By Peter Lucas
For all their differences, entrepreneurs possess what you might call a carpe diem sensor—a built-in knack for seizing not just any day but the right day, and before anyone else has a chance to act. Adam Walker’s sensor went off in 1997.
E-commerce was barely a whisper on the lips of venture capitalists, but 27-year-old Walker saw an opportunity to marry its emergence with credit union financing. He realized that consumers shopping for big-ticket goods tend to finance their purchases over many months, but most do so with credit cards, overlooking potentially good terms at credit unions. Yet a quarter of the U.S. population belongs to some type of credit union. Walker and cofounder William Widmaier launched their Internet business with one credit union (an aviation association in Wichita, Kan.) and one product (computers) in a company called the Members Computer Source.
“We started out looking at high-ticket products—a Best Buy or Sam’s Club approach,” says Walker, a former design and production director at Internet service provider EarthLink, of the duo’s initial business plan. “Computers are the #1 category. But as soon as we started looking at computers and how to sell them online, we found you have to offer compelling financing—that’s the top selling driver. So credit unions came into the picture not as a vertical market but as a facility for selling merchandise.”
Two years later, Walker and Widmaier branched out, renaming their company CUShopper (the CU stands for credit union) and offering home theaters, TVs, jewelry, digital cameras and, soon, vacation packages and new and used cars. Walker is the company’s chairman, while Widmaier heads up marketing and business development—the same job he held at EarthLink, where he was Walker’s boss. To date, 1,300 credit unions have signed on with CUShopper, representing more than 19 million members. The company is adding about 70 credit unions each month. The aim, says Walker, is 50 million members by year’s end. He’s bullish about reaching so high a target: “Credit unions are dying to be involved in the Web.”
Credit cards, predictably, rule the Net today, representing more than 90% of transactions. Yet Walker contends that retail sites selling big-ticket goods increasingly will be disadvantaged as more consumers migrate online, because they lack the ability to connect shoppers with low-rate, long-term financing. Not everyone can or wants to pay by credit card. Though some portals link visitors to banks or financial institutions hawking credit cards and sometimes installment loans, the offers tend to be generic, and consumers must inquire about the terms and fees.
CUShopper allows credit unions to generate more loan activity by integrating e-commerce into their online banking services. Bigger tickets, of course, mean bigger sales: The average is $1,700. Credit unions affiliated with CUShopper can spell out the interest rate on a loan for a computer, available terms and monthly payments. They also can display finance charge savings over the life of the loan compared to other lending vehicles for the same duration, such as retailer credit.
By providing such information while consumers browse for big-ticket goods, Walker says, credit unions make the purchasing decision easier by breaking down the cost of the product in terms better suited to today’s consumer payment habits. “More and more people are managing their lives on cash flow by paying for a lot of purchases monthly,” says Walker, who belongs to a credit union himself. “Credit unions are extremely customer service oriented, and they offer low rates. They have a great brand to leverage.”
The high penetration of credit unions stems from the flexibility of their charters—they can be based on geographic boundaries, school districts, or employer and professional affiliations, so almost anyone can join. Walker is bullish on the fact that credit unions tap strong retail demographics, such as attorneys, doctors and government employees. These groups tend to be technologically sophisticated and comfortable making purchases over the Internet.
“You have familiarity with a captive audience combined with the propensity to go online and the income to take advantage of these offerings,” agrees Joseph Marino, an analyst with Current Analysis in Sterling, Va. “A lot of credit union members are the type of people who shop around for the best deal.”
Cobranded sites
CUShopper also represents a way for credit unions to boost their share of the consumer lending market, which stands at about 3%, according to company data. “One barrier we can help break down is to prompt credit unions to remind their members of the benefits of transacting with them,” adds Walker. “The less credit unions offer their members, the faster they’re forgotten.”
CUShopper provides credit unions with a ready-made online shopping site they can cobrand and where they can easily integrate information about their lending terms. Their members access the page via their credit union’s URL. CUShopper does the rest—forging deals with manufacturers, processing orders and providing customer service. Among its supplier agreements, CUShopper works with Apple, Micron, Canon, Panasonic and Kodak to ship goods directly. CUShopper maintains the site and handles marketing.
Walker won’t reveal site traffic or the percentage of repeat customers at CUShopper, except to say that more than 5% of browsers make a purchase. Overall on the Web, the average is a scant 1% to 2%. “We provide consumers with a value-proposition that gets them to the shopping site” with a strong intent to buy, says Walker.
CUShopper’s credit union partners range in size from hundreds of thousands to just a few thousand members—from Seattle’s Boeing Employees Credit Union, with more than 260,000 members, to Central Communications Credit Union of Kansas City, Mo., with 7,000 members. “We don’t want to limit ourselves,” adds Walker. “We work with all types of credit unions.”
As part of that strategy, CUShopper, which has about $20 million in funding on the books, recruits credit unions without an online presence as well as those with a booming online banking service. “We like credit unions with members who are heavily wired. They can generate fast growth, but they are not our only focus,” says Walker. “We want to service credit union members based on how they do business.”
To reach credit union members lacking Internet access, CUShopper mails brochures promoting merchandise marketed on its Web site. The unwired can phone in their orders using a toll-free number. The same call center handles queries from Internet users seeking answers to questions about a product.
One way credit unions envision CUShopper helping them generate more loan volume is the opportunity to swipe loans from retailers using cut-rate financing to capture incremental sales. Many use battle-tested offers like 0% financing for three to six months, no payments for 60 days or a combination.
“A lot of retailers offer great financing for a limited period, but if it expires, borrowers are hit with interest rates of 23%. We might charge 9% to finance the same purchase over 36 months, so there is a financial advantage to go through us,” says Donald Cooper, senior vice president for Central Communications Credit Union. “By educating our members on this point, we can fill a void for them in terms of shopping convenience and capture loans we might not otherwise get.”
Capturing volume
The site also is a way for credit unions to capture transaction volume and receivables on their Visa and MasterCard cards for low-ticket items such as camcorders or video games. “We refer to our Visa card rate on low-ticket items,” says Mike Pozzi, an executive vice president for Meadows Credit Union of Arlington Heights, which has 20,000 members. “We may not get a ton of receivables, but it’s great way to position our card.”
Along with generating more installment loans, credit unions see CUShopper as a way to increase traffic on their Web sites. “This is a way for us to leverage our online banking channel by giving our members a unique shopping experience in the credit union environment,” says Pozzi.
Providing that shopping experience is also a way for credit unions to put more computers in the hands of their members, who can then use the system to bank online. Credit unions prefer online customers because they tend to purchase more services and require less hand-holding. That’s a plus, because low-maintenance members generate more revenue, which credit unions can use to underwrite lower interest rates and fund year-end dividends.
For now, CUShopper has no direct competitors according to the credit unions with which it has contracts. “We have looked around, and no other partner in the online shopping space allows us to imbed our financing and approval process,” says Pozzi, whose credit union is one of several piloting CUShopper’s move into online loan approval. Other enhancements in the wings include electronic line of credit applications and credit card line increases.
Such developments are important for CUShopper, since the lack of competitors won’t last long. “It’s a great concept that is perfect for community banks, and you can bet large retail banks will follow suit with their own sites,” predicts a spokesperson for the American Bankers Association, Washington, D.C. “While this service does not compete directly with banks, serving customers online is a critical issue for financial institutions. A service like this can make online financial service sites stickier.”
Walker thoroughly expects competition and he is ready for it. “Our model is adaptable to any group of financial service providers and we expect competitors,” he says. “There are shopping portals that direct visitors to financial institutions, but they’re indirect competitors.”
A speed bump on auto sales?
One area where CUShopper is likely to encounter stiff competition is auto sales. Automakers, using their own financing arms, can stack the deck in their favor by trimming profit margins to offer 0.9% financing for up to five-years. Dealers can also sweeten the pot with incentives of their own. “It can be tough to beat those deals,” acknowledges Pozzi.
Given the intense competition in automobile sales Walker has no appetite to put together a dealer network to fulfill auto purchases. Instead, CUShopper plans to work with third parties that help credit union members locate the best price on a desired automobile at a nearby dealer. “We have no intention of building a dealer network,” declares Walker. “But credit union members can use our service to get preapproved for an auto loan before they start shopping.”
Nevertheless, Walker is convinced that credit unions can win more auto loans, not to mention loans to finance big-ticket purchases, if they’re willing to market their services more intensely. “We serve a credit union in Key Largo, Fla., that is the top auto lender in its market, so it can be done,” he says. “We see a good chance to drive business to credit unions.” And generate big volume in the process.
Peter Lucas is a freelance writer based in Highland Park, Ill.
