May 13 2021
The Future of Digital Transformation for Credit Unions
The future of financial services is digital. This report provides concrete action steps in the form of a road map to a digital future. Included is a summary report, step-by-step road map, guide to partnerships, and an infographic highlighting the reasons credit unions need to develop and invest in their digital strategy.
Report Number 536
Consumer expectations for financial institutions are swiftly evolving, in response to the breakneck pace of innovation. In a 2019 survey, 81% of banking CEOs said they were concerned about the speed of technological change (PwC 2019), while nearly 80% of financial industry leaders surveyed in 2020 reported that COVID-19 had uncovered shortcomings in their institution’s digital capabilities (The Economist 2020). With challenger banks and fintechs poised to increase their market share by appealing to consumers with frictionless, mobile convenience, how can credit unions compete?
What is the research about?
We spoke with credit union and CUSO leaders and fintech experts to learn about the state of credit union technology—and how credit unions can best prepare for the digital future. These thought leaders agreed that credit unions have fallen behind their peers in innovation. Many small and medium sized credit unions, for example, are not delivering a digital experience that meets members’ expectations and have not consolidated their data, rendering it useless for increasing efficiency or personalizing service. In a world in which 59% of banking executives believe that the traditional, branch-based banking model will be obsolete by 2025 (The Economist 2020), credit unions risk losing revenue, relevance, and relationships if they cannot bring their digital service offerings up to par.
What are the credit union implications?
Credit unions need to begin planning to invest deeply in technological updates and, in some cases, a wholesale infrastructure rebuild. They should take stock of the digital experience they are providing to members—importantly, this is not simply a list of products and services available digitally, but everything a member experiences as they interact with the credit union online—and note the places where there is friction or confusion. Perhaps most critically, credit unions must begin to build the digital architecture to support data consolidation and to allow for flexible partnerships that do not require plugging new code directly into the core processor. With this architecture in place, emerging technology holds great promise for saving credit unions money and time (through innovations like self-service channels, robotic process automation, and predictive modeling), as well as enabling a banking experience that fits members’ needs, preferences, and circumstances.
Credit unions risk losing revenue, relevance, and relationships if they cannot bring their digital service offerings up to par.
To make the shift toward a more digitally adept future, credit unions should focus on investing in innovation as a competency. This might mean building a cross-organizational team that focuses on innovation, with its own budget and specific, measurable goals. It might also mean investing in partnerships to scan the future, identify needs, and drive innovation implementation.
Credit unions may also need to adopt a more flexible and agile approach to partnerships, seeking to partner with a variety of companies—including fintechs—to fill gaps in the digital member experience. While some credit unions may themselves develop new technologies, most credit unions should not aim to be industry leaders in technology, but rather fast followers, partnering wherever possible to speed the delivery of new features to members. These are ambitious endeavors, which will require creativity, persistence, funding, and time. But they have the potential to move credit unions toward a technological foundation that enables, rather than hinders, the organization’s strategic vision.
Finally, credit unions need to better envision how they might embed financial services into members’ financial lives, instead of expecting consumers to seek out financial products and services on their own. Startups and fintechs looking to disrupt financial services often start with a specific consumer problem and endeavor to address it—credit unions would benefit from using this approach.
Filene’s Center for Emerging Technology is generously funded by: