Ask Tough Questions Before Investing In New Capabilities

To meet consumer expectations in the digital space, credit unions must think differently about their entire operation, not just technology platforms.

Credit unions kicked off 2018 on a solid note. Although loan and share growth rates were slower than six months ago, membership grew at a strong pace.

The movement recorded its largest-ever quarterly increase 1.4 million net new members during the first quarter. Loan originations hit $119 billion, a record level for the first quarter, and the loan-to-share ratio reached 80.7%. Capital is growing and asset quality remains sound.

As credit unions, larger ones in particular, post strong results, many are positioning themselves for long-term success. Credit unions have a history of evolving their business model to accommodate for changes in the financial services landscape. It’s only within the past 40 years that the industry introduced share draft accounts, credit cards, mortgages, and indirect loans. Today, these are staple offerings at many credit unions. Credit unions were innovators in shared branch and ATM networks. Today, delivery channels continue to evolve. ContentMiddleAd

As the next generation of members begins to play a larger role in credit union success, many of the movement’s institutions are investing in digital delivery platforms that provide 24x7x365 service capabilities. Companies like Amazon, Apple, and Google have raised the bar of consumer expectations in the digital world, and credit unions are looking to match the look, feel, and simplicity with which these organizations help consumers accomplish daily activities.

But shifting to a model in which online, mobile, video, and chat play a larger role requires an investment that goes beyond new technological capabilities. To match the expectations set by market leaders in the digital space, organizations must think differently about their entire operation, not just technology platforms.

Credit unions must listen to members and analyze emerging market trends to anticipate member needs as leading retail companies do. Credit unions also must pick up the pace of product and service development to respond more quickly to changes in the market. Change like this cannot happen overnight, so credit unions must think about long-term implications.

How Will You Respond?

Strategy Lab by Callahan & Associates helps credit union leadership teams focus on issues of strategic importance, such as what’s next in the financial services space. Find out if this program is a fit for your credit union.

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Questions About The Membership

Callahan has worked with a number of credit unions that have decided to adopt a digital-first model. Two key questions to address during strategic planning is: How quickly do we want or need to make this shift? and Are we prepared to make the choices and investments we need to get there?

The first question depends, in part, on the resources people and capital available to move such an effort forward. The second question leads to more questions.

Asking the right questions is an important part of any planning process but essential when considering transformational decisions.

In the case of a digital-first discussion, a credit union might begin by looking at trends in transaction data to evaluate how member usage is changing. For example:

  • Are transaction volumes at branches and the call center increasing or decreasing? What is the trend in transaction activity through the online channel? Mobile? Interactive teller machines?
  • How does transaction volume in these channels compare to growth in membership?
  • Why are members using these different channels?
  • What does the credit union know about the members who use these channels? What are their ages? Credit profiles? Relationship with the credit union?

The answers to these types of questions will help the credit union determine where it needs to invest. If the trends show a shift in member behavior, for example, the credit union might change its branch model. It could adopt a smaller footprint, incorporate universal employees with knowledge of a range of financial issues, and teach members to use self-service channels.

The answers might underscore the need for more digital capabilities and lead to questions about the credit union’s member service focus. For example:

  • Should the credit union focus its marketing on members who are more likely to use digital channels?
  • Should it offer better pricing and/or relationship rewards to incent members to use digital channels?

Market leaders in the digital space have raised consumer expectations, and credit unions are looking to match the look, feel, and simplicity with which these organizations help consumers accomplish daily activities.

Jay Johnson, Partner, Callahan & Associates.

Questions About The Organization

These are all questions about the external market and how a credit union interacts with its members. But as leadership teams think about their own operations, a decision to invest in greater digital capabilities raises challenging questions about how the organization should interact externally and internally. For example:

  • Does the credit union want to build digital capabilities itself? Does it want to buy from an established vendor? Or partner with a fintech firm that might not have an established track record?
  • How should the credit union’s development process change if it moves to a digital-first position? Does it need to take an agile development approach to accelerate testing, learning, and development timelines? Does it need to operate with more cross-functional teams or rethink its organizational structure for a more holistic approach to the market?
  • What is the credit union’s risk tolerance? How might that risk tolerance influence its response to these questions?

Beyond the decision to build versus buy are the implications of what a change means to the organization’s human resources strategies. For example:

  • What skill sets does the credit union need as the organization evolves? What does that imply for the current staff? Does the credit union invest in training for new skills? Should it look to attract more talent from outside the organization? How should it handle tenured employees whose skills no longer fit the organization?
  • If the credit union’s employee profile changes, does it also need to change its system for recognizing, developing, rewarding, and promoting employees? Does it need to change its approach to benefits, incorporating options such as remote work and flexible scheduling? What investments does it need to make in employee development and coaching? Should performance-based incentives become a greater component of compensation?
  • As the credit union’s employee base changes, does it need to also change its reputation as an employer? Does it need to evolve from being recognized as a safe and stable employer to one with a reputation for being innovative, agile, and performance-driven? How does it accomplish that?

These questions are not easy to answer; however, the credit union must gather perspectives from the board and leadership team to gauge the institution’s willingness for change. Once an institution has determined its willingness to change, its leaders can make decisions about the pace of change.

Remembering The End Game

When organizations consider a significant change, there are many questions to answer beyond those listed above. With those questions comes the risk that discussion will focus too much on the minutiae of the change. It is important to keep one overarching focus at the forefront the members.

Credit unions have succeeded for more than a century because they make decisions in the best interest of their members. Product needs and delivery channel choices will continue to change over time. It is essential that credit unions listen and respond to members as they always have. Ed Callahan summed it up when he said credit unions should follow the member. That holds true today. Even when undertaking a significant transformation, following the member is the key to success.

July 2, 2018

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