The credit union industry is experiencing a period of unprecedented – for now – disruption, and the pace is only accelerating. Boards of directors and supervisory committees are weighing what it all means for their credit unions and trying to determine how they should best proceed to remain competitive.
From fintechs to shifting demographics in the workforce and among members, credit unions face a barrage of changes that pose strategic challenges. To survive such tumultuous times, a credit union needs an assessment and planning framework and a governance structure that will allow it to develop and execute a transformative vision.
A Bain & Co. survey recently found that U.S. consumers give Amazon much higher loyalty scores than they give banks. Among respondents who were Amazon Prime customers (who pay an annual fee for benefits such as free two-day shipping), 65 percent would be willing to try a free online bank account, with 2 percent cash back on Amazon purchases, offered by the internet behemoth. Thirty-seven percent of non-Amazon customers also would try out the company’s banking services.
This is just one sign of the changing arena in which today’s credit unions find themselves. The ongoing technology revolution perhaps is the biggest driver behind the need for transformation. Fintechs and virtual currencies are leading to new forms of banking with which credit unions must compete.
They also must contend with generational changes, in terms of member expectations and their own workforces. For example, the survey respondents who were interested in Amazon banking offerings skewed younger and slightly higher income than average. In the meantime, many millennials turn to big-name banks by default, prioritizing convenience over pricing. Moreover, credit unions are dealing with the exodus of long-term employees and an influx of younger workers. They need to manage generational differences.
Then there’s the rising threat of cybercrime, the emphasis on big data, and other hard-to-anticipate developments that seemingly pop up every week. Credit unions are left wondering which of these they should respond to by changing the ways they do business. These changes represent challenges as well as opportunities for credit unions. An assessment and planning framework, along with a governance structure, can provide critical assistance as they navigate these turbulent waters.
Assessment and planning framework
Establishing a formal framework for transformation makes it far easier than handling change on an undisciplined, ad hoc basis. The following seven steps can help a credit union consider how a specific change, such as a new method of payment processing, will affect people, processes and systems, as well as how to respond.
First, a credit union should begin by identifying and understanding the relevant disruptors and external factors that could have an impact on its current and future competitive position. These might include evolving technology, shifting member preferences, changing demographics, or new employee priorities, such as remote work opportunities. Does the credit union’s existing strategy, process, people, and technology address the disruptors? If not, how can they take them into account and adjust as time goes on?
With the disruptors in mind, reimagine a vision of a credit union industry that looks and operates differently with an eye toward how the credit union could be more efficient and customizable for members. Much of today’s operations continue to be performed manually with some core automation, for example, but that probably will not remain the case for the long term. Those that do not prepare for more integrated automation might fall behind.
With its reimagined vision in hand, the credit union now must evaluate whether its existing strategy is aligned with the new vision. It might be time to develop new strategies to make the vision a reality. In turn, new strategies call for updated key performance and risk indicators, risk statements and risk assessments.
The fourth step is validate. The path to realizing the reimagined vision should be laid out in a transformation road map. Like any other strategic initiative, the transformation plan should undergo intense review. Critical, diverse feedback is necessary, with revisions made as required to gain consensus. To succeed, the plan needs buy-in from the board, the supervisory committee, and other stakeholders, including executives, managers, and employees.
Once consensus is reached, it is time to set up the chess pieces and get ready to play. The credit union should assess the existing gaps between where it is now and where it wants to be and build the action plan that will achieve the transformation road map within a targeted timeline. To address its gaps, a credit union might require more advanced processes, bigger investments in talent or technology, or other tactics. Steps toward transformation might be small or large or over a short or long path, depending on the gaps.
The credit union must clearly communicate the transformation action plan to all stakeholders. As new priorities emerge and compete with the plan, these stakeholders will play a vital role in keeping it on track. Successful execution determines the value of the overall process.
Finally, credit unions should regularly re-evaluate and refine their visions in light of the current environment.
Governance structure
The board and supervisory committee must be kept well-informed so they can make decisions, provide oversight and participate in the transformation journey. Credit unions should form a transformation-specific governance structure, too, with a charter and other policies and procedures approved by the board. This structure will provide crucial support for the transformation.
An internal, dedicated business transformation leader, for example, could steer the ship. He or she would understand the various details, guide the integration, and communicate with the stakeholders. A business transformation committee with key executives can help push things forward.
The pace of change is unlikely to slow, and even the best road maps usually require some detours along the way. Credit unions must remain agile to compete in a dynamic business environment.
