biometric

Recognition

Wearables

?

Changing Channels


Delivery Channels Redefined



“Branch

transaction

volume at all FIs

has declined by

45.3% since 1994”

“Over the past four

quarters, banks

have scaled back

by more than

1,500 branches”


In U.S. Retail Banking, branch use has declined by at least

35% since 2010, and branch users are moving online rapidly

1

1.5

2

2.5

2010 2011 2012 2013 2014

Mean Branch Visits (per month per banked households)

Branch Visits Subset that are Teller Visits

Source: US Consumer Financial Life Survey 2014, FDIC Consumer and Mobile Financial Survey 2014


Net Bank Branch Changes by Year:

A Reflection of a Redefinition of Delivery Channels?

388

(1,031)

(326)

(853)(1,001)

(1,614)(1,487)

-2,000

-1,500

-1,000

-500

0

500

2009 2010 2011 2012 2013 2014 2015

Number of Branches - Net Bank Branch Growth/Decline, 2009-2015

Num

ber

of

Bra

nches


No U.S. state or territory logged net bank-branch additions in

the cumulative period running from 2009-2014


Insights on the Branch of the Future

Branches will remain a relationship cornerstone for acquiring and retaining

deposits and growing profitably.

Fewer transactions in branches - focus shifts to advice, loans and small business

services.

The implementation of self-service technology in branches will free branch staff to

spend more time with members.

Branches must be tightly integrated with other delivery channels, giving

members channel choice that best meets their needs.


40

What Does “Integrated” Mean?


What Does “Integrated” Mean? Mayday, Mayday!


425,000 ATMs Billions of

Devices

114,000 Branches

16,000 FIs



Consumers Take Control

Emerging innovations

give consumers visibility

into products and

full control over choices.


Expectations

>everywhere



Expectations

>immediate



Expectations

>ease



Evolution of Digital Banking Interactions – Globally

Mobile

Online


Smartphone, Tablet and Mobile Banking User Growth

8192

116

141

169186

203217

227 236

1538

7898

127

159180

193 201

206

5259

7894

123

145166

184199

211

0

50

100

150

200

250

2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

Smartphone Owners Tablet Owners Mobile Banking Users in the Past 90 Days

Forecast of Smartphone, Tablet, and Mobile Banking Users, 2011-2020E

Source: Javelin Strategy and Research, “2015 Mobile Banking, Smartphone, and Tablet Forecast,” December 2015

Num

ber

of U

.S.

Consum

ers

(in M

illio

ns)


Mobile Transactions Post Strongest Growth:

29% CAGR in 2011-2017

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2011 2012 2013 2014E 2015E 2016E 2017E

Branch Transactions ATM Transactions

Online Transactions Mobile Transactions

U.S. Delivery Channel Transaction Volumes (in Millions), 2011-2017E

Num

ber

of T

ransa

ction

s

(in M

illio

ns)

Source: CEB Tower Group, “Enterprise Payments Technology Showcase,” November 2015


Getting Mobile with Mobile


Wearables Will Impact the Way We Live, Work and Socialize


Wearables: Smartphone Banking Apps


Mobile First:

Design and Execute a Digital Engagement Strategy

Higher

Revenue

Generation

Increased

Product Holding

Lower

Member

Attrition

Higher

Transaction

Activity


Higher Average Revenue Generated from

Digital Banking Users

Revenue

• Digital Banking users’ monthly revenue per user increased by 10.7% post digital enrollment vs. 4.5% in branch only users

• Revenue = interest income from various types of loans + various fees (Interchange Fee, Late Fee, Finance Charge, Over

Limit Fee etc.,)

Source: Fiserv Proprietary Research, 2016

$510

$521

$23

$56

Non-Digital

Digital +10.7%

+4.5%

Pre-Enrollment Increment


Average Product Holdings Were Immediately Higher

Product Adoption

• Post digital enrollment, Average Product Holdings increased by 58.4 % for digital users compared to

negligible growth in Branch only users

1.8

2.0 1.1

Non-Digital

Digital +58.4%

+0.4%

Source: Fiserv Proprietary Research, 2016 . Note: Product Holding includes loans, certificates, shares, credit cards and mortgages

Pre-Enrollment Increment


Higher Debit Activity

• 14.6% increase in digital users vs

0.3% in branch only

11.3

21.6 2.0

Non-Digital

Digital

Amount Frequency

Source: Fiserv Proprietary Research, 2016.

$2,719

$3,514

$8

$512

Non-Digital

Digital +9.3%

-0.3%

+14.6%

+0.3%

• 9.3% increase in digital users vs -

0.3% decline in branch only

Pre-Enrollment IncrementPre-Enrollment Increment


Lower Attrition in Digital Banking Users

Consumer Attrition Rate

• Digital Banking users’ witnessed lower attrition at 8.9% compared to 13.8% in Branch only users

Source: Fiserv Proprietary Research, 2016 . Attrition computed for post digital enrollment period of 15 months cumulatively (Jan 2014 – Mar 2015)

13.8%

8.9%

Non-Digital

Digital


Summary of Key Learnings

Value of a digitally engaged

consumers is incrementally higher

Consumers adopting digital

banking are less likely to attrite

Average total product holdings

increased post adoption

Overall engagement and

transactions have risen post digital

banking adoption

Post enrollment, engagement intensity is next

most crucial factor in driving higher value (i.e.

revenue & attrition)


Omni-channel is Becoming Widespread in Retail


What is Omni-Channel?

• An integrated delivery and distribution channel approach that

allows members to interact with the credit union for transactions,

service or product acquisition (sales).

• For members this means they can:

• Enjoy more consistent interactions across their various channels

• Choose the channel that best suits them

• Transition seamlessly from one channel to another


Omni-channel is Becoming Widespread in Retail


Digital Engagement

Meaningful and

Relevant

Member Connections

Collaboration to Drive

Member Experience

“Think Enterprise” to

Remove Friction


Digital Engagement

• Simplicity of accessing money and making payments

• Speed of sending and receiving money and information

• Security of account information

• Ubiquity of digital access (PC, phone, tablet)

• Enabling members to understand their entire financial picture

• Relevant and timely communications

• Building engagement


U.S. Payments will Rapidly Transform

of U.S. consumer spend will occur through digital channels20%+

of digital spend will occur through a wallet$850B

will be transferred between consumers as P2P payments$400B

shoppers will use digital channels to make some purchases 220M



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Shifting Demographics


Living in the Age of Aging………


The U.S. is Undergoing Rapid Population Aging

9.0 16.7 25.7 35.0 53.7 77.2

6.81%

9.24%

11.31%12.71%

16.53%

20.46%

0%

5%

10%

15%

20%

25%

0

10

20

30

40

50

60

70

80

90

1940 1960 1980 2000 2020 2040

US Population 65+ (left axis) Percentage of US Population 65+ (right axis)

Number of people

(millions)

Source: Government reports


Living in the Age of Aging………


Shifting Demographics

The rise of the Millennial

generation and a changing

workforce will have profound

implications and opportunities.


Understanding Millennials

• Over 50% of the world’s population is under 30-years-old

• 75M residents in the U.S. are between 18-34

• 53% of Millennials said they’d rather lose their sense of smell than their

technology (and they are early adopters)

• But, they value financial advice delivered by experts

• They are fiscally conservative

• Their overall philosophy is very well aligned to that of credit unions

• Student debt is a major issue for those who attended college



What is most important to your daily life?What do you have expertise in?

Source: Bank of America/USA TODAY, Better Money Habits Millennial Report, Fall 2015


• Millennials have been shaped by technology

• Almost 80% of Millennials have a Smartphone

• Use the Internet, mobile technologies and social media to conduct

transactions and share their opinions about products and services

• ~94% of Millennials are active users of Online banking

• More than 70% of Millennials have used mobile services within the last

12 months (only 40% for remaining adult population)

• The most racially diverse generation in history

• Total student loan balances have tripled since 2004 limiting access and

demand for other forms of credit

CONFIDENTIAL – INTERNAL



• Millennials value community, family, and creativity in their work.

• Millennials rely on loans to pay for college (> than previous generations)

• Millennials will contend with the effects of starting their careers during a

historic downturn for years to come.

• Millennials tend to get married later than previous generations.

• Millennials are less likely to be homeowners than young adults in

previous generations.




• Millennials want what they want – they don't care whether it comes

from an established financial brand or a financial disruptor

• They love social media and, also, video:

• Snapchat, Twitter and Instagram rank highest

• The average (true) attention span is 7 seconds

• The average attention span of a gold fish is 8 seconds

• The average attention span in 2000 was 12 seconds


Millennials’ Perspective on Financial Services

Source: Scratch, “The Millennial Disruption Index,”


Shifting Demographics: Reverse Mentoring


Shifting Demographics: Tech-Savvy Elders

• The fastest growing demographic on Twitter is the 55–64 year age bracket.

• This demographic has grown 79% since 2012.

• The 45–54 year age bracket is the fastest growing on both Facebook and Google+.

• For Facebook, this group has jumped 46%.

• For Google+, 56%.


The Rise and Rise of Multigenerational Households

• 1-in-6 Americans currently lives in

a multi-generational household

• The number rose from 46.5 million

in 2007 to 51.4 million by the end

of 2009 (a 10.5 percent increase

in just three years).

• In 1980, multi-generational

households accounted for 12% of

the U.S. population. By 2010, that

number had climbed to 16.1%


Marketing Redefined


In the future, the information

associated with a transaction

could be more valuable than

the transaction itself

Member Growth and Engagement Enabled by Analytics


Marketing Redefined


Marketing Redefined:

Nordea’s Loan Calculator Promotes Personal Loans


Marketing Redefined:

Deutsche Bank Presents Offers on Mobile Banking


Mega-Trends Facing America’s Credit Unions

Demographic shifts

will have a profound

impact on credit

union growth,

relevancy and talent

The financial

services business

model is being

redefined

New entrants are

challenging the

incumbents – new

forms of distinction

are needed

Technology is

redefining financial

services delivery

and distribution

Staying Relevant, Becoming Prevalent

Mark Sievewright

President, Fiserv Credit Union Solutions

May 24, 2016

staying relevant, becoming prevalent · staying relevant, becoming prevalent mark sievewright...

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