In part two of his article on the proposed merger of Patelco, First Tech and Seattle
Telco in 1994, Ed Callahan
discusses the intensifying competition brought
about by huge leaps in technology.
Part 1 outlined the strategy and rationale behind the merger. A
Bold Vision: 10 Years Ahead of Their Time
Metamorphosis II: Meeting the Electronic Competition
I've had a month now to hear feedback on our proposal to transition Patelco
CU, First Technology FCU and Seattle Telco FCU into a single credit union. Some
observers understand that our major goal is to serve our members and be a better
credit union both by taking advantage of the developing "information superhighway"
and by meeting the competition of those who want to make as much benefit and
profit as they can out of that same information highway.
But, of course, there are others who are critical. They seem to think we are
trying to aggrandize ourselves.
That is false. As I wrote last month, we have put the members first. They benefit
immediately. They also benefit in the long run, and that is our overriding goal.
They benefit in the long run because they will have a credit union that, rather
than being stuck in the past and with old ways of doing things, will be as competitive
as any traditional or non-traditional financial service provider, even providers
on the emerging information superhighway.
Formidable New Competition
Unfortunately, there are credit union people who believe their most worrisome
competition comes from other credit unions. Not true. What really threatens
us is, of course, the for-profit financial institutions, but also the so-called
"non-traditional" providers of savings and credit, most especially
those that are going to exploit the coming information superhighway as thoroughly
as they can. If they get their way, there won't be much left for traditional
financial institutions, including credit unions, to do except offer "out-dated"
The potential of the new competitors is immense. My wake-up call was AT&T's
Universal Card. It was significant competition for us - it offered discounts
on telephone calls and deep discounts to employees, who of course were members
not only of our credit union but of hundreds of other telecommunication credit
unions. Before long, AT&T had eight to twelve million credit cards in people's
pockets. This alerted me to all the other "non-traditional" providers
such as GM, Ford and others that are trying to circumvent the traditional means
of buying, selling, lending and borrowing.
And that's just the start. Already here in a small city in California, AT&T
and PacBell are teaming up with the city to offer interactive television. And
not far up the road a high-tech Japanese/GM auto plant is close to taking orders
for its cars directly over an interactive television system. My feeling is that
the information superhighway will be a prime mover of hard goods - including
cars - that people will order directly from the factory (bypassing dealers,
of course) and then financing their purchases with the "financial institution"
that is connected to the cable system.
That could be AT&T or any other company capable of getting involved. Whoever,
as they say, "controls the switch," can sell cards, beds, diapers,
farm machinery - you name it. AT&T already has eight to twelve million cardholders;
they also have the addresses of anyone who has ever made a long distance call
on its system and they know the "credit rating" of anyone they have
dealt with simply by keeping track of how those people have paid their telephone
bills. If they begin selling and financing over the information superhighway,
they are soon going to have the addresses and "credit ratings" of
half the country's population. You tell me they aren't going to be fierce competitors
for the kinds of services we credit unions have traditionally provided.
The potential competition coming at us both from the deposit side (mutual funds)
and the credit side ("non-traditional" providers) is going to be increasingly
fierce. Financial institutions as we know them may well melt away to the point
where customers are going to go to them for no more than their checking accounts,
and these are less and less going to be the "paper" checking accounts
we are familiar with; they are going to be more of the "plastic check"
electronic variety. After decades of talk, paper really is going to yield to
electronics. We'd better be ready for it, or surely we'll be swamped by it.
Role of Telecommunications Credit Unions
I think we in the telecommunications credit unions are more sensitive to the
threats of competition from "electronic" firms than are managers of
other credit unions. Why? Because we see what's going on in our sponsor companies.
They are scrambling to shape the information superhighway and to profit by it
in any way they can. Just as some credit unions in the '80s - the defense credit
unions, the military ones and others whose memberships were steady - did not
regard diversification of field of membership as much of an issue while others
- the airlines most notably - realized that how they handled their field of
membership issues would determine their very survival, so the telecommunications
credit unions see the future "electronic" financial world more clearly
That is a major reason why we are acting to bring technology and service together,
as this metamorphosis of three credit unions would do. We feel that the old
ways are going to change swiftly. We need to at least keep up with the new kinds
of services technology is going to offer and in that way to keep credit unions
a vibrant part of America's financial workplace.