The Aite Group LLC reported that 33 percent of credit unions with over $100 million in assets are planning to convert to mutual savings banks. Likely these converted credit unions will ultimately become for-profit, stockholder-owned financial institutions.

One-third of this class of credit union represents $193.8 billion in assets, assuming the 33 percent of converting credit unions is spread across the 1200 representative credit unions in this class evenly. In turn that represents over a quarter (27 percent to be exact) of all credit union assets. One-quarter of the money in credit unions is on its way out the door.

In 2006, fee income exceeded return on average assets (page 4 of the 2006 report, if you’re interested) credit union-wide for the first time ever as CUs looked for ways to replace money drained away by compressed interest margins. Banks are using the same tactic.

At the same time, Nobel Peace Prize winner Muhammed Yunus is considering starting a credit union in the U.S. There are movements of varying size and momentum, but movements nonetheless, to provide alternatives to banks through such things as peer-to-peer lending, democratically-run, socially responsible banks, and account aggregation and financial planning using social networks.

Isn’t the message credit unions preach differentiating themselves from banks now even more relevant – even hip?

So, then…why leave?

One of the saving graces of the leftover-filled dead week between Christmas and New Year’s Day are the year-end wrap-ups. No wrap-up story ever won a Pulitzer, but they’re interesting to read. So, to the pot-luck of lists and reprisals, I’m going to add my own.

This being a blog, and therefore collaborative, I’m eager to hear everyone else’s contributions to and opinions on the OpenSourceCU.com Top Credit Union Stories of 2007 (Now With Resolutions!). During this week of warmed-over dressing, think of this list as a sizzling sirloin steak, hot from the fire, ready for you to tuck into (for you vegetarians, think of it as whatever it is you tuck into that’s really satisfying…salad maybe? potatoes? tofu?)

My seven top credit union stories of 2007…bon appetit!

No. 7: The iPhone

It has its flaws. It’s wildly expensive. It’s great-grandfather was the Newton. But this zeitgeist-expanding gadget moves the bar for mobile computing and, ultimately, mobile banking services. It also allows for easy use of social media and opens the number of communication channels. Think about the annoyed member posting to a blog while in line to wait on a member service representative to fix a mistake another MSR made. If someone using a iPhone actually stands in lines waiting for MSR’s.

Resolution: It’s an antiquated attitude that technology and social media are just toys. I would love credit union staffers to open their minds to new technology and look at it from a perspective of early adopters and ask some simple questions: How is this used? How does this impact me? How could this impact my credit union?

Sub-Resolution: Personally, I need to avoid being a curmudgeon myself and open my own mind and ask similar questions. Keeping up with technology is hard, but invaluable.

No. 6: Gigi Hyland’s calling for a more consumer-centric approach to products.

Said Ms. Hyland in January: “The main themes of my remarks were to urge credit unions to continue to be consumer-centric in product and service delivery and to provide insight into the regulatory perspective on current issues, such as BSA and membership growth.”

Okay, this isn’t earth-shattering, and there are discussions like this all the time, but it’s validation from the top that CU’s need to approach their products and pricing the same way other companies do – with a focus on what the market demands.

Resolution: Credit Unions need to leverage that tax-exempt status to continue (or in some CU’s cases start to) offer cost-competitive pricing, provide dividends and serve immigrants and under-served communities. I’d also like to see credit unions trim their product offerings to better serve their membership and community. If you cannot profitably provide dozens of products and services, then take a good, hard look at your product mix and eliminate those that are underperforming or aren’t profitable. Don’t keep up with the Jones’s. Keep up with your field of membership.

On the surface, this is an oxymoronic request, but really, it’s about finding a niche and drilling down and serving it. Some CU’s can profitably operate wide. Most cannot and need to focus on their core membership, find what that it needs and really serving it in ways banks and other CU’s can’t.

No. 5: Hackers steal 45.7 million credit card numbers from TXJ Companies

The breach of security is the largest in history and reflects the importance of CU ID theft prevention policies. Given that credit unions have a 3.8 percent market share in revolving credit, the breach affected over 1.7 million credit union members. And that’s just credit cards. Debit cards, with fewer consumer protections, were likely part of that mix and even a small percentage would be thousands if not millions of debit card numbers.

Resolution: Credit Unions should treat debit card fraud the same way they treat credit card fraud. See top story No. 4 for support of this resolution. Members need to know all their transactions are secure, credit or debit. From my experience in credit union operations, I know this is expensive, but a credit union should act in the best interest of its members.

No. 4: CURIA momentum

At latest count, 141 members of the House of Representatives are signed on as co-sponsors of H.R. 1537. By raising the percentage of assets from 12-ish to 20 percent, this will allow CU’s to better serve under-served areas and small businesses, which in turn creates wealth in a community.

Resolution: Credit Unions need to mobilize staff and, in turn, membership to ensure members of Congress support H.R. 1537 and understand the difference and mission of credit unions. An adage of advertising says that when the marketing director of a company is tired of hearing his/her advertising message, it’s at that point that its impacting the consumer. Talk about it until you’re sick of it.

No. 3: Wings/Continental credit union flap

Nasty, nasty stuff.

Resolution: Stop doing this.

No. 2: Zopa

Peer-to-peer lending could be a threat to credit unions, given credit unions’ philosophical mission. Instead, Zopa is partnering with credit unions, each improving each other’s credibility and reach. I’m excited about this partnership.

Resolution: Like the No. 7 resolution, credit union staff needs to be more plugged into technology and how it affects their products, services as well as how members use it. It’s a competitive advantage to embrace it and folly to ignore it.

No. 1: The housing bust

Although credit unions didn’t seriously contribute to the questionable practices that puts the country on the precipice of recession, every credit union every member will be affected. As much as credit unions need to compete, they also must council and advice as part of their financial services product mix.

Resolution: With a tax-exempt status, strong capitalization (in general) and sound, conservative policies and procedures, credit unions are primed to be part of the solution, right?

There you have it, my year-end list complete with a side of resolutions, served hot and fresh. Enjoy!

If you’ve been itching to see how the collaboration between Zopa + credit unions in the US will play out, now’s your chance. Zopa US is up and open for anyone to create a profile and check it out.

Wondering what Zopa is all about? Click here to read Trey’s Zopa & peer-to-peer lending primer from two years ago.

John Donovan of peer-to-peer lending community Lending Club kicked off his presentation by comparing his company to an “online credit union.”

Lending Club began solely in Facebook and launched independently in September of this year.

Using Google’s OpenSocial platform, Lending Club is placing themselves inside of popular social networks “the same way you put a physical branch where people are.” From their blog:

OpenSocial offers the ability to retrieve information about a user, and get distribution, across many social networks. What it means is that Lending Club borrowers will be able to leverage their network of connections more broadly, that lenders will be presented with better opportunities to invest in people they trust and feel more comfortable with (such as friends of friends), and that a broader distribution will help find better matches between lenders and borrowers.

John also brought up the prospect of a white label partnership between Lending Club and credit unions. In this scenerio, Lending Club would play back-end provider to a CU-branded P2P lending community. This is pretty interesting considering Zopa’s announcement last week. I wonder if they were planning that before they heard about Zopa’s US plans.

Also, in July they hosted a consumer-generated video campaign, asking users to explain the value of Lending Club and P2P lending. Here’s one particularly well-done submission, followed by one particularly wacked-out submission:

(I dedicate them both to Ron Shevlin)

It’s not the Beatles at Shea. Eventually, it could be bigger.

Zopa launched in limited release today in the US with a wider launch next week. Sure, the peer-to-peer lending site Prosper is already a player in the US market, strumming its own eBay-inspired, populace-driven power-ballads out for nearly two years. Zopa’s British Invasion brings a slightly different model to these shores.

Borrowers can apply for a five-year loan, with interest rates ranging from 8.75% to 16.99%, depending on their credit profiles. If approved, borrowers can get their funds immediately. From there, they can create profiles to explain their reasons for borrowing and can promote their profiles on the Zopa Web site, their own blog or other social-networking sites to appeal to friends, family and others willing to help them with their loans.”

Wall Street Journal, November 28, 2007

Six credit unions, including Forum Credit Union, will be matching the Zopa lenders and borrowers. In addition to P2P lending, US lenders can purchase Zopa-branded CDs to mitigate risk, an option not available to Prosper. Borrowers secure loans from this capital. It’s a familiar three chords, no?

It combines social media in a way Prosper hasn’t. It mitigates risk for lenders. It’s working through the CU movement. The Beatles borrowed from Elvis and Buddy Holly, and Zopa is innovating in its niche as well.

Of course, we’ve been listening to bootlegs and waiting for it to launch in these shores for over a year. Our fearless leader Matt provided some numbers in his September 2006 post. Netbanker.com says it could be a $9 billion market by 2017.

Keep in mind, too, that Zopa’s cost structure is significantly lower than banks and CUs, which has led Zopa to compare itself favorably with its US partners. Working with credit unions as a point of entry is a good strategic move for both Zopa, who gets regulatory assistance and the credit unions, who align themselves with a potentially industry-changing technology.

This invasion may not have the screaming teenagers or Ed Sullivan, but it is causing a small but significant uproar.

From the Filene Research Institute blog:

Join Wade Lagrone from Zopa for a CUES webinar on Peer-to-Peer (P2P) lending on Tuesday, March 6th at 10:00-11:30 am CST. Lagrone will take an in-depth look at how this new phenomenon could play out in a way that extends the credit union mission and provides ample opportunties to partner. Call 800.252.2664, ext. 3400 to register.

Be there or be square.

If you’re curious about Zopa’s entry into the US marketplace, drop what you’re doing right now and give Episode 9 of the Current Issues in Credit Unions podcast a listen.

On my last post I listed some of the biggest developments from 2006, and among my top five was Zopa’s willingness to partner with credit unions. I believe if Zopa becomes a credit union partner it’ll turn into the most significant CU story in years.

Rob, Gwen, Guy, Brian and guest Doug True collaborated for this episode, and the Zopa chat starts around minute 47. There’s also an extensive discussion of social media at minute 15, which includes some valuable tips on online video distribution, podcasting, and viral marketing.

Wade Lagrone just introduced the concept of Zopa to the audience at the TAPS Lending Symposium. As our readers know, we’ve been excited about peer-to-peer (P2P) lending since we first learned about it.

I won’t rehash the “what is Zopa?” discussion here as you can learn about it at their website, but I must say that Zopa truly understands the credit union industry and is actively working to establish partnerships with credit unions. The level of partnership will largely depend on the participation they receive from CUs, but if CUs recognize this opportunity then the partnership opportunity is HUGE. Imagine if all new Zopa members in the US were asked to join a credit union in order to participate!

I’m going to ask Wade if he will write a post for Open Source CU outlining the benefits for credit unions, but here’s a few remarkable numbers:

• P2P membership growth is growing at 11-25% a month for Zopa in the UK and loan growth in P2P lending in the US (I’m guessing this is based on Prosper’s loan growth since they’re the only ones in the US market now) is growing at 25% PER MONTH.
• The average Zopa member is 36 years old with 59% of members in the 18-34 demographic. Compare this to credit union members at an average age of 47 with 23% between the ages of 18 and 34.
• Instead of paying an average of $327 per new member (as of 2005), credit unions could actually get paid for new members.

I’ll let Wade fill in the details (hopefully), but just know that he understands and believes in the credit union movement. I’m excited about the possibilities!

The next couple of days are going to be fairly busy for the Open Source CU (and Trabian) crew. Trey and Brent are leaving for Washington (the state) tomorrow to conduct a session on social media at the Washington Credit Union League Convention and I’m in Indiana to blog the TAPS Lending Symposium.

Doug True has become a good friend of ours over the past year (and a board member of Trabian—I think I forgot to make that announcement post. Sorry Doug!) and was kind enough to invite me to the symposium. FORUM CU has been phenomenally successful in their lending initiatives and it will be interesting to learn more about their approach.

As an added bonus I’ll finally get an opportunity to meet Wade Lagrone of Zopa.

The CEO Report is good people. Ben Rogers wrote a killer story on P2P Lending in this week’s issue (registration required).

According to the article, Person-to-person lending: A danger to credit unions or the next big thing?,

Whereas Prosper may compete directly with credit unions, U.K.-based Zopa will launch an American system as early as this summer and it hopes to partner directly with credit unions, says Wade Lagrone, VP of U.S. marketing for Zopa.

Ben and I emailed this morning, and he said, “Chris Larsen, the Prosper CEO, said anybody could partner with Prosper, they would just have to do it through Prosper’s system. Zopa seemed more amenable to co-branding with CUs but – unless everybody sees the light and partners with Zopa – there will still be competition.”

When I chatted with Ben last week about the story, he asked me if I’d tried Prosper out with my own money. I haven’t.

I’m going to wait for Zopa’s U.S. launch. I’ve followed Zopa in the news and on their own blog for close to a year now, and I can wait a little longer. Doubt I’ll be able to do it through my credit union, but that’s another matter. Maybe my CU will be one who “sees the light” on this.

Just saw the description of the latest CIiCU podcast, where the CU lawyer Dream Team discusses “P2P lending [and] legal issues arising with credit unions who choose to blog with their members.”

My iPod battery is dead right now! Doh! Once it charges, I’ll be in listening heaven.

Thanks in advance to Rob for getting those questions (and I believe one from OSCU loyal reader V about two-factor authentication) into the discussion!

I’m sure I’ll have a lot to write about after I hear the podcast …

I was thrilled to see CUNA News Now covering peer-to-peer (p2p) lending today. They offered an overview of Prosper, and this is the first time many credit union leaders will have heard of the concept of social lending.

Loved the language in the piece:

Some experts say such lending sites could topple the credit industry, bringing transparency and fairness to the market. The premise is that borrowers shut out of the traditional loan market can find money at reasonable rates. Lenders can get a better rate of return than they would on some other investments.

Transparency is what consumers are now expecting in the relationships with their financial service providers.

Read what we’ve said about the peer-to-peer lending concept:

• Revisit: social (p2p) lending
• Social lending arrives in US
• Zopa in US in ‘06?
• Online money exchange Zopa making headlines

It’s been a couple of months since I wrote about Prosper or Zopa, and I’ve got a good reason for a quick revisit. After I responded to a comment on the Social lending arrives in US post, I did a quick search to dig for any recent developments in this very young space.

From an important Payments News post about an Online Banking Report on Zopa and Prosper:

Presuming Prosper and/or Zopa make it through these unique challenges [named in the report], the report predicts that within five years the total market for person-to-person lending in the U.S could surpass 100,000 loans annually, worth more than $1 billion.

The report is a must-read for any financial services executive involved in consumer credit and loan originations. The consumer behavior seen in this particular niche has broad ramifications even for the most traditional lender.

This is the direction in which the web’s moving, friends. Blogs/RSS; sites like myspace, Wikipedia, YouTube, Kiva, flickr ... the list goes on and on and on. It’s the social web and expect the shift to carry over into how consumers interact with their financial institutions.

From yesterday’s TechCrunch post Prosper Launches – Social Lending:

San Francisco-based Prosper launched today. . . . Like London-based (and Benchmark funded) Zopa, Prosper is a marketplace for borrowers and lenders.

Don’t see a threat to the CU industry? Look at Prosper’s near equivalent of SEGs in credit unions.

Also, take a look at LoanBack, whose idea is “to make it much easier to arrange informal loans—the kind friends or family might give to each other, for instance,” according to a post called The Web 2.0 Wave vs. LoanBack at O’Reilly Radar.

It’s noteworthy because these are the first live instances of social lending in the US of which we’ve heard. Scott Patterson predicted it on his blog just a few weeks back in an engaging post called Zopa for you … P2P lending is coming soon, where he writes,

Apparently Zopa plans to make a big U.S. splash in the early part of this year. I’m sure the press will pick up on this and run. They are likely to attract quite an audience and I feel confident they will have at least some initial success.

However, I’m unsure about the long term impact on the financial services industry as a whole. What will your credit union’s response be? Do we need an industry response? Are there additional lessons to be learned from Zopa’s model that can help us improve our own?

Overall, I think this should be a wake up call for CUs to leverage their advantages from the banking and for-profit models more effectively. Credit unions have the ability to offer superior rates and service. Who will execute?

“It is where eBay meets credit unions by way of easyJet, the peer-to-peer movement and Betfair.” (From Peer Pressure, The Guardian, March 11, 2005)

Meet Zopa, the company profiled in Peer-to-Peer Banking in Business 2.0 magazine. Service is available to UK residents over 18. Their CEO, Richard Duvall, is “now eyeing the US market. But analysts say federal and state regulations could present obstacles.”

How it works:

According to their website, people who are willing to invest become Zopa lenders and can choose to lend to riskier borrowers at higher rates or to more qualified borrowers at lower rates. Borrowers then browse available rates, and if there’s an agreement a loan is made. ZOPA, by the way, stands for “Zone of Possible Agreement and is the overlap between one person’s bottom line (the lowest they’re prepared to get for something) and another person’s top line (the most they’re prepared to give for something).”

Zopa divides lenders’ offers up and distributes them around at least fifty potential borrowers. Zopa then manages the payment collection process and charges borrowers a 1% exchange fee.

How Zopa shapes their message:

Zopa is for creditworthy people who earn money in new ways, in ways that banks don’t always recognise. People who are self employed, people who have peaks and troughs to their income, people who would be invisible to a bank’s credit rating system but are seen and validated by Zopa’s. (From www.zopa.com)

The idea of “peer-to-peer banking” was directly behind the birth of the credit union movement. Today for-profit Zopa has discovered that same message still appeals to the masses – over 10,000 people have joined Zopa since their website launched in March 2005.