Faced with the challenge of digital disruption, we must question everything

News Flash!  Digital disruption is rapidly changing the financial services marketplace, and you need to ACT NOW if you wish to remain relevant.

The above really isn’t “new” news.  Since the advent of the Internet we’ve all been moving toward a digital landscape that requires we think again about the ways in which we deliver service and our abilities to compete and to survive.  No day passes in our industry without multitudes of people writing about and talking about the direction credit unions must head if they wish to thrive.

I’ve been thinking hard about the ability to thrive in this digital age of business.  And I’m especially interested in how the vast majority of credit unions, those under $1 billion assets, can thrive.  I can’t help but wonder how relevant is the advice given to our industry regarding what it takes to thrive in a world focused on data and digital technology when it’s not clear how many of our credit unions can survive in this business environment, given their limited resources.

Is it wrong for credit unions under $1 billion in assets to expect to survive?  Is the asset number even larger, $3-$5 billion?

Can credit unions “well under” $1 billion or more in assets find a sustainable path forward?  Should they even try?

For some, these questions are insulting to ask.  But they must be asked and answered by each and every credit union,  especially by those credit union leaders who read all the words and hear all the talk and go back to their offices and ask themselves “how can we do this, given how little we have to invest and how little risk we can accept?”

Where We Stand

Digital disruption continues to rapidly change our world. The pace of change is not going to slow.  And everyone appears to agree that credit unions, if they wish to succeed, must not only provide superior experiences for everyone but also decide and act with more speed and agility.

The challenges presented by most everyone I read or listen to are focused on “strategy, engagement, technology, experience and culture.”  All of these are topics worthy of research, debate, and action. They are the areas in which credit unions must engage fully if they are to find successful paths forward.  And some of them will. But what do you do if your credit union does not have the resources (money and people) to invest in all the work that must be done to succeed in this digital age?  Do you quit? Or do you find another way?

Why $1 Billion, or $3-5 Billion?

I’ve been involved in financial services and fintech for more than 3 decades and remember well that the answer to the question of “how big do you have to be to succeed going forward?” was always “twice the size we are today.”  That answer always earned a chuckle, but always sounded “about right.” After all, who wouldn’t be better off with more resources?

But that answer no longer rings true to me.  Today, twice $100 million in assets won’t get the job done. We have entered a world where technology demands constant care and feeding.  Change is the new black; and there’s no going back. The costs paid to remain technically relevant (and data savvy) are too large and too constant for credit unions of insufficient size and resource to tackle alone.   And, more often than not, researchers find that financial institutions of all stripes need $3 -5 billion or more in assets to fund the necessary efforts to stay relevant. We may not like it. But it is likely true.

Digital transformation demands we ask again, can we succeed on our own?

Thoughtful, experienced leaders talk about digital transformation as if it were something new.  It’s not. Digital transformation is quite simply the name given to the latest business environment changes that demand strategic response. Technology has brought us a changed environment that we must respond to, as we responded to legal and regulatory changes that upended how we did business in the past.  What is different from past changes, is the size and scope of the impact. And this time, that impact might demand a radical response for those who can’t meet the change on their own. This reality is why we need to talk about strategy in the digital age, and not talk only about digital transformation. We have to think about our organization’s ability to respond to the challenges confronting us before we talk about the broadly-framed responses offered by others, and how those responses might work for us.

Collaboration and Consolidation of Resources Might be Your Only Path Forward

Technology has taken us to a place where surviving may be harder than ever, and we need to confront this fact directly.  Our largest credit unions may well have the resources to compete on their own. But the rest of us may need to reach out to other credit unions to gain the scale of operations (and money, and people) needed to move forward and to thrive.

Our industry has done great things together.  We formed Corporate Credit Unions and CUSOs to gain scale in payments, investments, technology and more.  We came together to research challenges and find opportunities. And we talk together, a lot. But outside of the small group of our largest credit unions, we will likely find that the rest of us must now focus our efforts on consolidating our resources to meet the data and technology-driven challenges now upon us.  Either that, or we start talking about how long we can survive, rather than how we can thrive.

And This Path May Only Be Followed by Small and Mid-size Credit Unions

Now, the big question: if our billion-dollar credit unions have the resources to act on their own, collaboration and consolidation by other credit unions may have to take a very different form from what we’ve asked of each other in the past.  For in the past, we hoped both large and small credit unions could work together to reach economies of scale using aggregated capital and resources largely provided by the larger credit unions. But now, the vast majority of credit unions, those well under the $1 billion and up category, may be the only ones that must come together to find the answers and scale of operations to survive, and then to thrive. Can we learn from the largest credit unions?  Yes. Should we rely upon them? Maybe not.

Faced with These Challenges, We Must Be Willing to Question Everything

The above is a “big thing.”  It’s seemingly more painful to consider than is the topic of digital transformation, because it asks us to question both our past behavior and our future course.  And it asks us to consider a model of cooperation we have largely avoided to date; but we cannot pick and choose when confronted with existential circumstances. We have to find a way forward and all paths (and questions) have to be considered.  And we need to realize this and discuss it. Here’s to embracing the notion of “questioning everything”, including our ability to work together and our reasons for being.