Credit unions have traditionally walked a fine line when considering digital innovation. Although they may want to derive the benefits associated with digital efficiencies, they also must weigh that against the fact that part of a credit union’s identity is often that they have highly personal “high touch” relationships with members in local markets.
Member demographics are changing though, and many members aren’t as interested in visiting the branch in-person, often preferring to bank at ATMs and online. The era of Facebook and Twitter also has ushered in a new desire by consumers to use their smartphones for conducting business wherever and whenever they want.
Credit unions are also faced with declining returns. According to the October 2016 Credit Union Trends Report by CUNA Mutual Group, large credit unions reported falling return-on-asset ratios in the first half of 2016, compared to the first half of 2015, largely due to rising provisions for loan loss expenses, falling income, and rising operating expense ratios.
Done properly, a strategic digital transformation can help credit unions meet the evolving needs of their members while maintaining that personal touch they’re accustomed to. These projects also can help reduce expenses and optimize lending practices that enable them to offer member benefits like lower fees and lower rates.
Through our experience with financial institutions, we’ve identified four key steps to smooth the transition from legacy processes and systems to cutting-edge digital solutions:
Step 1 – Understand Needs
One of the biggest reasons digital initiatives sometimes fail is businesses neglect to really understand what consumers want. They expect a high-quality user experience from digital applications, and they expect to derive personal benefit from using them. If they aren’t getting those things they just aren’t going to use them. So before embarking on significant changes, credit unions should take time to talk with members to understand their pain points, explore the types of digital services they are interested in and learn how they would use these services in their daily lives.
Step 2 – Address Pain Points
One of the benefits of developing digital products today is that it’s relatively easy to create an early prototype and put it in front of consumers for their input. The prototype should offer a fully clickable representation of the intended offering that allows members to test the functionality and developers to learn more about how they use it. This will enable the software developers to create a feature set informed by the user experience.
Step 3 – Speed up Development
Whether relying on an in-house team or an outside consultant, credit unions must take advantage of the fast, iterative development that will enable them to go from concept to deployment in a matter of months, not years. New software tools and an agile methodology are shrinking both time-to-market and budget requirements to undertake such dramatic changes.
Step 4 – phase in Digital Products
Credit unions should not feel pressured to release a full product to all members on day one. You may want to start with power users or targeted members for a trial period first.
One advantage of an online platform is that features and functionality can easily be added at any time. When introducing something new, it’s easier for members to grasp just a few new features at first, adding more features once members are accustomed to the initial changes. This phased approach also enables developers to study how members interact with the first features, enabling them to adjust follow-on features accordingly.
Some credit unions may be considering a digital transformation, but don’t know where to begin. There are definitely projects that can quickly deliver tangible benefits.
From our experience in fintech, we’ve seen the lending process evolve considerably as financial institutions can employ more elaborate credit modeling and underwriting criteria. Transformation projects we’ve worked on include enabling financial institutions to pull in more data about the loan applicant, and using intelligent algorithms to approve or decline the request on the fly. The algorithms also support variable pricing for loans, enabling financial institutions to better align pricing with risk.
By improving the lending process, CUs can remain competitive while reducing their risk, and members can gain fast approval and even more competitive rates.
Digital platforms also give CUs access to valuable data about their members. Use of advanced analytics can offer a credit union better insights into members’ needs, allowing them to develop new products or cross-sell existing ones. The data also supports greater personalization, as credit unions seek to maintain and enhance the personal relationships to which their members have become accustomed.
Security is obviously important in any financial services application. The good news is that today there are plenty of existing best practices for implementing financial services-grade application security. When my firm first began building such systems we often had to create security features from the ground up. Today, things such as two-factor authentication and end-to-end encryption are well accepted within the financial industry and relatively straightforward to implement into the software architecture design.
By employing a clear step-by-step process that gathers insight into the projects that will address members’ unique needs, digital transformations can actually strengthen a credit union’s relationships with its members and improve efficiency. The banking industry has reaped the benefits of digitization through reductions in cost, streamlined operations and ultimately better customer experiences. We believe that applying the same technological tenets to credit unions is a natural migration toward building even deeper connections with members and higher levels of satisfaction. In many ways, digital transformation truly does put the member first.
Bret Waters is CEO of Tivix, a Silicon Valley firm that helps global clients build innovative digital products. He can be reached at
