Can Digital Transformation Help Credit Unions Weather a Recession?

Just as life was beginning to return to a post-pandemic normal, organizations have been hit with a new challenge: Namely, a potential recession. The recent news that inflation was up 9.1% for the 12 months ending in June has done nothing to lessen these concerns. With recession fears growing, many credit unions are preparing for a slowdown.

But the outlook is not entirely cloudy. For example, credit unions are having one of their best lending seasons in recent memory – setting a 30-year record. What’s more, if companies embrace the right digital initiatives, they can optimize resources to weather economic uncertainties and come out stronger.

Following are a few ways in which credit unions can recession-proof their business through digital transformation:

Analyzing Member Data

Technology has evolved significantly to enable companies to get closer to their customers. Analyzing behavioral patterns, preferred communication channels and other member data allows credit unions to provide more personalized services, which pays obvious member experience dividends.

But availing of the same analytics strategy internally can also allow organizations to operate more intelligently in today’s economic climate. For example, analyzing member data such as payment delays, attrition or the number of new loan or credit card applications can help determine which members are the most and least profitable. Armed with this information, credit unions can proactively target profitable members with new offers or services.

This strategy can also help identify indicators such as lack of employer direct deposits or the receipt of unemployment benefits, which could signal a member in financial distress. This could be an opportunity to boost loyalty by offering these members specialized education and assistance. In addition, the data serves as an internal warning to counsel them against actions that can worsen their financial situation – and negatively impact the business.

Investigating Opportunities for Data Monetization & New Sources of Revenue

According to the Harvard Business Review, “It’s tempting to think of a recession as a time to batten down the hatches and play it safe. However, downturns actually appear to encourage the adoption of new technologies.” The article examines a study that found the U.S. cities hardest hit by the Great Recession also invested most heavily in IT technology and skills as part of their recovery.

Regardless of whether or not the fears of a looming recession are realized, credit unions should draw inspiration from this study. As a rule of thumb, diversifying a business portfolio is a sound strategy for maximizing returns and minimizing risk. Numerous opportunities exist for credit unions to do this today, both in terms of identifying new members to target with a particular offer or service – as outlined above – and also in the form of data monetization. Credit unions should consider new revenue sources such as affiliate discount programs, loyalty reward benefit plans and business matchmaking services as opportunities to diversify amidst economic uncertainty.

Determine Whether Existing Initiatives Are Delivering Business Value

To compete in the digital age, the average organization has invested in numerous technology platforms and solutions. While these products offer significant business value, obtaining this ROI is not as easy as simply deploying the solution and moving on. Generally speaking, credit unions need to integrate, tweak and optimize these investments in order to ensure maximum efficacy. These challenges are exacerbated by the siloed technology environment in which most credit unions operate.

The good news is that solutions exist that provide clarity into both legacy and digital investments. Credit unions can see what is and is not working, identify areas in which more integration or support is required, and also spot opportunities for additional utilization or business process optimization. In addition, this approach also lays an agile framework that can easily adopt to and scale with future digital innovations.

Putting It Into Practice

These are just a few examples of how credit unions can find sure footing as whispers of a potential recession continue. In order to make them a reality, however, companies must first take a step back and revise their digital transformation strategy accordingly.

It’s imperative that credit unions have a flexible, modern framework that allows them to invest in data analytics and other digital opportunities while simultaneously providing insight into how these components are interacting with existing systems and applications. In addition, they must be forward looking and ensure that their IT environment is prepared to efficiently deploy and scale emerging technologies as they become more mainstream.

The national economic outlook may be uncertain for the foreseeable future, but that doesn’t mean it has to be unprofitable at the individual credit union level. With the right digital tools, companies have an opportunity to deepen member loyalty, identify new sources of revenue and optimize existing investments.

Rupert Colbourne is Chief Technology Officer for the London-based Orbus Software.