By Frank J. Diekmann
If you’ve ever read any product announcement from CO-OP Financial Services or attended one of its events, you will in short order read or hear about the risk to the credit union business model from “digital disruption.” Indeed, you will be consistently warned about the constant threats to the old analog CU ways of doing business from new digital providers, especially the fintechs lurking in every members’ hand-held device just digitally itching to take that member away.
So, how worried is CO-OP about being digitally disrupted itself?
“We think about that all the time. We have a whole team that looks at the digital disrupters all the time,” said its CEO, Todd Clark. “We are spending $50 million on fintechs in 2018. We see ourselves as a distribution channel for those fintechs. Our attitude is to look at fintech as an opportunity and as partners rather than as competition. It’s the philosophy that some of something is better than all of nothing.”
The “something” that is Rancho Cucamonga, Calif.-based CO-OP today is something different than it was three years ago when Clark took over as CEO, succeeding its long-time leader, Stan Hollen.
“It’s been a three-year transformation. The job as I perceived it when I came here is slightly different than the job as I perceive it now,” he explained. “It was a great business that just needed some integration cross the board. People had seen the (business units) as separate, even credit and debit, as many credit unions do. But most consumers have changed their mindsets: cards are cards are cards. Many people use cards in different ways and credit unions need to be prepared to meet them there.”
Tearing Down Silos
By the time Clark arrived in May of 2016, after previously serving as SVP/Head of STAR Network and Debit Processing for First Data Corp., CO-OP represented numerous business lines, having bought or merged in a variety of other companies, such as FSCC’s shared branching network, and later Iowa-based TMG.
“Business was fairly siloed, so we have spent the past two to three years integrating those together, so cards can just be cards,” Clark said. “We have taken a platform approach. We have tried to build CO-OP as a platform business like Amazon.”
The company is now “back-end agnostic” and strives to add value behind the scenes, according to Clark. As examples, he cited its CardNav solution, saying regardless of the platform a credit union opts to run, it will use the same apps and APIs to control the solution. Similarly, whether its FIS or First Data doing the processing in the backroom a credit union should not be able to tell the difference.
But there are other differences being seen and felt by credit unions, as well as CO-OP’s own employees, who are now, for instance, being paid by the same company.
“With regard to other things, there were 18 entities merged into one, there was the collapse of multiple boards and workforces–people were even people being paid by different companies,” said Clark, adding all of that is part of a larger effort toward one goal. “We are trying to build the culture in our organization so we can deliver to credit unions, as we are member-owned, and so that our employees are excited. That’s a big part of that. It’s not an easy transition. We have spent an enormous amount of time on the CO-OP culture.”
CO-OP isn’t alone in the credit union community in confronting the kinds of this-system-doesn’t-talk-to-that-system internal silos that naturally develop when mergers take place or growth is robust. Nor is it alone in trying to deal with digitally-driven changes moving as fast as a screen swipe.
The Need to Embrace
So, what does Clark advise other credit union leaders do in confronting those issues?
“You really have to hit it head on and embrace change. It’s one of our five building blocks,” Clark answered. “A lot of times people don’t want to embrace it. You have to adapt and move faster with digital transformation, and it has to begin with leaders. The consumer has the power of the world in their hands. The speed and power in the mobile space dictates how consumers look at the credit union.”
Leaders need to use their own speed and power to embrace another concept, he said, even it means some tough choices. In other words, rewarding employees according to how they embrace change.
Clark, who said he is not a fan of the word “bureaucracy,” said the goal in a growing organization is to have sufficient people and processes in place to “have enough safety and soundness so bad things don’t happen,” but not so many that it stifles entrepreneurship.
That kind of internal engine is an issue Clark often returns to, and while his references are to a large CUSO that touches approximately 3,000 credit unions in some way, the philosophy shared could apply to any individual credit union.
The Employee Experience
“It’s not just about the credit union and member experience, but also the employee experience,” he said. “We have a feedback loop; we want to know where the roadblocks are. You have to tighten down and then loosen up. We have built a culture of ownership in CO-OP so that no one is looked down upon for saying, ‘we can do better.’ A certain amount of bureaucracy is what allows you to leverage growth.”
As an example of feedback and doing better, Clark pointed to the Co-Creation Councils CO-OP co-created with credit unions in early 2018. According to the company,the Co-Creation Councils are “ultimately tasked with advancing the credit union movement, elevating the member experience and unlocking the Next Big Thing in payments.” There are three such Co-Creation Councils, focused on Strategy, Experience and Solutions Design, respectively.
At one Co-Creation Council event this year, he said CO-OP was ready with ideas it wanted to pursue. But members of the Council had ideas of their own.
“A year ago we came up with all these ideas and they said, ‘No, it’s (card) disputes that are soaking up all our time in the backoffice. We need you to fix this,’” shared Clark. “We looked at the entire journey and found lots of places where we could streamline the process. We have been able to pull labor-intensive work out of the back office. That should be out of by the end of the year.”
Another area he said the Co-Creation Councils have been eager to embrace is digital issuance.
What One Solution Has Seen
As CUToday.info reported here, among the product offerings where CO-OP has sought to be a digital driver to head off digital disruption is its CardNav solution, which gives members control over their plastics.
“First, the member didn’t want two apps for credit and debit,” said Clark. “There are now more options in CardNav that probably most members and credit unions want. We have found through the process that if you give the member the power, they will help you to manage fraud. Empowering the member is a big part of what we do here.”
Even though Clark acknowledged its most likely not causal but a corollary, he said credit unions that offer CardNav have seen 23% increases in card usage, 25% decreases in fraud costs and 26% reductions in service costs.
“The biggest users of cards are going to like more control,” he said.
With CO-OP having gotten more control over its internal operations, moving forward Clark said credit unions can expect to see a company prepared to do some digital disruption of its own.
“When you build out a platform business, there is a lot of foundational work. When you get it right you can then push more products out regularly,” said Clark, noting the company has transitioned from a waterfall to an agile environment. “We are now in a mode where there are new product releases or enhancements every month or so across all five product lines.”
Frank J. Diekmann is Cooperator in Chief at CUToday.info and can be reached at Frank@CUToday.infoor @FrankCUToday.