Por qué las cooperativas de crédito son una joya oculta para los emprendedores

Gene Marks (00:00)

Have you heard of or seen any other banks or credit unions doing what you're doing? And if not, why not? 

Kendall Garrison (00:09)

We're the only full-service financial institution in the country that offers free deposit accounts, completely free. And I think what you would look at, if you look at the income statements of other financial institutions, you'll find that they're addicted to that fee income, that their net income would be zero if they did not have that, you know, have that deposit fee income. And we just structured our business to not make money that way. 

Announcer (00:45)

Welcome to Paychex THRIVE, a Business Podcast where you'll hear timely insights to help you navigate marketplace dynamics and propel your business forward. Here's your host, Gene Marks. 

Gene Marks (01:00)

Hey everybody it's Gene Marks. And welcome back to another episode of the Paychex THRIVE Podcast. Thank you so much for being with us today. We have Kendall Garrison. Kendall is the president and chief executive officer of Amplify Credit Union. This conversation has been long in coming because I, I do a lot of speaking to credit union associations. I'm a big fan of credit unions. My business actually belongs to a credit union as well. I think there are a lot of businesses that are not really well educated on what credit unions can do and what makes them a really viable alternative for a lot of companies. So, I'm really glad that Kendall's joining us here because I'm going to ask him a bunch of questions about himself and Amplify because Amplify is doing some unique things, but also about credit unions in general and the industry and how they can help businesses. So, for starters, Kendall, thank you very much for joining. I'm really glad you're here. 

Kendall Garrison (01:55)

Gene, thanks so much. I'm thrilled to be here with you today. 

Gene Marks (01:58)

So, yeah, so you're calling us from Austin, and is that where Amplify is headquartered? And can you tell us a little bit about the credit union itself? 

Kendall Garrison (02:07)

Yes, we are headquartered in Austin, and we started in 1967 as the IBM Texas Employees Federal Credit Union. And that name certainly is a mouthful. And we changed that a few years ago, really, to reflect our inclusion to more than just IBM employees. So, for example, anyone or any business, anyone that lives in the state of Texas or any business that's authorized to do business in the state of Texas can be a member. 

Gene Marks (02:41)

Kendall, so, let's, let's insult the intelligence of our audience and let me at least ask you just for a quick definition of what a credit union is and how does it compare to a bank? 

Kendall Garrison (02:54)

So that's a, that's a great question. And I came into the credit union space 15 years ago having spent my entire career in banking. And I had to learn that very, very thing myself. And interestingly enough, we are a not-for-profit member-owned financial cooperative. And so that differs from a bank in as much as we don't return profits to shareholders, and we exist solely to improve the financial wellbeing of our customer. And I use the term customer and member interchangeably because, you know, you're a member of the credit union but we have to earn your business as a customer every day. 

Gene Marks (03:38)

Right. Right. It's funny that you say that because I, when I speak to credit union groups, these associations, I'm always warned by the people setting up the meeting say, don't call your, Everybody's a member. Okay. Don't call them customers. It's like, it's like a real thing. That's how, that's how one of the differentiators. So, if a business, you know, like mine joins a credit union, what does that mean? Is it anything different than when I'm working with a bank? 

Kendall Garrison (04:05)

You know, we offer the same products and the same services as a community bank. So, for example, at Amplify in our business accounts we offer online wires, online ACH, a very robust suite of online products, mobile products, remote deposit capture, positive pay, all of the things that your community bank offers. And we just approach the world with a little different point of view. Since we're not for profit, we can focus on the service to those small businesses and helping them grow. 

Gene Marks (04:48)

So that's what really makes it, you know, makes you stand apart. Like if I, if I'm up between doing business with a credit union or bringing my business to a bank, whether it's an independent community or a large bank, tell me like, you know, you'll pitch to me like, why would I, why would it be better for me to work with a credit union? 

Kendall Garrison (05:06)

So, it's really easy. You ask yourself one question about your financial partner for whatever it is, if it's your business account or if it's your personal account. And the question that you ask is, are their interests aligned with mine? And, and what you'll find in the credit union space is since we exist to improve the financial wellbeing of our member, absolutely our interests are aligned with yours. And I think whether it's a financial partner or it's any business partner, ask that question. And I think that after spending the majority of my career working for a commercial bank, I found that we had a much more adversarial relationship with our customer in the banking world than we have in the credit union space. Again, because we're not accountable to shareholders. We're only accountable to our member/owner/customer. 

Gene Marks (06:03)

Right, I gotcha. When I hear member of a cooperative, though. So, you know, I could get concerned about potential, you know, risk reliability to my business. You know, something happens to the credit union, you know, could I ever be on the hook because I'm, I'm a member of this credit union? 

Kendall Garrison (06:19)

Absolutely not. There is no liability that flows back to the member of the credit union. And so it implies membership. And membership just means one share, one member. And again, we're focused on lower fees, higher interest rates that we pay to our, to our depositors. So that's, that's the great thing about this business model. And of course, we like community banks, commercial banks have deposit insurance. It operates just like the FDIC. It's funded in exactly the same way. It's just called the National Credit Union Share Insurance Fund. 

Gene Marks (06:58)

Got it. So, it's the same kind of coverage that we would get with like an FDIC back. 

Kendall Garrison (07:03)

Absolutely, exactly the same. And we're capitalized. We have significant equity capital to ensure our safety and soundness. We undergo exams by the National Credit Union Administration every year, and they issue us a safety and soundness score. And so, you know, we're operating in the deposit, insured deposit business. And so along with that comes the same regulatory scrutiny that any, any financial institution would have. 

Gene Marks (07:31)

Got it. If my business joins your credit union as a member, is there any advantage to me as a business owner if my employees, you know, also join your credit union as members as well? 

Kendall Garrison (07:45)

So. one thing that is interesting is we do what we call collabs, and that is where we provide additional services to our collab partners. And those are nonprofits and businesses that we establish an ongoing relationship with. So, we can provide business services and personal services for the owners and employees of our, our collab partners. So absolutely, there's some advantages that go along with that. 

Gene Marks (08:12)

That's great. And a credit union like yours, for the most part, provides very similar financing that a typical bank. Right. So, I can get a working capital loan, equipment loan, property loan, that kind of stuff? 

Kendall Garrison (08:23)

All the things, yes. We've been really active in the commercial lending space for, for an extended period of time, and we're pretty good at it, actually. We, we have zero loan losses. And again, one of our focuses is helping small businesses thrive. So, and that means both through deposit and loan services. 

Gene Marks (08:44)

That's great. So, Kendall, is there any, any businesses that would not be good for you as members. You know, I mean, you know, and that's, you know, you often as people, as business owners, ourselves, and we oftentimes come across your prospective customers or clients that were like, okay, this would not be a good fit. And here's the reason why. So, you know what, you know, if I'm listening to this, tell me why I wouldn't want be a very good fit for a credit union. 

Kendall Garrison (09:10)

So, you know, one thing that is the only broad category that is probably not a great fit for Amplify and maybe for many credit unions are those cash intensive businesses. So, businesses that operate in cash extensively, because we have a relatively small branch footprint, basically in the central Texas area. And so if you need cash services, we're probably not your first stop. But it's interesting. When I got to amplify 15 years ago, we were doing about 45,000 transactions a month in branch. Today we're eight times larger than we were 15 years ago, And now we do less than 10,000 transactions a month in branch. And so everything that we do is focused on our remote and mobile service offerings. And so if that's the nature of your business, we certainly are a great fit for you. Again, we started as IBM employees, so we have a technology focus. 

Gene Marks (10:12)

Yeah, no doubt about it. And again, you would appeal to businesses all across the country. This is not just a Texas thing or an Austin thing. Correct. 

Kendall Garrison (10:20)

Those across the country that have authority to do business within the state of Texas, we can serve those businesses, yes. 

Gene Marks (10:27)

Okay, that's great. That's very, very helpful. Okay, so let's talk about fees. I understand that Amplify is doing something fairly innovative with fees, like not charging fees. Can you explain to me what's going on and why are you doing that? 

Kendall Garrison: (10:42)

So, it is interesting. We exited the deposit fee business on February 2 of 2022, so two and a half years ago, essentially. And we made the decision that, you know, generating income, having income is important, but what is equally important is how you make money. And so we started with a focus on consumer deposits. And if you believe like we do, that we exist to improve the financial lives of our business, of our members. You know, no one's financial life has ever been improved by paying a bank fee. Right. I mean, it's just, it's counterintuitive. And, you know, fees fall disproportionately on younger people, people of color, people of modest income, and small businesses. And, you know, by, by leaving that behind, we think we're helping to build a more equitable banking system. And again, making sure that the interests of Amplify are aligned with the interests of our customer and our competitors. Our colleagues in the industry absolutely thought we lost our mind, I was about to say. 

Gene Marks (12:07)

And they were probably really like freaking out when they heard this. 

Kendall Garrison (12:11)

Right. And so, it's interesting because at the consumer level, Americans have been conditioned to realize that free checking isn't exactly free. So, you know, if you, if you want to wire transfer money out of your checking account, they're going to charge you 25 bucks or whatever to do so, even though they call it a free checking. So, at Amplify, there's no cost to that. If you're a small business and you're enrolled in positive pay to ensure that you don't have check fraud on your account, you know, other financial institutions will charge you 100, 200 dollars a month. That all comes from Amplify at the low, low price of free. And it's just a way that we've differentiated ourselves the way that we've aligned our business to be able to thrive in that environment. 

Gene Marks (13:07)

So how do you make your money? Is it all from interest on loans? 

Kendall Garrison (13:12)

So that's a big part of it. So, it's interest on our loan portfolio, net interest margin, as it's called, which is the difference between what we pay depositors and what we earn on our loan portfolio. And we're also a pretty aggressive lender. So, on any given day, we're slightly above 100% loan to deposit. So, we've lent more money than we actually have on deposit. So that's the one way we generate revenue. And, you know, most other credit unions are in the maybe 65% or 70% loan to deposit. So that delta generates a big part of our revenue. The other thing that is a revenue driver for us is interchange income. And so, when someone swipes their debit card at wherever, wherever you would use your debit card, you know, grocery store or buying supplies for your business or whatever the case may be, that merchant pays us a very small fee to facilitate that transaction. That's called interchange income. And so by encouraging debit card use, we've made up for the lost fee income. 

Gene Marks (14:21)

Wow, that is really unbelievable. And this started in February, right? So, you and I are talking, it's now September. How's the program going so far? 

Kendall Garrison (14:30)

Well, it started in September of 22, actually. What happened in February? 

Gene Marks (14:34)

I thought you mentioned something happened. 

Kendall Garrison (14:36)

Yeah, February of 22. So, it is really interesting because from a consumer deposit perspective, everyone said okay, you guys are going to pay overdrafts, but you're not going to charge a fee for them. And so, your account charge offs are going to go through the roof. And the opposite happened, actually. Our account charge offs went down because we found that we were making our own charge offs. So, if a person of modest means has five or 10 overdraft charges, all of a sudden they can't, they can't afford to pay those back. They close their, or they walk away from the account and we charge it off. Then they're on check systems and can't get an account somewhere else and are forced to go into the use the check cashers or whatever, further reinforcing an inequitable banking system. And so, the thing that's interesting about our commercial deposit offerings is that businesses instantly get the idea that free here in this situation really is free. And they can compare whatever they're paying now or whatever balances they have to keep because of account analysis. And the difference is stark. And it really resonates with the small business community.

Gene Marks (16:06)

Have you heard of or seen any other banks or credit unions doing what you're doing? And if not, why not? 

Kendall Garrison (16:15)

We're the only full-service financial institution in the country that offers free deposit accounts, completely free. And I think what you would look at, if you look at the income statements of other financial institutions, you'll find that they're addicted to that fee income, that their net income would be zero if they did not have that, you know, have that deposit fee income. And we just structured our business to not make money that way. 

Gene Marks (16:48)

Right. And besides, imagine being, you know, a traditional bank or a for-profit financial institution and telling your shareholders that you're going to eliminate, you know, this, what is a significant, you know, your revenue stream because it's, you know, it's the right thing to do. I don't think shareholders really care about that stuff. You know what I mean? They just want to maximize profits. Right? 

Kendall Garrison (17:10)

Yes. As I said from my 30 years in the banking business before coming to Amplify, we absolutely had a more adversarial relationship with our customer. And, and coming to amplify 15 years ago gave me the opportunity to do what I know how to do in the banking space but do it for the right reasons. 

Gene Marks (17:32)

All right, let's pivot a little bit. You had mentioned about making your money off of loans and financing and all of that. So, as you and I are speaking, just recently the Federal Reserve had announced a decrease in its federal funds rate. It was 50 basis points or half a percentage point. That brings, you know, it should bring most banks primary right now. Before that it was like 8.5% and it should be about 8% now which is still relatively high. I'm curious to hear your thoughts on this reduction in interest rates from the Fed. This most, you know, the first one that was just announced and what impact do you think it will have both on consumers and small businesses? 

Kendall Garrison (18:14)

Well, I worked with a person one time when in, when you would attempt a project, and it fell short of expectations. She would say well that's a good start. And so, I would, I would, my commentary about the Fed's action this week is well that's a good start. 

Gene Marks (18:32)

It is a good start. 

Kendall Garrison (18:33)

But you know, the first rate cut in four years, interest rates are still too high. I'm, I'm hoping that we come to our senses and do at least one more this year and we'll begin to see that impact. But my prediction was that we'll see a little stock market rally and the 10-year treasury bond will essentially be flat. And guess what? That's exactly what happened this time because that 50 basis points was already baked into... 

Gene Marks (19:03)

They baked that in already. 

Kendall Garrison (19:05)

The expectation and so I think we're going to have to go a little further to get some relief. But there is no doubt about the fact that the last two years in this higher, much higher interest rate environment have been tough on consumers and really tough on small businesses. As we've seen loans reprice in a rising rate environment, all of a sudden there's a big dent in these businesses cash flow because their financing costs are much higher, and it's been a challenge. But you never underestimate the spirit of an entrepreneur to find a way to make money in any environment. And so fortunately we've not seen people go into default, but it has been, it's been a challenging couple of years. 

Gene Marks (19:53)

So, you know, if I, if I could just weigh in, I couldn't agree with you more. I mean it is a good start but it's nowhere near where we need to be. I did the math of like a, like a million dollar equipment loan for you know, a couple of my clients and over a five year term, I mean it's a difference of a few hundred bucks a month, you know, in interest and you know, I don't think it's going to be enough to really change anybody's mind as to whether or not a loan has returned on investment. Have you seen as well, you know, whether just with at Amplify or anywhere else, like just because of high interest rates. There's been, it's been tougher to get loans if you're a small business. And I was wondering if, you know, what you've seen, what you think could be done about that, you know, what would you say to a business owner who is, who is finding it more challenging to get loans in this environment? 

Kendall Garrison (20:41)

Yeah, so the prime example that comes to my mind is in the multifamily space. So those apartment complex owners find that they're, you know, locked into some, in some cases relatively long leases and they're not able to raise rents fast enough to be able to, you know, finance the property that they want to buy or refinance the property if that's, if that's the situation that they're in. And so that really has kind of become a drag in a lot of segments of the economy as people are going to delay a purchase decision, whether it's for a piece of equipment to expand their business or whether it's to buy a piece of real estate to house their business or if it's non owner occupied commercial real estate. You know, the cap rates and the debt service coverage ratios are really challenged. And so, I think that has been really a, I think that has really been or is cast a pall over the small and mid-sized business segment. 

Gene Marks (21:46)

Yeah, it's had a big impact. And you know, you mentioned, you know, you know, real estate, you know, in that example, I mean, residential real estate as well has been struggling as you know, in the past couple of years. And I know a lot of banks are struggling too because they're, you know, they want, you know, these financing deals and people are just don't want to get out of a 3% mortgage to go into a 6% mortgage. And I'm wondering if you can project where you think a tipping point might be. Like when do you think, where do you think interest rates have to go before people start getting active again in the residential home market? Do you have any thoughts on that? 

Kendall Garrison (22:23)

Sure. But let me preface my comments by saying that predicting interest rates is a fool's errand. Right? Interest rates are going to go up and they're going to go down. I can't tell you when or in what order, but that's going to happen. And so, you know, my best incorrect guess is we're going to need to see, you know, mortgage interest rates in the 5% or 5.5% neighborhood for people to get really serious about it. And I know, me personally, I am deeply in love with the 2.5% mortgage that I, that I got in July of 2021. Not that anybody's keeping score and so, but you know, I think that there will be some pent-up demand and again, many things in the economy aren't behaving as you would expect. When you see interest rates go up, you expect that long term assets like housing stock, that the Case-Shiller Index decreases. The opposite has happened. And the opposite has happened. Housing has gotten more expensive because people like me are deeply in love with their 2.5% mortgage. And they're not, and they're not putting their house on the market. And so, there's not enough, there's not enough housing inventory and no inventory drives up the price. So, everything's upside down. 

Gene Marks (23:49)

Yeah, yeah. It's a fascinating market to see what's happened, but you know what I mean. A lot of this was driven by COVID, you know, supply chain things that got involved with new construction and then of course government spending as well. It's been a crazy few years and nothing like we have really seen before. But don't you agree as well, like I don't know how old you are. I don't, we don't have to know how old you are. But like I'm old enough to remember when I was in high school, the days of the 15% interest rates, you know what I mean? And I, you know, 2.5% is just very unusually low for a mortgage. And if you've got that mortgage, two and a half percent historically you really have a winner. You know, like you said, 5% to 6% though seems like, you know, a more normal range for mortgage rates, you know, going forward. Is that, does that make sense? 

Kendall Garrison (24:37)

Yeah, absolutely. If you look at the historical norm, it's in the fives. And my first home actually I had a 12% uncapped one-year adjustable-rate mortgage. And I was thrilled to get it because it was virtually impossible to get financing in that time. And so, over the course of my life my average mortgage rate has probably been somewhere around six. And I think that's just normal. And you're right, 2.5%, we're not going to see that again. And we only saw that because of an anomaly in the market. 

Gene Marks (25:22)

I agree. 2.5% mortgage is like finding like a 50 calorie Big Mac, you know. 

Kendall Garrison (25:28)

Yeah. When the treasury dumps $5 trillion of stimulus into the economy, everything's going to go crazy. 

Gene Marks (25:33)

So that is the truth. That is the truth. Kendall Garrison is the president and chief executive officer of Amplify Credit Union down in Austin, Texas, but serves its business members and individual members all throughout the great state of Texas. Kendall, thank you so much for joining. Really giving some great insights on what credit unions do and also the great things Amplify is doing. No fees on your bank accounts, which is unheard of, but that's what Amplify is up to. So thank you and I want to wish you luck. 

Kendall Garrison (26:03)

Gene, thanks so much. I've enjoyed the conversation today. 

Gene Marks (26:06)

Do you have a topic or a guest that you would like to hear on THRIVE? Please let us know. Visit payex.me/thrivetopics and send us your ideas or matters of interest. Also, if your business is looking to simplify your HR, payroll, benefits or insurance services, see how Paychex can help. Visit the resource hub at paychex.com/worx. That's W-O-R-X. Paychex can help manage those complexities while you focus on all the ways you want your business to thrive. I'm your host Gene Marks and thanks for joining us. Till next time, take care. 

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