Credit Unions Gain Ground With Blockchain

This exclusive interview was conducted with Bill Hampel  and includes some White Paper excerpts from CUNA as well.

Bill Hampel is Chief Economist and Chief Policy Officer of the Credit Union National Association (CUNA), the largest and most influential national trade association advocating for America’s credit unions. There are nearly 6,700 credit unions nationwide, with about 100 million members and almost $1.1 trillion in assets.  

BCN: You’ve been working on blockchain technology? How’s that going.

CUNA: We have the technology and now we are getting it to work. Permissionless blockchains are wide open and operate as a completely decentralized ledger. The white paper states:

Every transaction is cryptographically chained (or connected) to the previous transaction. The goal is a permanent, immutable and verifiable “record of truth” that everyone can see. The lack of censorship, complete visibility and total transparency creates a kind of “creative abrasion” amongst the users. The nature of a Permissionless Blockchain network is “censorship resistant”. The theory is that no one person or entity can edit chained entries. A statement of truth, for example, a transaction between two people, then becomes unchangeable. As an aside, highly regulated industries like financial services and the credit union industry specifically, appreciate the theory involved but federal regulators nevertheless have a hard time accepting that today, no controls exist anywhere regarding an unpermissioned network. Very scary for that group of professionals.

Our effort has been to build blockchain technology, and that’s just what we’ve done.

BCN: What is most valuable about blockchain.

CUNA: Once you have done the research, you can implement it. We can make it easy for customers to access what they need. Remember, we we provide the same services that a retail bank does. A member can have a savings account and various kinds of access including access to international transactions.  On the other side of ledger we do consumer lending. Our owners happen to be our customers and we don’t have to maximize profit. We tend to have a bit of a longer view.

BCN: Let’s go back in time. Why did credit unions have a tough time back in the 70s and 80s.

CUNA: That was caused by end of Reg Q which limited the interest rates that one could pay on deposit accounts. The banking regulator says no more Reg Q. That was number one. Then Paul Volcker came in and lifted interest rates and the S&Ls shrank. All of a sudden you can pay whatever you want and we had short term loans that were low interest while our new rates were high interest. Credit unions went out of business as a result.

BCN? Anything else?

CUNA: Distributed ledger technology encourages collaboration. We can all share our computing power. We’d been working on this via blockchain and had a presentation for credit unions across the country. They were impressed enough to give us  $500,000. As a result, we set up a small blockchain and started to develop it. Now we can show people what we have developed and roll it out.

As the white paper says

 Just two years ago, a small group of CU professionals came together and began to articulate a vision. It was big and it was audacious then and it remains audacious today. What if a new technology called distributed ledger technology could be utilized by our industry to not only reduce our costs, but what if it could greatly reduce call center fraud and identity theft? What if we could create greater brand awareness for the credit union industry? Would it be possible to create significant growth for the industry, not just for a small number of credit unions, but all of them? What if the credit union industry owned and controlled a revenue producing technology platform that supported an entire industry?

Are those things even possible? The answer is yes. For the first time, that technology exists and is now in use in the credit union industry. It’s called CULedger and it’s a prototype “research to action” industry initiative designed to stand up a specific set of use cases to first prove the merits of the platform and second to launch both existing products as well as new and highly competitive products across the entire industry.

BCN: Obviously you’ve accomplished your goals?

CUNA: We’re in the process of helping to reduce the cost of operations. Can we improve the member experience? That’s something they want to know.  We have demonstrated proof of concept but by the third or fourth quarter we will have something we can be full bore with. We have credit unions signing up to be nodes and we have an operating system that makes it work.

Ours is a permissioned ledger so that everyone is aware we are recording information. Our system is working. Any time 50 or more nodes get together, they can do plenty of stuff. Smart contracts housed on distributed ledgers can do things automatically that otherwise would require human beings to do.

BCN: That goes for international finance as well?

CUNA: We have efficient ways of moving money. We need this new technology for cross border transactions. For us the cooperative structure is at work.

BCN: You’ve moved faster than even the biggest banks.

CUNA: We have only one master. The big banks were hurt during the financial crisis. But we are growing at 4 percent a year and the population is one percent. The big banks have ATMs but we have an ATM network as well. The difference is that it’s not branded. But it is a full network. We’re competing well with commercial banks and others. That’s one reason they’re worried about us.

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