National Trends: 2013 Credit Union Technology Priorities

Where are the nation’s credit unions cutting back, doubling down, and forging ahead on the frontiers of financial technology?

Credit unions are increasing their technology budgets to enhance member service and improve productivity in 2013. Callahan & Associates launched the ninth annual Technology Priorities Survey in October to better understand the focus and concerns of credit unions in regards to budgeting for technology improvements or making new technology investments.

This year’s survey asked credit unions priorities to compare their 2012 technology budget to what they anticipate spending in 2013. Credit unions answered questions that addressed technology philosophy, maturity of technology initiatives,and plans to upgrade existing systems or invest in new applications.

Credit unions also provided insight into how they manage their online and mobile presence and whether they plan expansions in their member-facing, physical access points. Finally, respondents answered open-ended questions on what they deemed critical to their objectives for 2013 and how they think about the role of technology in their overall business strategy.

One-hundred-and-two credit unions with assets totaling $45.3 billion representing roughly 4.1%of the industry responded to this year’s survey. Respondents ranged in asset size from $5 million to $5 billion and averaged $444 million in assets with a median asset size of $203 million.

Technology Philosophy And Adoption

When describing their approach toward technology adoption, 50% of respondents indicated they were fast followers. This is a similar trend from last year’s survey, where 51% of respondents self-identified as such. On the extreme end of the spectrum, 4% of credit unions consider themselves innovators while 11% place themselves in the late adopter category. For respondents classifying themselves as innovators or early adopters,mobile banking or payments was one of the top technology initiatives they deemed critical to their objectives for the year ahead.

We are an early adopter compared to many credit unions, says Gordon Gregory, chief information officer at Mazuma Credit Union ($239M, Kansas City, MO). The institution invests in not only enhanced back-office improvements such as core data warehousing and workflow automation but also cutting-edge member-facing services like voice over IP (VoIP) for its contact centers, mobile payments, and iPad technology.

We are intentionally trying to step up the pace of technology adoption as a competitive advantage and to attract a younger, more tech-savvy membership, Gregory says. That’s the benefit for us.

Conversely, in the blog 4 Ways To Maximize Technology On A Minimized Budget, another credit union noted: We’ve found NOT being on the leading edge of technology can be beneficial, too, in order to take advantage of others’ beta testing of products, services, and technological upgrades.

A preference to quickly follow technology trends typically manifests itself in shorter technology planning cycles that the credit union can revisit each year as consumer adoption changes. According to the survey, a majority of credit unions are either working from an annual technology planning cycle or revisiting a long-term plan annually. More than 93% of respondents have a technology planning cycle less than five years.

50% Of Credit Unions Are Fast Followers

Source: Callahan & Associates’ 2013 Technology Priorities Survey

These results indicate credit unions are quick to adopt technology they feel adds value to their members. When looking at future technology investments, respondents were also focused on giving members access to remote banking.

What Influences Technology Investment Decisions?

Credit unions are willing to adopt new technology if the benefits are evident. But how do they determine which options to invest in? Overwhelmingly, most credit unions are putting the opinions of their members at the forefront of their decision-making process, a testament to their cooperative difference.

Respondents indicated they are making technology decisions based on what members are asking for, with nearly 75% of credit unions identifying this as their most important external influence. This reinforces the perception that credit unions are quicker to react to what members are asking for and are less likely to make decisions defensively. After that consideration, credit unions are more likely to look at what local financial institutions are doing rather than at what larger credit unions or national institutions are doing.

For Anheuser-Busch Employees Credit Union ($1.4B, St. Louis, MO), a combination of internal and external influences are leading the institution to add new features to its Internet banking and undertake new mobile initiatives such as remote deposit capture, a phone-based prepaid debit feature, and peer-to-peer (P2P) payment capabilities says Calvin Curdt, vice president of information systems.

Credit Union Technology Budgets In 2013

Looking forward, a majority of credit unions plan to increase their technology budgets in 2013. Nearly 27% of all respondents plan on increasing their budgets by 10% or more. Thirty-four percent of credit unions expected an increase in their budgets of less than 10%.

Thirty-two percent of credit unions do not plan on changing their 2013 technology budget in relation to 2012 and only 6.5% of all credit unions plan on any year-over-year decrease in their technology budget.

Credit unions do not plan on personnel accounting for changes in spending, as nearly 77% do not intend to change their technology-related headcount in 2013.

Credit Unions List Their IT/Ecommerce Budgets For 2013

Source: Callahan & Associates’ 2013 Technology Priorities Survey

In the blog 4 Ways To Maximize Technology On A Minimized Budget, one credit union reader noted: Most of the time it’s the simple technology choices that have the greatest impact. Look at what channel is getting the most attention and leverage it with either a purchased solution or, if possible, develop an in-house solution. Remember, a proper hire can elevate your technology just as much as buying a commercial off-the-shelf solution.

The most important driver in credit union technology spending is the goal of improving member service, with most respondents lending more weight to this issue than other factors.

Our credit union brands used to be built around loyalty and in some cases nostalgia, but that’s all gone away, says John Best, senior vice president and chief technology officer of Wescom Credit Union ($2.4B Pasadena, CA ) and the CUSO Wescom Resources Group.From a technology perspective, we have to endeavor to find the right players to create the kind of experience we want for our members.

The second most important factor identified was improving productivity. A number of credit unions considered their bottom line as well, adopting technology to help cut costs or increase revenue.

Technology Expenses To Total Operating Expenses

When looking at all operating costs, almost half of responding credit unions said technology-related expenses accounted for 5% to 10% of their total operating expenses. This proportion is consistent with past surveys, suggesting most credit unions fall in this range.

Interestingly, technology-related expenses were more likely be a larger portion of credit unions’ total operating expenses than a smaller one. Only 9% of respondents indicated that this ratio was below 5%, while 26% of respondents were between 11% and 15%. An additional 17% of credit unions spent between 16% and 20% of their operating expense on technology. Extrapolating this data industry wide, $1.5 billion and $2.3 billion is a reasonable projection for total technology spending for all credit unions in 2013.

Tech Related Expenses As A Percentage Of Total Credit Union Operating Expenses

Source: Callahan & Associates’ 2013 Technology Priorities Survey

Investments Priorities For 2013

Credit unions are making a number of investments in technology in 2013. Survey respondents are looking to redesign their website as well as introduce or upgrade mobile banking in 2013.

The most frequently identified new technology respondents plan to add in 2013 is mobile banking. Fifty-one percent of respondents plan to upgrade or add a mobile banking Android or iPhone smartphone app. Forty-seven percent are considering a texting mobile solution, and 36% of respondents plan to either upgrade or add a dedicated mobile website.

For respondents who offer mobile banking, 29% launched the service in 2010 or earlier. Thirty-five percent of respondents who offer mobile banking launched their initiative in 2011 and another 36% launched mobile banking in 2012. Call report data shows that 22% of credit unions offer some sort of mobile banking service to their members.

In addition to mobile banking, a number of credit unions are looking at adding to or upgrading their remote deposit capture technologies. Reinforcing the focus on remote banking, credit unions are also prioritizing mobile bill pay or peer-to-peer payments as they try to enhance member value.

For example, Veridian Credit Union ($2.2B,Waterloo, Iowa) had been following innovations in the payment space for some time but held out for the right payment technologies to develop before actually adopting a solution.

The credit union’s current P2P payment system, which also links through Facebook and LinkedIn, allows members to either send or receive funds online quickly and efficiently. To date, the credit union has approximately 400 enrollees who send funds more than twice a month on average.

We felt the time was right to start looking at offering this kind of option, says Renee Christoffer, senior vice president of administration for Veridian. All the member needs is an email address or a mobile phone number to initiate a transaction.

Member-Facing, Physical Access Points

Concurrent to their remote and mobile banking efforts, credit unions are making investments in a number of physical access points. ATMs have remained the primary focus for 2013. Of the credit unions responding to questions on member-facing fleets, 28% plan to add at least one cash-only ATM and nearly 22% plan to add a full-service ATM. A handful of credit unions plan to add kiosks and video teller machines as well.

When AmeriCU Credit Union ($1.1B, Rome, NY) launched it kiosk strategy in 2008, its members completed 48,000 automated transactions. In 2012, the credit union expects automated transactions to exceed 350,000. To date, 38% of its automated transactions occur after hours.

We’ve been able to shorten our hours because there is no need for extended hours, says Joe Anderson, chief operating officer of AmeriCU. We want to look at Saturday and Sunday in terms of having the office open for members to come in and talk about planning for college or financial literacy.

Credit unions are also adding are coin devices, with 17% of credit unions planning to add at least one coin recycler and 13% planning to add at least one coin counter.

The Percent Of Credit Unions Planning To Add At Least One New Device (Listed By Device)

Source: Callahan & Associates’ 2013 Technology Priorities Survey

Reflections On Expenses And Member Service

The survey asked credit unions to identify technologies that noticeably reduced operating expenses. Respondents mentioned automation and paperless efforts as well as moving members to self-service technologies.

The survey also asked respondents which solutions most enhance member service. Credit unions most frequently mentioned mobile banking, online banking, and remote deposit capture, echoing the importance of remote banking and automated processes.

A prime example of the shift toward more efficient operations is PSECU ($3.9B, Harrisburg, PA).

Adopting a normal branch strategy would mean that our cost structure would be the same as every other institution and would necessitate us charging the same rates and fees, says Greg Smith, CEO. Instead, we’re using technology and our ability to work from a central location to offer something better.

Aside from a headquarters that houses its departments, two backup locations with around 65 employees total, and a small smattering of on-campus locations designed for new member on-boarding, the 391,000-plus member institution has no physical presence in the communities it serves, preferring to rely instead on remote services.

If you walked into our branch and said you were here for a mortgage, we’d guide you to the PC in the corner, Smith says. We’re helping our members understand they don’t need to come here to do these activities. And they eventually do figure out they really can take care of everything from home.

Credit unions now have the technological capabilities to be everywhere their members are. With the right strategic investments throughout 2013, both credit union and their members can reap significant benefits in the years ahead.

June 2, 2014

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