A Strategic Approach to Digital Evolution in Credit Unions

There are a few major differences between credit unions and banks – for-profit vs. not-for-profit, owned by shareholders vs. member-owned, and more. But both bank and credit union members and stakeholders have something in common: They all want the convenience that comes with technology.

For members, this means frictionless and personalized mobile apps, digital wallets and online account access. Transactions and account updates need to happen in real time, and customer support needs to be 24/7/365. Security has to be air-tight and include multi-factor authentication, fingerprint and facial recognition and fraud detection.

Stakeholders also expect innovation, but at a higher level. Think blockchain ledgers, AI and fintech collaborations. Advancements in technology also bring advancements in operational efficiency, analytics and service delivery.

These demands mean that financial institutions must invest heavily in the digital evolution or risk losing market share. Not only are new software products needed but so are the professionals skilled in programming, cybersecurity and data.

The investment costs can expand quickly and are more easily absorbed by large banks. Bank of America is planning on spending $3.8 billion in 2024 on technological innovations, according to an October 2023 CIO Dive article. Not to be outdone, JPMorgan Chase set aside $15.3 billion in 2023 and increased that by another $1.4 billion this year, according to its Investors Day event in May.

Credit unions in 2024 are holding about $2.26 trillion in assets, according to the NCUA. Banks, on the other hand, have $23 trillion, according to the Federal Reserve – almost 10.2 times larger. As such, it is critical that credit unions evolve smarter. To do that, here is a six-step roadmap to guide your digital evolutionary journey, which will save you money and time (which, after all, is money).

1. Build or Buy

The first choice is one that even Chase and Bank of America had to make: Build or buy. They both have advantages or disadvantages.

By definition, to build a technology solution, a financial institution uses internal or external developers to build a new product from scratch or new functionality on top of an existing platform. The pros of this approach are that the developers will be building your new product to your exact specifications and you’re guaranteed that it will fully integrate with your current system. Also, you’ll be able to leverage your in-house experience and knowledge for customization, making sure the final product satisfies members and stakeholders.

The downsides to building it yourself are the costs in terms of budget and resources, and a longer time to market. Designing, coding, testing and deploying your own software is time consuming.

On the other hand, buying a solution uses pre-existing technology solutions or products from third-party vendors that are purchased via agreed upon contractual terms and conditions of usage. Again, there are pluses and minuses.

At the top of the plus column, the software already exists, letting you move more quickly to market. Your initial costs are going to be lower and it’s a far lighter lift for your internal teams. Then there are the negatives.

The software and/or service already exists but you need to be sure to pick the right one, and agree to the terms of service. If it’s software as a service (SaaS), you’ll need to factor regular payments into your budget. Since you can’t customize it, the user experience (UX) may fall short of your members’ expectations. Changes and improvements, either from your side or the vendor’s, may not be easily integrated, and you’ll always be relying on third-party support.

2. Timeline

Setting a timeline will help keep your project on track and budget. Be sure to include a post-launch period. Timelines can typically be broken into four stages:

• Research and audit;
• Evaluations and contracting;
• Implementation and readiness; and
• Post-launch evaluation and assessment.

3. Research and Audit

It’s crucial to learn exactly what is most desired from technological improvements and what else is in the marketplace. You’ll want to conduct surveys with your members and different surveys with your stakeholders as their wants and needs will differ. Perform an audit of your current state of technology. Is your app easy to use and navigate? Are there lags between online banking actions, such as deposits, and the actions being completed within your system?

The answers to all of the above will help you establish the benchmarks you need to ensure you meet all of your goals. Scorecards can also help with tracking progress and grading achievements. Create scorecards of features, functionality and best practices for both your members and stakeholders, with each item given a weighted score. The same should be done with other area credit unions to provide a clear understanding of your landscape and what your competitors are offering. You can even include banks in this analysis.

The results may surprise you. In our case, we learned that while our members wanted us to make it easier for them to do their daily online banking activities (such as transfers, bill payments and managing credit cards), our stakeholders were more interested in Travis Credit Union having a digital-first focus and being in a position to help them more efficiently scale into the future.

This step will guide your decision-making process in choosing whether you build or buy.

4. Evaluations and Contracting

If you’re going to buy, here are some steps to take in evaluating what software vendor or SaaS provider would be best for you.

Using your scorecards and survey results, develop a detailed shopping list of your requirements. Include things like security scalability, support services and integration abilities, even if they weren’t graded or mentioned. Of course, you should only be looking at vendors with experience in the banking and financial industry that have software that meets all compliance regulations.

Once you have a short list of possible vendors, approach them with an RFP (request for proposal) and ask them to include case studies, testimonials and references. Ask them if they offer free trial periods and live demonstrations, and be sure to invite some stakeholders to the demos. You’ll want their feedback and they may also have questions to ask the vendors that you hadn’t thought of.

Finally, as you’ve done before, create scorecards with points assigned to your criteria so you may more easily judge one vendor against another.

If you’re going to build, here are some things to keep in mind when managing your development team:

Have regular performance reviews with your team that focus on code quality, the ability to meet deadlines and productivity. If you’re running into slowdowns and snags, discuss with them how to best overcome these hurdles. Keep the culture a positive one, with team-building exercises and rewards for achievements and reaching milestones.

Use automated tests to catch bugs early in the coding process when it’s always easier to correct, and run manual tests for more sophisticated and nuanced cases. And keep all documentation up to date, including records of these tests and solutions, design decisions and users guides.

5. Implementation and Readiness

As the saying goes, you only get one chance to make a good first impression. This is not a stage to be rushed because once you’ve put your new product into the marketplace, there’s no taking it back. In the case of TCU, our implementation and readiness stage lasted nine months, which included two months of in-house testing with employees and three months of readying all of the teams that the project was touching. Overall, we wound up touching nearly 10% of our entire organization on a weekly basis.

Here are some tips and advice for this vitally important stage:

• Create a detailed implementation plan that includes a calendar, goals and milestones, responsibilities and resources;
• Test the entire system, end to end, to check its performance, security and usability;
• Do some load testing to ensure it can handle a high volume of transactions and users without performance suffering;
• Run security assessments to identify and address vulnerabilities and compliance;
• If you’re going to be transferring data, take special care in planning the migration;
• Create training programs for staff and provide them with resources such as user manuals and FAQs – and have them in place for your end-users, too; and
• If possible, have a group of end-users test the software in real-word scenarios.

6. Post-Launch

Congratulations, you’ve made it! You’ve reached the end of the digital evolutionary road and now there’s nothing left to do but bask in the glory and adulation of your peers, right?

Wrong.

The work doesn’t stop in the post-launch period. Another old saying is that no battle plan ever survives contact with the enemy. Of course we’re not saying our members are the enemy, but no matter how much we prepare, end-users are going to do things we simply hadn’t anticipated. Here are a few tips for the post-launch phase:

• If possible, a phased roll-out can help identify and correct issues that may arise before full implementation, letting you manage risk and get feedback for fixes and improvements;
• Monitor the software’s performance continuously so you can address issues quickly; and
• Use the feedback and performance testing results to refine and improve your product as you go.

If this all sounds like a lot of work, that’s because it is. But it is all worth it. At TCU, we saw an increase in member enrollment of over 20%, with almost 80% using our new mobile app and close to 100% enrolling for our e-statement program, saving us time and money – funds that we could then redirect back to things like outreach and scholarships.

Whichever you choose – build or buy – this roadmap and suggestions should make your digital evolution a relatively smooth procedure.

Grant Karsas is vice president of digital experience at the $5.1 billion, Vacaville, Calif.-based Travis Credit Union.