The digital evolution of financial services is evolving at full speed with or without credit unions

There was a recent survey published about whether or not different types of financial institutions believed that digital transformation is necessary for a financial institution to be relevant – the overwhelming majority of C level executives said that it was extremely relevant.  The lowest level of urgency however was in the credit union segment – an unfortunate shortsightedness in this author’s opinion.

Let’s begin with the assumption that credit unions exist to create value for their members and to be the better alternative because of the cooperative model. Let’s also assume that the ongoing viability of the model is based on a credit union’s ability to not only offer competitive products but offer a unique and superior Member Experience that attracts new member while retaining existing members. This unique Member Experience has been differentiating credit unions in the “sea of sameness” that is financial services for decades. It is the major reason consumers become members of a credit union.

The days of the teller line being the most important part of the credit union are long gone. Most credible consumer surveys conducted in the last few years indicate that more consumers each year do financial transactions through remote means, and their comfort with doing loans, opening deposit accounts, and managing their accounts thru digital means has exponentially improved.  

One of the challenges with any major change in how we deliver solutions is whether or not the credit union wants to manage an “evolution” of its Member Experience or be forced to react and enact a “revolution”. History has shown that those credit unions that evolve with the changes in the market, challenging their established operating paradigms, and leveraging emerging technology see organic growth, a balanced age mix of members, and sustained success. Those that attempt “revolution” to catch up usually fail to deliver a relevant Member Experience, and over time, become merger candidates. It is probably not a leap of faith to assume that embracing the status quo was more comfortable for those credit unions then facing their fear of change.    

In the last 30 months, I have visited many credit unions of all sizes in this country. I usually ask them what their major challenges are, and then what are they devoting resources to – the mismatch is almost always present and glaring. These projects have large resource commitments usually approved in the prior year, and have either become obsolete because of market changes, or stopped all other progress at the credit union because of the scarcity of resources. We need to ask ourselves if the process that moves each institution on its strategic course is too static. Does it take into account, or even allow a change based on the strategic landscape? And without this nimbleness can credit unions stay relevant for the new generation of members? In today’s market “nimbleness” appears to be the key to garnering real market share.

The success of the financial technology companies is not really based on what volume of loans they are doing or how much in the way of deposits they are attracting – those numbers are significant.  The real success they are having is attracting investor dollars to do research and development of new ways of leveraging consumer behavior and creating expectations that are difficult for traditional financial firms to deliver. The “rocket mortgage” has made consumers believe that an eight-minute loan approval is the norm. Kabbage made small businesses believe that a small line of credit could be established in minutes. SoFi and Lending Club provide immediate financing at the point of sale.  The large credit card companies can approve a digital application in minutes, have the consumer execute the documents and deliver a card the next day. Historically credit unions are risk averse and do not have it in their corporate DNA to ever fail. That is why these radical changes from the traditional methods are hard to visualize within our experiences and perceptions of what poses unknown risks.

As the Financial Technology companies sell off their innovations to various distribution companies such as Amazon (do you know that 64% of all USA households have a Prime Account), the large insurance companies, and yes, even big banks, the consumer will demand that all transactions can be done when they want, how they want and without friction. Let’s go back to Amazon for a moment. Not only do they have incredible dynamic data analytic models that anticipate needs (they employ hundreds of very expensive data engineers), they have expanded their reach to households that are apt to become members of credit unions, and they have already established a stronghold in the credit card and payment system – just ask “Alexa”. And doesn’t it seem a bit frightening that their “prime” account links value to membership and even more value if one uses the Amazon credit card? Haven’t we focused on being our member’s prime (primary) financial institution for decades?

Credit union executives have a myriad of proven digital technology solutions readily available that can help them along their strategic journey. This takes a commitment at the highest level of the organization to dedicate resources to not only implementing the solutions, but more importantly, re-imagining the process and Member Experience. It is time for the strategic planning process in credit unions not to focus on operating goals, but on defining what the credit union brand represents, who they are going to serve, and what the Member Experience looks like in 3-5 years. You may be wondering why “Member Experience” is capitalized throughout this article – it is in my opinion what makes credit unions different – they are not just words.

Most digital solutions offered to credit unions either by CUSO’s, or those corporations with specific credit union divisions, are relatively inexpensive, and proven by other institutions to not only create positive results but have a high level of member satisfaction associated with them. Digital transformation requires not only a commitment and a strategic plan by the credit union, but an understanding of how “big data” analytics, digital credit models, API integrations, electronic signatures, sophisticated marketing communication methods, etc. work together – you get the point, there is much for us to understand and to translate to our cooperative model that supports providing access to financial services to those of modest means in a way that attracts and retains them.  

A very wise CIO I worked with always said that a great strategic plan with a poorly executed operating plan is a fail, and a great operating plan with no strategic plan is a useless exercise – a credit union needs to have a clear strategic plan with an elegant execution of a relevant operating plan. There is a need for credit unions to remain a relevant part of the financial market and to continue to offer better values to consumers. But we will not be able to fulfill our mission if we lose sight of the changes going on around us. There are great examples of not coming to terms with changes in the marketplace. Think about the disappearance of phone booths replaced with mobile devices; Blockbuster replaced by Netflix and others as well as cable companies using their expansive distribution channels; record stores replaced by numerous digital means to acquire music; Shopping malls closing due to Amazon and online shopping; and, one I grew up with in business – typewriters – now a distant memory as we have computers, laptops, digital printers, etc. All these dominant market participants did not evolve, and revolution was not an option to catch up to the changes.  

We owe it not only to our current members, but a future generation of members, to keep the credit union cooperative model relevant, vital and sustainable. The industry has incredible talent with real emotions about the well-being of their memberships. Let’s use that talent and “heart” to create intimate, caring digital solutions. If we learn from our past, understand the present and embrace the future without losing our core values we will be a stronger consumer financial services segment then we have been any time in our history. And we will preserve the beauty of the Member Experience as our core brand value.