The roster of companies served by Digital Federal Credit Union – firms like Intel, Compaq and Cabletron – reads like a who’s who of the high-tech business world, so it’s only natural that the Maynard credit union would have a full-service Web site. But increasingly, smaller credit unions are staking out turf on the Internet and adding e-mail addresses to their calling cards.

Credit unions have long provided services that did not require a visit to a branch, such as direct deposit and automatic payroll deduction. Fifteen years ago credit unions embraced telephone banking, before it became commonplace. Now some industry observers say credit unions are jumping online while some of their competitors in the banking industry are still devising Internet strategies.

Indianapolis-based VIFI, which helps banks and credit unions provide online services, tapped 20 percent of its client base in New England. All 27 of the company’s New England clients are credit unions, 13 of which are located in Massachusetts. They range in size from $20 million in assets to just under $5 billion in assets.

“Credit unions got involved pretty early in this stuff,” said Peter Barnard, vice president of business development. “They use the Internet in an offensive way.”

Just two years ago only 1,150 banks, thrifts and credit unions offered online services. But as many as 16,000 institutions will offer online services by 2003, according to estimates by International Data Corp. Piper Jaffrey predicts that the number of online banking households will increase from 4.4 million at the end of 1998 to 25 million by the end of 2003.

As of March 31, 750 U.S. credit unions had online transactional services, according to VIFI President Mike Winter. Institutions that launched Web sites three years ago were early in the game. But now customers are beginning to assume that financial institutions will have functional Web sites, Winter said.

“Most banks and credit unions today that are interested in growing their business are embracing it as another delivery channel,” Winter said. “The question is at what point do consumers become frustrated with you if you don’t have online access.”

For credit unions, functional Web sites serve as a way to connect with a geographically diverse membership base. For instance, Digital Federal Credit Union serves members from California to Florida, and many points in between that formerly housed Digital Equipment operations.

“I think credit unions have always been a little less married to the notion of brick and mortar as a delivery channel,” said Rob Kimmett, senior vice president of the Massachusetts Credit Union League. “They’ve long had the ability to conduct business without being face to face, and they’re less inclined than large public companies to build branches.”

About 60 percent of Massachusetts credit unions with more than $50 million in assets have transactional Web sites, Kimmett said, and the league estimates that group will grow to 80 or 90 percent by the end of the year.

“There’s a real sense that it’s the place to be and an option that credit union members want,” Kimmett said.

While credit unions are rapidly going online, they are not outpacing traditional banks, said Charles Troccia, senior vice president at Workers Credit Union. As his credit union developed its transactional Web site for a launch this spring, Troccia conducted market research.

“In our research of the competitive environment, I could not draw the conclusion that credit unions were ahead of banks as a statement,” Troccia said.

The low cost of technology and companies that outsource services makes it easier for small institutions to go online. And while developing an Internet branch was once cost prohibitive for many institutions, some now find the venture very profitable.

Digital Federal Credit Union has built its Web site into a financial services center providing access to bank accounts, loans, online brokerage, insurance and financial planning. The credit union started its Web site in 1995. In July 1997, with little fanfare, it made its online offering a year before Fleet Bank and BankBoston.

“We felt that with the high-tech nature of our members, whoever was first was probably going to lock up our members,” Garner said.

The credit union already had loan applications on its site, and offered PC banking through a dial-up connection.

Loan applications on the Web site doubled from about 200 to 400 a month, Garner said, because the home banking provided customers a reason to keep returning to the site. The credit union prescreens its members each quarter and makes offers of credit through customers’ online accounts. Members find out how much they can borrow for a car loan or a mortgage, and can point and click to submit an application.

“About 50 percent of our consumer loans come through the Web, and about 50 percent of our mortgages and two-thirds of our home equity loans,” Garner said.

At the end of June, Digital Federal had 73,000 active users of home banking, about 47 percent of its total membership of 155,000 people. The credit union has assets of $1.1 billion.

Digital Federal outsources many of the features on the site. VIFI supports the checking and savings accounts, investments are offered through CUSO Financial Services and the credit union has a co-branded site with Carsmart.

By the end of August the credit union plans to launch a redesign of the site, which will be an integrated financial portal site providing news, weather and stock quotes.

“We think if people will stay at our site longer, we will achieve our mission and vision a little bit better, that all of our members achieve financial well-being,” Garner said. “We can teach them how to better handle their finances.”

‘Asking for It’
Workers Credit Union in Fitchburg has a similar vision for its Web site, although it has further to go to achieve the goal. The state-chartered credit union introduced its online banking services in March to a limited group, and rolled out the product to its full membership in May.

“Our membership started asking for it,” Troccia said. “Our own research told us that we were safe to assume as much as 20 percent of our base would adopt this channel in two to three years.”

Workers Credit Union has about 53,000 members and $328 million in assets. Through the credit union’s Web site, members can link to shopping sites, a children’s educational site and financial information. Workers tried to learn from others that went online before them, and held extensive training for employees.

The credit union officials said their Web sites were not developed to make money, but to serve the needs of their customers. Digital Federal does not charge for its home banking service or electronic bill payment.

“We found that the members using the service were those with double the savings balance and 50 percent more loan balances than the average member,” Garner said. “We thought why in the world would we want to fee these people? We want to attract them.”

Credit Unions Embrace Web Outsourcing

by Banker & Tradesman time to read: 5 min
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