Small
Credit Union's Big Ambitions
San
Francisco-based Patelco may not have many customers, but
it's found a ready-made wireless niche
By
Joyce Slaton
MBizCentral
March 2001
Last October, Patelco, a San Francisco
credit union with just 200,000 customers, launched a full
suite of wireless banking services every bit as sophisticated
as those from national competitors.
It
makes sense that big banks would be the first to offer high-tech
services such as electronic bill pay and online loan applications.
After all, banking giants like Wells Fargo and Citibank
have the ready funds to pour into new ventures they believe
will help them attract and retain customers. But why would
a small institution such as Patelco find it worthwhile to
invest the five to six figures annually that it costs to
be on the bleeding edge of mobile?
It's
clear that consumers are taking to remote banking options.
According to a recent report by research firm Gomez, 18.5
million U.S. consumers, or almost a quarter of adult Internet
users, are banking online. That creates an expectation that
wireless banking will also become popular.
But
Patelco has an even stronger basis than most financial institutions
for believing that wireless services might be attractive
to its members because its marketing strategy is designed
specifically to attract customers interested in high-tech
alternatives to the teller line or the ATM. This is clear
just looking at the percentages of customers using online
services. While Bank of America, Wells Fargo, and Chase
have about 9 percent, 14 percent, and 2 percent, respectively,
of their customers using their online services. Patelco
has an almost-unheard-of 28 percent penetration rate. A
full 80 percent of its customers have access to a personal
computer, and 64 percent have Internet access.
This
customer profile reflects Patelco's roots in the communications
industry. Although workers from all sectors are eligible
to join, the credit union was founded in 1936 by five PBX
installers to serve their fellows. With 30 branches and
assets exceeding $1.9 billion, Patelco grew to be the fourth
largest credit union in California and the 12th largest
in the U.S. Its recent wireless banking offering was specifically
designed to attract and keep more technology-hungry customers.
John
Shields, Patelco's senior vice president of e-business,
says mobile is a smart marketing move. "Besides being in
the Bay Area, where the main industries are technological,"
says Shields, "we actively go after high-tech companies,
whose employees generally make a better salary, can qualify
for more loans, have more stable jobs, and have better job
prospects in the future."
Patelco
has long tried to attract customers by offering sophisticated
technology. "When the debit card was introduced in 1994,
we offered it a year before Wells Fargo and BofA," says
Anita Macias, Patelco's vice president of marketing. That
same year, the credit union became one of the first to launch
online banking.
Shields
believes that, although the upkeep costs of online services
run higher than the revenue these services bring in, the
payoff in terms of customer acquisition and retention makes
the investment worthwhile. In fact, industry figures show
that customer loyalty actually increases the more customers
use their bank's online services. "Offering online services
has really upped our retention," says Diana Moy, Wells Fargo's
vice president of product development in the Consumer Internet
Services Group. "Our members are 36 percent less likely
to leave if they access services online." Because all but
2 percent of Patelco's wireless customers also bank online,
Shields expects the mobile offering to show the same retention
benefits.
The Costs of Doing Business Wirelessly
According
to Shields, Patelco's Internet offering, known to customers
as PC-24, has totted up about $380,000 in hardware, software,
development, and ongoing maintenance ($30,000 a year) costs
since its 1995 launch. All in all, it spends about $0.20
a month for each of its 55,000 online banking members, according
to Macias. Patelco's research found that other banks' costs
ranged from $0.08 to $0.30.
Patelco
didn't spend a considerable amount to add the wireless interface,
which launched in October 2000. Mobile applications developer
MShift took on the job of building the interface, turning
out Patelco's project in five weeks for a very reasonable
price and maintenance support. By October 2001, after one
full year, the wireless services will have have increased
the cost per online banking member by 25 percent to about
$0.25 per user.
The
big banks with which Patelco competes for customers were
reluctant to release information about their costs, citing
worries about competitive advantages. But Tom Croen, CIO
for First Technology Credit Union in Beaverton, Ore., says
First Tech rents wireless service from an applications service
provider, spending from $7,000 to $8,000 a month to offer
mobile banking to its 78,000 members. That works out to
about $1.15 per customer.
Neither
Patelco nor analysts expect to see that investment result
directly in increased revenues. "It's sort of a loss leader,"
admits Patelco's Shields. "We don't expect to be able to
cross-sell other products, and we're not going to pass the
charges on to customers in the way of fees for using wireless
or PC-24 access." Analysts say that banks that hoped to
make money with online banking were disappointed with the
outcome - at this point, it doesn't have a direct impact
on the bottom line either through increased revenue or cost
savings. "At best, banks broke even with Internet banking,
and in many cases, they lost money," says Andy Bartel, Giga
Information Group's senior researcher for e-commerce.
Does Wireless Equal Retention?
What
Patelco is hoping is that by offering wireless options it
will have yet another tool to convince customers to stay.
"Banks figure that if they don't have as many options as
their competitors, they'll lose customers," says Bartel.
Just by increasing the number of choices members have, wireless
services could increase retention.
"The
average customer gives us an average of $160 in profits
annually," says Patelco's Shields. "The longer they stay,
the more services they use. And the more services they use,
the more profitable they become."
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