Credit Unions Take On Fintech Innovation to Stay Competitive

Fintech innovation, particularly in the trending areas of voice recognition, artificial intelligence, payment strategies and digitalization, is constantly evolving, challenging credit unions to develop their technology capabilities while improving member experiences.

Two experts in the financial services field – Priya Dozier, vice president of digital solutions and innovation at the St. Petersburg, Fla.-based CUSO PSCU, and Becky Summers, a strategic advisor at the Lombard, Ill.-based Raddon, a Fiserv company and provider of research, analysis and strategic guidance to financial institutions – shared their views about where financial technology is headed.

Dozier reviewed the past for future hints. “2018 was the year of artificial intelligence in the fintech space, driven by ‘dorm-room’ startups primarily founded by students at prominent universities looking to extend relevant technology skills while tapping into talent available at the country’s leading universities,” she said, adding, “These startups focused on extending the credit union member experience into the voice channel by leveraging neural networks to boost chat interactions with members in self-service channels.”

Dozier noted that the growth of connected devices, such as Amazon’s Echo and Google Home, has motivated interest in leveraging voice technology in smart speakers for commerce and service. She explained that these unattended channels require a deeper level of automation, which is driven primarily by AI capabilities such as natural language processing, speech recognition and deep learning – capabilities that fintech companies may offer.

Dozier said she foresees an inclination toward improving the member experience and using metrics solutions to showcase measurable results. “As digital interactions continue to grow and members seek self-service options for more complex transactions, we believe that the value of investing in frictionless member experience initiatives will be quickly realized.”

She indicated while there might be niche groups that are interested in the use of certain technological capabilities such as blockchain or AI, the primary drivers of decision-making still rely on practical use cases. “It is important to consider whether the partner truly understands the member journey and can extend the unique experience credit unions have been known to deliver into the digital world.”

Digital transformation remains a major driving force in fintech-credit union alliances, with their relationships evolving more into partnerships and collaborations that are based on co-creation. Dozier explained these alliances have moved beyond credit unions asking standard questions such as what the fintech is selling, its history and long-term survival, and possible acquisitions, to understanding how the technology can create value, the effectiveness of combining it with other solutions, its differentiators and where it fits into the digital payment roadmap.

Dozier pointed out in the past year or so, PSCU’s innovation team has had opportunities to collaborate with fintechs across the industry on things like strategies, partnerships and proofs of concept. “These collaborations have led us to research solutions related to faster payments, predictive analytics, fraud, artificial intelligence and authentication.”

When it comes to payments, Dozier said she sees fintechs testing the boundaries of solution design, especially those related to member experiences and interactions. “Some are creating seamless and convenience-driven layers on top of outdated experiences. Credit unions should be aware of this in order to ensure they are diligent about extending their superior member experiences into their digital products.”

Experience-related strategies are becoming even more important as the industry continues to move toward open access to traditional banking services, Dozier noted. “There is good news for credit unions: A study released late last year suggested that two-thirds of Americans would trust new payment technologies if offered by their existing bank or credit union, so members value the combination of security and new technology to drive convenience.”

The PSCU digital solutions vice president recommended three ways for credit unions to remain current:

• Keep improving the member experience;
• Look for opportunities to co-create with partners and fintechs; and
• Stay up to date on member needs, such as by looking at data to learn how they are engaging with fintechs to identify their emerging needs.

Dozier added PSCU continues to invest heavily in research and development of its digital products to empower its credit unions to continue delivering an unparalleled experience in the digital world. “We have a team of product designers who dedicate time to interview prospective users, develop journey maps and build personas so we can build products that will meet our members’ needs across channels.”

PSCU’s biggest challenge will be continuing to evolve in regard to maturing regulations, compliance and security. Dozier specified, “Fintechs need to be acutely aware of how they fit into the ecosystem because if their solution comes with operational challenges or risks, then the experience alone won’t hold the member’s experience. PSCU and our credit unions need to continue to ensure that our members don’t face that choice when they interact with us.”

Understanding members can improve their experience, Summers explained, stating that AI provides an opportunity to better understand members and build modeling data, which allows credit unions to make more targeted decisions. “These decisions may certainly improve digital marketing; however, we need to consider how this learning provides insights into traditional marketing channels as well.”

One example Summers provided involves utilizing transactional debit and credit card data. “Marketing professionals at credit unions would be able to deeply target specific locations for billboards and other advertising based on shopping patterns; AI will help us do this.”

This primarily applies to current members, since they provide the information needed to make marketing decisions, but it can help with targeting potential members as well. Summers warned, however: “That ethically, personally identifiable information should be closely guarded – we’re talking about general patterns and trends within the member base.”

Additionally, as data mining becomes more sophisticated, things like digital billboard placement could be micro-targeted to specific times of day in addition to location, she said. “Placement frequency could mirror the timing of transactions. There are a lot of interesting, tangible applications not too far afield from what leading internet companies already apply to web and social advertising.”

Old school campaigns can also benefit from artificial intelligence. “For direct mail, traditional demographic data, product usage and seasonality provide strong targeting, but layering in key lifestyle indicators – understood via tools like AI – can create a much more personalized experience,” Summers explained.

According to Summers, while AI often assists with deeper targeting on the digital side, credit unions should also utilize it to create consistent, more individualized messages for email and direct mail. “Don’t stop short of incorporating this learning into all channels of marketing. Artificial intelligence provides insights into a deeper emotional tie to the consumer.” Consumers’ spending money at pet stores, shopping at certain types of stores and even eating at certain restaurants, for example, lead to insights that help drive emotional connections, she said.

Summers proposed institutions may also use AI to drive community involvement. “Consider looking at data to create philanthropic opportunities aligned with how members are giving and serving in their own lives – that’s a huge factor for credit unions, which are very socially minded.”