Dangers in giving away credit union's brand

INDIANAPOLIS - Internet solutions provider VIFI here is now offering credit unions an Internet brokerage component that can be 100% branded by credit unions. Some credit unions are so eager to keep up with offering new Web services that they sign making marketing agreements and co-branding deals to offer everything from ISP to online stock trading. Some credit unions have simply placed hyperlinks on their Web site to a provider of some service they don't yet offer. But that strategy can be dangerous said Peter Barnard, vice president of business development for VIFI. "What we've seen in the marketplace are opportunities to partner with an online brokerage firm. There are opportunities for co-branded hyper links. But we're not interested in promoting their (the online brokerage's) brand. We want to protect the brand image of the credit union," said Barnard. Credit unions that link their members to a discount brokerage firm, like a TD Waterhouse for example, may get more than they bargained for, said Barnard. "A lot of those firms offer good rates on money market and savings accounts, so credit unions might start to hear that sucking sound," he said. "We were in conversations with one of the major online trading houses and found that a big part of their business is made on the spread of their deposit accounts. They pay 3 to 5% on their money market accounts, and try to make money on that spread." For the last year VIFI has been looking for a national brokerage firm that could act as the credit union's "quiet partner." That search wasn't easy, said Barnard, but VIFI found that firm in Unified Management Corporation. The result is a fully brandable credit union Internet brokerage component known as InternetBroker. The VIFI solution will be integrated into its online banking solution. Barnard said credit unions won't be in danger of losing members to a Unified deposit account. "Contractually they are prohibited from offering high interest rates on the deposit accounts on the brokerage side," said Barnard. Members who want to trade with InternetBroker can use ACH to take money out of their credit union account and deposit it into an InternetBroker trading account. Members can be trading 24 hours after initializing the ACH transfer. Barnard said as members make money on trades or begin to develop high balances in the brokerage account, it's likely that member will ACH that money back to their credit union account in order to get out of the low-interest Unified account, and into a higher interest CU account. The product won't be available until the third or fourth quarter of 2000. VIFI has set it up so the member has a single log-in via the Net banking system, and then has access to the brokerage account. "Members can then interact with investment accounts and core credit union accounts," said Barnard, who said that is in line with the total financial account aggregation concept. Barnard said there will be a revenue sharing opportunity for credit unions. He expects $3 from every member trade to go back to the credit union. It will cost members anywhere from $9.95 to $14.95 to make a trade. There is an up-front fee for a CU to launch the product and a per-member, per-month user fee. Online brokerage use won't just be for high earners in the future, according to Internet research firm Jupiter Communications. Jupiter projects that by 2003 there will be roughly 20 million online trading households in the U.S. Of those households, 26% are expected to make between $30-$50,000 and 31% to make $75,000. However, members that do trade online could turn out to be some of the credit union's higher-income earners. Jupiter stats indicated that most new online traders have investment portfolios valued over $100,000 and the average portfolio for all online traders is $157,000. City and County Credit Union, St. Paul, Minn., will be one of the first credit unions to beta the product. The CU's vice president of IT, Marc Kilgore, said integration was key to choosing the VIFI broker solution. "We first went with VIFI for Internet banking because back then they were one of the only vendors that could do an interface with our Summit core system. We'll have that real-time interface for the brokerage component." From a tech standpoint, Kilgore said online brokerage doesn't pose many problems. "It's just another data source. It's all data. Legally there's a lot to do with brokerage, but the technology isn't too difficult," he said. The CU has 604 members on its Net banking system. Currently the CU charges $1 for members to use Net banking and another $1 to do bill payment. Kilgore said once the brokerage component is rolled out, the CU will likely drop all Net banking fees. -pgentile@cutimes.com