The Great Deposit Myth: Why Credit Unions Need New Growth Strategies

[00:00] Ron Shevlin: That stuff’s dead. Who cares about website design anymore or app design? It’s all about the product. Now I’ll get a lot of arguments on that, and the reality is that you just can’t make a distinction between the product and the experience anymore. The product in its designed from a feature functionality perspective is the experience.

[00:23] Narrator: Welcome to 22 Minutes in Lending. Your Go-to podcast for insights on all things lending. From lending practices, regulatory updates, how to enhance lending efforts and more. In each episode, Vince Passione connects with industry leaders to discuss the latest trends and happenings around the lending industry. Let’s dive in to the latest in lending.

[00:47] Vince Passione: Welcome back to 22 Minutes in Lending. I’m your host, Vince Passione, and today we have a special guest who needs no introduction for anyone in the FinTech and banking space. Ron Shevlin. As Chief Research Officer at Cornerstone Advisors, Ron’s known for his sharp analysis, bold predictions and deep expertise in FinTech and banking innovation. Our prolific writer and a regular contributor Forbes, his insights are sought after by top financial institutions and industry leaders alike. Ron, welcome to the show.

[01:14] Ron Shevlin: Thanks a lot for having me, Vince.

[01:15] Vince Passione: Awesome. I’m looking forward to this. Ron, we’re going to hit it off right away. So what is keeping you up at night these days?

[01:22] Ron Shevlin: How did you know I’m up at night? Is it the gray hair and it’s just the age thing at this point in life? I’m just kidding. So I have a good, Vince, not a lot keeps me up at night, but here’s what worries me about what’s keeping the industry up at night. And it’s interesting how things have shifted. I’ve been doing a study for the past 10 years now on what’s going on in banking. And one of the first questions we ask is all about optimism and pessimism for the coming year. And going into this year, Vince, you would think
there was elation in the banking industry. More than seven out of 10 respondents said that they were somewhat optimistic about the coming year. And of course for a banker, somewhat optimistic is like pure jubilation.

[02:14] Ron Shevlin: But that study was done, that survey was fielded in December of 2024, a month after the election, but before the president took office. And if I think if I were to rerun that survey today, I don’t think I’d get 71% somewhat optimistic and another 12% who were very optimistic. And I think the reason, and I think what’s keeping folks up, Vince, is uncertainty. It’s not that they think it’s a bad economy or this or that, it’s uncertainty about the economy and uncertainty about the regulatory environment. I got a lot of comments
in the survey from folks who were really looking forward to seeing a more simplified, bank friendly regulatory environment.

[03:00] Ron Shevlin:And a lot of negative comments about the CFPB, but I bet if I were to go back and ask a lot of those people, they’d say, “Whoa, whoa, whoa, wait. I didn’t want him to eliminate the CFPB. I just wanted it to be a little more bank friendly.” So I think this is what’s keeping me up at night, but I think what’s keeping bankers up, Vince, is just the general level of uncertainty in the market right now.

[03:23] Vince Passione: Well put. So you talked about the research. I was prepping for the call and I just read your most recent report, Billions Loss The Cost of Bankers Myths about America’s Financing. And it highlights these misconceptions, these myths that you talk about. So what do you think is the biggest lie that credit unions are telling themselves right now? What’s the myth that they’re living?

[03:44] Ron Shevlin: A couple things. Well, I think the credit union myth is that people are their greatest assets. And I think they say that a lot thinking that it’s their frontline staff who have great relationship with the members. And I’m not saying they don’t have great people and don’t have great front staff and service, but I think the reality of the market, Vince, is that overwhelmingly the vast majority of our interactions, and that’s not just transactions, but our interactions with our financial institutions happens through technology, whether
it’s on a mobile device, a desktop, or even the telephone. It’s not the people. And so I think there’s a big myth that the many credit unions are still clinging to.

[04:30] Ron Shevlin: I didn’t focus as much on that in the report as I did on I think another big myth, and it’s not just the credit unions focusing on this, but banks as well, and large banks as well, that the importance of getting the direct deposit relationship. And there’s this, we’ve gone through a couple of waves of beliefs or myths in the industry, Vince. We started believing that free checking was absolutely imperative to get the relationship upon which you would cross sell and deepen the relationship. Didn’t happen.

[05:07] Ron Shevlin: Now the new myth is the direct deposit relationship. Well, if we have their direct deposit, I’ve been using this term now for 10 years, paycheck motel. Banks and credit unions and credit unions in particular have become paycheck motels, temporary places for people’s money to stay before it moves on to bigger and better places. And often they’re not actually bigger and often they’re not actually better, they’re just different places. But that paycheck comes in and some of it gets moved to Chime, some of it gets moved
to PayPal, and Square, or it gets moved to Robinhood. And Robinhood has basically reimagined what the checking account is. I understand that they generated something like $800 million in an interest income last year off of their checking accounts.

[05:57] Ron Shevlin: And basically why is anybody opening up a checking account with Robinhood? There are no branches, there are no people to talk to. It’s because these are their investors. This is the segment of the market that focuses on investing, and why not just put their money right into their investment account? Oh, but it’s a checking account so they can make payments for it. I think what credit unions and a lot of community based financial institutions are failing to understand is the segmentation and splintering of the mass market into various distinct segments of the market who have unique financial needs.

[06:32] Vince Passione: That’s not new, right? When I was at Citi, back in the 90s, Citigold had a sweep account. That swept into all kinds of funds. So those products have been around for a long time. Do you think the industry doesn’t look at history, and we just lose track of the products that worked in the past, and now it looks like what’s old is new again?

[06:54] Ron Shevlin: Well, I think there’s a couple of things that are different, Vince from the 90s, and one is the technological developments. You had to make a commitment to that sweep account. Remember that old Merrill Lynch account too?

[07:06] Vince Passione: Exactly.

[07:07] Ron Shevlin: You made it a commitment to that. It was also generally targeted at the more affluent consumer who really benefit from it. But I think there are two things. Obviously it’s the internet with easy money movement. The opportunity to move money. And remember, you’ll remember this as I do, that early on in the evolution of the internet, banks charged for account to account movement. And once they stopped charging for that, it made the money movement out just as easy it did move money in. And that hurt. The other thing that’s really different than the 90s is the demographic changes. And listen, I know the Gen Zers and millennials in particular just love to blame my generation, the Baby Boomers for every problem
on the planet, as if there were no problems before Baby Boomers got here. But while we’ve done a pretty lousy job of helping them manage their money, the one thing we did right as Baby Boomers was to instill the fear of credit scores and getting into investing and things like that.

[08:16] Ron Shevlin: So there is that segment of the Gen Z and millennial population who are very into investing or very into maximizing the performance of their financial lives. And now there are a lot more tools to do that. So it isn’t necessarily one account to sweep things. It’s easier to more actively manage and move money or have a tool that does automated savings. Or an Acorns that does automated investing. You don’t have to be active anymore., You can be more passive and have the tools to do it. So the technology developments and the demographic changes from a generational perspective I think are very important. And I think really market difference from the 90s when we’re really pushing products when it wasn’t easy to make the
switch from a paper-based checking account to this sweep type account.

[09:09] Vince Passione: So Matt Harris from Bain was on last year and I was watching a recent podcast. And he predicted all these community financial institutions, regional banks are going to disappear. You’re going to have these major money center banks, then you’ll have some really small financial institutions dealing what we would call the financial deserts. And he talks about it and he says, “Look, the reason why that’s going to happen is these deposit franchises are basically dead.” It was geographically based because consumers couldn’t move their money fast. Now you’ve got payment rails that let you move money very, very quickly. You’ve got open banking, so the consumer owns their data and they can use products like Acorn.

[09:51] Vince Passione: And at some point with Generative AI, you’re going to have these autonomous agents that will be moving money for you, and getting the best rates on your savings, and refinance your auto loans and your mortgages for you. What are your thoughts on that? Do you think the deposit franchises are basically dead, this idea that you can really count on those deposits being sticky?

[10:11] Ron Shevlin: So I see where Matt’s coming from and knowing Matt, he’s like one of the last guys I want to argue with because that’s an argument I’d probably lose right off the bat. And I don’t like to get into those arguments. But here’s where I would differ with his perspective is I tell a lot of the community banks and credit unions that I talked to is that it’s not that community banking is dead, it’s that the notion of community as geography is on the decline. It’s not dead, but it’s on the decline. And what’s replacing it is community as
affinity. And one of my favorite examples is a FinTech called Panacea Financial. Vince, they serve young
physicians. Now everyone’s like, “Oh yeah, physicians, everybody wants physicians. They make a lot of money.”

[10:59] Ron Shevlin: Physicians is not Panacea’s market. Young physicians, new physicians, because this was started by a couple of doctors who hit 32, 33 years old, got out of school, finished their residencies, got into a practice, had to make an investment into the practice, had to buy new equipment, had to pay off their student loans. And when they went to the bank, their banks to get a loan, they’re like, “There’s no credit history.” They couldn’t get the loans and if they could, that had to be co-signed by their moms and dads. Really? A guy
who’s going to make $150,000 on day one, going to make $500,000 in year five and is going to be making millions by year 10, and you’re making this person get a co-signed loan? Are you crazy?

[11:47] Ron Shevlin: So they created a whole new bank. It’s just not a bank, because it’s not, it has a charter, to focus on this market. And I think this is where the future is now. There’ve been a lot of attempts and we’ve seen some fail. Daylight was focused on LGBT consumers. There was another one focused on black consumers and African-American consumers, that also went out, actually it was called Kinley. It was sold off to Greenwood. The challenge is, and I say this, it’s like if you’re a gay black doctor, who do you bank with? Well, you bank with the provider who’s offering you the most tailored products and services, and that’s the physician oriented one.

[12:39] Ron Shevlin: But there’s a lot of segments in the market with the gig workers and the side hustles. Vantage West Credit Union out of Arizona has created a line of business called Hustl, H-U-S-T-L, no E. They think they’re pretty cool. They drop the vowels just like every FinTech does. And it’s focused on folks who have a side hustle or are gig workers because they recognize the unique needs. And here’s the thing, Vince, it’s not just about the deposit, it’s about understanding that there are lending and borrowing from the member or the consumer perspective. It’s not lending, it’s borrowing. There are these borrowing and cashflow needs. And if you’ve got the relationship with somebody on the payment and deposit side, you have better insights into what their borrowing and lending needs are. And so this dichotomy between the deposit base and the lending base I think goes away and especially a big opportunity for the credit unions, because I don’t think the banks will come down from their small to mid-size business focus down to this middle bazoomer thing, but it’s easier for the credit unions to move up from a pure consumer focus to these hybrid, they’re not businesses, but they’re really not pure consumers anymore.

[13:53] Ron Shevlin: So finding niches and needs like that, I think that’s where the community-based model goes to. And the reason I’m still bullish about the community banks and credit unions making that transition is that the FinTechs who are coming in are starting from zero. And while it is certainly a lot cheaper in 2025 and more efficient to utilize technology as a advertising and distribution channel than it was 30 years ago when you had to build branches to do it, and rely on mass media advertising to make a name for yourself. You’ve seen the Daylights and the Kinley’s go out of business because they couldn’t ramp up fast enough. But the banks and credit unions in the market have a customer base. They might be getting cherry-picked away, but it is still generating revenue, still generating deposits and loans, even if it’s diminishing and getting harder, but it is providing a base of revenue and support to fund the transition to some new model.

[14:59] Kara: This is Kara Van Ward, Chief Lending Officer at Veridian Credit Union. Since 2016, we’ve been working with LendKey and join the member student lending CUSO to help provide student loan solutions to our members. As the current CUSO board chair, I’m proud of the CUSO LendKey partnership as this has allowed Veridian to help over 12,000 of our credit union members finance their education and improve their financial health. LendKey’s streamlined processes simplifies the lending experience, making it easier for our members to access the financial support they need.

[15:39] Vince Passione: I look at SoFi and I keep asking myself, what should credit unions learn from that? This is a company that focused on the highly educated, not rich yet, turning around and refinancing their education loans, knowing that at some point this borrower who graduated making $150,000 probably in their first job, working as a management consultant somewhere as an associate, probably going to get some big bonus in their future, they could refinance their student loan debt and build loyalty. And now look where they are now. They’ve added, I think it’s over two and a half million new members. There are 10 million members and they call them members, and they’re, by the way, SoFi is social finance. And deposit grows off the charts. It’s amazing what they’ve done.

[16:27] Vince Passione: What should credit unions learn from this and why are credit unions not looking at the education refinance space and saying, “I can get younger, I can build relationships early, I can build deposits off this, I can upsell and cross-sell”?

[16:43] Ron Shevlin: A couple of things I think point to why there is this gap fence. Number one, I think you got to step back and ask what did SoFi do right? And yes, it was not just the student loan focus, it was about designing and developing a product that resonated with a segment of the market. And even today, they’ve gone beyond the high-end college graduate, because that can’t be all driving the two and a half million customers, members a year. No. What’s driving it is they built a product around rewards that rewards folks for payments and deposits and the right behaviors for both the consumer and the provider.

[17:30] Ron Shevlin: But here’s the thing, I would also point to a square Cash App. What, Cash App, you can invest in stocks, fractional stocks, invest in crypto, there’s a rewards program. You can use it for payments both from a retail perspective as well as a P2P perspective. There’s a tax prep capability. They’ll even give you now two days early access on do you do direct deposits. So Vince, here’s my question to you. What is that product? Is it a checking account? Is it a payment account? It defies categorization.

[18:05] Vince Passione: Right.

[18:06] Ron Shevlin: And from a square perspective it’s like who cares? It’s Cash App. Who cares what it’s called or how you categorize it? They identified that there’s a segment of the market who doesn’t want to go to five different accounts to do all those different things. They all want it in one place, and that’s exactly what SoFi has done as well. They’ve cut away the product and account differentiations between a payment account, a checking account, a savings account, an investment account, and all these other things. So the typical credit union though has 30, 40, 50, maybe even 100 years now of experience and history of thinking along these siloed product lines. It isn’t just the siloed organization, it’s the siloed product lines.

[18:57] Ron Shevlin: Now there are clearly some regulatory constraints about what you can do with certain accounts, but the fintechs and even the larger ones, not just the new ones, are designing their products to cut across these silos and rethinking the product. This is why I think it’s so important to really be thinking about the niche you’re focusing on and what the product needs of that niche is. And yet what do we find in most credit unions? Is there a chief product officer? No. You might find a chief experience officer and I’m like, “Look, that stuff’s dead. Who cares about website design anymore or app design?” It’s all about the product. Now I’ll get a lot of arguments on that and the reality is that you just can’t make a distinction
between the product and the experience anymore. The product and its design from a feature functionality perspective is the experience.

[19:54] Ron Shevlin: And Vince, for pretty much anybody under the age of 50, even 55 at this point, the digital experience is, so I always say, “Your mobile app is your product. That is the product.” Nobody knows what feature functionality you offer on piece of paper. They only know what they interact with on that mobile app or on the website if they’re still going through a PC or a laptop, or whatever it might be. But the digital delivery is the product and if you’re not thinking, if you’re just thinking, “Hey, oh, so we’re going to personalize and allow you to move this little box from this part of the screen to that part of the screen,” Vince, that’s ridiculous thinking because it’s about product customization, product personalization, not design personalization.

[20:53] Vince Passione: Well, you touched on investing in credit unions and obviously we saw that in the last, I guess two, three years now. Credit unions have become really truly investors in FinTechs. Through funds like Circle as a mutual through TruStage. What’s your opinion there? I’m an angel investor. You mentioned it earlier. What’s the investing model? It’s like movie production. You produce 10 movies and one of them’s a hit. Do you think that the members of these credit unions understand that these investments, not all of them are going to pay off and there are going to be some losses here?

[21:23] Ron Shevlin: First, from the member perspective. Look, I go to the restaurant, I don’t care what the kitchen looks like or what a mess it is or how they do stuff, as long as the food I get is good. Same thing as the credit union member. If the performance of my products are good and if I’m getting a nice dividend, and I am getting better rates and fees than I’d get anywhere else, I don’t care how much money they’re losing on their investments, if that’s hidden to me. What’s been different about the credit union model than the bank model, they’ve come to the table with a VC mentality.

[21:55] Ron Shevlin: And it’s funny, Vince, it was two years ago, I went up to somebody from BankTech Ventures and I said, “You got a problem. I think I can help you with your problem.” It’s like, “What’s my problem?” I go, “You do a great job of getting banks to invest in fintechs, and you do a great job of finding the fintechs to invest in. But you do an absolutely horrible job of getting the banks to use the fintechs that they invest in.” And BankTech Ventures, Jam Fintop, Menden Venture Partners, all great firms. I got friends in all of them. They watch this, I’m going to get phone calls. They’re not doing a great job of driving the utilization. The Circle model and the credit union mentality from day one, whether it’s Circle, Reseda Group, has been drive utilization of those. Implementation, use the fintechs.

[22:43] Vince Passione: Right. You’re not going to get credit for it, because that’s not your business. And we’ve had Nick on from Circle, and I think that is exactly the philosophy. Same as TruStage. It’s a strategic investment. It’s about integration. And it is about trying to make really in a way helping credit unions to sort through fintechs
that they believe will have sustainability over time. And I think that does help.

[23:09] Vince Passione: I want to touch on one last thing. You’ve been generous at the time. Embedded finance. I talked to Brian Kaas at TruStage. This is one of his hot buttons that credit unions need to be really concerned about embedded finance. I look at credit unions and I think about embedded finance. Once again, it’s what’s old is new again. And say their indirect lending models in the auto space is exactly that. That was a dealer track. We embedded credit unions, finance in our platform. How do you see embedded finance? Do you see it as a big opportunity? Do you see it as a threat? Is it both?

[23:42] Ron Shevlin: So back to definitions of terminology. For a long time I treated embedded finance and the term banking as a service as almost interchangeable. I would say if I really was pressed that banking as a service was the provision of banking services to non-financial providers so that they could offer financial products and services, and the embedded finance being a broader umbrella that required banking as a service. Now with the impending decline of fintechs from a large scale perspective. As we said, “Look, if a lot of these fintechs are going to go out of business or get acquired,” then the long-term prospect for pure BaaS, banking as a service is not very appealing.

[24:36] Ron Shevlin: But embedded finance isn’t just about fintechs, it’s about Walmart has been in this space forever offering financial products and services. It’s about Gerber’s offering savings accounts to young parents to help them save for their children’s education. And by doing so, giving them a discount on the food, the baby food, to keep them loyal and doing. Now, they can’t do that without a bank or a financial provider. I think the bigger opportunities aren’t even on the consumer side. If you’re a gig worker, where do you live all day? You live in your gig platform. If you’re a driver, Uber driver, you live on your Uber platform. If you’re a gig provider, you’re living on Fiverr or whatever those platforms are.

[25:32] Ron Shevlin: The ability for credit unions to embed financial products into those types of situations. And even broader than that, on the business side, Vince, you make an appointment to get your hair cut, you get a text message with a reminder. You think that’s somebody in the beauty salon texting you? No, that’s their vertical SaaS application. Vergara, I think it’s called in the beauty space. And small businesses, from half a million in income all the way up to 50, 100 million dollars use and live in their vertical SaaS applications.

[26:08] Ron Shevlin: The ability to provide financial services and not just a simple checking account, but lending, financing, all that opportunity within the platforms, it’s a distribution play. So I think there’s huge, huge opportunities for credit unions to get more into embedded finance. Not thinking of it as banking as a service and banking the fintechs, but as a way to utilize new distribution channels to reach new members or reach existing members who live in various different systems platforms, whatever it might be.

[26:45] Vince Passione: Listen, Ron, this is terrific. And I’m going to leave it there. This was a great interview, so thank you very much for joining us.

[26:52] Ron Shevlin: Thanks for having me, Vince.

[26:53] Vince Passione: Don’t forget to like and subscribe so you don’t miss future episodes, and I will meet you back here at our next 22 Minutes in Lending. Ron, thank you so much.

[27:01] Ron Shevlin: Anytime, Vince, thanks.

[27:03] Narrator: Thank you for listening to the 22 Minutes in Lending podcast. We hope you enjoyed today’s episode. You’ll find links to any resources mentioned in the show notes. If you’re enjoying our show, be sure to subscribe and leave us a five-star review.