On Pirates And Profitability

The secret to member profitability is unproven, unstatistical, and inherently anecdotal.

November 14, 2011

A salesperson's recent pitch for mobile banking reminded me of the way retailers used to sell bell-bottom jeans.

He must have noticed my reluctant pause, because he asked, “Don’t you want to be more profitable?” That was a bit like asking me if I liked the weather, and he knew it. So I had to ask: “This can make us more profitable? How?”

“Well,” said the salesperson, “statistics prove that members who use mobile banking are more profitable than those who don’t. Most are women, and you know they make the majority of the household decisions.”

Editorial note: When someone says “statistics prove,” they often don’t.

“So,” I began, “does offering members mobile banking transform them from unprofitable to profitable, or is it simply something that already-profitable members like to use?”

This time, the pause was on his end. I call this “stump the sales guy.”

We bantered back and forth a bit—him making random claims without any shred of evidence, while I basically decided to become CEO of the National Horse Whip & Buggy Association.

In all fairness, our credit union was already implementing mobile banking. While I had no aspirations on increasing profitability, it was something members wanted. In any event, it made me think of all the times we’re presented with a new product (call it XXX) that can make members happier/more profitable/saint-like.

Now, XXX could be mobile banking, free checks, or the color pink. It really doesn’t matter. In reality, it’s a cause-and-effect thing. Generally, the two variables are related, but does one actually cause the other?

My son taught me this years ago when he did a report graphing the world’s average temperature over time compared to the number of pirates roaming the seven seas.

One glimpse of the graph was all it took to determine there was a strong correlation. In fact, one could readily argue that we could change the name of the current debate from “Global warming alarmists vs. skeptics” to “Those who like pirates vs. those who do not.” I vote for the nonpirate side.

It’s not that all statistics lie, by the way. In my early years at this credit union, I came to the alarming conclusion that members with loans are statistically more profitable than those without loans. Unleashing this pearl of wisdom at the next management meeting, however, was a little less satisfying than I had expected with a room full of eye rolls.

So how do you know if the statement being made is causative or only coincidental? Here are three indications the two factors aren’t related:

  1. There’s no reason to connect the two. If you can’t rationalize why the two items are linked, then they aren’t.
  2. An obviously stronger link is elsewhere. The statement, “Those with a loan and mobile banking are more profitable” is certainly true. You can drop the second criteria, however, and the statement will continue to stand.
  3. The salesperson says “statistics prove,” since statistics don’t prove it.

Credit unions are trying to find the golden road to profitability. This naturally includes attempts to transform members from unprofitable to profitable relationships.

Through the years, we’ve heard consultants all claim at various times that the secret to success was checking accounts, debit cards,
or bill payment. But later review found these to be the outcomes of member relationships, not the creators of them.

So what’s the key factor? I do have a guess, although I must say it’s unproven, unstatistical, and inherently anecdotal: trust.

JAMES COLLINS is president/CEO at O Bee CU, Tumwater, Wash. Contact him at 360-943-0740.