Use Technology to Up Your Value Prop

Over the last decade, technology has loomed large as a game-changer in the financial services industry. The rapid evolution of devices, providers and functionality has created new opportunities for credit unions to connect with members while simultaneously opening the door for new competition. For many credit unions, adapting to this new landscape has been a long-standing priority. New app development, new integrations and new core systems have become permanent fixtures on annual strategy plans.

A new sense of urgency was introduced last year when the COVID-19 pandemic pushed the pace of digital transformation across all industries. A McKinsey survey found that companies’ adoption of digital technologies sped up by three to seven years in a matter of months. Nearly two out of three executives said they will need to build a new digital business to stay economically viable by 2023. Beyond simply moving business lines to digital channels, it’s clear that digital technologies, and the ways consumers are using them, are driving fundamental changes in companies’ business models.

Concerns about safety also forced credit unions and their members to take up digital ­options and adapt the way they work, connect and manage their money. Necessity being the mother of invention, credit unions found new ways to serve their members and staff by leveraging technology – and perhaps uncovering a muscle for innovation they didn’t know they had. Likewise, members who might have been reluctant to use mobile channels before the pandemic may have finally downloaded their credit union’s app – and found they liked the experience.

What’s been made clear through this process is that credit union digital transformation is about more than just adopting a new product, tool or system. Instead, institutions must identify how technology will fundamentally change their value proposition and way of doing business. Through our work with the forward-thinking credit unions in Filene’s membership, we’ve identified four “big” questions regarding the shift to digital strategy:

• Member Experience: How can credit unions maintain their signature personal touch while providing the digital engagement channels members are growing to expect?

• Branch Network: What type of physical presence do institutions need to complement the digital experience and offer accessible options to members?

• Infrastructure: How do credit unions build a flexible “backbone” to ensure systems can support ongoing digital adaptation?

• Talent: How can credit unions find, keep and develop the right mix of talent to execute their strategy?

Member Experience

What behaviors and expectations will prove the stickiest in the post-pandemic world, and how can credit unions adapt their service models to meet those expectations? Consumers may continue to embrace this digital life, as automated self-service becomes the norm. Consumers may also find they miss in-person experiences and seek out valuable “human-first” interactions. Neither of these worlds is unlikely – and neither is inevitable. More likely we end up with some mix of the two.

No matter what, however, consumers’ expectations of digital experiences have risen as they have increasingly relied on and embraced technology to shop, eat out, work from home, and stay connected with family and friends. People’s experiences outside of banking will set the standard by which financial services will be judged: Connection, simplicity, intuitiveness, real-time access and insight. The desire for high-quality experiences and relationships will not disappear. For this reason, credit union digital transformation requires tackling head-on the question of how to do relationship and community banking in a digital age – and that means figuring out how to combine high-tech channels with high-touch service.

From faster, more transparent, and more intuitive money movement and management to AI chatbots or conversational agents, enhanced identity solutions to advanced analytics, Filene’s report, “Opportunities and Risks of Conversational AI for Credit Unions” has shown that technology adoption and use is deeply shaped by trust consumers have in their financial services providers. How can credit unions build and maintain that trust?

Branch Network

Historically, the credit union branch was the foundation of the credit union service delivery model and central to the business model. Credit unions across the country saw declines in branch visits over the past year, and some are foreseeing the demise of branches altogether. One survey found that 65% of bankers globally thought that branch-based banking will be dead within the next five years. In fact, bank branch closings have been ongoing for many years. In total, some 14% of all bank branches closed between 2008 and 2020, and the number of branch closures reached an all-time high in 2020 – although credit union branch closures appear to be less frequent.

Nonetheless, statements about the death of the branch are ultimately overblown; branches are not disappearing entirely anytime soon. Branches communicate legitimacy and a connection and commitment to the local community. They remain critical to member support – during the pandemic many credit unions saw increases in drive-thru traffic. They are also still important for revenue generation, especially for more complex transactions.

Critically, branches also matter for financial well-being. Low-income and minority-majority communities are most affected by bank branch closings, and banking deserts can harm households and communities. Growing up in a banking desert has long-lasting negative impacts on financial behavior and well-being. Digital financial services is not a total solution; as with banking deserts, there are “digital deserts,” and in 2019, the FCC estimated that five million U.S. Americans live in areas where they cannot obtain easy access to the internet.

At the same time, there is real opportunity to reinvent the retail side of banking, reimagine what and how a branch operates and directly tackle digital divides that limit access to financial services. Today, branches are now literally a branch in the tree of experience – even if digital interactions are the trunk, as explored in Filene’s report “The Future of Digital Transformation for Credit Unions.”

Infrastructure

Digital transformation rests on digital infrastructure, and we have seen a dramatic increase in credit unions not only investing deeply in technological updates, but often in wholesale rebuilds of their technology architecture. What does the infrastructure of the digital-first credit union look like? What is the technological foundation that enables, rather than hinders, the credit union’s strategic vision and allows the credit union to adapt in the face of rapid change?

Credit unions need tech infrastructures that do not lock them into solutions that rapidly become obsolete. At the leading edge of credit union digital transformation are open architectures – often middleware between core processors and other elements like mobile banking, payments, and mortgage and auto lending – that allow for fast, flexible, interoperable partnerships.

At the same time, credit unions need infrastructures that integrate business lines and facilitate enterprise-wide data aggregation and access alongside strong data privacy and security – enabling a comprehensive banking experience that fits members’ needs, preferences and circumstances. Filene’s report “Data Analytics and the Future of Financial Services: Approaches, Insights, and Future Directions” begins to explore the data analytics value proposition for credit unions.

Talent

As we have spoken with credit union leaders over the past months, many of our conversations have at some point come back to people. Credit unions are changing their hiring and training practices to better equip employees to build digital experiences and provide high-quality digital service. At the same time, the pandemic forced many organizations to transition their workforce to operate remotely or in hybrid capacities, introducing new technology needs around communication and cybersecurity.

Ultimately, credit unions need skilled teams not simply to build and maintain technological systems – but to lead and implement new digital strategies. And many credit unions are struggling to compete to find the right talent. Filene’s report “Employee ­Attraction and Retention in the Shadow of COVID-19” shows, however, that credit unions have inherent advantages to activate on the hunt for top talent: Promoting the community impact of the organization, maintaining flexibility and support for employees around work-life balance, and signaling growth ­opportunities for employees up and down the org chart.

Across all these tough questions about member experience, the branch network, infrastructure and talent, digital transformation must do more than simply take the status quo online. Digital transformation must reimagine what is possible in financial services.

Taylor C. Nelms (left), Senior Director of Research and Josh Sledge, Senior Director of Incubation Filene Research Institute Madison, Wis.