10 things that should keep credit union CEOs awake at night

This week I happened to be talking to the CEO of a $3 billion dollar credit union (who will remain nameless) about speaking to their board regarding innovation and technology horizons. During the course of the discussion, he mentioned several things that “keep him up at night” that were not the usual things I have heard in the last 10 years. I found them fascinating and asked if he would mind if I shared them. What follows are his 10 things (in bold) and my added comments just below them.

Ten things that keep me awake … but thankfully I only sleep 4 hours a night.

1. Major disruptors that make our business irrelevant, i.e. iTunes, who is eliminating the need for record stores. How do we prepare for what’s next? We will not be in the same business in 10 years. Will we be ready?

We are all worried that we are about to be “Netflixed,” and I think it is a valid concern in the financial industry. Payments and lending are two areas where we already see disruption. Apple’s entry into payments included biting off interchange from our models. Companies such as the lendingclub.com are proving you don’t have to be a bank to understand lending. His question about how to prepare is important. I believe there are two approaches to this question.

First, if you can’t beat them, buy them. We, as an industry, need to be ready to move into some areas we are uncomfortable with, such as providing VC for upcoming financial innovations, outright buying a fintech company to own its intellectual property. Second, create an innovation budget. Start innovating in these spaces yourself or partner with other likeminded financial organizations.

2. Bitcoin and other virtual currencies. We worry about the impact to our business and having the ability to secure it. There are numerous companies who have had their Bitcoin accounts ransomed in healthcare this past year. We will make for much larger targets.

I’m glad to see the CEO of a credit union this size has taken notice of Cryptocurrency. Paypal now accepts Bitcoin and according to coindesk.com, by the end of this year, more than 100,000 companies will accept Bitcoin as payment. I am more interested in the block chain portion of this. I believe Bitcoin is about block chain technology, and this will be a future wave of digital wallets.

“We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don’t let yourself be lulled into inaction.” – Bill Gates

3. Cyber Security. Nothing makes you lose your appetite faster than the Director of the FBI saying there are two types of people: those who have been hacked and those who do not know they have been hacked. I’ve literally placed my fork down and pushed my plate away.

The US Postal Service, Home Depot, Target, TJ Maxx … the list goes on. It is more than enough to make you lose your appetite and maybe dry heave a bit. Right now, at this very moment, someone or, more accurately, something (like a bot) is trying to break into your credit union website. It probably won’t succeed because it’s just the bad guys checking to see if you locked the doors. Imagine that a bad guy checks your physical branch front doors 24/7/365, just waiting for you to make a mistake so he can walk right inside. This is the virtual equivalent of what is what is happening online.

4. The Cloud. I hear all the positives but where are the guarantees from the negatives. The bad guys are actively trying to find ways to own and control that data and ransom information. How will we protect it?

These days, we almost can’t do without the cloud. There are many types of clouds: Software as a Service (SaaS), Platform as a Service (PaaS) and Infrastructure as a Service (IaaS). In my opinion, credit unions have been very successful with IaaS using the CUSO Ongoing Operations (full disclosure: they are a partner of BIG). Now we need to start looking at how to expedite our services and development via SaaS and PaaS. Security will be a top concern, but it can be overcome. Bottom line: The cost savings and speed from this approach will be too big to ignore.

5. The number one reason a member chooses a PFI: the branch is close and convenient. And yet fewer branches are being built and are smaller as members come in less. There are more online transactions. How do we maximize our retail spaces and continue to grow in a manner that fuels the engine?

I like to point to Seattle’s BECU as the winner in this space. Many years ago they began to minimize their branch footprint choosing to go with more retail spaces that are less about transactions and more about financial services. The CEO who wrote this list and I were discussing the fact that these sites almost serve as billboards for your credit union. As much as I love digital, I have always recognized that our people are our best asset. Creating a network for them to interact with our members is as important as the digitizing process. Bottom line: You need both.

6. Talent acquisition. We are becoming more complex. As such, we are forced to fight alongside best-in-class industries for the same talent. How do we win that talent, retain that talent, and grow at a pace that provides continued opportunity for them in our organizations.

This is so true. How do we get some young developer to stay at our shop when the coolest project you have on your books are adding a new field to the loan app and making changes to the e-statement process? The workforce has changed to attract this new talent.

We need to rethink traditional workforce paradigms. Remote employees will need to be a major component of your plan. You will need the tools to allow this group to work from anywhere (the coffee shop, the airport, the back of the train). Have HR start working on how to hire out-of-state people. Start planning for your organization to understand time zones and truly be a national company. Also, you may want to try to desensitize yourself to piercing gauges, tattoos, and other body art. Judging the next generation’s skills by their cover would be a huge mistake.

7. The continued growth in the administrative burden of legislation. Ignore the true pluses or minuses of each decision. The only guarantees are the need for more resources, the cost to meet these regulations and fighting to keep these costs from being passed on to our members by remaining lean and mean and maximizing technology.

True. Nothing to add here.

8. Entry of non-traditional competitors who change the way business is done. Walmart. Check cashing centers. Amazon. Ebay. Quicken. P2P loans. Consumer expectations are being revised based on experiences with these other businesses sectors. They expect your website to be at that level, call centers to be available 24/7, phone apps to be able to scan a car’s VIN and offer you a loan on the spot. You know what? I agree with them. We need to quantum leap our business models.

This is always a discussion topic when I work with credit unions. You are no longer just being compared to other financial institutions. You are now being compared to every technology and retail company out there. It’s a major hurdle to get and keep the next generation of digital natives. They will not be tolerant of our excuses for not having the latest technology. They will also not accept service trade-offs (“we can do it in the branch,” or “contact the call center to complete this transaction”).

9. Reputation risk. It’s hard enough to manage your reputation, but if there is a breach, your members are confused. They believe you are to blame even though you do your best in communicating.

For example, while it may be because Home Depot was hacked, when they receive a replacement credit card in the mail, they’ll assume the credit union was hacked.

10. The list is infinite. But so is the opportunity. So which area do I attack first?

I like the elephant analogy here. If you view all this as one goal that your CU’s future depends on you will most likely fail. You must attack the elephant one bite at a time. The key is which pieces to eat first.

John Best

John Best

Financial technology service expert John Best crushes the reiterated maxim “thinking outside the box” to tiny particles, leveraging his lofty, yet proven, financial technology “innovativeness” for credit unions nationwide. Recently ... Web: big-fintech.com Details