Fighting Soaring Digital Costs
Credit unions are grumbling louder about their sharply increasing monthly online and mobile service provider bills. With fees charged on a per-user basis, success in marketing digital channels to members brings its own kind of punishment.
That has some looking for alternatives.
Jwaala, which got its start in 2008, serves 100 credit unions, most larger than $500 million in assets. HomeCU got into home banking in 1996 and now serves 400 credit unions, generally with fewer than $200 million in assets.
Both have built their businesses on the premise that credit unions want predictable, up-front digital banking costs for which they can budget.
“We are not comfortable with user based pricing,” Kelly Dowell, a Jwaala co-founder, said. He added that “our fees are around half what our biggest competitors charge.”
Fees are tiered according to asset size and, Dowell said, “our biggest credit unions pay up to $400,000 annually. The smallest, around $50,000.”
At HomeCU, fees also are tiered based on asset size. A typical credit union might pay around $3,600 per month for online and mobile banking (iPhone and Android apps), mobile web and text banking, Joe Pearson, a company founder said.
“Per user fees are pure profit. For us, adding a user involves little variable cost,” he added.
Fixed rate pricing also means credit unions can market mobile to their members without worry about paying higher fees, Pearson said.
The $88 million Inspire Credit Union in Bristol, Penn., rolled out iPhone and Android apps last June, and this past April introduced mobile remote deposit capture.
“We’ve had huge upticks in usage,” Executive Vice President Kevin Unger said. “Right now, we have 620 iPhone users and 404 Android users. I am paying HomeCU $250 apiece for the apps, flat fee.”
He added that, indeed, there is a per item fee for MRDC, saying Inspire pays around 40 cents. But, he said, MRDC is diverting deposits from shared branching where Inspire pays five times as much.
“We are keeping our costs down with this flat rate pricing and we are comfortable pushing mobile in our members’ faces,” Unger said.
Richard Schulz, CEO of the $41 million New South Credit Union in Knoxville, Tenn., said what he liked about HomeCU is that “the costs are predictable. I can keep to a budget.”
Schulz said he switched to HomeCU from home banking provided by his core system provider around seven years ago, but what kept his eyes on HomeCU was the stability of the costs.
“It doesn't hurt me to grow my membership,” he said. “With HomeCU I am not getting dinged for inactive members.”
That's important. In many solutions, that per-member monthly charge kicks in even if the member does not make a single home or mobile banking transaction.
Schulz added that if he had to pay for inactives, he might be after them to get off the platforms. But, with HomeCU, he can ignore their inactivity because it isn't costing the institution.
The $2.3 billion Redwood Credit Union in Santa Rosa, Calif., launched Jwaala in 2012 after its former digital platform sunsetted, Todd Lindemann, senior vice president said. “The Jwaala pricing is attractive. Very straightforward. We like the set fee,” he said.
“I don't think we would be paying more if we were on a digital platform provided by one of the major financial tech companies,” Lindemann said. “I know so.”
Redwood has some 35,000 mobile banking members and another 110,000 on home banking. In many formulas, that could mean fees more than $100,000 per month, experts said. Jwaala declined to offer specific numbers but indicated the highest fees it charges are around $400,000 annually.
What Lindemann especially likes about Jwaala is not the pricing, it's the flexibility.
“We can customize the tools we bring our members,” he said.
Lindemann acknowledged that the service is staff intensive but, he said, his credit union has four staffers plus a manager in its remote delivery group, so Redwood has the resources to tweak and polish Jwaala's tools as it wishes. And, as far as Jwaala is concerned, that kind of customer customization is welcome.
That is the good news about these alternative digital platforms. There also are complaints.
Not everybody was persuaded that flat fee pricing is the way to go.
“Banks don't want to pay per user fees the same way merchants don't want to pay interchange,” said a highly respected mobile banking executive who asked to remain unnamed. “Unfortunately, it's the way it is. Will it change? Unlikely.”
He added: “You may not like per user pricing, but it's important for the vendor. It's the only way to get some real scale in your business. If you don't get the scale, you can't make money, and if you can't make money, then you’re out of business.”
Both Jwaala and HomeCU indicated they were solvent and financially healthy. Because they are privately owned, however, that claim could not be readily verified.