Keep On Rolling

Next Generation Credit Unions embrace the idea that just plain good is never good enough.

In Greek mythology, a deceitful king named Sisyphus is destined to continually roll a heavy bolder up a hill only to have it roll back down before reaching the peak. The endless toiling of Sisyphus is meant to be a cautionary tale, but it is also serves as a reminder that hard work alone doesn’t guarantee success.

Like Sisyphus’ eternal uphill battle, the work of being a credit union is never done. Over the past year, the cooperative system has pulled itself out of a four-year valley. The industry’s continuing improvement is the result of a self-imposed struggle that refuses to stick with the status quo. But credit unions aren’t the only ones hard at work. Many traditional bank competitors are growing larger by the day. And interlopers such as Blue Bird a partnership between Walmart and American Express that offers a no-fee, no overdraft, no minimum credit card and subaccounts Bill My Parents a card that aims to temper teen spending and KickStarter a way to raise money through crowdsourcing are making their mark in financial services, often at the expense of cooperative market share.

Now is not the time to push the boulder forward and hope for the best. Now more than ever, credit unions must maintain forward momentum and create the next generation of cooperative service. The industry faces a tremendous opportunity, but it needs the right people engaged in the right channels. It needs to understand what it does and doesn’t know about its members. It needs the right data to develop the kinds of solutions that will resonate with members. It needs networks that will broaden member relationships and open revenue streams beyond a single product.

All of these pieces must come together to create the Next Generation Credit Union. In the NGCU, employees don’t sell products, they solve problems. In the NGCU, members intentionally choose the most cost-effective channel because they understand why the credit union’s maximization of surplus through redistribution to members or reinvestment in the cooperative is also in their best interest. In the NGCU, members actively recruit new members because they want to share the benefits of the credit union.

The following six areas are where tomorrow’s cooperative leaders, those Next Generation Credit Unions, can break free from the pack and establish new strategies for long-term success.

1. Employees

Ten years ago, the cooperative system hired tellers. Today, it needs employees with the knowledge, experience, and autonomy to not only work the teller window but also originate a mortgage. Ten years ago, credit unions hired collection agents, but the Great Recession emphasized the need for skills that supersede mere collecting. Today’s financial environment requires financial counselors who work with families, proactively identify signs of financial duress, and head off issues with workouts and modifications that help mitigate delinquency.

Instead of a credit card manager, credit unions need employees who understand all payment options and their evolution inside and outside of the industry. Instead of siloed risk management, credit unions need enterprise risk managers who look for known danger as well as danger lurking undiscovered on the horizon. These employees manage risk; they don’t avoid it at all costs.

To live this future, NGCUs need flexible employees who can grow, learn, and teach others, employees who will shed a narrow focus in favor of broad competence. Finding and wooing these individuals requires more than base compensation it requires building a culture that identifies skilled employees and fosters leadership and innovation within a lifelong career path.

2. Data

The April 2013 issue of the Callahan Report addressed how advanced analytics has the potential to move the industry forward. The data harvested and used by credit unions was once fairly narrow; for example, a marketing department would target members of a certain income bracket for auto loans. But today’s data mining requires credit unions to examine the entire rainbow of information available, not just the old reliable shades of the past.

NGCUs think expansively data. They want to access and harness not only their own proprietary data but also data from their core and payment processors, the Census Bureau, and other databases. These institutions recognize the value of external information and proactively use these resources to answer unknowns and inform business strategies.

3. Networks

The cooperative system offers a wealth of allies in the form of consultative networks, revenue networks, and educational networks. Consultative resources such as Callahan’s Leadership Network, CUNA Western (and other) Management Schools, CUES CEO School, Filene’s i3 group, and Cardwell’s 360 provide forums for executives to build their social networks and seek advice from those who have done it themselves. After all, who better to ask than peers who have been there, done that, learned this?

Now, NGCUs are extrapolating the successes of consultative networks to inform a broader vision of the benefits of networks. For example, credit unions are partnering with real estate dealers to get in on the ground floor of the mortgage cycle, collaborating with auto dealers to secure new loans as well as remarket repossessed vehicles, and working with local merchants on mutually beneficial rewards programs. These types of partnerships extend a credit union’s reach into its community, introduce new prospective members, and generate ideas for product and services.

Even more promising is the trend of partnering with a SEG to gain expertise in an area outside of the credit union’s comfort zone. Coastal Federal Credit Union ($2.2B, Raleigh, NC) routinely converses with one of its SEGs, the business analytics company SAS, for Big Data-related research and solutions. Likewise, KeyPoint Credit Union ($786M, Santa Clara, CA) reaches out to its high-tech employee groups in Silicon Valley for volunteers for its brainstorming committees as well as for potential hires.

4. Products

Next generation credit unions consider tactical implementation as well as overall product strategy. NGCUs have products that other institutions already offer; however, next generation credit unions modify and customize their products to make them resonate with the specific needs of a microsegment in the marketplace. A younger, mobile generation, a group adept with innovative technology, and soon-to-be retirees are all microsegments looking for just the right products to suit their needs.

NGCUs are acutely aware of the fact that people are more likely to change their primary financial institution when they undergo life-changing events such as graduating from high school, buying their first car, graduating from college, getting married, buying a home, or having a first child. Advanced data resources are crucial in finding these members in transition and connecting with them via customized products.

Finally, NGCUs disseminate deeper, tangible financial resources that members can use to inform their lives. All credit unions have members who are financially literate yet still do financially unsound things. NGCUs take their members beyond a mere awareness of financial terms and language (i.e., financial literacy) and help members build the knowledge and skills required to prudently manage finances and build wealth over time (i.e., financial capability).

5. Delivery Channels

The primary delivery channels of a typical credit union are the branch and ATM network, the call center, and the online/mobile suite. Yet hardly any credit union gives oversight of all these channels to the same officer or department. All too often, these channels are run in silos a practice that is rapidly becoming outdated among NGCUs.

A few of the country’s most innovative credit unions have undergone full delivery channel integration, organizing and managing these various portals according to a holistic strategy. This is a critical step in transforming the operations of NGCUs.

While NGCUs take a wider approach to channel strategy they also take a closer look at their channels and accept challenges to their beliefs about what each channel represents to the institution and the membership. This helps NGCUs examine what each channel has the potential to become. For example, financial institutions have used the mobile channel primarily for checking balances. However, this channel is becoming more transactional in scope and might one day be used for many of the cases that members once headed to the branches for.

NGCUs drive transactions to remote or self-service channels to reduce operational costs while retaining the ability to identify when members need a new solution. Once again, analytical capability helps a credit union identify unfilled needs, even in the absence of person-to-person conversations. With transactions moving out of the branch, high cost branches become centers where members go for consultation and education, where deposits and withdrawals are replaced with cross-sell and recapture, and where employees are transformed from order takers into financial experts on a long-term career path.

6. Revenue

In the coming years, NGCUs will be looking at revenue more expansively than financial institutions in the past. Pentagon Federal Credit Union’s ($15.5B, Alexandria, VA) purchase of a real estate company and a title company has helped it build the foundation to completely own its member relationships. An individual can buy a home and take care of all the subsequent requirements and processes under one roof. And each part of the home-buying process is another piece of revenue for this cooperative.

TDECU ($1.98B, Lake Jackson, TX) has made a similar investment, allowing it to offer not only mortgages but also all the additional real estate services needed to buy or sell a home. The tab on its website does not read Mortgage, it reads Buy/Sell A Home.

NGCUs look at ways to generate income using their own expertise. For example, Redstone Federal Credit Union ($3.4B, Huntsville, AL) harnesses its proficiency for creating core system applications via its CUSO, Redstone Consulting Group, LLC. With the tagline Solve For Redstone, Solve For Many, the CUSO addresses industry needs while driving new revenue from previously untapped developer talent.

Veridian Credit Union ($2.4B, Waterloo, IA) took an alternate route by purchasing a local person-to-person (P2P) payments company that was in need of a destination for its deposits. Veridian filled a marketplace void for that company and now earns additional revenue from its subsidiary payments stream.

Turn Planning Into Action

The journey to becoming a NGCU does not have to start with a momentous shift in culture or operations. Instead, the transition can stem from the many tiny decisions you make everyday.New technology, additional government oversight, changing demographics, and shifting consumer priorities will rise up and loom as ominous as Sisyphus’ hill, but we encourage you to see these potential roadblocks as invitation to innovate and adapt.

Unlike that mythical laborer, we can learn from our mistakes, we can forge new, untested paths, and we can overcome any potential challenges in our path. But we must never stop moving forward. To those with the courage, insight, and fortitude to tackle the next mountaintop, we say Keep On Rolling.

June 29, 2018

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