People prefer banking with credit unions. They are owned by members, value community, and put people over profits by only offering services people need. Nevertheless, credit unions still struggle to gain new members, convince existing members to use more products and services, and attract a younger demographic.
How can this be? Consumers report that customer service at a credit union is superior to that at a big bank. Presumably, this would help attract and retain members. What’s more, young adults want a bank to understand their needs and provide a personalized service, needs that are compatible with the core offering of a credit union. In theory, one would expect credit unions to be smashing all three objectives. The reality is a little different.
While customers want their bank to treat them like people and build relationships, they also want convenience. At the end of the day, a financial institutions safeguards money, facilitates its movement, and manages the associated information. That’s it. The companies that do this with the most accuracy, efficiency, and painlessness will win.
This means that customers expect excellent customer experiences from other B2C industries to appear in their banking. A teller who knows your name is wonderful, but a cheque deposited through your phone from the comfort of your home is even better. Today, consumers expect services like mobile banking apps, chatbots for questions, budgeting tools, and more. And the more time passes, the more the lack of these services seems unacceptable and potentially damaging to a financial institution’s brand.
The Present Challenge
Credit unions fight the digital transformation battle on several fronts.
Credit unions face internal resistance, like most companies do when undergoing change, but theirs is a unique resistance. Financial institutions face tougher regulations and must consider compliance requirements carefully during a transition. While this sounds like a tough barrier, digital transformation projects often strengthen a credit union’s safety and adherence to regulations.
A credit union’s biggest competition isn’t other credit unions. It’s those big banks we keep mentioning. National banks have the war chest to fund pilot projects, incubators, and accelerators to safely test new technology without running afoul of customers or regulators. Credit unions don’t have this same luxury.
War for Talent
The world’s companies are fighting a global war for talent, and financial institutions are no exception. Banks are scrambling to recruit candidates with skills in machine learning, data analysis, and cybersecurity before they are lured to Silicon Valley. Even hedge funds, traditionally secretive companies, have had to put themselves out there to attract tech talent that already has its sights set on flashier financial technology companies out west. These banks have the budget to offer high base salaries and workplace perks, while credit unions don’t have these same advantages. Moreover, banks can back incubators and accelerators in global hot spots to recruit there while regional credit unions don’t have this same flexibility.
The Light at the End of the Tunnel
It isn’t all doom and gloom. While competing with bigger, stronger, richer banks sounds like an exhausting proposition, credit unions should not lose hope. Rather than trying to outspend the competition, they should focus on outsmarting the competition by making strategic plays that focus on their core value proposition: people-based banking.
IT Companies Know Credit Unions Have a Unique Need
There are IT companies who understand the unique challenges credit unions face. This means they understand budget limits and the need for a tool that will work not one that might work. They understand the inherent risks that come with modernizing your core banking system. For one, there’s the business continuity considerations of a failing platform. For another, there are the procedural changes that accompany a new platform and the impact this has on staff who may be resistant to change. Fortunately, they have experience addressing these requirements and executing on tried and tested procedures. In fact, one IT company in Canada converted over 110 credit unions to one banking platform.
There is a Clear Starting Point
While deep pockets help, an astronomical budget isn’t necessary for digital transformation. It just means you can’t afford to make many mistakes. This means that so long as credit unions design a carefully considered strategy, they execute on a digital transformation project albeit in a much more thoughtful way than their big bank competitors.
For instance, credit unions should focus on digitization before progressing to digitilization.
What’s the difference?
Well, companies often confuse digital transformation for activities like scanning a paper form. In other words, going from analog to digital. This is an example of digitization, but it’s not an example of digitilization (or digital transformation) which is specifically “the use of digital technologies to change a business model and provide new revenue and value-producing opportunities”.
But in order to achieve digitilization, companies need to go through the process of digitizing their entire business. Let’s return to that example of a scanned form. Yes, you now have that paper available in digital format, but the information within that form is not available in a way that can feed into other tools. In other words, you need to take all of your business’s existing analog information and ensure you can tag, search, and manage that information.
This is the place to start. Once credit unions go through this process, this digital organization of information allows them to analyze information to identify potential opportunities for efficiency and set the course for their transformation initiatives.
Credit Unions Are Not The Only Companies Behind
According to research published in the Harvard Business Review, most companies are not approaching digital transformation with urgency. About 20 percent of firms barely leverage digital technology while two-thirds of firms only generate about 10 to 15 percent of revenue through digital.
Figure 1: Digital transformation in today’s companies (Chart generated with data from Harvard Business Review)
“So what?” you may reply. “Why does this matter?”
It matters because there are still resources and strategies geared towards helping those who have “fallen behind” so to speak. For instance, Harvard Business Review outlines three strategies such companies can pursue that focus on:
- Conducting digital M&As
- Cooperating with digital natives
Take digital M&As for example. Companies who’ve lost time can acquire digital native companies (an offensive M&A approach) rather than taking a defensive M&A approach in which they join forces with other analog companies.
Credit Unions Can Realize Faster Results with Hyper-Focused Efforts
Oftentimes, credit unions think digital transformations are mainly for their customers. But digital transformation can happen in other areas of the business and still generate revenue. Credit unions can initiate digital transformation in the following areas:
- Member engagement
Such initiatives can help employees “do more with less”, experience omnichannel engagement, and streamline operations using captured data.
Industry experts suggest credit unions survey their members to understand which digital transformation projects are most important to them. This may help avoid analysis paralysis in which credit union leaders struggle to pick between chatbots or a better app with fewer clicks on a limited budget. By understanding customer needs and frustrations, leaders can put resources towards more effective projects.
There’s Time Still For Credit Unions
There’s certainly still time for credit unions to conduct digital transformation projects. The overwhelming counsel in most literature on the topic is to be strategic, be proactive, accept the fact that the future is changing, and above all, just get started.
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