Credit Unions explained. By Wesley Walton

00:00
And today, as a guest speaker, we have Wesley Walton, the CEO of Glendale Area School Credit Union. In the future
we'll be referring to it as GAS Q. But in this episode we are going to take a deep dive into credit unions. How are they
different from the classic banks? Who are they accepting? How are they growing? What is the internal voting system
look like? And much Constantine.
00:23
Yeah, my name is Wesley Walton. I of Glendale Area Schools Credit Union. G, A, S, C U or Gas Q for short. Our credit
union is about 450 million. We are located in Glendale, California, not Glendale, Arizona and we have about 11,000
members. And we start off as a single SEG credit union. Obviously two Glendale School District employees started
us off in the 1930s and we've grown to this today.
01:00
Let's start off there. You've said the sentence that I'm not familiar with. Second SEG Credit union. What is that?
01:08
Right? Okay. So over the course of the credit union industry past 80 years, the laws have changed. And credit unions,
you know, there's three types of charters that credit unions can engage in. One is like an employee based,
employment based credit union. A second one is a community based and then the third one is a trade or profession.
So an example of a trader profession is real estate agents across the United States. That's a trader profession. A
community based is generally by city, your whatever zip code or whatever city or state or county. Generally it's by
county. So if you have a community charter, generally you're hey, this county or that county or a collection of
counties or you're more us which is employer based. So employers, students and faculty and staff of Glendale
Unifed School District.
02:06
So our, that's where we start off is two teachers from Glendale. We switched the name to Glendale area because the
school district broke off from just Glendale to the local area to Glendale and La Canada. La Canada is another city.
And so we just kind of went with Glendale area to that. There's a thing called SEG Select Employee Group.
02:30
Okay, there we go.
02:32
And that is where the A. For instance, our local hospital, the one that's down the street from the main ofce of our
branch, decided, hey, we would like to join your credit union too. So there was a period of time where people were
adding small businesses in the surrounding area. So we added for instance, that hospital and so people who have
that hospital can join us. We added the local college. So the faculty and students at Occidental College, which is
close to Glendale Community College, which is also in our quote, feld of membership. So our Field of membership is
Glendale Unifed School District. Plus there's a private school, several private schools that we do, you know, the next
city, the next town over because they were initially part of the Glendale Unifed School District.
03:25
And we've added, you know, like the local chamber that were involved with over time. So but principally we are
focused, you know, 80% of our membership is from GUSD.
03:38
Makes sense, makes sense. So let's talk about the feld of membership. You mentioned that to me during the pre
interview and I found it quite fascinating because it seems like all the credit unions are pretty strictly adhering to
those felds of membership, which is basically who you can service for. You school teachers and a handful of other
places nearby. Why are the credit unions so niche and why do they have to adhere to those felds of membership so
strictly?
04:06
Well, it's all in the Credit Union act of 1934. Credit unions were created to serve a particular thing and that particular
thing generally was an employer group. So if you had you were working at a plant. So the everybody who worked at
the Ford plant in a particular town would join together and form a credit union. And that's where it was principally
employer based. The bulk of them, the bulk of them were. And it's because of the nature of the entity. In other words,
credit unions are not for proft fnancial cooperatives. So we are chartered under the IRS code 5oC14, which is why
we're income tax free organizations. Charitable organizations are 5oC3, we're a 5oC14. Just another paragraph, just
another section. But we're formed for service.
05:11
So unlike a 503 which is formed for charitable purposes, we're provide a service kind of like a mutual insurance
company or for instance like your co ops. If you're a group of farmers, you get together, you form a co op for a grain
operator or whatever or processing plant. Those things are tax free entities because they are formed for a service for
its members. And that's where we're a member owned, member driven organization. As a credit union. It is where,
you know, we kind of band together initially. Some of our phrases that kind of personifed the industry were not for
charity, not for proft, not for charity, but for service. That kind of encapsulates the reform for service. Another way to
put that is quote saving and borrowing among friends. You know, if you remember, were in the middle of the Great
Depression.
06:12
The Great Depression was about 29 to 39. Credit Union act was in 1934. So it was there to try and provide fnancial
services for groups of employees that can get together around their employer and kind of like, okay, you know, we
work together, we know Joe, we're willing to pull our money and lend it to Joe so Joe can buy a house. That was kind
of the principal thing. If you remember the story of that old Christmas story where you know the whole savings and
loans and that type of thing, that's kind of where credit union started out with.
06:52
Defnitely do not remember that story. But let's.
06:56
Well it was, it's a black and white flm so it's defnitely not one.
07:01
So let's talk about the non proft aspect of the creative unions and specifcally what happens with the funds that are,
you know, left over essentially. So you collect the funds, service them in loans, whatever happens there on the back
end, you take less fees than banks usually do. Correct. Because you're a non proft. Banks are, everyone knows that.
And see general truth of the credit unions, what happens. But you still take something on top to pay for, you know,
your staff services that you are purchasing for, you know, to run your credit union and so on and so forth. What
happens with the funds that are left over on top? So let's say, I don't know, you have $10 left and a total of hundreds
union members or credit union members.
07:48
It should be right? Absolutely. So all fnancial institutions have capital, either money that their founders have
invested or earnings that they've retained over the years. And the regulators are pretty much there to make sure you
have enough capital in case something goes wrong. So if you are shy capital and something bad happens and they
have to take you over, then it comes out of the FDIC insurance fund.
08:16
Right.
08:17
Credit unions are insured by the NCUA National Credit Union Association. 98% of them are. And so they are insured
by the ncua and the primary way that they absorb losses or kind of see if you're risky or not is do you have enough
capital? And capital is just simply percentage of assets. So while we're not for proft, we do generate a proft and
that's part of our retained earnings because we don't really get capital contributions. There's no owners, all the
members are the owners. The only way that we get capital is by saving that money that we made year over year. And
we use that money in essence to grow. So we are limited in, we can't just like double in size and go out to a market
and get more capital to support that growth.
09:09
We have to then earn the money to justify the growth. Or justify the growth by earning additional capital. And so at
the end of the day we, while we're a service based organization, we do try to generate a proft so that if times get a
little Rocky like the 2009, a lot.
09:30
Of them, a lot of them were.
09:31
Financial, great fnancial crisis. And even today with interest rates going up and down like we had with the recent,
you know, the bank up in San Francisco and a lot of the tech service banks kind of got in trouble. So that's the kind of
capital that we need. It's our safety net so that if anything goes bad, we can survive that event and move forward. So
the regulator, in order for us to grow, requires us to maintain a certain level of capital and we maintain that capital by
saving the net income of the institution.
10:07
Makes a lot of sense. Let's, let's talk about that one. Just purely out of curiosity, I remember during the pandemic, at
some point, I don't remember who exactly mandates the capital requirements. I think it's the FDIC or the Fed in
general. And the Fed set the capital requirements for banks to be at 0% of total holdings. What's the percentage
requirement for credit unions?
10:31
So the credit, the. We have a capital structure that in the code that has us ranked. So if you have more than 7%
capital, you are considered well capitalized. If you have between 6 and 7, you are adequately capitalized. If you're
between 4 and 6 under capitalized and under 4%, severely undercapitalized. So technically the level is 7% to be well
capitalized for credit unions. And this 7% has existed for a couple decades now. When I initially entered the credit
union space, that was kind of the years that it was forming that whole 7%. And it hasn't changed over the years. The
regulator expectation over the years has increased because over the years the average capital of a credit union has
increased.
11:27
And so if your capital dropped from like 10% where the average is to 7%, the regulator would go like, wait, hold on,
what the heck are you doing? And you probably have to justify that to the regulator. Even though technically 7%
supposed to be well capitalized, that's a very old requirement and not really operationally effective today. Why? Well,
at the time that was set, your average credit union had a capital of like six and a half. And so but today the average
capital ratio is more like 10. So we're even now even more protected from default as we move forward.
12:06
That is a lot of capital requirement, honestly, 10 that I did not expect. To hear that one, I was expecting something
along the lines of 4%. Since you're credit unions, you're not risky necessarily for at all. For that matter, unlike banks.
Interesting, interesting. That is good to know. So in that case, you know what, let's talk just a little bit more about the
growth before we move on to the feld. That is interesting. Me personally a lot, which is how decisions are being
made. So let's talk about growth. Growth means acquiring new users. Well, new clients in your case. I'm just used to
referring to clients as users. What else is included in the growth? I'm assuming part of it is acquiring new
technologies. You know, for example, rtp, Fed now are becoming more and more prudent in the United States.
12:53
Banks and credit unions that do not provide them are losing their uni numbers to other. Exactly, exactly.
13:00
I mean there's that happen, right? There are two principal things. I mean their growth is three things. There's number
of institutions, there's asset size, and then there's a number of overall members. The number of institutions is
actually going down just like banks. But the asset size always seems to go up, you know, 3, 5, 10% per year
depending upon the economic climate.
13:24
I'm sorry to quickly interrupt. What's the frst one member?
13:29
The actual number of credit unions.
13:30
Oh, okay.
13:32
Yeah, there were about, you know, over 20,000 banks. There were over 20,000 credit unions. Today there's under
5,000 banks and under 5,000 credit unions. So we shrivel the number about 3 to 5% a year. Excuse me? Yeah, 3 to 6%
a year, 3 to 5% a year through mergers and basically mergers, there's some receiverships, but generally it's through
mergers. But the credit union as an industry grows each and every year in asset size and in members, the growth
and asset size is more dependent upon what's happening. So if the stock market's hot and taking off, people pull
their money out of fnancial institutions and invest it in the stock market. When the stock market goes down, they get
afraid and they deposit more money with depositories. So we are a counter cyclical business.
14:30
So when everyone else is doing fne, we're all like, yeah, businesses, it's mediocre. But when everyone else is having
is horrible, we're all like getting a whole bunch of new infow of cash and growth. So that is that. Unfortunately I'm,
you know, we're, we are, you know, for better or for worse, a countercyclical business. But to serve our members. As
were saying before, we have to add services. So a, a common thing. You know about a decade ago they came up
with Zelle. So that Zell couple main large banks and several credit unions got together. They formed Zelle to do this
instant transfer of money back and forth. Today there's the real time payments are more specifcally Fed now and
Fed now then is a brand new payment rail. We haven't had a new payment rail in three or four decades.
15:25
We had checks way back in the day and then we had this ACH automated clearinghouse and now we've got a brand
new payment rail called FedNow that is a 247365 instant transfer that people can achieve between fnancial
institutions. So but that's the latest and greatest little over a thousand banks are on the Fed now network and that is
marching forward. So out of the call it, you know, 8,000, 9,000 banks and credit unions, 1400 or so are now on Fed
now and that's growing and it's you know, for a payment rail that just launched, you know, less than two years ago,
it's a pretty darn good growth rate.
16:11
Yeah, 100. I certainly have my own thoughts on Fed now and how fast it's growing or the amount of banks that claim
to be on Fed now but in reality they don't actually have them enabled. They're just there and don't have actual
integration that is working. But that's beyond the point. We'll have a whole different segment on Fed now sell. I'm
working on getting early warning systems people on aft. But not today. Not today. So let's talk about the acquisition
of those new tools. So for example, FedNow is coming out or well already came out. People are starting to adopt it.
Customers are starting to demand having those instant rails being available such as L. How does a credit union get
that done?
16:55
So for banks, standards, corporate fow, where you know, potentially the CEO is the fnal one who has to stamp the
approval and be like okay, yeah, we're adding this rail from this provider or this is the bank that we're integrating with.
Boom. How does it work with credit unions? Does it have to be done by the member vote? Is it done by the boards?
17:15
Right. It is done in a very similar fashion. You know, the boards obviously will take a fnal vote but generally your
CEOs and management present to them here's what our plan is and the, and it's, you know, the board's there to make
policy or set policy and to provide guidance. And the board Says, yep, yep, that's the direction we want to go to. And
generally they, you know, after questioning, management generally accepts most management recommendations of
what to do. So but it kind of begins with management begins with me because I am the CEO, I can speak directly to
your FedNow question. We just went through a core conversion and part of that core conversion we migrated over to
a new online banking platform and you know what we're trying to implement now? Online banking platform.
18:15
So there's there's, you know, there's the receive function and then there's the send function and then there's the
processing messages function. There's like three main functions in FedNow. And so we have got together with our
vendors and are trying to put that together. So, you know, one of the vendors that we have is called Aptis, they're one
of the original FedNow people to provide that service. And it's just a matter of getting the programming to work
because all the things, the main challenge in today's environment is to get secure communications between
everybody so the vendors and the providers and so they can talk. At this point. Yeah, so at this point we are a
FedNow receiver, which we feel is great, but doesn't do us much good.
19:08
We get, we feel we're going to really introduce it to the members once we get the FedNow send and receive
accomplished. And so we're relying on our online banking vendor to the necessary programming so that we can
achieve that Fed now two way communication makes sense.
19:24
Interesting. Out of curiosity, how long did it take to introduce it? You know, to get the idea, to hear about FedNow to
realize that's the next big thing, introduce it. And now, you know, to get to the point of implementation. What was the
cycle there?
19:41
Five years ago I heard about, well, not probably eight years ago I heard, I was heard about Zell and it was expensive,
but they didn't want to talk to an institution like me because I was too small. And by the time it got around to, okay,
you know, here you go, we're gonna do that. I'm like, wait a minute, the Fed just announced that they're working on
this Fed now thing. So three, you know, in two or three years and so go, you know what, I'll just wait for Fed now.
Why? Because it's for everybody. And I think it'll have a broader footprint. And so, you know, I waited for Fed now. I
wasn't part of the initial group that developed it with the Fed. I mean, fast follower. So to Speak.
20:24
And so since this conversion was happening, we just kind of dovetailed in this additional thing with that core
conversion and adding new services.
20:35
Right.
20:35
The new platform will have us do other things and that's one of the reasons why we chose to do such a, a massive
conversion so that we can offer things that are appealing to the next generation.
20:48
Makes a lot of sense. And yeah, that's you know, personally for me that's why I'm not part of the credit union. I do
understand that they're better fnancially but they just don't have the luxury of a nice app. Zelle and other instant
reels that are on the payout side of things. One of those things.
21:06
Right. There are many credit unions who do offer that. There are several credit unions that were part of the founding
members of Zelle. There are many credit unions that were part of the initial Fed now movement, but those are in the
low double digits and they do provide that service. I mean remember the frst online banking that was accomplished
was done by a bank new by a credit union. Really? Yeah, yeah. Stanford Credit Union up in the Bay Area was the frst
online banking platform. So individual credit unions because they're focused on service have found unique ways to
serve its members and have done some pretty amazing things. But you know it's, that's just one credit union out of
at that time probably closer to 10,000 credit unions. But generally individually we are very accommodating to the
membership as a whole.
22:08
Individual credit unions will do different things for its membership. And yeah, so like I said, the frst online banking
website credit union, not a bank. But the banks have probably they have, since they have scale they can do a lot of
things that are with their technology that a lot of little credit unions we have to rely more on our vendors to do. But by
the same token there are large credit unions that have a pretty signifcant programming staff that can do a lot of
customization and provide some of those custom experiences.
22:43
I'll be looking into those for sure. I've looked into some of my local Oakland area credits. Did not like the website got
out of there. That's, that's the end of the story. I'm two minutes in, two minutes out. That's it. No more time is
afforded for an athlete website. That's, that's Gen Z for you. So let's talk about back to the membership owned or
member owned institution. We've mentioned about sort of, we've talked about the boards, we've talked about your
role as the CEO. How do Members actually factor in. So let's say I'm the member of Gasco. Where do I come in?
Where does my voice get hurt? Let's put it this way.
23:23
Well, absolutely there are. You can volunteer and you vote for those volunteers. So we have an election to vote to
elect the board and we have an election to elect the supervisory committee. Our supervisory committee is like an
audit committee. They're the watchdog of the organization. We have fve members and then we have seven
members on our board. Now all of our board members are members of the institution as well as everybody on the
supervisory committee. Other credit unions have credit committees that you can volunteer for. But long story short,
because we're a not for proft fnancial cooperatives, our board is made up of members. They are all volunteer. And
the membership, one member, one vote, gets to vote for those board members.
24:10
And the board is like a traditional board, it just hires the CEO, that'd be me, and then sets policy and direction,
approves budgets, all of that normal board level stuff. So because it's a volunteer, they make decisions not based
upon any type of necessary bottom line like a stock price or a paying dividends. They're making decisions for the
membership, what services you want to provide for the membership, what things we want to take on. Our board
member was very excited when I went through this and said, look, we need to change our technology. We need to
make our tools attractive to the next generation gen. Zoomers is what I like to call them. So to appeal to the
zoomers, they we needed better tools, more things that make more sense.
25:07
And so individually, where we got a new platform that will provide things, interesting things that we can do and as
part of the credit union industry, because we don't really compete a lot, we do a lot of cooperation. There's a lot of
businesses that serve just credit unions that are owned by credit unions. So a group of 10 credit unions get together
and say, hey, we want to do something in the technology space and that they'll create a business that then provides
services not only for those 10 credit unions, but whoever else and pay for that.
25:39
Right. What are those called again? I defnitely heard.
25:41
Oh, they're called QSOs, Credit Union Service Organizations. See you.
25:47
That's. Yep.
25:49
So we call them QSOs for short and they can really do anything. We have QSOs for insurance, we have QSOs for
technology, we have QSOs that provide collections. You know, there's. Wherever credit unions have gotten together,
they've generally formed a cuso to give to aggregate it to generate the volume that we need to make that business
viable.
26:13
Interesting. Very, very interesting. I'm just taking notes so I can put them all into the description of the episode so
that people don't have to Google them separately.
26:21
QSOs.
26:22
Interesting, interesting abbreviation. There are so many of them. The more I am in the fntech space, the more I
realize how many abbreviations there are and I'm slowly starting to give up on trying to remember them all. So it's
defnitely, it's going into my dictionary for at least the next couple of hours and then I'll try to remember when I'll be
publishing the episode. Okay, interesting. So membership clear. Let's in that case talk about, you know, the current
day, the split between the usual banks. What I've touched on to briefy, the fact that, you know, I am somewhat
hopefully well versed into the fnancial space, into how banks work and yet I choose to bank with a big bank. I'm not
going to disclose it on this podcast. Why is that the case? Why are the banks still winning?
27:10
So I think when I was preparing.
27:12
For you, they said there are three reasons we'll see. Convenience, convenience and convenience. It's the perception
of convenience. For instance, if you go to a, you know, Wells Fargo, bank of America, City Chase, they have branches
everywhere and so therefore they appear to be more convenient. They because of that generally people walk into a
branch to sign up initially. That's still how it's done the bulk of the time. And so you need a physical location to do
that. And banks, the national banks have a lot of physical locations.
27:50
Sure.
27:51
So yeah, so that's basically a perception of convenience and maybe that's turns into a reality of convenience over
time. Banks have defnitely entered the electronic space with online banking and devices and such. And so they have
been kind of leading on that convenience ever since the last late 90s. So that's a lot of years. 21:22 they started
before that. A lot of credit unions, like I say they had the frst websites and they kind of had, it kind of went up on the
banks but over time simply, you know, the size of bank of America, they do all their own programming and they do
program nifty stuff into their electronic delivery mechanisms.
28:44
So and obviously they are part of Zelle and they're part of FedNow so they get a driver's seat and are the early
adopters of those new technologies and new payment Rails Most credit union, well some credit unions like I say are
in that group, the foundational groups, most of us are Fast followers. We, you know, get together, are in our vendors
who maybe own maybe QSOs or maybe not QSOs. They, you know, will pull them through the process of providing
those services.
29:16
Gotcha. In that case, let's talk to the people who are listening to this. Mostly it's people in fntech founders, a lot of
founders of startups in the United States, Most of them, when they go through, I don't know, yc for example, I know
people at Brex who are, whose sole responsibility is just to go through the cohort of yc, reach out to them, offer pro
perks, basically get that startup to put all their seed money into their bank. How do you. So to those founders who
have all those perks, all those benefts, all those people reaching out to them from those big banks, what do you say
to them to get them to potentially join a credit union that is local to them and would it even make sense as a startup
founder?
30:00
Right. As a startup founder, the. I can defnitely say I know a lot of people in that space sometimes feel pressure
from, it's been reported that they felt pressure from the government and they go with the big bank and then that bank
kind of locks down their account. That more likely than not, is not going to happen. Any smaller institution, a smaller
institution will provide that more of a customization of service that you know them and they know you. And if
something weird like that would happen, that would defnitely, you know, raise eyebrows at that fnancial institution.
And probably, you know, because we don't really talk to anybody other than our regulators and regulators. We just
don't have those discussions with our regulators about individual members and their access to their accounts and
money and capital.
31:00
There are credit unions that do specialize in business lending. And so therefore, if you need a traditional business
loan, I'm sure there are many credit unions that can provide those services. But if your founders, your startups, they
do have specialized needs and obviously if you go to a specialized bank, they'll require that entire relationship and in
order to have a lending relationship. That's just how business banking works. So if I'm a business bank, I give you a
loan, you got to bring me your business, you got to bring me your deposits. And that's just kind of the business
model of business banks. Some credit unions operate that way, but quite frankly, not many, but there are some out
there.
31:55
Got it understood. So for the people who are, let's say in the fntech space, people like myself, you know, I'm not a
teacher, not Part of any specifc trade group necessarily. So my only choice is a local credit union. What is the reason
for me to potentially take, I don't know, half an hour, maybe an hour to look around for local credit unions and switch?
Is it just the rates?
32:21
Is it pretty much better rates, better fees? So you're going to earn more on your deposits, you'll pay less on your loans
and the fee structure will be to your advantage. So either low fees or no fees, depending upon the institution. But
defnitely if you have investable dollars, get a little bit more than your average bank. That institution. If you're, you
know, if you're doing a car loan or a home loan, sometimes credit unions have great deals on those car loans and, or
home loans. If you've got a credit card, they'll give you a. Defnitely a fair deal on that. A lot of credit. We're not credit
unions as an industry, we're not into that. Got you. Right, Yep.
33:09
So I know, for instance, that a supervisory committee member where I used to work, he went in, took advantage of a
bank's promotional CD and then he came back and he was pulling his money out. He's like, by the way, if I was to roll
this cd, what would I be getting? Oh, let me tell you. Oh, 19 basis points. So 0.19%. It's that kind of, you know, in
credit unions we just, here we don't do that. So everybody gets the same rate. If you, if your money rolls or you got
new money coming in, it's at the same rate because we don't play those games. Yeah, play those games all the time.
There's a certain percentage of people to forget about that CD rollover and then they lock you in.
33:54
Sure, you may have gotten that four and a half percent on the initial term, but you didn't pay attention and now you're
only earning, you know, 17 basis points.
34:01
That's me right there. I'm the person who forgets. Just like any other Gen Z or honestly, I'm defnitely not alone in
this, which is why banks are such a lucrative business.
34:13
Yeah, we'll give you a fair deal.
34:15
Let's, let's talk about fair deals. In terms of credit card specifcally. You mentioned it. I recently ran into. Recently we
had an interview with founder of Ionia about card network processors and how essentially it's a predatory business.
Specifcally, some banks like to offer a lot of cash back, but on the back end they offer 28 of interest rate on your
credit cards, which is absolutely insane. It's been going up and up. Everyone knows it. How is the situation with the
credit unions and credit card issuance? What is the rough rate?
34:51
The, the rough rate is about 18, 1%, give or take. If you a, if you're a federal credit union, you're capped at technically
16. But they always, oh my God, they always, they've all been. For the past, it's like 16 unless the board votes
otherwise. And for the past 15 years, the board has voted to raise that to 18. So in essence, generally at a, for federal
credit union, you got an interest rate cap of 18% that you can do. I believe the states may push that to 21, 22% but we
are a capped entity. So unlike banks, a lot of times it's just the usury law of the state that you're in. So then banks
incorporate under a state that has a very kind usury law to them. Unfortunately not to the borrower or.
35:48
Absolutely not. Absolutely not. So there are a lot of series out there explaining how that works and how they've been
slowly rolling over the increases in the interest rates and that users just didn't react and therefore they just kept
increasing. So if you have credit cards that defnitely go for crazy. Oh my God, please.
36:08
Well, absolutely. And, and you know, we, I mean, I don't know, a while ago credit unions and banks went over to this
variable rate card. So it's tied to basically the Fed. And when the Fed increases interest rates, you see your interest
rate increase as part of the agreement. Right. We were crazy enough to say, hey, that's not really fair to the member.
And so we, even today we have fxed rate credit cards. So if you come in and you're a paper, your rate with us is
9.90%. Obviously if you have a higher, a lower credit score, your interest rate goes up as does everywhere else fxed.
So 9.9%, 9.9% on our credit cards.
36:59
No way.
37:00
We're member driven, you know, and yeah, so that's. Now we don't offer zero percent loans. We don't, I mean credit
card loans because we don't do bait and switch. You're coming to us to trust us. And so, you know, fve years ago it
was 9.9, two years ago it was 9.9 and today it's 9.9 because that's the margin that we can operate off of and there's
no reason to do anything else with that.
37:29
That's the number we should have started off. I'm gonna take this part and just put it in the beginning of the. I'm just
kidding. I'm not gonna do all that. But 9.9, that's all you need to hear. People again, I mean, you can compare to, I
don't know, Capital One, who has been going from what they started off with 21, now they're 28, 29, 30% is the
number. Everything about that fat margin for the banks. That is lovely. That is such a optimistic note to wrap it up on.
So let's get to the last question of the episode. It is the rep question. Everyone gets the same exact question. And it
is this.
38:06
If there was one thing in the payment space that you could teach the entire world about, you just whisper into the
heads of literally 8 billion people, I forgot the amount of people on the earth, what would that thing be that you would
tell them about? The payment space?
38:20
Right. So the payment space, there's a balance between convenience and security. Generally, it's inverse. The more
convenience you have, the less secure it has, more security you have, the less convenient it is. So what we have here
in the payment space is you've got cards, you've got checks, you've got these Zelle and Fed now. And as a consumer,
you want the most convenience. But as an institution, we're expected to pick up the fraud. And so, for instance, on
your credit card transactions, by, by regulation, we're required to pick up that fraud cost. And so we want to make
sure that the consumer is made whole. And so the question is that's the biggest question in today's environment is
who's going to pick up that fraud cost. Now, with credit cards, the merchant pays their interchange fees.
39:18
And of course, fnancial institutions get that interchange fee. A lion's share of that interchange fee does go to
making people whole for the fraud that happens on the account. So when the fraud happens on the account, you say,
hey, it wasn't me. And then it goes to the institution, it goes to us, and then we kind of work it out with the merchant.
But more often than not, the fnancial institution absorbs that fraud and not the merchant. When you have things like
the Durbin act that kind of want to not let the market do the interchange fee, okay, we got to cut a deal to the, you
know, merchant because of this law, well, then who's going to eventually pick up that fraud cost? Because the
money's got to come from somewhere.
40:11
And so the money was kind of coming between the merchant and the institution. And then now it should shifted
more towards the institution. And then we're like, okay, but now we gotta start clamping down on fraud more, which
is going to impact the convenience of the transaction. The same now because it's a new payment rail like Zell fraud's
happening with Zelle. Well, who has to pay for that fraud? Well, you hear that people are so used to the institution
picking up that, well, for credit card transactions, the merchants kind of chipping in. For Zelle, there's nobody
chipping in. It's just the institutions just trading money. And so everyone's like, well, who's going to pay for this fraud?
And now with Fed, now that's still a big question, quote, who is going to pay for this fraud?
41:00
And it's something that as an industry or as a kind of, we have to fgure out because right now the fraud is being
pushed back onto the consumer. Most of the times if the institution's feeling generous, they go like, okay, we
understand that this wasn't good. We'll go ahead and pick up that cost for whatever reason. But at the end of the day,
with this convenience comes fraud and somebody's got to pay for it. So I don't know what's going to happen in the
future, but really it's kind of like, I know whether it's by regulation or whether it's by policy or whether it's by
competitive pressure. That's in my opinion, when you think about this fgure, the fraud, it's got to come from
somewhere.
41:51
Obviously it's unfortunate when people get scammed, but to expect the institution to pay every time you get
scammed, it's like, really?
42:02
Yeah, yeah.
42:03
So it's like, so it's. I, I always relate to cash. So you make a cash withdrawal. Okay. So if before you hit the door, if a
bank robber comes in and steals it and steals our cash, we'll probably cover you for that cash. We just gave it to you.
But what if it's in our parking lot? What if it's at your home and you've had that cash for, you know, so when does our
responsibility to take over for bad people tricking you? When does it's kind of on you and not on us? Or when it, when
should, where should that transaction be? And my answer is that's something we're going to have to work out
together.
42:42
I'm looking forward to seeing the outcome of that. Something's telling me it's going to be the users, but we'll See
where it takes us. Good rap, good thing to take away. Last thing that I want to bring up again is the 9.9% on credit
cards question for people who do have credit card debt, which I'm assuming is not the vast majority of our listeners.
But still for people who do have that and for my general knowledge, in case if I run to people who need help with
that, can they pick up their credit card debt and roll it over to a credit union? Is that something that is offered or
generally offered by credit unions?
43:16
Absolutely. Most of the credit unions out there offer some sort of payment scheme where you can transfer the debt
that you had on your card over to a credit union at a good rate or reduced rate. Yeah, you can generally do cash
advance since we don't even, we don't have a cash advance fee on our credit card. So some institutions do. Many
credit unions don't. And so you can do a cash advance on their credit card. Sometimes they offer. Some credit
unions do offer 0% interest rates and there's, I don't see anything wrong with that. That's just not how we do our
business. But credit unions like other banks can. I know I belong to several credit unions or my career. This is my
fourth credit union.
44:01
So you kind of keep your old accounts just to see what they're doing and they offer 0% balance transfers as well and
when after the balance transfer it does go to a reasonable, reasonably low rate. So yeah, credit unions overall have
pretty good rates on credit cards. So I would check it out for that purpose.
44:24
100, 100 that's my rep parts. Take a look at your local credit unions. Especially if you have credit card debt, paying 28
or anything remotely close to 28 is just criminal. Should not be allowed. But it is. So deal with it yourself. Go fnd help
at a credit union. Truthfully, I mean it's a non proft essentially. So that's where we're gonna wrap the episodes. All the
links are going to be in the description. So if you are anywhere in Glendale 100, take a look, stop by, check us out or
stop by. Yes, you do have physical locations as we've touched. That perceived convenience is not always that. So if
you're in Glendale, defnitely stop by. The vast majority of our listeners are open SF so most likely not. But again take
a look at your local credit union.
45:15
That's my takeaway and per usual take a look at the description of the episodes. There are going to be a bunch of
links and prep for the next episode. So do that. And as always, have a great day.
45:28
You too, Constantine. Bye.
45:31
Bam. All right, we are.