By Ray Birch
SCOTTSDALE, Ariz.—Many credit unions are facing an IT budget crisis as the result of being caught “in the middle of a generation gap,” asserts one analyst, who says it’s affecting their ability to compete.
Jim Trautwein, senior director at Cornerstone Advisors, said his company’s research indicates credit unions are allocating limited IT dollars to just “keeping the lights on,” meaning critical investments aren’t being made.
“Credit unions are struggling to balance their limited funds between just the daily IT activities needed to run the credit union and investing in strategic systems and solutions to help them compete and better serve the membership,” Trautwein said. “It’s very much a balancing act, and a tough one.”
Where is the money going and why?
“One place is direct spending on IT staff,” Trautwein said. “A lot of credit unions are spending as much as two-thirds of their budget on staffing—day-to-day activity, making sure servers are running, maintaining the network, no downtime … So the amount of money and time they have to apply to strategic corporate projects—things that will help them achieve their goals and growth plans—is sometimes less than 25%, or even 20%, of their available capacity.”
Not surprisingly, Trautwein said the resulting cost is an inability to add new systems to more efficiently gain more members, originate loans, and deploy better mobile and online banking solutions.
But Trautwein explained this situation won’t likely change unless CUs they make some hard, often difficult, decisions, “such as getting rid of some of the infrastructure and directing that time and money toward more strategically oriented digital investments,” he said.
A Pivot Point
It’s a pivot point for many credit unions, asserted Trautwein.
“They have built their branch and call center infrastructure and that has gotten them to where they are now. But, as we know, the rapid advance of digital delivery is
causing members to change how they want to interact with the credit union,” he said.
“Almost all of the credit unions we work with are asking themselves how do we minimize the day-to-day IT activities to be more strategic? How do we cut back on branches and call centers—those things we have relied on over the years to spend more on emerging areas and better meet members’ needs in the future?”
Some CUs have responded by freeing up time and money by shifting data centers to the cloud, according to Trautwein.
“They are also looking at outsourcing things that have become commodities, including core processing,” he said. “CUs are also looking at their IT contracts more closely, getting as much out of them as possible, squeezing out every penny so they can invest in ways to be more competitive.”
It’s time credit unions make these kinds of moves, insisted Trautwein, who suggested the big banks have caught up to and now passed credit unions with IT sophistication.
Banks No Longer Behind the Curve
“Credit unions can no longer say they have the most sophisticated technology,” said Trautwein. “The big banks have become much more competitive here in the last few years. They may have been a little behind the curve a couple years ago—not anymore.”
Where banks have the advantage is the deeper pockets for spending on digital delivery and other solutions.
“It used to be that significant new technology would emerge every five years or so,” said Trautwein. “Now, it’s about every two years and the timeframe is getting even shorter. Credit unions are finding that the investments in technology they made only a couple years ago are no longer best of breed. They often can’t afford the latest and greatest technology because they are still paying off their last upgrades.”
The Tough Call
With credit unions lacking the financial resources of big banks and other providers, there is increased pressure on strategic thinking when it comes to IT, he said.
“It’s a tough call,” he acknowledged. “Do credit unions get rid of more branches? But those branches are serving their older, wealthier members. But emerging generations demand digital sophistication. Credit unions are caught in the middle—they are in the middle of a generation gap.”
What CUs can’t ignore, insisted Trautwein, is the need for new solutions and systems for sophisticated targeted marketing, data warehousing. . . “Things they have not been able to afford in the past to help them add new members and deepen current relationships. They want to do much more than they have resources to pursue.”
What credit unions must do, according to Trautwein, is carefully cut back in some areas and invest the money in solutions the CU feels will pay off quickly, as opposed to just going with some “great new idea.”
‘Avoid Knee-Jerk Responses’
He cautioned credit unions not to simply follow what competitors are doing, but instead add the services that will pay off for the credit union.
“Avoid the knee-jerk responses to competitive threats,” he said.
The biggest mistake, continued Trautwein, is the failure to act. But the next biggest mistake is to try to do too much as opposed to picking one to two solid strategies and building them out, he added.
“Create a good, concise plan and validate the plan,” he said. “And then execute. But do too much and you dilute your resources and get little in return.”