Small
Credit Union's Big Ambitions
San
Francisco-based Patelco may not have many customers, but
it's found a ready-made wireless niche
(...)
Patelco has found that its members stay with the credit
union an average of 9.5 years. But if they accept four or
more of Patelco's services (such as loans, credit cards,
checking accounts, and the like), they stay 10.1 years on
average. Customers who use fewer than four services stay
an average of 8.9 years.
Retaining
customers pays off in two ways. First, it costs much less
to keep an existing customer than it does to gain a new
one - savings realized by retaining current customers are
at least in the 30 to 50 percent range, according to Chris
Musto, vice president of Gomez's Financial Services Group.
Second, those customers are also easier marks for upsells.
"Fundamentally, banks make money by lending," says Bartel.
"And it's easier and cheaper to convince an existing customer
to take a loan with your institution than it is to sell
it to a brand-new customer."
"It's
pure profit, at a much higher margin than if I'd had to
spend again to attract those customers," says Paul Jameson,
Gomez's senior analyst for banking and payment services.
Not
only are Patelco's customers more enthusiastic users of
technology, they're also more affluent than the average.
This is another reason why offering wireless services makes
sense for the credit union. According to Patelco's 1999
membership study (the most recent available), its members'
average income is $75,307, with more than 66 percent owning
their own homes. This kind of customer tends to use the
bank for what Gomez's Jameson calls "a wealth management
situation." That does translate into profit for Patelco.
"Our online users are across the board much more attractive,"
says Shields. "They carry balances that are about 20 percent
higher [than our other customers] in both savings accounts
and loans, and they use more services, including loans and
checking accounts, where there's almost 100 percent penetration."
Lower Overhead
While
financial institutions aren't expecting wireless banking
to increase revenue, it could bring down costs, at least
theoretically. The cost of serving a customer wirelessly
is far less than using a human to do the same job. The figures
are impressive: Management consultancy McKinsey & Co.
estimates that seeing a customer in a branch costs an average
of $1.07. In contrast, serving that customer via mail costs
about $0.73; when using an ATM, the costs drop to $0.27.
Serving customers wirelessly is even cheaper: $0.15 per
customer, with Internet services weighing in at an even
more cost-effective $0.10 per transaction - assuming that
the costs of building the infrastructure have already been
absorbed.
However,
"That's a pretty big assumption," says Joe Morford, a financial
services analyst for investment brokerage Dain Rauscher
Wessels. "Especially since once you build the infrastructure,
you have to keep building it, maintaining it, keeping it
up to date." He bases this analysis on his observations
of the development and maintenance costs for Internet banking
services. For example, Wells Fargo, which launched Web banking
in 1995, plans to spend $375 million this year on Web services,
$175 million more than it spent in 2000, Morford says. None
of the financial institutions that brief him has released
details on how much of their technology spending was wireless-specific,
he adds.
A Wild Bet?
For
banking customers, mobile services are a win-win situation:
They get more services for almost no extra outlay of cash.
But for financial institutions, mobile offerings represent
a relatively significant investment in technology. No one
can yet prove that mobile offerings will attract or retain
the type of big-money, profitable customer that every financial
institution wants.
But
for smaller institutions such as Patelco, mobile offerings
could be a service that sets them apart from direct competitors
and puts their service offerings in line with those from
behemoth competitors like Bank of America. Because Patelco
is using an application service provider (ASP) model that
hasn't and won't cost the company much, it's taking minimal
risk.
Back to Pressroom
