Why this credit union is taking innovation into its own hands

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Credit unions are mostly outgunned when it comes to technology, but some in the industry are getting creative to keep up.

Megabanks are able to spend millions of dollars every month on new innovations, and companies such as Apple and Amazon are threatening to become competitive in the financial services space.

To combat this, some are turning to innovation and test labs to develop and try new products that can be deployed in branches. These centers can be advantageous for the industry if they are well executed and broadly available.

“It should be an environment where credit unions can collaborate with their vendor partners to troubleshoot or create compelling solutions or offerings that don’t exist today,” said Daryl Jones, senior director for Cornerstone Advisors. “Otherwise it is not worth the time invested and does not give credit unions an advantage when compared to those in the big bank and fintech space.”

Step up to my lab

The $1.6 billion-asset Hawaii State Federal Credit Union recently opened its 10th branch in the popular Salt Lake Shopping Center in Honolulu. The 1,800-square-foot facility will also serve as a test lab for new technology that the credit union could eventually include in all of its locations.

Currently the focal point of the new branch is the two interactive teller machines, the first offered in the state of Hawaii. These ITMs can complete roughly 80% of the transactions that a live teller can do, said President and CEO Andrew Rosen.

“This new technology is enabling our staff to step away from the traditional teller role and spend more time building relationships with our members to help with services such as financial education and advice,” Rosen said.

The ITMs are also the first in the nation to feature palm vein-based biometric authentication, which allows members to access their accounts without the use of identification or account numbers, according to Hawaii State FCU. This use of biometrics is “one of the most technologically advanced security features on the market, and allows us the ability to provide our members with an increased level of security and peace of mind,” Rosen said.

The plan is for technology to be tested at the new branch and then adopted in Hawaii State FCU’s other branches. Rosen said the credit union will gather feedback, make adjustments if needed, and then integrate.

In addition to the ITMs, the CU has introduced two large touch tables that provide members with access to virtual copies of product brochures, access to online learning modules, financial calculators and more.

Some 2,500 miles away in Irvine, Calif., CU Direct’s has its own innovation lab. The lab allows credit unions to build prototypes for new applications, analytics and business process solutions.

Since it was opened in March 2017, the lab’s mission has evolved. The original goal was to collaboratively work with credit unions to help “research, ideate and deliver on innovative technology products and services” that institutions couldn’t obtain on their own, said Brian Hamilton, vice president of innovation for CU Direct.

Now it is more focused on research rather than development. One example is the company’s research on autonomous vehicles. Hamilton noted that few credit unions have the time to conduct such research, much less give thought to the implications and opportunities of an emerging technology that could change the way humans use personal transportation. The lab has also looked into blockchain, machine learning and artificial intelligence.

“Credit unions are so busy and overwhelmed, they don’t have a chance to think about 18 months from now – and that is what they expect us to deliver to them,” Hamilton said.

Creating for the entire industry

On day one, CU Direct had not fully defined how the Innovation Lab would deliver on its aspirations, and it had a small staff. Hamilton said the company soon realized it had to work collaboratively with the industry.

“More now than ever, user experience matters. The Amazon effect means if you deliver a poor user experience, members are on to something else,” Hamilton said, adding that legacy systems sometimes prevent credit unions from delivering a good user experience.

Credit unions are more likely to develop a similar model to Hawaii State Federal’s test lab, in which they use a branch to try out new technology rather than creating an innovation lab. This is happening as branch footprints are shrinking and members are completing fewer transactions in person, Cornerstone’s Jones said.

Vendors are more likely to create innovation labs where they invite clients and other third-party providers to work together to create new products. But it can still be difficult for vendors to collaborate on such efforts, Jones said.

“I think the reason we don’t see more innovation labs by vendors in the market is the whole concept implies collaboration with nimble delivery and execution, which is something quite difficult for most vendors in our industry to commit to,” Jones said.

Still, Hawaii State FCU’s Rosen said innovation will continue to be vital for credit unions going forward. He said his credit union’s philosophy is to be “ahead of the curve and on the forward edge” of technology to stay competitive.

“The largest banks in the country are investing billions of dollars into fintech. For credit unions to compete, we need to take chances,” Rosen said. “The Hawaii State FCU board of directors is aware that we may not always be 100% successful, but are willing to take that risk.”

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Technology Blockchain Fintech Machine learning Biometrics Artificial intelligence Hawaii