Is Operational Outsourcing Worth a Second Look?

For decades and for different reasons, many credit unions have resisted outsourcing key operational functions, ranging from fraud mitigation, regulatory compliance, dispute resolution and loan processing to member service support.

Some of the rationale for keeping those functions in-house has been well-founded, based on concerns relating to cybersecurity risk, data privacy, quality of member service, or the time and cost that might be involved in onboarding and managing a third-party resource. Conversely, many credit union leaders have avoided consideration of outsourcing altogether, either based on reports of failed outsourcing relationships from peers or wanting to maintain control over any significant operational changes. Very often, sticking with “the devil that you know” has been the safest route to follow for many credit unions.

Over the past five years, however, rapid technological advancement, social change and disruption, and market volatility have delivered a perfect tsunami of operational challenges that have re-shaped the competitive landscape for all financial institutions, and for credit unions in particular. Those factors are driving a greater number of credit unions – that have never used an outside resource, as well as those that have had an unsuccessful experience – to reconsider outsourcing.

What many credit unions are finding is that the range and quality of services offered by onshore and offshore outsourcing firms now meets or exceeds their in-house capabilities. They’re also discovering that outsourced providers can help them to develop the tools and strategies they’ll need to succeed in the new era of financial services. Here are five ways outsourced providers are helping credit unions:

1. They’re providing immediate and long-term staffing solutions.

According to Deron Weston, US Banking and Capital Markets Consulting leader for Deloitte Consulting LLP, “Talent is required for the major transformation that we’re seeing in the industry, and it’s become increasingly hard to find enough capacity of talent with the right skill sets to enable transformation with the emerging technologies.”

The current competitive labor market, fueled by the need for skilled workers, and by individuals not wanting to return to traditional work environments during COVID, is forcing credit unions to spend a greater portion of their operating budget on recruitment and compensation. But sign-on bonuses and hefty salaries are not always sufficient to maintain effective staffing levels when other industries are offering the same or better benefits.

Outsourced providers with deep expertise in specific operational functions can not only deliver immediate staffing support, but they can also enable credit unions to scale operations in a cost-effective manner over longer periods of time, without any negative impact on service levels.

2. They’re delivering technical expertise that’s in short supply.

Member expectations regarding the range, availability and convenience of online services from their credit unions has continued to rise, driven in large measure by the increased online capabilities of providers of products and services for retail customers and small businesses. The pandemic has also compelled credit unions to apply technology to improve their online engagement in the absence of traditional face-to-face member interaction.

In response, many credit unions have invested in transactional websites with greater functionality. Increasingly, however, online banking is simply table stakes, in terms of meeting member expectations with respect to service levels in a digital-first world. Fintechs and neobanks continue to raise the bar, with respect to financial consumer expectations, applying real-time data and analytics to map their preferences, provide interactive tools and educational information, and deliver a highly personalized experience.

When building or improving any technology product or process, or changing an existing business model, working with an outside organization that has previously created successful solutions for other institutions makes economic and practical sense. It enables new digital technologies to be built quickly and cost-effectively, and allows credit unions to focus primarily on those initiatives that require internal resources.

3. They’re maintaining data security and privacy standards more securely than most remote work environments.

To accommodate workforce preferences, an increasing number of credit unions are allowing staff members to work from remote locations, either on a full-time or hybrid basis. According to a recent McKinsey survey, 58% of job holders in the U.S. – the equivalent of 92 million people – reported they can work remotely at least part of the time. Among employed respondents given the option to work remotely, 87% took employers up on that offer.

Even with a secure VPN in place, those in remote working arrangements will always pose a relatively higher number of security risks, ranging from lack of physical control over device loss or theft, to unauthorized access to systems or data by individuals other than the employee.

Conversely, to ensure their business integrity and brand reputation, most outsourced providers consistently maintain the highest levels of industry certifications and go to great lengths to ensure control over their technology system’s integrity and the privacy of their customer data.

4. They’re helping to improve and automate key operational processes.

As credit unions work harder to compete with a growing list of fintechs and neobanks, and with traditional financial institutions, their strategic focus is now on managing operating expense and employee compensation to sustain growth and member loyalty. Most understand that the long-term solution involves improvement and automation of existing operational processes, reducing the need for additional and higher paid employees.

Increasingly, Robotic Process Automation (RPA) is being applied by credit unions to address a broader range of operational functions – from member application enrollment to fraud mitigation and dispute management – but RPA adoption still lags behind traditional banks, often because credit unions lack the in-house talent to build those intelligent software solutions.

Qualified outsourced providers, based on their experience working with leading financial institutions, are well prepared to assist credit unions in the development and application of cost-effective RPA solutions tailored to their budgets and needs. Furthermore, some providers can develop smarter and nimbler solutions, including case management platforms, as well as quick process automation with low or no code options, that move beyond the limitations of RPA, and allow back-end operations to move hand-in-hand with the front-end member experience.

5. They’re enabling greater focus on member engagement and loyalty.

In addition to staffing and technology challenges, credit unions must address the marketplace reality that the millennial, Gen X, Gen Z and boomer generations do not bank in the same ways. Credit unions need to connect with their existing, aging member base while also attracting new, younger members.

Historically, the value proposition of credit unions has been based on the positive impact they make within those communities that have often been overlooked by larger banking competitors. But as technology continues to democratize all financial functions – in terms of trust, convenience, ease of interaction and personal connection – it’s essential for credit unions to identify (and perhaps re-define) what’s required for them to remain competitive and how member expectations differ by generation.

Outsourced providers cannot provide simple solutions to all the strategic challenges that credit unions are facing. They can, however, provide the technical and operational expertise and support necessary to level the playing field, in terms of their digital capabilities and cost efficiency.

In short, outsourcing can enable credit unions to apply greater time and resources to understanding and addressing member needs, and to reinforcing the member connection that has long served as its competitive advantage. Credit union leaders who have discounted outsourcing in the past, or who may have an outdated understanding of the value that outsourced providers can deliver, would be well served to take a closer look.

Ankit Maharaj Singh is Vice President at Quinte Financial Technologies, a New York, N.Y.-based provider of financial crime risk management, regulatory compliance and customer experience solutions for banks, credit unions, online merchants and payment processors.