The Voice of Canadian Credit Unions
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Fishing for cash

How one credit union is crowdfunding to build community

How would you like to raise millions in just a five-week period for a project you’ve dreamt about? Vancouver-born Eric Migicovsky had dreams, but not with those dollar signs attached.

All he wanted was $100,000 to build a wristwatch with smartphone capabilities. An angel investor had already given him some start-up cash, but he needed more.

Fundraising in a virtual world

Enter Kickstarter, arguably the world’s first, and now largest, Internet crowdfunding platform, launched in Brooklyn in 2009 by a trio of developers with a mandate to “Help bring creative projects to life.” Entrepreneurs of all kinds are encouraged to use the platform as a means of reaching a wide range of potential investors to back their respective projects.

Other platforms, such as Indiegogo and Haystakt, offer variations on this theme, but at Kickstarter, project creators choose a funding goal and a time frame to realize their concept. Then, the virtual doors are open to the public to invest in the idea for as little as one dollar. If the funding goal isn’t reached by the deadline, the project is scuttled and the money returned to investors.

Eric Migicovsky made a $100,000 Kickstarter pitch for his Pebble watch. By May 16, 2012, an estimated 85,000 online investors had granted him a cool $10-million-plus

But if the project succeeds, Kickstarter takes five per cent of the funds raised, another five goes to the provider of Kickstarter’s payment system and the rest goes to the project creators to continue their work. For backing these projects, investors might get an early prototype of an invention or just a T-shirt to thank them for their support, depending on the size of their contribution. Kickstarter claims no ownership over the work produced.

In April 2012, Migicovsky made a $100,000 Kickstarter pitch for his Pebble watch. By May 16, 2012, an estimated 85,000 online investors, bowled over by the simple elegance of his idea, had granted him a cool $10-million-plus.

Crowdfunding to build community

Now, some of that same crowdfunding energy and commitment is being directed toward building community. Take the case of Northern Credit Union ($770 million in assets, 55,000 members), which created its own crowdfunding platform in April. Through its website, TrueNorthStrong.ca, members and the public alike were initially invited to contribute to two projects. The first aims to raise funds for the Northern Ontario Curling Association to help it meet its goal of promoting and supporting curling for every age group throughout the region. The initiative has some heavy hitters backing it – Canada’s Olympic gold medal–winning men’s curling team, led by Sault Ste. Marie’s Ryan Fry, E.J. Harnden and Ryan Harnden.

The second project involves Parasport Ontario’s Ready Willing and Able program that finances athlete ambassadors with disabilities to travel and share their inspirational stories with schoolchildren and other members of the community in northern Ontario. Sponsoring this effort is alpine skier Mac Marcoux, who won a gold medal and two bronze medals at the Sochi 2014 Paralympic Games, and his brother and guide Billy Joe Marcoux. To kick off its crowdfunding platform, Northern promised to match all funds raised, up to $3,000, for each campaign. At the time of writing, the two campaigns had each raised more than $4,000. Not in the Pebble watch’s league, granted, but it’s a healthy start. And then again, Northern takes no cut of the proceeds. Every penny goes directly to the projects.

Since then, other endeavours are underway, including a bid by a public school to raise money for an accessible playground for kids with disabilities and a campaign to raise funds for the 2015 Special Olympics Ontario Provincial Winter Games. Another project is seeking to sponsor people who want to attend Rainbow Camp – a one-week spiritual and education program for lesbian, gay, bisexual and transgendered youth and their supporters.

Creating real community in a digital age

Even before it adopted the crowdfunding prototype, like so many credit unions, Northern had been active in raising money for worthwhile projects. It was the first financial services institution, for example, to set up a relief fund for those affected by the 2012 collapse of a mall roof in Elliot Lake. In the same year, the credit union was quick to collect donations for a family after their home was washed away by floods in Wawa. In fact, in one year alone, the credit union contributed more than $250,000 to these and many other local initiatives.

So why branch out to crowdfunding? Tony Dunham, senior vice-president of sales and marketing and channel management at Northern, says deciding to apply the crowdfunding concept to the credit union came after some heavy soul-searching and a daunting issue. Reach was a major factor. With 26 locations spread out across the vastness of northern Ontario, maintaining a sense of community was difficult but paramount, since social responsibility is a cornerstone of the credit union philosophy. Two years ago, Northern gave Dunham and his team the mandate to come up with a strong working concept defining what their institution represented. The result was a new catchphrase – True North Strong – and a renewed pledge to keep every member dollar invested in the region.

“We were really evaluating how we connect with our communities and how to connect with our members,” Dunham explains. “But it was one thing to create the strategy and another [to manage it] from an executable standpoint. We have a challenge in that we have a large footprint. So if we wanted to have a consistent message it became a question of what kind of tool to use [to reach our audience]. As well, one of the things that we’re finding is that a lot of our members, over 90 per cent, do their transactions online and our traffic count has dropped dramatically in our bricks-and-mortar locations. So since our re-branding about two years ago, we also wanted to ensure everything we do is from a digital standpoint.”

Dunham sat down with a consultant and conducted some research to explore if any financial services institutions had adopted the crowdfunding concept. They found that no one in Canada had. “Basically, the more we looked at it, the more we realized that it fit our strategy nicely,” he says. “It’s about going to where the audience is, making them aware of Northern Credit Union and what we offer and then finding something we can connect with.”

Youth appeal

Dunham also believes crowdfunding is a huge factor in appealing to younger members. “The younger generation that we’re trying to bring into our organization has been brought up through school around fundraising activities and giving time and effort back to the community,” he says. “So the combination of crowdfunding and the digital platform allowed us to build awareness and tell them the Northern story.”

It’s not a leap for credit unions to identify with the Kickstarter approach because it has similarities to their own, says Erik Payne, a writer for Callahan & Associates, a company devoted to in-depth analysis of credit union data in the U.S. “Someone might say ‘Hey, I want to make a movie or a write a book,’ and people across the Net respond ‘Great idea! I’ll contribute a couple of dollars to you,’” he says. “With credit unions, the situation is similar. Let’s say you and I want to start a credit union. Together we own it, make decisions, set the interest rates. Both models are peer-to-peer.”

Payne adds, however, that for users of platforms like Kickstarter, trust can be an issue, since investors might feel that they’re sending their money out into the ether. That’s one of the reasons Northern Credit Union decided it was better to build and manage its own proprietary platform. Although Northern’s crowdfunding initiative doesn’t have Kickstarter’s recognition factor, Dunham says the credit union has found ways to get its message out.

“The success of this has been driven by a strong outreach strategy combined with a strong digital presence,” he says. “We’ve allocated resources for providing our campaign partners the PR and [allowing them to use] our centres of influence and our network for support. We also teach the individuals working for the campaigns how to optimize their own social networks by using our digital strategies to drive the traffic. We can even provide LinkedIn and Facebook content, scripting and develop email blasts.”

The most recent statistics from Northern show that interest in this kind of activity is growing quickly. Over a five-week period in the first quarter of 2014, website views featuring marketing for Northern’s campaigns reached 335,000 and of those, 12,225 people clicked through to view the site. In the same period, videos on the True North Strong website or linked from YouTube received more 20,000 views. By Northern’s assessment, about 10 per cent of its backers came from these sources.

Control the platform, control the risk

In Northern’s opinion, the advantages of using its own platform outweigh the value of using a system like Kickstarter to reach more people. As it stands, in the first two campaigns, 33 per cent of donations so far have come from members, while the remaining 67 per cent have come from marketing on Facebook, Twitter, LinkedIn and other social media sites. This indicates these initiatives have reach.

“We looked at Kickstarter,” says Dunham, “but we thought there was an opportunity here to make it more community-focused within a more proprietary environment. We wanted to take that control. Kickstarter we could have done, but there were a lot of dollars being invested, without the certainty of how it would take off . . . One of the things we have to be cognizant of is we don’t want to lose control of our brand. We feel that it’s our brand that has attracted our audience and that’s very important to us. So it’s not that communities can’t drive this, but we do want to have a little bit of control over it, because if it gets derailed, it’s a reputation risk.”

Payne agrees that reputation – and personal connection – are distinguishing factors in credit union–driven crowdfunding platforms. “In the case of a credit union, it’s much more of a relationship-driven business where I know you personally,” Payne continues. “With [Kickstarter-style] crowdfunding, I don’t really know who you are. I might have emailed you, I might have watched a video, but I don’t really have any guarantee that my $10 does what it’s supposed to do outside of the good faith I put in the campaigner.”

“We don’t want to lose control of our brand. We feel that it’s our brand that has attracted our audience and that’s very important to us.” —Tony Dunham, senior VP sales, marketing and channel management

Given its success with crowdfunding, Northern expects its method will be emulated and embraced in credit unions across Canada. “I’ve had a lot of inquiries,” Dunham says.

“I’ve been asked to be a guest speaker on this topic. Some of my networking counterparts at larger credit unions in B.C. have been watching us and we’ve been helping guide them through some of our strategy. Vancity ($17.5 billion in assets, 501,000 members) has inquired. Same with BlueShore ($3 billion assets, 39,000 members). They’ve been huge advocates for this. We’re of the mind ‘why keep reinventing the wheel’ when we can do this collectively and for a lot less cost.”

To that end, using its strong partnership with Central 1 Credit Union, Northern Credit Union is considering creating a how-to package designed to teach other credit unions the ins and outs of launching a crowdfunding platform.

The for-profit crowdfunding picture

Is there any role for credit unions when it comes to for-profit crowdfunding? Credit union analyst Erik Payne believes they have an educational role to play.

“When crowdfunding works, it can potentially help fund new enterprise and maybe even create employment,” he says, “but even highly successful platforms like Kickstarter only have about a 44 per cent success rate. Creators might think they have the new Next Big Thing, but the odds are against them. Credit unions offer members a place to invest money wisely, while for-profit crowdfunding sites offer an interesting way to connect investors with pet projects. That’s why investors need to be savvy about any venture in which they plan to sink their hard-earned money and they can run their thoughts by people they trust at their financial services cooperative.”

In the final analysis, then, it seems clear that a lot could be gained if crowdfunding and credit unions work in tandem for good causes. After all, credit unions, in a manner of speaking, are the original crowdfunders. What’s more, they have consistently proven adaptable to changing technologies and the rise of virtual communities, so this way of raising money is a natural fit.

Payne agrees that the two can work hand in hand. “I think the idea of crowdfunding is appealing to credit unions because they’re very community oriented,” he says. “If there are crowdfunding campaigns for the community, I think that’s attractive to its members. To see your money put to work to do good is something that everyone wants.” ◊