Credit union CFOs have long been tasked with uncovering the stories hidden in numbers. But the exploding field of data analytics is taking things to a new level — one that could force many CFOs to make major changes in how they handle data and even how they handle their careers.
Data analytics is, to a large degree, the child of "big data" — a term for the colossal amounts of information that today's digital world generates and collects. The draw is that it can uncover, like never before, what really drives success or failure — anything from how certain products penetrate a member base to how members really use their cards, when and where call centers drive efficiency, where fraud might surface next, which products or members really drive profits and more. It can produce huge competitive advantages — if you've got the skills and tools to slice and dice megaloads of data coming from every direction.
It's a challenge that falls squarely on the CFO's shoulders in many credit unions, but James McHale, who is general manager of analytics at financial technology firm Baker Hill, believes less than 15% of credit union CFOs have a comprehensive ability to access big data and use data analytics to generate a good strategy out of it.
"We have access to tons of data in our financial services industry, and really very few tools to effectively get to that data, compile it, and come to actionable tactics and strategies to make use of the data and really put it to work for us," he said.
Nonetheless, data analytics is hot, according to the International Data Corporation. It expects U.S. commercial sales of big data and business analytics hardware, software and services to reach $78.8 billion this year. Globally, it expects the banking industry's investment to grow 13.3% annually — a faster clip than even the health care and telecommunications sectors.
Credit unions are getting in on the action. CUNA Mutual Group, for example, even launched a data analytics technology and services business for credit unions in early May. That endeavor is part of a $250 million investment in new technology, according to the CUSO.
Bringing data analytics on board at a credit union isn't a 10-minute project, however. There are a few things credit union CFOs should do to build strong programs — and that includes realizing their jobs could be on the line, pros say.
1. Begin with the end in mind. Great data analytics programs start with hard conversations about what a credit union wants to get out of the process, said Peter Minford, who is founder of Naples, Florida-based software company Data Informatics. Minford is also CFO of Piedmont Advantage Credit Union, which is based in Winston-Salem, N.C., and has $348 million in assets and about 44,000 members.
Before committing to anything, make a shopping list of wants and needs, visit user groups and conferences and listen to a lot of sales pitches, he said.
"If you rush into the selection-and-deploying phase without having done that, you're going to double your work," he said. "Because you're going to first struggle to get your data: Your round-peg-into-a-square-hole type of situation. Then you're going to have to undo some of that and redo it once you see the light."
2. Don't try to reinvent the wheel. Credit unions don't necessarily need to build data analytics programs from scratch, Minford said.
"There are partners out there that one can leverage, whether it's a CUSO or whether it's some other third-party vendor," he noted.
"Just be careful that, whatever product you select, you're able to get the data from those different feeds. More and more, particularly on the loan side, more and more products are not necessarily housed on the conventional core system. You have to make sure that you're getting that good integration of data from the various sources," Minford added.
3. Beware of shoestring budgets and short timelines. A credit union with $250 million in assets could realistically spend $50,000 to $100,000 a year on integrated data analytics efforts, Baker Hill's McHale said.
"I think to get a model that everybody trusts or everybody can get consensus on basing their decisions upon could take three months to a year, if not a little bit longer, depending on how complex your operation is," he added.
There's no finish line, either.
"I would be very concerned, I guess, if a CFO went into the process thinking that the vendor was going to deliver them this marvelous, all-encompassing tool, and that it's the vendor's responsibility to keep it up and running because it's not," Peter Minford explained. "The CFO and the controller need to take ownership of it and to really nurture it and to improve it along the way."
4. Know where to draw the line. Data analytics can create big opportunities. Mazuma Credit Union CFO Justin Mouzoukos said his credit union, which is based in Overland Park, Kansas and has $588 million in assets and about 60,700 members, has used data analytics to determine with surgical accuracy what provokes default among borrowers with specific credit scores, for example. It has also raised the profitability of its indirect lending program by using data to determine why some dealerships had higher loss rates.
Having access to an avalanche of data can be intoxicating, but avoid gorging on data simply because it's there, he warned.
"When you start having meetings to share information but that don't actually produce decision results, I think that that is something that's an indicator," he warned.
"Finance will get you far. But I think today, data makes you successful," he said.
McHale agreed.
"If that's what your members need to spend six figures on and nothing changed in the products or services or how you're delivering those things, well, I think from any perspective it would be a waste of money," he said.
5. Accept that you may need a new skill set. CFOs don't need to become full-blown coders to stay relevant in the age of data analytics, but they do need to understand big databases and the work that goes into managing them. CFOs may need some programming skills if they plan to use data warehouses, for example, McHale warned.
"It's just the size of the data is so huge, and the concepts that are required to really get your hands around it and start putting it to work for you are foreign to just about everybody," he said.
The worst thing credit union CFOs can do is ignore the fact that the job's necessary skill sets are evolving, McHale said.
"To effectively manage an institution in today's hypercompetitive environment where everybody has access to data, the ones who are most successful will be the ones who can access and utilize it. If you're counting on spreadsheets to compile data from dozens of different sources, you will not be effective and you will not be successful," he warned.
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