Credit unions have almost universally cheered NCUA's recent changes to its field of membership rule, which will give CUs the opportunity broadly expand their member base. One thing they may not be cheering, however, are the costs associated with those changes.
Preparing for an expanded influx of new membership will likely require upgrades in technology at credit unions, sources said, which can come at a significant cost.
Ted Bilke, the Dallas-based president of Symitar, a San Diego-based company that supplies core data processing and ancillary technology systems to credit unions, said credit unions may want to consider upgrading systems that can help them economically provide the self-service capabilities required when a local branch network is not available.
"Complete mobile- and home-banking capabilities…are all needed when a convenient branch location isn't available," he said, pointing specifically card controls, secure messaging, remote check deposit, secure transfers to and from other FIs and more. "In addition, [they should upgrade] those systems that help the credit union staff stay updated on the risks associated with serving unknown and riskier members. Some of the risk could be mitigated through better analytics, understanding the risks upfront and developing strategies to mitigate those risks."
Kris Frantzen, Malvern-Pa.-based senior product manager at Temenos, a company that creates software for financial institutions, stated that there are two main areas in which technology will play a key role in this development. The first, he said, relates to access to products and services.
"Robust omni-channel applications will allow consumers to carry out their financial transactions – such as originating new accounts, loans, or credit cards – when and how they wish," he observed. "For many new members, this will be a matter of preference. Gen X and millennial consumers want less and less to interact with a branch or call center. In many cases, expansion will mean that new members will not have an existing branch easily accessible to them – making virtual interaction a necessity."
Additionally, he said, CUs may need systems upgrades to be able to support process efficiencies in order to manage membership growth in a cost-effective manner while not scaling back on service.
"This will apply to several areas across the credit union," Frantzen noted. "More members will mean the underwriting and fulfillment of more accounts and loans. It will mean managing more member service requests (lost cards, disputed transactions, etc.) and complaints."
Moreover, it will mean a higher loan portfolio against which the credit union will need to manage collections.
"Implementing the right technology (including automated workflow and task queuing, integrated third-party services and data sources, and robust reporting) to help streamline processes will allow the credit union to effectively scale to the new volumes without needing to significantly expand staff," Frantzen explained. "Finally, credit unions will need to be cognizant of unique regulatory requirements of newly supported areas and any unique characteristics of a newly accessible member base. Configurable technology that allows for unique data capture, workflow, validation rules, and decisioning and pricing guidelines for different geographic areas and member groups will be key to successful expansion."
Frantzen conceded that system upgrades or replacements are not always easy decisions and that implementing a new system does not, by itself, address all challenges a credit union may face. "The reality is, though, that older systems that are not supportive of growth should be evaluated for replacement," he recommended. "In some… cases, the credit union may need to explore implementing a technology solution to support activities currently being handled entirely manually," he added.
Theresa Benavidez, president of San Diego-based Corelation Inc., suggested that CUs also ensure that their core systems aren't antiquated and can easily integrate with today's – and tomorrow's – third-party solutions. "Technology changes occur so fast today that it is mandatory your credit union maintain pace," Benavidez explained. "Having a core that can enable this pace is a huge feather in your cap. It allows you to freely… look at new apps that will serve your members' evolving needs."
What's the Price Tag?
But just how much will all of this cost credit unions?
According to Frantzen. it's often more expensive for credit unions to remain on legacy systems, constrained by fewer capabilities. Thus, running in place may actually mean lagging behind.
"Credit unions [which] cannot offer robust omni-channel access to members run the very real risk of alienating existing members – let alone trying to add new members," he said. "Using manual or segmented technology in the back-office for origination, member service, or collections activities can mean losing new business, low member satisfaction ratings, financial losses and higher expenses." Indeed, he warned that trying to load increased membership onto antiquated technology and processes is a "recipe for failure" for any credit union.
Bilke pointed out that the trade-off of investing in new technology that reduces costs and boosts efficiency would offset the ongoing operations costs of the status quo. "A credit union should only undertake a new technology investment [if] return on investment is clear and achievable," he indicated. "This ROI is often fueled by the credit union's ability to gain efficiencies like supporting more members with the same number of employees. If you find yourself adding employees to support growth, it may be time to look at new technology."
Similarly, Benavidez conceded that while technology can come at significant costs, it can also be viewed as an investment in a credit union's future.
"Is there a financial institution that solely relies on the branch visit?" she asked rhetorically. "Perhaps, but are they destined to grow? Probably not."
CU*Answers CEO Randy Karnes countered that upgrades are cheaper than most people think. "CU*A offers both account-opening and mobile banking solutions at no fee," he said. "Do your research, but do not think about building it once; You will need multiple online approaches that are easy to update, easy to replicate and easy to retire. Do not settle for a single app – find a platform and approach that can generate virtual offerings and support system quickly, cheaply, and over and over."
Is Bigger Better?
Bilke cautioned that due to economic realities and economies of scale, NCUA's rule changes will likely primarily benefit larger CUs, which have both the "size and efficiency to capitalize on the new opportunity."
But Frantzen doesn't necessarily think that is the case. He suggested that as "a rising tide lifts all boats," the easing of membership restrictions can benefit all credit unions, regardless of asset size. "Larger credit unions will now have another avenue to increased member bases – perhaps replacing one or more initiatives to acquire a smaller credit union," he said. "This is probably a net neutral outcome for smaller credit unions, as some will be able remain viable and expand with access to new members, while others will still be good acquisition targets as they struggle to retain scale in the face of mounting regulatory pressures."
As is the case with any market change, the organizations that can adapt and execute best stand to benefit the most, regardless of size. "In some cases, smaller credit unions hold an advantage in agility over their larger counterparts in implementing change," Frantzen noted. "And, the greater availability of technology can help to level the playing field in gaining new members. It all starts with employing the right solutions."
