When Member-First Means Digital-First: Part One

In his seven years as CFO of the Chicago-based Alliant Credit Union ($14.6 billion, 620,000 members), Harry Zhu led strategic planning for the institution during a period of major change, including the elimination of all brick-and-mortar branches. With the physical channel gone, Alliant honed its ability to connect with members digitally, all while taking on new lending initiatives that resulted in an impressive revenue boost.

Zhu, who holds bachelor of science in engineering (BSE), master of science in engineering (MSE) and MBA degrees from the University of Michigan, began his finance career at Sears and later moved to W.W. Grainger, Ford Motor Company and Deloitte Consulting. He joined the Alliant management team in 2010 and most recently served as SVP of finance and risk management and CFO before earning his current title of chief retail lending officer in January.

In part one of this two-part Q&A with CU Times, based on an interview conducted in December 2021, Zhu discussed Alliant’s approach to digital-first banking and how the credit union forges strong member relationships. Responses have been lightly edited for length and clarity.

CU Times: When did Alliant begin the process of moving from a branch-based to digital model, and what were the main factors driving the decision to go fully digital?

Zhu: So we formerly were United Airlines Employees Credit Union and we converted to Alliant in Q4 of 2003. Over time we diversified, and today I believe we have about 300 SEGs. So when we looked at the branch footprint, some of them were even located behind the security gates inside the airport, which obviously made sense when we were United Airlines Employees Credit Union.

Given the branch footprint and where they were, we looked at the online transactions versus the branch-based transactions. I remember at the time, this was in the middle of 2016, roughly 85% of the transaction volume actually occurred online. Only 15% were branch-based, so we asked ourselves whether it made sense to push “the last frontier,” if you will. We’ve always been a disrupter and digital-first, so we said, hey, that might be the right thing to do, given that we have a national footprint from a membership standpoint and only a few branches.

So we went to the board in June 2016 and said that we would like to have a digital transformation strategy. The board unanimously agreed, and we took on this journey to completely transform our business model. In 2018, we shut 10 out of 12 branches, and in the second half of 2020 we shut the other two. So as of the end of 2020, we’ve been completely digital.

CU Times: So it sounds like the decision was based on your members’ specific needs.

Zhu: Absolutely right. We have members across 50 states but only had branches in two states. So even the new members joining us through digital means, we were serving them mainly remotely and digitally. It’s a member-first approach.

CU Times: Did Alliant leaders who were driving the transition to digital receive any pushback from any other leaders within the credit union about the decision to eliminate brick and mortar branches? If so, how did they prove that the decision would in fact set the credit union up for future success and growth?

Zhu: From a board standpoint, the decision was truly unanimous. From a leadership standpoint, we had a lot of discussion and debate, especially given that at the time, we’d had 80-plus years of a brick and mortar strategy. There’s risk and uncertainty involved in a shift to a digital-first strategy, so we wanted to make sure we’d have alignment across the entire credit union. What really pushed us over was that we had a concrete strategy, a number of tactics we put in place, so we could manage the risk and at the same time migrate transactions and numbers from the physical channel to the digital channel. So it was a combination of strategy, change management, communication and strong execution.

CU Times: What kind of cost savings or efficiencies has Alliant realized from closing all branches?

Zhu: Excellent question, but I would actually change it slightly. The purpose of digital transformation is not really in cost savings, it’s really about serving members better. What’s interesting is that we didn’t save on costs, we actually redirected or reinvested them. After we scaled back our branch footprint, we put those dollars into productive use and some of them into the digital channel. One example I’ll give you is the consumer loan origination system. The entire spend on that project was $18 million at the time and was the largest single investment in the business – even several times larger than all the branches combined. So it’s really not for efficiency purposes, it’s a member-first strategy and makes sense from a business model standpoint.

CU Times: Alliant recently eliminated overdraft and NSF fees, which it said was “the latest in a long string of member-first initiatives.” What are some other recent examples of member-first initiatives at Alliant?

Zhu: Let me give you two other examples. One is ongoing, and it’s how we set deposit rates. We constantly benchmark the nation’s top 10 direct banks from a deposit rate standpoint, and at this point we’re actually higher than all 10 of them. We do this every single month, and want to make sure our rates are competitive so we can offer members value.

One specific example from last year [2020] is that we implemented something called a Pindrop. So when you call into Alliant, there’s an authentication tool based on the voice pattern of that individual member. That not only made the entire identity authentication process more secure, but also easier and better. It’s an enhancement to the member experience and actually made the back-office more efficient as well. We don’t have to go through a lengthy Q&A process that would take an average of 20-30 seconds with a member.

CU Times: What was the thought process behind the decision to eliminate fees?

Zhu: Ally Bank was the first direct bank to eliminate that fee, so when we saw that news we said, hey, you know what, not only are they our competition, but from a value proposition standpoint it makes a lot of sense. It just aligns with the overall member-first operation philosophy. We also looked at the potential financial impact, and we saw roughly $3 million of impact. Our RV [loan] sales, for example, totaled about $130 million in February [2021] and we netted $14 million in noninterest income on those loan sales. So relatively speaking, it was a $14 million gain versus a $3 million loss – again, for a good reason – so we said, hey, this is actually a no-brainer, let’s do this for the members and we will make it up from other sources from an income standpoint. So it was a fairly easy decision.

CU Times: How does Alliant maintain strong relationships with members without the ability to meet face to face in a branch? 

Zhu: The first thing is that we still have an attended channel, which is the call center channel. So if a member wants to talk to someone from Alliant, they can pick up the phone and we’ll provide support.

Another example is at the beginning of last year, we reached out to Suze Orman, who is considered a spokesperson for Alliant, and we had this campaign built together with her. So if you deposited $100 into your Alliant account for 12 months in a row, then we would give you an additional $100 at the end of the 12-month promotional period. That encouraged engagement and an ongoing relationship even without a branch footprint. So that’s an example of how we maintain a strong relationship via digital means.