SCOTTSDALE, Ariz.—Credit unions must do a better job of evaluating their “return on channel” and determining the point at which to pivot away from older delivery methods to focus on a new, more productive ones, insists Cornerstone Advisors.
Senior Director Sam Kilmer says that Cornerstone research shows that many credit union are operating on “autopilot” when it comes to evaluating the bottom-line impact of all their delivery channels, especially new digital member contact points. Kilmer emphasized that credit unions must scrutinize each channel closely, giving all the same attention.
“I think where some credit unions have struggled is in the way they look at their delivery channels for the return each provides, based on investment and revenue. I think many credit unions have been evaluating their delivery areas differently, which is a mistake,” offered Kilmer, who said fault likely lies more with smaller CUs than larger ones, since the bigger shops have more resources to dedicate to the task and more money flowing into each channel. “Credit unions have to evaluate all of their channels in the same ways.”
Besides potentially wasting money on delivery channels that have become less effective today, what also is at stake is the future viability of the institution, said Kilmer, who noted that close analysis of each channel also delivers a clear message as to when it’s time to move away from one delivery option to another.
Retail Stores Closing
As an example, Kilmer pointed to the retail stores now being closed at malls as the result of not keeping pace with the consumer shift to online shopping.
“Five or 10 years ago, did Best Buy think their online presence would become as important, or more important, than their stores? Probably not,” said Kilmer, who added that Best Buy recognized the consumer shift in time to build a strong online presence.
Are all credit unions recognizing the same shift today? Kilmer isn’t sure, adding that the only way to tell when it’s time to pivot is to analyze the return on channel.
“Credit unions do a great job of analyzing the return on channel with their branches. They know each branch’s balance sheet, expenses, revenue, ROI . . .,” said Kilmer. “But I think they are struggling when it comes to recognizing that the branch is now becoming the alternative channel for many consumers.”
Cornerstone Senior Director Jim Burson said credit unions are not evaluating the return on channel effectively to carefully determine when it is time to shift more toward new delivery channels, such as mobile.
“I think many credit unions have gone to mobile and digital delivery because they feel they have to do that to compete,” said Burson. “But they really don’t analyze some of these new channels’ returns, like they do their branches. I think they have not taken a hard look at these new channels and just keep adding on more stuff, without really taking anything away. Digital investments are being ramped up without a clear expectation of the value they will generate.”
Primary Or Secondary
Burson said that credit unions need to determine first if a channel is primary or secondary, based on its return to the credit union from sales and service perspectives. He said CUs should set a baseline of current economic performance for each channel, along with tangible objectives.
“They need to look at the costs, focusing on the direct expenses tied to each channel,” Burson said. “What do they have tied up in a channel? What does it cost to run it? Then they need to determine how much revenue they get from a channel. And I have to say the return is based on ‘what have you done for me lately.’ Direct expenses continue to be dominated by branching, but value is being driven by digital engagement and contact centers.”
The concern, said Kilmer, is that if credit unions don’t take these steps they will simply do what they have done in the past.
“If they don’t put some sort of discipline in place to manage and measure their delivery channels they will go on autopilot,” said Kilmer. “That will create a bias toward that which has been done in the past.”
Burson said CUs will then simply maintain the “status quo.”
“That in itself is a decision, one which I think many credit unions don’t see the risk in making,” said Burson. “You have seen the impact on businesses across the country in not recognizing when it is time to pivot. If you keep on doing the same thing you can end up going the way of all mall retail stores that are closing their doors.”