Five Questions With: John T. Knierim

"These nonbank institutions want a piece of the pie. They want to be able to cross-sell to their customers."

John T. Knierim is executive vice president and chief financial officer for People’s Credit Union, where he is responsible for overall financial planning and policy. His experience includes positions as senior vice president and CFO at Greylock Federal Credit Union in Pittsfield, Mass. and CFO at The Nashua Bank.
He is a member of the Financial Managers Society.
Knierim has a bachelor’s degree in economics from Binghamton University.

PBN: The intensifying competition among financial institutions is one issue frequently mentioned by banking and finance executives in Rhode Island and across New England. You’ve pointed out increasing competitive pressures from non-banks, the non-financial institutions. Which institutions are these, generally or specifically?
KNIERIM:
What’s happening is that some people are by-passing local financial institutions, including credit unions and community banks, as well as the big banks, and instead using reloadable prepaid cards. Some people call them reloadable debit cards. You can add money to the cards. These are not credit cards and they’re different from gift cards. Walmart, for instance, has a joint agreement with American Express for these prepaid reloadable cards. There’s Bluebird and Popmoney. Some people don’t realize that with these kinds of things they’re bypassing the local financial institutions that support the community. Consumers often don’t realize they can get better service and lower costs at regular financial institutions.

PBN: Why do you think this segment of nonfinancial institutions offering financial products and services has arisen in the marketplace? What do you think attracts consumers to the reloadable prepaid cards or other offerings, such as Bluebird, sponsored by American Express and Walmart, which describes its service as a checking and debit alternative, or Popmoney, which allows people to send money by email or mobile phone?
KNIERIM:
These nonbank institutions want a piece of the pie. They want to be able to cross-sell to their customers. For merchants, they don’t want to pay the Visa or Mastercard fee for transactions. That fee is generally based on a percentage of the dollar volume of the sales ticket, so merchants can pay an awful lot. Sometimes certain merchants with larger volumes pay a lower amount.

PBN: Do you see this as a trend or do you think it’s a shorter-term element in response to consumer demand? Are they offering better products or different services where there may have been a gap in the market?
KNIERIM:
I think some of it is just good marketing from some of these nationwide organizations. I think it may be ease of use for consumers, who sometimes don’t realize that this is just a small piece of the financial pie. With things like Popmoney or Bluebird, some younger people are viewing that almost as their bank. I think some people don’t realize the advantages of establishing a relationship with a financial institution like a local credit union, which will be important when they want a car loan or a mortgage. Some people may not consider that if you’re using Mastercard or Visa and your card is lost or stolen, you have better protection. These cards issued from one of these other sources may not have the same protection.

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PBN: How do you think the competition from these nonbank institutions will impact banks and credit unions over the long-term?
KNIERIM:
I think one of the issues is going to be that if more people use these other kinds of services, it could mean less money going into local banks. If you remove some deposits from the banking system, banks have to borrow the money from other sources, so it could make loan rates go up. It’s also important to remember that credit unions, community banks and other local financial institutions invest in the community and that we are successful when our community is successful.

PBN: In your position, you’re responsible for People’s Credit Union’s overall financial planning and policies. What kind of strategies is the credit union developing to offer advantages to consumers that can override their interest in these new nonbank offerings?
KNIERIM:
I think a lot of it is financial education, so people recognize that they can probably get better service at lower fees, or no fees, at a community institution. We can remind people that their relationship with their community credit union or bank offers them a place to go for financial advice, where they can have someone to assist them in planning and reaching their financial goals. The other important part of educating consumers is to remind them that credit unions and other local financial institutions support the community, and that our earnings support charitable events. If they put money into these non-bank, nonlocal services, that’s not going to help Rhode Island.

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