A research event recap from Filene's Center for Organizational Entrepreneurship

The focus of credit union’s work will always be about understanding the needs of members now, while taking actions to deliver a better future. The events of 2020 have not drastically changed consumer financial trends and needs so much as accelerated them. We brought academics and experts together virtually to consider this unique new challenge and the opportunities for credit unions to deliver an experience members will remember long into the future.

Now more than ever, financial services have accelerated the rate toward a virtual environment. The current health crisis has called for us to do this. In the process, we are rising to the occasion by re-designing the member experience.

Before presenting his latest research findings for competing and winning on member experience, Filene Fellow Dennis Campbell, of the Harvard Business School, reviewed three main themes from the Center for Organizational Entrepreneurship: (1) structuring for innovation; (2) designing cultures of employee engagement and “ownership” (open-book management); and (3) competing on member experience.

Focus + Compatibility = Clarity

“Don’t resist the idea of focus. Be brave enough to make choices. Keep clear your mission and values. Have guidelines or boundaries and be able to articulate why.”
Dennis Campbell,
Filene Fellow
Harvard Business School

The business case for member compatibility is clear: focus and compatibility are strong predictors of member satisfaction, loyalty, non-interest income, and asset growth. But identifying the member group or groups to focus on can be challenging. To help with this process, Campbell provided a matrix to identify strategies including centralized or decentralized control over member choice and reducing or accommodating the products and services available to members.

Each quadrant requires decisions about what products and services to provide and how to manage member expectations. For example, decentralized accommodation involves empowering employees to make service decisions which sometimes deviate from the standardized model in the service of the member relationship. Adopting this approach requires credit union leaders to foster a culture of ownership by staff. Each quadrant thus leads to a specific approach to tailoring and providing the products and services that best support your members.

Member Experience and Service Excellence, Part 2: Do Strategies Focused on Member Experience Impact Credit Union Performance?

To deliver value to members, a credit union needs to balance a challenging series of competing demands. Members want good value, friendly service, low-friction technology, and convenience, which forces the organization to make trade-offs when allocating resources and deciding where to focus—especially while maintaining financial sustainability and growth.

In the second report of a three-part series on improving the credit union member experience (MX), Filene explores the effectiveness of three strategies: making use of MX data, focusing to better fit member compatibility, and providing operational transparency.

Focus and Tradeoffs

Want to be best in class? Achieving that level of focus and execution requires making tradeoffs. Firms that attempt to be all things to all customers inevitably end up providing mediocre service across the board. Credit unions have a choice to make. The key is to first identify what is most valuable to your focus members and over-investing in those elements by under-investing in the things that don’t matter as much to members. This approach simplifies organizational goals and makes it easier to align and focus your staff on what truly matters.

The Multi-Focus Model

“Innovation happens when we are constrained – during COVID-19 we are being forced to. This is the space where innovation happens and we should capitalize on it.”
Dennis Campbell,
Filene Fellow
Harvard Business School

Is your field of membership too diverse to focus on a single segment? Campbell asked attendees to consider a multi-focus model that contains a portfolio of segments with products and services tailored for each segment. For example, large hotel chains such as Marriott provide five-star hotels as well as budget accommodations to best serve different consumer segments. But remember, this does not mean you can carry out business as usual and try to be all things to all people. The multi-focus model prompts your credit union to create a specific portfolio of member groups while taking advantage of economies of scale around shared services and back-office operations.

Work to systematically align your operating system to accommodate the needs and behaviors of your chosen portfolio of members. Develop your multi-focused service model for each group and tie them together with a layer of shared services to maintain a clear brand identity and mission for your credit union.

Operational Transparency

A new area for credit unions to differentiate themselves is by providing greater operational transparency. This approach shows members the value you create for them and staff can see the impact their efforts have for members. Members may be more appreciative if they see the process and effort expended on their behalf and staff will increase both job satisfaction and effort. Another advantage to introducing operational transparency is that it does not require changes to underlying processes.

Thank you to the Center of Excellence for Organizational Entrepreneurship sponsors that made this event possible: American Airlines Federal Credit Union, BCU and PSCU.

Report #505 05/20

To illustrate how an award-winning bank is meeting the challenge of providing high-touch member service while shifting towards a more digital banking model, Dennis Campbell facilitated a workshop about the Swedish bank, Handelsbanken. This bank has a unique model that has proved successful for over 50 years.

Relationship is Key

Their strategy emphasizes personal service much like a community bank. The relationship is key, and staff are empowered to make the right decision for the customer. In addition, each branch has autonomy for making decisions, such as setting rates, and product lines, so each branch is free from centralized mandates.

“You’ll see that in good times and bad, they have been able to maintain profitability in comparison to their peers. By understanding the past, they moved forward successfully and shaped their organization to get these results.”
Dennis Campbell,
Filene Fellow
Harvard Business School

Interestingly the organization, unlike its competitors, does not provide bonus payouts to employees, and instead when the organization meets its goals, an investment is made for each employee in a shared pension-type plan available for staff at retirement age. Their performance goal is simple: the branch must outperform their local peers in ROE.

Over the past several decades Handelsbanken has expanded to other Nordic countries, and the UK, and their success continues. But over the past 4-5 years as their competition has shifted towards digital banking, other banks have begun to close the performance gap that Handelsbanken has enjoyed for so long. The improved efficiencies from digital banking and changing customer preferences have allowed competitors to close up to 30% of branches, giving them an advantage over Handelsbanken high-touch strategy.

Although Handelsbanken’s branch managers are motivated to provide digital banking options, they are challenged by how to provide digital services while maintaining the relationship-based banking that they are known for.

Design a Culture to Reinforce Behaviors

Campbell shared that Handelsbanken’s success owes much to the organizational culture. The overall strategy of the organization empowers branch managers, and each branch is the bank. Without sales targets and bonuses, the accountability is to serving customers’ needs, and the culture is designed to reinforce these behaviors.

“Culture enables empowerment. The stronger the culture the more I can empower. The more you need to empower the more you need to invest in culture.”
Dennis Campbell,
Filene Fellow
Harvard Business School

An example of this structure is how the organization is generally flat, rather than hierarchical. Employees that are promoted move to the different segments of the organization, thereby learning how every process is aligned towards meeting the goal of serving the customer. The ultimate role in the organization, that of branch manager, is held by individuals that have become expert generalists in the organization, with comprehensive, cross-functional knowledge of how the business operates. This knowledge allows each branch to optimize cost control and keep the focus on serving the customers.

The decision Handelsbanken made to move forward was to leverage data and digital banking so it would allow staff more time to serve customers in a relationship banking model. Not only would implementing AI systems enhance the customer experience and capabilities that staff have at their disposal, but they can provide even more of the high-touch service that they are known for.

The Implications for Credit Unions

“Accountability system gets branch managers to want what their customers want. By aligning with their customer’s needs, you help the organization in the long run.”
Dennis Campbell,
Filene Fellow
Harvard Business School

There are options for how to add digital capabilities to your organization, but it takes reflecting on your culture, strategy, and goals.

It’s important to remember what attributes your organization is valued for, and to use technology to enhance what you already do well. Whether a back-office technology is working in the background to free up time for your staff, or you adopt a mobile app that facilitates the real-person banking relationship in a mobile setting, choose to focus on what you already do best, and do it better with technology.

Thank you to the Center of Excellence for Organizational Entrepreneurship sponsors that made this event possible: American Airlines Federal Credit Union, BCU and PSCU.

Report #505 05/20

One of the greatest challenges that credit unions face today is to maintain the high touch member experience that they excel at, while shifting to a digital-first experience. Imagine visiting your financial branch for a weekly yoga class before depositing a check. This is the type of customer experience, along with children’s concerts and branded ice cream, that exemplifies the brand of Portland’s Umpqua Bank. But as more financial services migrate to digital, Umpqua Bank wondered if they could maintain their human-first brand in a digital context.

“Once we establish these trust based relationships we can do really interesting things. We can start finding ways to be more relevant to the customers.”
Steve Gotz,
Silicon Foundry

People Are Vital to Digital Banking

Steve Gotz, Partner at Silicon Foundry, helped Portland’s Umpqua Bank explore this challenge. He explained that as a small regional community bank, Umpqua wanted to keep their biggest asset, their people, vital to developing their digital banking idea. What if they could put a device in the customer’s hands, and allow them to engage with a banker, intimately, in a sense, “uberizing” the workforce?

The premise that Steve and his team came up with was that banks that build strong relationships will be best positioned to keep and grow their customer base while accelerating their business model transformation. Rather than relying on the impersonal digital experience so common in banking, Umpqua bet on the idea that building stronger customer relationships is key. They focused on providing proactive, financial experts who could create value in the customers’ financial lives.

Best Financial Friend

Their product was an engagement platform that delivered customer intimacy at scale. The app, called BFF (Best Financial Friend) allowed customers to choose their financial representative and banker, and interact with the person via the messaging/banking app. Unlike most banking apps, BFF put the human personality front and center. To maintain the human-first service, Umpqua Bank kept the AI technology in the background, and leveraged the insights into a dashboard that the financial advisor/banker would work from as they interact with the customer.

“It’s like concierge plus banking, this is brilliant!”
Umpqua Bank BFF app user

While piloting the BFF product, Steve and his team noticed that the most popular financial representatives on the platform were those who personalized their profiles, adding details such as personal interests, neighborhoods, or family details. In response, Steve’s team asked everyone to rewrite their profiles with more personality, and include specific details about themselves, such as their dog’s name, a cooking specialty, or favorite outdoor activity.

Behind the scene, the bank representatives would be assigned up to 1500 customers, with roughly 20% of customers seeking service at any one time. Representatives would manage all questions and transactions, such as helping with a lost debt card, conducting transfers between accounts, or answering questions about loans or other products. AI tracked context, such as the last conversation they had, and the dashboard would bump urgent services to the top of the queue.

This case study from Umpqua Bank shows that doubling-down on the human aspect, and transferring the traditional call center functions to a banking app that allows customers to message bank representatives, provides an approach to offering a high-touch banking experience in a digital context, without chatbots and without the typical burnout of call center representatives.

Thank you to the Center of Excellence for Organizational Entrepreneurship sponsors that made this event possible: American Airlines Federal Credit Union, BCU and PSCU.

Report #505 05/20

Having served as CEO and CTO of their own Credit Union, Narmi Co-Founders Nikhil Lakhanpal and Chris Griffin struggled to find the digital tools they wanted to provide digital-first experience to their members. They felt that in order to stay relevant, increase profitability, and grow, their credit union had to be at the top of their game with the digital services they provide to members.

In 2016, Lakhanpal and Griffin teamed up to found Narmi to help financial institutions grow deposits, improve members’ digital experiences, and automate back office processes. Their underlying strategy was to find ways to simplify the user experience and provide digital value. From the beginning, they placed the user experience front and center. For example, in designing an online account opening service, ask yourself, “Does this process result in more applications? Does it promote more deposits?”

Lakhanpal joined Filene’s George Hofheimer to discuss user experience across digital experiences and why this matters more than ever in today’s banking climate.

Speed & Intuition

What makes a member’s digital experience as frictionless as possible? How about providing new digital account opening in under two and a half minutes?

“We’re seeing a really interesting shift in dynamics. Today, more financial institutions are focusing predominantly on user experience versus other aspects of the platform, turning the buying process upside down. When we optimize the user experience, we make that experience as frictionless as possible.”
Nikhil Lakhanpal,

At the same time, as financial services providers continue their inexorable move towards more digital service delivery, consumers sometimes perceive fewer differences between financial institutions. The challenge becomes how to differentiate your credit union. While speed is certainly important, functionality, or how information is displayed in an intuitive manner, also provides greater value to the member. For example, if a member wants to review transactions for the month of March, that information should be presented in an intuitive manner that doesn’t require multiple clicks and scrolling through several pages. The end goal should be helping members perform their financial chores as quickly and easily as possible.

In Pursuit of a Top User Experience

Most often, mobile banking is top of mind for members and efforts should be placed there first. But there are also a number of back-office processes to improve that affect front-end member experience. For example, with requirements such as Know Your Customer, investing in infrastructure to automate and speed up that process can directly impact user experience. Lakhanpal has found that the speed by which a new member can create a share draft account online results in a number of stronger outcomes over the life of that member’s relationship with your credit union. Developed in house or with Fintech partners such as Narmi, credit unions can take advantage of these advancements and provide improved digital user experiences.

Keep in mind, moving to digital does not mean losing high touch, personalized service! Member expectations vary, but people always want to feel special. With digital service, the manner in which that happens is up to the member and your credit union should provide ways to personalize their digital experience.

Use Digital to Enhance Member Relationships

"We need financial institutions to not only stay relevant but to grow. Digital is the obvious answer. We have to make the move to not just mobile-first behavior but mobile-driven behavior."
Nikhil Lakhanpal,

It is possible to have a very loyal relationship with a member that is largely digital. Take a member who loses access to $200 due to a fraud alert, but they need the money right away to pay a bill. In the past, they might take a detour to your branch, get the money released, and leave happy. Now, that interaction can take place digitally and save the member a trip. You can flag fraud alerts as high importance and provide a push notification to members who can rapidly interact with your call center rep to resolve the problem. This type of digital channel service reduces effort on the part of members, creates high satisfaction and loyalty, and continues to build positive relationships.

Pandemic Next Steps

With our current state in responding to COVID-19, it is time to take a step back. Look at your credit union and ask yourself, “do I feel good about where we are from a digital standpoint? If I shut down my branches tomorrow, could I grow and drive this financial institution forward?” If the answer is no, move your digital strategy to the top of your list. Where are the friction points for your members: moving money, opening accounts, loan processing, resolving problems? Find the biggest pain points and tackle them first.

Thank you to the Center of Excellence for Organizational Entrepreneurship sponsors that made this event possible: American Airlines Federal Credit Union, BCU and PSCU.

Report #505 05/20

Now more than ever, organizations are called to adjust to the emergence of a high anxiety environment rapidly. Michelle Shell of the Harvard Business school shared her latest insights into how structuring a digital experience well can improve member engagement long term.

Member Anxiety Comes from Multiple Sources

Regardless of its source, anxiety carries over to affect the members’ decision making, their financial choices, and the way they feel about those choices. If unabated it can impact the trust members have in their financial service provider. Shell broke down the three main sources of member anxiety.

“Anxiety, regardless of its source, carries over to affect our decision making, our financial choices, and if left unabated it can affect the way we feel about our services providers.”
Michelle Shell,
Harvard Business School

Task complexity: when members are thinking about investing assets or applying for a mortgage, there is price uncertainty and volatility that can induce anxiety.

Operational choices: when members are faced with learning a new technology, the use of artificial intelligence, or policies and procedures that are part of the product design and members are becoming familiar with.

Exogenous sources: Simply having a bad day, or the cognitive load of new routines in trying to keep your family healthy during a pandemic can generate decision difficulties and reduce the amount of information that members are able to process.

The sources of anxiety and the way it effects decision making are interrelated. The way we feel about our decision-making spills over to affect the way we feel about the service provider.

Example: Surge Pricing – Ride-Hailing

“The mere mention of surge pricing, just reminding people that price fluctuations were a possibility, was enough to induce anxiety and hurt trust.”
Michelle Shell,
Harvard Business School

Price fluctuations are found in financial services and many other industries. It is often reported that price fluctuations make people angry, but the loss of control and uncertainty that people feel may induce anxiety. A recent study looked at the effect of surge pricing in ride-hailing.

Only those people that were prompted to describe their experience during surge pricing expressed anger. However, the mere mention of price surging induced anxiety and resulted in lower ratings of trust. Even the people that were asked to describe a time when surge pricing was NOT in effect reported higher levels of anxiety.

An Experiment: Anxiety from External Sources

A second experiment was centered in understanding emotions when the source of anxiety are external and not tied directly to the experience.

“Insurance is often used as a test bed for decision making under risk and draw some insights into how we can structure a digital environment for transactions typically done in a face-to-face setting.”
Michelle Shell,
Harvard Business School

Those who were randomly assigned to watch the anxiety inducing movie clip, scored lower on their risk tolerance and were more likely to accept insurance. Moreover, those that accepted insurance displayed a higher level of satisfaction with their choice.

Anxiety can also lead consumers to feel badly about their decision and that dissatisfaction with their own decision making spills over to affect how they felt about the service provider. A way to mitigate this is by giving access to experts had a calming effect and had a positive impact in trust. It is important to point out, that people didn’t need to get interact with the experts to experience this gain. In summary, just having access to human touch provides trust-building confidence.

Current Trust-Eroding Risks to Credit Unions

Credit unions should pause and explore the impact in members’ behavior if access to live contact channels have been interrupted in response to physical distancing advisories. It is easy in this environment to lead with the technology as opposed to lead with the interpersonal contact. A rushed deployment could hurt members’ trust, and once trust is lost, is hard to recover.

Michelle Shell, Harvard Business School

“Trust is like a glass, if it breaks you can always glue it back together, but there will always be a scar.”
Michelle Shell,
Harvard Business School

With restrictions to branch locations in place, financial institutions have been accelerating the deployment of self-service technologies. In a high anxiety environment people tend to withdraw and pull back their engagement if their anxieties are left unaddressed. New technology should be aimed at augmenting the member relationship, not replacing it.

Controlling employee anxiety is also crucial. By rolling out employee facing new technologies or training to contact center agents to manage employee anxieties, credit unions can better manage member anxieties. Credit unions lead with people first, if the employees are calm and feel safe, they are better able to empathize with members. Unaddressed anxieties could lead to an increase in dissatisfying service experiences. Credit unions that address service recoveries with empathy and urgency can actually increase member engagement during this challenging time.

Thank you to the Center of Excellence for Organizational Entrepreneurship sponsors that made this event possible: American Airlines Federal Credit Union, BCU and PSCU.

Report #505 05/20