By Matthew Downing
The phrase “digital transformation” itself is a misnomer, as transformation implies there is an end. For credit unions and community banks, however, that can never be true if they want their digital experience to remain competitive.
Let’s start by taking a step back and looking at the retail banking industry. No matter the size or structure of your credit union, banking is a commodity. Credit unions and banks enable consumers to borrow, save and spend their money. Occasionally, institutions introduce a short-term competitive advantage with various product features, but these changes are typically easy to replicate and short-lived.
What truly differentiates financial institutions is technology, data and how they leverage both to deliver our services more conveniently to consumers.
What Drives Consumers
The modern consumer is driven by convenience. Same-day deliveries for online purchases, personal grocery shoppers with home delivery, GPS apps that actively route you around traffic, and 2:00 a.m. deliveries of warm cookies to your door. These are all experiences that are a normal part of our everyday lives. Furthermore, consumers are not just demanding ubiquity across all of their experiences, they are expecting it.
These expectations should be influencing your financial institution’s strategy on how you deliver products and services to consumers. The key question to ask is: how will your institution continue to evolve?
Partnerships Provide a Path Forward
For credit unions specifically, we’ve seen a massive consolidation over the past decade or so as more institutions merge or are acquired. At the end of 2010, there were 7,339 federally insured credit unions in the U.S. according to the NCUA. As of September 30, 2021, there were only 4,990, a decrease of 32%.
A key driver of the consolidation within the industry is the challenge for institutions under $1 billion in assets to grow memberships and loans. According to the NCUA’s data as of year-end 2021, all asset categories below $1 billion averaged negative loan and membership growth last year.
One of the contributing factors is the inability of smaller institutions to meet consumers’ digital expectations. In order to square the circle and produce meaningful and sustainable growth, financial institutions need to continuously invest in better digital experiences to grow memberships and loans while delivering new and innovative banking solutions conveniently to consumers.
The Edgeless Puzzle
Unless you have an army of developers at your disposal, credit unions must find partners that can help them achieve this goal.
My favorite metaphor to describe the optimal digital environment that financial institutions should construct is an edgeless puzzle. This edgeless puzzle represents a layer of convenience which extends core banking services to consumers when and where they demand it.
Financial institutions should be able to easily add pieces to the puzzle as emerging technologies solve existing problems, remove pieces of the puzzle which are no longer needed, and swap out pieces of the puzzle which are antiquated or not best of breed. For a financial institution to effectively execute on this notion, legwork is involved.
It All Starts with Strategy
Every community financial institution should have a strategy that, at minimum, incorporates digital, but preferably a standalone strategy that clearly expresses their digital goals. This strategy should clearly define how digital will enable the credit union to meet the demands of their core consumers and support the overall growth of the financial institution.
Another key component is infrastructure that allows you to plug in and unplug tech relatively easily. Does your system let you tie into other systems via APIs? Do you have the talent to write those APIs? Are you partnering with the right vendors? These are all critical questions to ask as you develop your digital strategy and roadmap.
How to Prioritize?
As institutions prioritize which enhancements to focus on, I typically default to listening to the voice of the customer or member. We exist to help consumers manage their finances and improve their lives. If we don’t listen to what their needs are, we may miss opportunities to expand our relationships.
Remember, gathering voice of the customer data isn’t just about asking what they want next, or polling them about specific features. We must read between the lines and look at both the data and opportunities to create that roadmap of where we want to go as an organization. Ultimately, it all must tie back to the institution’s strategy. For example, using artificial intelligence for credit underwriting might seem like a great new shiny thing that could drive net income, but the first question is how does it fit into your current strategy? In some cases, it fits well; in others it doesn’t.
For those who have already gone through a digital transformation or are struggling to create a digital experience members love, I’d start by looking at the institution’s strategic objectives and ensuring those are what they should be before evaluating opportunities that can contribute most to those goals.
A Big Trap
One of the biggest traps we’ve seen in the industry is having 50 different projects, trying to execute them all at once, and not making meaningful progress in any one direction. You must prioritize those opportunities and have a laser-like focus on completing a narrow set of wildly important goals. And, if you don’t have the talent within the organization, explore partnering with Fintechs and other tech companies that can help you achieve those initial goals.
Matthew Downing is president of eCU Technology