Trouble For Small Credit Unions?

When it comes to blog fodder, at one of the spectrum are sources like Forbes blogs, Fast Company, and Motley Fool, all of which occasionally publish stuff so crappy it just begs for Snarketing treatment.

At the other end of the spectrum is Callahan Associates, who I have a ton of respect for, and who I believe does great work. That view wasn’t changed last week when I sat in on Callahan’s quarterly review of credit union industry performance. Great data, great analysis.

Overall, Callahan painted a very optimistic picture of the credit union landscape–loan volume is growing, and market share is increasing in many areas and markets.

There were, however, a couple of slides that warrant further analysis and questioning–specifically those that related to the performance of credit unions by asset size.


Before we get into those slides, I’d like to state for the record that I’m not here to comment on the viability of small credit unions. I’m simply commenting on some data that Callahan presented and (respectfully) challenging their interpretation of the data.


The first slide that caught my eye contained data regarding credit unions’ 12-month loan growth, broken out by asset category. According to Callahan, the credit union, as a whole, grew loan by 10.3% in the 12 months ending September 2014. I’m assuming the data refers to dollar, and not unit, volume growth.

For the six asset categories of credit unions with less than $1b in assets, loan growth was below the 10.3% average. The largest credit unions–those with more than $1b in assets–grew their loan volume by 10.7%.

20141117 Callahan1I may be missing something here, but I can’t understand how the tail–the small number of credit unions with more than $1b in assets–is wagging the dog. If the–what 150? 200?–$1b+ credit unions grew lending volume by 10.7%, and the thousands of <$500m CUs grew at 5.1% or less, then the $1b+ CUs must have an incredibly large percentage of the overall volume of loans.


Now, if it is true that the largest CUs have an incredibly large share of CU loan volume, then the next slide in Callahan’s deck–which was titled “Smaller credit unions are posting some extraordinary growth rates”–is misleading.

20141117 Callahan2While it may be true that some small credit unions are posting “extraordinary” growth rates–like the one with less than $20m that grew loan volume by 104.7%–the reality is that the actual dollar volume must be incredibly small. And that the credit unions in each of the smaller peer groups with “extraordinary” gains are few and far between.


If I’m reading the Callahan data correctly, then, although the credit union industry as a whole may be doing well (in terms of loan volume and market share), that good health is not evenly distributed across asset groups.

And I just can’t buy in to Callahan’s attempt to spin the results as positive for smaller credit unions.


Is this evidence that small credit unions are doomed, and will disappear in the next few years? I don’t know. That’s for someone else to argue. I’m simply trying to make sense of Callahan’s data.


Are Credit Union CEOs On The Mark With Marketing?

Mark Arnold published a blog post recently titled What CEOs Want From Marketing in which he captured the thoughts of a number of credit union CEOs regarding what they’re looking for from marketing. A few of the quotes caught my attention:

“Our marketing efforts need to be developed from the perspective of the consumer, not the credit union.”

“I want our brand to be consistent across all channels.”

“I would like our marketing to get us noticed by people that need our products and services. I want the message to reflect our commitment to community, our genuine concern for our fellow citizens and our professionalism. I also want a consistency in our marketing program that establishes an attractive, easily recognizable brand.”

“I view marketing as making the introduction while the responsibility for turning the introduction into a relationship falls to the staff (Loan Officers, Customer Service Reps, Deposit Staff, Trust Officers, etc.).”

My take: If these views are representative of credit union CEOs overall–and I believe that they are–then credit unions are: 1) missing opportunities to make Marketing strategic by relegating the department to tactical activities, and/or 2) putting Marketing in difficult positions by giving them fuzzy, hard-to-measure objectives.


At the risk of offending any of the quoted CEOs (which I could say is not my intention, but you’re not likely to believe me), some of the comments sound contrived. Example: “Marketing efforts need to be developed from the perspective of the consumer, not the credit union.” What does that mean? Is it OK for marketing to propose initiatives that produce no return on investment for the CU because it was developed from the “consumer perspective”?

Example #2: “I want [marketing’s] message to reflect our commitment to community, our genuine concern for our fellow citizens and our professionalism.” Cumbaya, my lord. So what you’re saying Mr. or Ms. CEO is that you want marketing’s message to sound like the same meaningless platitudes put out by every other financial institution in the industry. And wait, what exactly is marketing’s “message”? Do you mean the advertising the CU does? Is that what marketing boils down to, its “message”?


Overall, I discern a common pattern in the CEOs comments regarding what they want from Marketing: A focus on “branding” and “lead generation.”

Truth be told, I don’t know what “branding” is. Every time (OK, nearly every time) I mention branding in a blog post, an Oregon-based friend of mine schools me on why I’m wrong, and how I’m misinterpreting what branding is and isn’t. So I won’t comment here on what it is and isn’t. But what I can say is that if I don’t get it, I’m willing to bet that a lot of credit union CEOs don’t get it either.

So why would they make comments about wanting marketing to “ensure our brand is consistent” or “establish an attractive, easily recognizable brand”?  Because they don’t really get, or understand, the role that marketing plays–or more accurately–can play in the organization.


Of the CEOs quoted in Mark’s blog post, the one that struck me as best understanding marketing’s potential was the “finance guy” (su-prise, su-prise!) who said:

“My expectation is that marketing will help us achieve our strategic goals, manage our primary employer sponsors, understand what members want and recommend new products for us to offer to them and help members be aware of the services that meets their needs.” (italics added)

Understand what members want and recommend new products to offer. Yes! A great example of what marketing’s strategic contribution could be.

Sadly, though, this CEO prefaced the above-quoted statement by saying “I know [Marketing is] doing an outstanding job maintaining and protecting our brand.” Yeah, right. Exactly how do you know that?


Could I be wrong, and could this CEO’s request of marketing–to understand what members want and recommend new products to offer–be representative of credit union CEOs throughout the industry?

Doubtful. First, because, excluding the things that involve my wife, I’m never wrong. Second, because the research I and Filene Research conducted this year bears out my assertion.

Just one in ten credit unions has a dedicated new product development role in its marketing department. Eight of ten credit unions said that responsibility for new product development is handled on a project-by-basis. So it seems very unlikely to me that many marketing departments are charged with recommending new products to offer. As a result, one in four credit unions expected to offer no new products or services this year, and another 25% expected to introduce just one new product or service.

So are credit union marketers doing what “finance guy” wants his marketing department to do? Not when it comes to recommending new products to offer.


I find it interesting (disturbing is probably the better word) that none of the CEOs quoted in Mark’s post said “I want Marketing to identify and size the market potential for our products and services” or “I want Marketing to identify consumer trends relating to financial services before our competitors do” or…a hundred other things that would reflect Marketing’s strategic contribution.

Do credit union CEOs really know what their marketing departments are good at, and not good at? Do they have a sense for what their marketing departments’ competencies are? I’d bet that most don’t.

Bottom line: Credit union CEOs don’t understand the strategic role that Marketing could and should play. But this isn’t a one-sided problem. Many CU marketing departments couldn’t play that role even if they were asked to. They don’t have the skill sets to fill the role, nor the funding to hire new staff to acquire the skills.

Why Credit Unions Don’t Get Their Fair Share Of Business

According to Callahan & Associates, at the end of Q1 2014, US credit unions had more than 98 million members. That implies that almost one in every three Americans belongs to a credit union (implies, because if there are people who belong to multiple CUs, membership penetration isn’t that high).

So why would I think CUs don’t get their fair share of the market? Because of the never-ending stream of research that shows that credit unions: 1) have higher levels of customer satisfaction than banks; 2) have earned higher levels of trust among consumers than banks; and 3) offer better rates and fees on deposit and credit products than many banks. And because of the following data points:


So the question is: With better service, better products, and more consumer trust than banks, why don’t credit unions have nearly 100% of the market?

In other words, how and why do “inferior” banks manage to get as much of consumers’ financial services business as they do?

My take: Because consumers don’t know how to shop for financial services.

It’s not about rational vs. emotional decision-making. It’s about unstructured decision-making, and consumers’ ignorance about how to make a better, more-informed decision about their financial services choices.


Research conducted by a couple of b-school professors helps to shed light on this problem (from a more general, vs. financial services, perspective). In a study titled Decision Difficulty in the Age of Consumer Empowerment, the authors write:

“Today‘s decision environment offers consumers greater choice possibilities and information opportunities than ever before. The current market environment empowers consumers, providing an unprecedented breadth and depth of consumer choice opportunities in a wide range of domains. Though choice freedom and expansion of information offer numerous potential benefits, they also can magnify such sources of decision difficulty as task complexity, tradeoff difficulty, and preference uncertainty.”

Regarding task complexity, the authors explain:

“A choice can be broken down into alternatives, attributes, and uncertainties, and that decisions become more difficult when the number of alternatives or attributes increases or when uncertainty regarding attribute values increases. Limited in their capacity to store and process information, consumers become overloaded and experience greater difficulty when the decision task is more complex and cognitively demanding. The format in which information is presented can contribute further to the cognitive demands required of consumers. For example, alternative-based presentation formats generally demand more cognitive resources than simpler attribute-based presentation.”

Regarding tradeoff difficulty:

“Comparing and evaluating multiple options varying on different attributes can be cognitively taxing as consumers deal with the burden of multiple tradeoffs. Making tradeoffs in choice may not only be cognitively demanding but may also entail significant emotional difficulty. Prior to a difficult decision, consumers can experience anticipatory emotions such as fear, anxiety, and despair.”

And regarding preference uncertainty:

“Difficulty resulting from conflict in tradeoffs or from emotional burdens in choice can be further amplified when preferences are ill-defined or unstable. Without well-defined, stable preferences that can be retrieved during choice, consumers may need to construct preferences on the spot. The need to construct preferences in the midst of identifying and evaluating alternatives adds significantly to the difficulty of making tradeoffs and further increases the burden of choice.”


There’s a lot of academic-speak in the study, but the takeaway is that having more choices isn’t necessarily more beneficial to the consumer, if the consumer doesn’t know how to make a good decision among the alternatives.

And that’s exactly the problem financial services consumers face.

Consumers may know that their current bank has (what they perceive to be) lousy customer service, and has high fees (or higher than they were in the past), but they don’t know how good the service at another FI really is if they don’t experience it for themselves (which is why they turn to peer reviews which may or may not help).

And financial services consumers are generally smart enough these days to know that “free checking” isn’t really free if there are overdraft and ATM fees, or inactivity fees, or membership fees. The link between behavior and cost is murky for many consumers.


It comes down to this: Credit unions don’t get their “fair share” of the market because consumers don’t know how to evaluate all the criteria involved in making a decision, are unsure of their preferences regarding these criteria, and–this is the kicker–often don’t even care that much about the decision to put sufficient time and effort in to make the best decision.

Take, for example, the following graphic I found doing a Google image search. Is there any research that shows that these are the criteria that are important to consumers? Or is there any quantification or proof of the claimed superiority?


What should credit unions do differently? Change their marketing approach.

Instead of touting (i.e., telling consumers about) their “superiority,” credit unions should develop tools to help consumers shop–objectively–for financial services like checking accounts, mortgages, car loans, and credit cards.

I’m not referring to product selector or configuration tools which helps a consumer choose between the offerings of a single FI, nor am I referring to comparison charts which try to compare various providers.

What I’m describing–as it relates to checking accounts, at least–is A tool that structures the decision-making process, and identifies the attributes and criteria that will influence the decision.

FABB goes ahead and supplies the data to fill in the blanks. But it would be a huge step for a credit union to just offer a mobile app or online capability to let prospects go out and get the data themselves. Today, they don’t even know what data to look for in choosing between providers.

Credit unions blab on and on–oops, I mean talk–about how they’re all about their members, and how they’re advocates for their members and their community. Put your money where your mouths are, creditunionistas! Help consumers make smarter choices about their financial choices.

You won’t always win the business (you shouldn’t–there’s simply no way you have the right product or service for every consumer). But you will generate goodwill, and have an opportunity to have meaningful interactions with prospects before they become members–and if you don’t win the business this time, it’s a good bet they’ll come back for help the next time they have a decision to make.

The Realities Of Customer-Centricity In Banking

If “customer-centric” isn’t the worst-named buzzword the business world has come up with, it’s pretty damn close. Just as bad is the fact that it’s a meaningless term. Oh, I know there are people who will dispute that–we’ve had the argument here on this site a while back–but the fact that there’s even a discussion about its definition proves that it’s a meaningless term.

Thankfully, the author of a recent American Banker article titled her piece Customer-Focused? Prove It instead of throwing in the -centric moniker. The article provides advice to banks on how to be “customer-focused” and I wouldn’t dispute the logic of the prescriptions.

Except that doing what the author prescribes: 1) Will have no impact on your business, and 2) Misses the real reasons banks aren’t customer-focused or customer-centric.


The crux of the article is that the author’s bank sent her a letter informing her that her HELOC was being cut in half based on a “random audit.” According to the author, her reaction was “what a strange way to treat a long time customer.” The author was told by the mortgage officer that she couldn’t help the author, and advised the customer to contact the call center. The author advises banks to:

“1) Take note of what other banks are doing wrong…
2) Remember that technology is not a substitute for service.
3) Give customers real answers.”

First, “taking note” and “remembering” are nice things to do, but don’t accomplish anything. And if it’s your bank that’s the one screwing up all the time, how does taking note of what other banks are doing wrong help you?

Second, I don’t believe that there a lot of bankers who think that technology is a “substitute” for service. They think technology IS the service. And there is plenty of evidence that there are plenty of consumers who are more than happy to use technology to resolve issues or problems without having to talk to anyone from the bank.

Third, “giving customers real answers” is great advice. You should take it. Except that I don’t think you can.


Why can’t you give real answers?

Well, this takes us to the real reasons why banks aren’t–and can’t be–customer-focused, or customer-centric. The first is that you can’t (or won’t) give real answers because your bank is compliance-centric, not customer-centric.

I don’t doubt for a second that the mortgage officer wanted to help the author of the article. But she couldn’t. And no ranting, raving, or training about being more customer-centric would change that.

“Taking note of what other banks are doing wrong” or “remembering that technology isn’t a substitute for service” isn’t going to change the fact that the mortgage office had her hands tied by compliance.

And that’s not going to change any time soon. Compliance violations cost a helluva lot more than the lost profits incurred when one or two (or even 100) HELOC customers walk out the door (and note to author of the AB article: You’ve heard that saying regarding the grass not being greener, haven’t you?).


There’s a second reason why you can’t be customer-centric: Not all customers are equal.

I sympathize with the author of the article. We all like to see ourselves as important customers of the firms we do business with, especially when we’ve been with them for a long time.

But the reality of customer profitability and the customer life cycle is that if a customer doesn’t continue to add accounts, add balances, or generate fees it doesn’t really matter if that customer has been around for 17 years or 17 months.

(Side note: there is another way a long time customer can add value beyond the three ways I just mentioned: Providing referrals that help the bank acquire new customers. But too many of you would prefer to track referral intention instead of actual referral behavior. So you wouldn’t even know if that long-time customer isn’t adding value in the absence of account activity)

The reality of customer-centricity is that not all customers can be in the center of that centricity.


At one credit union’s recent board of directors meeting, the speaker before me (a very smart and well-respected person in the credit union industry) presented some slides on customer- (or, in this case, member-) centricity.

The slide taken from a consulting firm that showed six stages of customer-centricity with nirvana achieved in stage six was particularly gag-inducing.

The topic generated some discussion among board members with some advocating for some changes in the name of member-centricity with others retorting with the reasons why those changes would be harmful to the credit union’s bottom line.

I had to hold my tongue on this one (yes, that does happen from time to time), but my counsel would have been: Without first determining which members (either by segment or even individually) are most important, you can’t make the tough decisions on what to change.

If becoming customer-centric were easy, everyone would do it. They don’t because it requires tradeoffs. Tradeoffs that typically have an immediate, short-term negative economic impact. And since there is no shortage of the tradeoffs that could be made, becoming completely customer-centric is likely to put you out of business within a month.


So good luck with your quest to become customer-centric. Tell my great-great-great-great grandchildren when you get there.

Competing On Performance: Marquis’ Member Value Statements


A recent Financial Brand article titled Proving The Value of Credit Union Membership highlighted Marquis Software’s Member Value Statements (MVS), a new service that “calculates specific dollar amounts for each members showing the relative value of their credit union’s products compared to similar products offered by nearby FIs.” The article quotes Marquis’ GM/Creative Director Tony Rizzo:

“We wanted Member Value Statements to make personal, specific and relevant comparisons for people, rather than produce pithy stats that are good soundbites for a newsletter. We decided to make ours so that it would show members all their relationships with their credit union—all of their deposit and loan products—then compare them with the top 15 or 20 banks in that credit union’s specific footprint.”

My take: That’s what I’m talking about!

When I talk about “competing on performance,” that is. In a previous post here titled Competing On Performance, I wrote:

“The next wave of banking competition is competing on performance. That is, who best helps the customer manage and improve their financial lives—and not who has the best rates or fees, or who claims to have the best service.”

Although I still believe we need a single score–a Finscore–to capture our financial health, Marquis’ MVS is a great step towards changing how FIs approach marketing. It isn’t enough for FIs to tell consumers “we will be the best FI for you”–they have to show consumers that they have been and will continue to be the best FI for consumers.

In other words, marketing doesn’t end at the sale. That might seem obvious, since every FI cross-sells their customers and members (to death). But pushing additional products and services does little to help customers confirm that they made the right decision when they selected an account from that FI.


While I love the MVS concept, there are some elements of Marquis’ approach that I would change (so what else is new?):

1) Comparison points. Marquis recommends against including other credit union in the comparison, because, according to Rizzo, “when I look at market share and penetration numbers across product categories, credit unions—while important—are not a significant force in most markets. And besides, credit unions don’t usually turn on one another.”

I disagree. This is about the members (or, if a bank was doing this, its customers). Not about the “let’s all hold hands and bash the bank” attitude too prevalent in credit union land. If a credit union’s members had to choose between other credit union when selecting an account from the chosen CU, those credit unions should be included in the comparison.

2) Channel deployment. Marquis says that “with data and postage and printing, you should figure about $1.5 per member, per project” to send out MVS. As long as we’re talking averages, the “average” credit union has somewhere around 15,000 members, so sending out MVS would cost Average CU less than $25k.

I’m not looking to take away any revenue opportunities from Marquis, but FIs should be able to avoid the mailing cost by posting a quarterly MVS to the online and mobile banking platforms. Nothing wrong with sending a paper MVS, but given the cost of postage and printing, FIs would get more bang for their buck with more frequent communication of the value statements.

3) Macro- vs. micro- deployment. Member value statements help each individual member see how they’re doing, and the statements may very well be effective at driving additional product sales, as Marquis claims.

But FIs should use this concept to create MemberSHIP value statements. That is, at the macro- level, how have all members of the CUs performed? This would likely have to presented in percentages and ranges, as in, XX% of the CU’s members saved between $Y and $Z in 2013, versus what they would’ve spent/saved/earned if they had chosen a different FI.

Granted, this would be harder to compute, but that’s what “competing on performance” is all about.

4) ROI. Marquis says that credit unions that have executed the program have received a minimum of three times their investment back in terms of net profit. Smart Financial CU says they “can’t say they’ve received that kind of ROI quite yet” and Wright-Patt says it was able to attribute approximately $50 million in new relationships as a result of the project.

I’m having trouble with some of these numbers. Three times their investment in terms of net profit? How do you know what the net profit of a particular account really is? $50 million in new relationships? I thought these statements went out to existing members? Where did the new relationships come from? And what does the $50 million number mean? Is that 10 $5 million mortgages?

I understand the need to demonstrate ROI on marketing investments. But if the CMO has to justify every friggin’ marketing expense in terms of ROI, that CMO has a bigger problem (namely, no confidence among the executive team in marketing). 

MVS represents a new approach to marketing an FI’s products and services, and how it communicates value to its members/customers. My suggestion to FIs looking to deploy MVS is to run a test. Define two sets of members: a test group and a control group. The two groups should look as similar as possible in as many dimensions as possible, but especially tenure, number of products currently owned, balances, and demographics.

Then, send out MVS to the test group–both paper statements as well as online delivery–but suppress other marketing messages. Continue to market as usual to the control group. I don’t know how the CUs currently sending out MVS define their tracking period, but I think you need to give this test at least a year.

After four quarters of tracking the impact of MVS, the true return on the investment–as well as the return on the new approach to marketing–should be more apparent.

Can A Credit Union Make Bread Off Of Panama Red?

Can financial institutions (FIs) create a new source of revenue from the fledgling marijuana industry? Opinions differ. According to an article published on The Financial Brand, an AVP at a Colorado-based credit union said the pot business is too big for FIs to ignore, and was quoted as saying:

“It’s vitally important that this industry has access to banking services. It’s a recipe for disaster if these folks can’t conduct their business in an above-the-table, legitimate banking environment. There is no question it’s an industry that’s here to stay, and the dollar volume related to it is stunning.”

A Washington-based credit union exec said, on the other hand:

“If someone in the pot business came into one of their branches today, the answer would be no. We don’t establish bank accounts for anybody who works with marijuana, because it’s still an illegal substance at the federal level.”

At the heart of the issue are compliance issues. A Credit Union Magazine article titled Can CUs Serve the Budding Marijuana Industry? concluded:

“The compliance burden of doing so appears not only insurmountable, but also overreaching. For FIs providing financial services to marijuana-related businesses, the new guidelines include three new types of suspicious activity reports (SARs). Additionally, there are seven new customer due-diligence requirements, such as verifying with the state whether the business is duly licensed and registered, as well as ongoing monitoring for suspicious activity. But the real kicker is the due-diligence requirement to determine whether any of the priorities listed in the guidance could be implicated by the marijuana-related business.”


The potential hurdles and compliance burdens aren’t stopping one entrepreneur, however. Paul Alexander not only believes in providing financial services to the fledgling marijuana industry in Washington and Colorado, but thinks a credit union dedicated to this industry can thrive, and is betting that it will expand to other states.

Alexander is a serial entrepreneur with other successful business startups under his belt. I spoke with him recently to get his thoughts on why he believes his new venture, Dispensaries of Pot Employees Credit Union (DOPECU) will succeed. Alexander believes a number of factors weigh in his favor:

  • Community. At the core of DOPECU‘s business plan is the belief that the new credit union won’t just attract marijuana-related businesses to the CU, but those businesses customers as well. Alexander believes that not only will pot-related businesses be attracted to his new credit union, but that the businesses will help attract and recruit new members from their customer base. Alexander plans on giving the businesses referral fees for new members that join DOPECU as a result of their references.
  • Demographics. Alexander cited consumer research from Gallup that found that 14% of consumers between the ages of 18 to 29 are regular marijuana smokers, and that 13% of Liberals (of any age) smoke pot regularly (see the research study here). Alexander believes a marijuana-focused credit union will be more successful attracting the coveted Gen Y population than other CUs.
  • Specialization. According to Alexander, established credit unions overestimate their ability to serve the financial needs of marijuana-related businesses. Alexander said that, by focusing solely on this industry and its customers, DOPECU will better understand the unique financial and business needs of pot-related businesses.
  • Regulatory trends. Alexander is betting that other states will follow in Washington’s and Colorado’s footsteps, citing California and Oregon as two states likely to legalize pot (see chart below). The entrepreneur doesn’t even want this to happen too quickly, as he would like to establish DOPECU in Washington and Colorado, before other states change their laws.

When asked about the compliance issues, Alexander said he believed that by focusing narrowly on a single industry, DOPECU‘s compliance burden would be no greater than what other credit unions face.

My take: Alexander makes an interesting case for DOPECU, and it’s hard to bet against entrepreneurs with a great track record. I’m somewhat skeptical that many young consumers will be drawn to a credit union so closely affiliated with marijuana, but with the dual focus on both pot-related businesses and consumers, it might not take too many consumers to sign on for DOPECU to be viable. 

What do you think?

Credit Monitoring Is Not The Solution

In the wake of the Target data breach, the retailer announced that it would provide credit monitoring from Experian to the customers affected by the breach. 

With the number of consumers impacted by the breach now at 70 million, Target might be wise to do two things:

  1. Just acquire Experian (or some other credit monitoring firm) altogether, as the amount they will have to pay out for the service might make an acquisition a more attractive alternative.
  2. Change its name.


Enough advice for Target. It doesn’t deserve my help. It took me five days to get through to them to cancel my Target card. Nope, couldn’t do it online, and couldn’t even do it in-store. Screw you Target for causing me to waste so much time trying to get through to you. And oh yeah, thanks for not responding to any of my tweets. If Hillary Clinton can have a hate list, so can I. And Target is on it. 


The real advice in this blog post is for banks and credit unions. 

Sorry that falls on you bankers and credit unionistas to do this, but you guys are the ones who will have to provide some consumer education here. 

Specifically, on the differences between credit monitoring and transaction monitoring. Credit monitoring is good, and it’s needed, but it isn’t anywhere near a complete solution to protecting consumers’ card-related information. 

Mick Weinstein, the new CMO at Billguard explains the difference better than I could:

“Credit monitoring services don’t function on the transaction level, so if someone actually uses your credit card in the period soon after it’s stolen, the credit reporting agencies simply won’t notice it. Credit monitoring services would notice someone trying to issue a new credit card in your name, and they’ll try to track your card number on the black market, but they have zero visibility into specific transactions. And it’s those fraudulent charges that you need to be on the lookout for right after a security breach.”

In addition to providing education to consumers on the differences between credit and transaction monitoring (and the limitations of the former), banks and credit unions should actually look into providing BillGuard services to their customers/members.

In an Aite Group report I published in July 2013, I found that:

“Grey charges–deceptive and unwanted credit and debit card charges that occur as a result of misleading sales and billing practices–total more than US$14 billion per year among U.S. cardholders, roughly US$215 per cardholder incurring these charges. Though grey charges aren’t technically fraudulent, they present a dilemma for credit and debit card issuers: generate interchange fees from grey charges or incur service-related expenses when cardholders dispute charges.”

Would be nice if Dick Durbin looked into the impact of his eponymous amendment and realized that the reduction in interchange fees have pretty much been pocketed by retailers and merchants whose data security processes and capabilities are sorely lacking. 

Target will provide one year’s worth of credit monitoring to customers impacted by the breach. What happens after that? Does the threat go away in just 12 months? Of course not. The credit monitoring firm will look to the consumer to pay for the service after the first year. 

What Durbin and his merry band of useless Congresspeople ought to do is require Target to provide FIVE years worth of credit and transaction monitoring services to impacted consumers.

But don’t hold their breath waiting for that. In the mean time, banks and credit unions should inform customers/members on what additional steps they can take to monitor the use of their cards and personal information.