What Credit Unions Are Getting Right & Wrong About Digital Evolution

When Thomas McDermott, managing partner for the Milton, Ga.-based Inver Consulting Group, surveys a credit union’s digital state of affairs, he often starts by looking at its website. “That’s the biggest branch they have,” he said. “The website generally tells you how far along they are in their digital evolution.”

Of course, McDermott and industry pros like him don’t stop there. Websites aren’t the only way digital evolution is manifesting itself at credit unions, after all. Today, digital evolution encompasses mobile banking, data collection and analysis, core processing, marketing communications, human resources and virtually every other aspect of credit union management.

But for a variety of reasons, some credit unions are much farther down the digital evolution path than others. Here are three things that McDermott and Jon Ungerland, COO of digital services firm DaLand CUSO, said many credit unions seem to be doing right when it comes to keeping up with digital evolution, and four missteps they see many credit unions taking.

Three Things Credit Unions Are Getting Right

1. They’re taking control of their data. Decreasing technology costs are opening the door to more CUSOs and younger core providers, which is making many credit unions rethink who they’re paying to collect, analyze and make the most of their data, according to Ungerland.

“I do see a stirring awareness in the credit union industry that they have legitimate options before them for things like core processing and control of the data that weren’t present before,” he said. “I believe we’re at the end of an era where there are a few titans that dominate that space. And that’s good, because I think we’re moving into an era where the idea of credit unions controlling their data and having strong core partners is becoming more of a democratic prospect. Now, that’s not to say that the incumbents are bad players. They’re not. It’s just that I think you need multiple voices for a flourishing dialogue.”

2. They’re getting more comfortable with experimentation. “I see a lot more innovation in credit unions – they’re not afraid to take a risk,” McDermott said. More credit unions are embracing innovative universal banker approaches and member specialists, for example. “They’re not afraid to go there faster, they’re not afraid to look at video technology or change up the branch design,” he said.

3. They’re bringing more technology into the branches, not just online. “They’re really good at digital signage,” McDermott said. “It’s not something that gets talked about very often. And they understand the benefit of touch tables or ways to be able to educate members – educational tools, using some kind of either digital screen or a touch screen or iPad or a tablet. They’re very, very good at using all those tools to educate. And I think that’s another really big plus for sure.”

What Credit Unions Are Getting Wrong

1. They’re running a hodgepodge of technology. “Most credit unions are encumbered by data processing operations that are really quite antiquated,” Ungerland said. Many seem to accept the limitations of their core providers instead of requiring more alignment between core capabilities and new technologies, he said.

“The industry really is predisposed to this ‘illness of platforms.’ Every credit union out there needs some core processing technology to allow them to handle their data processing for the fundamentals like deposits, loans and transactions. And in most cases those core processing technologies haven’t kept them in a place where they can be competitive. So naturally what they’ve done over the last 20, 25 years is bought and bolted on every single new ‘innovation’ in the industry and the extent to which they can really incorporate that innovation into their business. And their business strategy is really directly related to how tightly that bolt-on can be integrated with the core. And in most cases the answer is not very tightly.”

2. They’re not hiring enough employees with tech skills. “The good part about credit unions is that there are people who are there a really long time … the employees have 20, 30, 40 years with the credit union,” McDermott said. “I don’t think the credit unions are always looking for new talent to really shake things up. They kind of want to go at their own pace.”

Part of the issue is that credit unions often don’t benchmark themselves against banks, which tend to face quarterly earnings pressure, he added. Credit unions are more likely to benchmark themselves against other credit unions, which may create an artificial sense of progress.

3. They’re too shy about urging members to make digital transactions. “Credit unions really struggle with a carrot-versus-stick approach to self-serve adoptions,” McDermott said. “I’d say it’s pretty prevalent that they don’t really want to do that because of the real member focus that credit unions have … So they struggle with how to get the adoption but don’t force people to do that.” Banks don’t have that challenge, largely because their focus on quarterly earnings has forced them to innovate faster, he noted.

4. They’re still making it easy for employees to use yesterday’s methods. “A digital-first mentality really isn’t there,” McDermott said. Credit unions’ discussions about digital still tend to revolve around online activities rather than activities in the branch, he noted, and paper is still prevalent in many credit union offices. “I think the credit unions have a little bit more of a comfort level with paper in the branch. And that’s something that’s a real hindrance, I think, to really understand exactly how things can move forward in the future,” he said.