A recent vote by the board of the National Credit Union Administration to expand field of membership rules means even more potential members will be looking for credit unions to offer the highest level of technology offerings available. And, according to many tech analysts, if CUs can't deliver, they're likely to lose out on that business.
In its ruling, NCUA decided to impose a "narrative" approach over how particular regions in the country meet the requirements of a credit union's FOM, along with increasing the population cap for "well-defined" communities from 2.5 million to 10 million. These measures are expected to "improve consumer access to affordable credit," the agency said, particularly for as many as 1 million residents of rural areas.
"This is great news for credit unions," beamed 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. "The role technology plays in relaxing restrictions on who can join and [the] easing of geographic limits will reinforce the need and recent trend toward self-service interactions that don't require direct access to a branch network."
Bilke noted that his firm has seen several university-affiliated credit unions – including the $4.7 billion-asset Pennsylvania State Employees Credit Union of Harrisburg, Pa. and the $3.3 billion-asset Michigan State University FCU of East Lansing, Mich. - successfully leverage this model, retaining a high percentage of members acquired as students after they have transitioned into the workforce and away from the university and branch locations.
Theresa Benavidez, president of San Diego-based Corelation Inc., said that technology certainly plays a significant role in FOM expansion. As more and more people depend on technology in their everyday lives – especially with their finances – credit unions with the technology services to help consumers manage their finances will be increasingly appealing, she said. On the other hand, she warned that if a credit union doesn't have the technology requirements that were once a novelty, consumers – especially Millennials – will go to another financial institution that does have those services.
For credit unions that want to maintain or exceed their current pace of growth, Benavidez added, technology is a must.
"From a core perspective, credit unions must have that foundation to allow these new technologies to work seamlessly so they can continue enhancing their value to current members and prospective ones with the latest solutions," she said. "Specifically, easy access to account information via mobile or internet banking is a must. The consumer must be able to perform all transactions on their mobile device that they are able to accomplish in internet banking. As a result, speed of transactions and access to information will be key."
While online and mobile delivery channels are faster and cheaper than traditional physical channels that were once used to reach members, CU*Answers CEO Randy Karnes cautioned that if credit unions really want to branch out into new markets (rather than just expanding their current one), the savings from choosing virtual channels over physical ones can easily be eaten up in marketing, sales and canvassing for online members.
Thus, the tools do not attract new business, the game plans do. "Have a good [game plan] if you want real results from online retailing," he advised.
'The Great Equalizer'
Bilke of Symitar also praised moves made by NCUA to facilitate the ease of financial service access for poor and rural Americans. "We believe credit unions will be able to profitably provide services to the underserved and isolated consumers," he said. "Many of the same reasons technology helps credit unions serve employees outside of a local branch network through self-service channels will also benefit members in remote and isolated areas."
An additional benefit, Bilke added, relates to the fact that self-service channels tend to be "significantly less expensive" for the credit union than traditional branch transactions. "This will allow credit unions to keep their costs low which will, in turn, allow them to keep the members' cost low," he explained.
Benavidez described technology as "the great equalizer," adding that while consumer technology used to be prohibitively expensive for many institutions, times have changed.
"Today, as apps gain greater traction and affordability, even the underserved can gain access to financial services that will ultimately help them gain a solid financial footing," she said. "It's the ticket to better managing finances – and, again, technology can play a significant role here."
Kris Frantzen, Malvern-Pa.-based senior product manager at Temenos, a company that creates software for financial institutions, cautioned that it may be difficult for credit unions to justify the creation of new full branches in more isolated areas due to the costs involved. "So technology will need to play a role in supporting online or more virtual branch presences," he said. "The right virtual capabilities will support a first-class member experience and expose the same capabilities as those available to a member walking into a full branch."
Plus, Frantzen said, it will likely be even more important to find cost-effective ways to deliver credit union products and services in underserved areas, where consumers often have the same financial needs but are sometimes stuck with less competitive and more expensive options.
"For example, today a family in an underserved region facing a costly emergency home-improvement project may have to choose financing through a high-interest credit card or private-label card offer through the merchant," he elaborated. "A personal loan from a credit union could serve as a much more beneficial option for the consumer."
Coping With More Membership
So, assuming these proposals eventually attract more membership, how should credit unions handle such new pressures?
Frantzen noted that CUs have already seen record membership growth in recent years, "so many credit unions have been faced with the enviable challenge of supporting higher numbers of new members. Technology has played a significant role in this recent expansion and will continue to play a large role in future expansion."
Bilke noted that credit unions will likely be able to handle high single-digit growth without significant operating changes. "However, if these new members are coming from unfamiliar geographic regions or represent a different risk profile from their traditional members, that growth could potentially prove costly for the credit union," he cautioned. "We suggest evaluating the opportunities for expansion and assessing the impact these new members may have on their operations."
Thus, in order to deal with an anticipated crush of new members, Frantzen recommended that the first focus should be on reviewing the current system and processes to ensure they can support a boost in membership and the corresponding increase in transactions. Some questions CUs should ask might include: how easy is it for a consumer to originate an account or loan with the credit union, either online or via a mobile device? How long does it take to fulfill such a request through the back office?
"Beyond streamlining processes and refreshing the technology, it's advisable for a credit union to understand the profitability of its current portfolio as it heads toward expanding that portfolio," Frantzen said. "Mine the data available to determine which accounts and products are more and less profitable. Having this insight will help to direct product offerings, credit policy, and sales and marketing efforts for the newly available areas and groups."
Benavidez said credit unions can cope with any sudden rush of new members by first ensuring that their infrastructure can handle the increase. This means having a solid core that easily integrates with online and mobile apps that serve this growing group. "Also, having the staffing resources and providing them with the tools (tech and training) to efficiently manage and effectively engage new members all tremendously helps in handling the increase in membership," she said.
Secondly, credit unions must serve the base in an environment that is "comfortable" to them. "[They should] have individuals on staff that speak Spanish or whichever language is prevalent in that area," she suggested "[They should] hire individuals who understand the struggles these people face; make them comfortable and make them feel wanted and needed."
