A Disciplined, Member-Centric Approach to Digital Transformation

Ask any executive, in any conference room in any large credit union in the U.S.: Do you have a digital transformation strategy? You will hear a confident, unequivocal “yes” every time. Catch that same executive in an unguarded moment in the hallway between meetings and ask them: How exactly are you translating that digital transformation strategy into tactical improvements to the processes and technologies you use to acquire, onboard and retain members? You will hear a lot more uncertainty and equivocation.

This is understandable. Digital transformation is hard. It is made exponentially harder when executives in charge of transformational projects attempt to solve every problem and meet every objective, even when those objectives are contradictory. Deliver the best end-to-end digital member experience, but make sure to find a role for our branch network. Grow our portfolio, but minimize credit losses. Fully enable mobile account opening, but stop identity fraud. Maximize profitability and offer acceptance at the same time. Continually modernize processes while staying in compliance with regulations that were written decades ago.

You can’t do everything. Market laggards try anyway, while market leaders set a clear vision for what they want to be – and, just as importantly, what they don’t want to be. Leaders exercise discipline in pursuing that vision and avoiding distractions. They focus on setting a foundation that can be built upon. They use data and analytics to recognize the trade-offs and opportunity costs of their decisions, relying on those insights to drive their strategies and prioritize the tactical changes needed to implement those strategies. Most importantly, they put their members’ expectations and aspirations at the center of every decision they make.

I am fortunate to work with market leaders who are successfully transforming the ways their institutions acquire, onboard and retain members. Here are a few lessons I’ve learned from them:

Focus on Internal Data First

All credit unions I speak with are looking for new ways to improve the performance of their marketing and member retention campaigns. Too often, the solutions they land on (encouraged by unimaginative vendors) rely on tired clichés about personalization and the use of third-party data to identify life-stage triggers that might be indicative of a financial services need (“She just subscribed to Horse & Hound magazine. WHAT DOES IT MEAN?”)

In my experience, the best thing you can do is avoid outsmarting yourself. Extract as much marketing value from the member data you already have before you go questing for new, questionably useful third-party data.

Once you have identified and organized that internal data, leverage analytics tools and expertise (either in-house or from a third-party vendor) to extract insights from that data and operationalize it into scoring models. Then use these member scores to drive more accurate origination, pricing, early stage delinquent collection and cross-sell decisions.

Figure Out Your Appetite for Fraud

This is a particularly important question as a majority of credit applications have migrated to digital channels and fraudsters increasingly focus their efforts on the account opening process. Strategies for mitigating application fraud sit on a continuum. The extremes on either end of the continuum are untenable – you can’t ignore digital account opening altogether, nor can you design a digital account opening process so restrictive that no fraud occurs. The right answer is somewhere in the middle, but where exactly? How much friction should you introduce into the process to dissuade most fraudsters without frustrating too many legitimate applicants? Which specific fraud detection tools should you utilize and in what sequence, in order to maximize your hit rate while containing costs? Surprisingly, many credit unions don’t openly describe their fraud appetite in advance of opening up digital channels for account opening.

Prioritize Satisfaction, Even if it Means Cannibalizing Existing Revenue Streams

This could mean offering a segment of your revolving credit cardholders a personal loan for debt refinance, or making small dollar loans available to your deposit accountholders, even though they are paying overdraft fees. A myriad of competitors are looking at your members right now, trying to find the profitable, unsatisfied ones. They are zeroing in on the ones who are mildly unhappy with the features or fees of their current products, but who are too busy or lazy to switch (without a little nudge). You know your members’ lifetime value, you also probably know their likelihood of attrition … but are you using those insights to guide your day-to-day interactions?

Design for (and Promote) Utilization

An engaged member is generally more profitable and less likely to attrite. Do everything you can to engage them in using the features and rewards of your products. You also need to ensure that those features and rewards are actually designed to incentivize usage. For example, credit card issuers have historically offered price protection to customers for purchases made on their cards. Find a lower price, jump through a few administrative hoops and they’d refund the difference. It was sustainable because, while it sounded great, the process was too much hassle for most cardholders to bother with. Then a slew of fintech apps came in and automated the process, and suddenly it was easy and instantaneous for consumers to take advantage of it. And issuers eliminated or curtailed that particular perk a short time later.

Be Quick, but Don’t Hurry

In the era of digital transformation, it can be easy to mistake activity for achievement. Most credit unions appear, on the surface, to be making significant changes to their acquisition, onboarding and retention processes in order to adapt to this new environment. Under the surface, the difference between leaders and laggards is the discipline and member-centricity with which those changes are evaluated, prioritized and implemented.

Tim VanTassel is Vice President for FICO. He can be reached at ml_wwprteam@fico.com.