By Ray Birch
BIRMINGHAM, Ala.—Get ready: in 2019 credit unions will face a “strategic conundrum” when it comes to lending, will need to take steps to address the “crazy pace”
of digital change, and will be taking a different view of vendors.
The good news: more credit unions will finally begin effectively leveraging member data to drive the business.
Those are observations from industry experts who spoke with CUToday.info about trends, issues and opportunities facing the credit union community in 2019.
Former NCUA Chairman Dennis Dollar noted two key issues facing the industry are working against each other.
"Credit unions face two challenges going into 2019 that are somewhat of a two-headed monster—with each head looking in an opposite direction from the other,” said the Dollar Associates’ principal partner.
Dollar said credit unions have been so strong at lending the last several years that the need for deposit growth is a high strategic priority in 2019.
“However, at the same time credit unions are needing to move the needle down on the average age of their members to continue to build that next generation of borrowers,” Dollar reminded. “It is tough to get deposits from Millennials, but it is also tough to build a loan portfolio on the aging market that is in a position to bring more high-dollar deposits. Credit unions of all sizes, but particularly those with over $250 million in assets, are facing this strategic conundrum in 2019—and may face it for several years to come."
Dean Michaels, chief strategy officer at CO-OP Financial Services in Rancho Cucamonga, Calif., emphasized that the pace of digital change must be a priority for CUs.
“We are seeing a crazy pace of change in digital,” noted Michaels. “Go back five years and 80% of consumers’ digital financial services interactions were through desktop computers. Now five years later, that percentage has dropped to 34%, while mobile accounts for 66% of transactions.”
Michaels said credit unions must pay close attention to the “digitization of everything, but underneath that is the mobilization of everything. It’s becoming a mobile first environment.”
The drive towards mobile is forcing innovation on other fronts, particularly with APIs, he said.
“So how does everyone stay connected? How does all the innovation CO-OP is working on, for example, plug into solutions from digital banking providers A and B? This is nothing new, but this focus on APIs is really picking up. Everything now needs to be API based,” Michaels said.
Big 2018 Topic To Grow
Michaels noted that artificial intelligence and Big Data got much of the attention in 2018, and that will only increase in 2019. But he cautioned credit unions that as they begin using this technology they must focus first customizing member interactions.
“For example, you can have a great mobile banking app but it will fall on its face if you are not leveraging data to improve the interaction,” explained Michaels. “You can have great technology, but if it is not speaking to your members in the way they want to be spoken to, if they perceive that you do not understand them through these mobile interactions, these efforts will fall flat on their face. AI and Big Data will be key in driving effective member interaction and member engagement.”
Michaels noted that CO-OP, which has placed great emphasis on digital transformation, is using Big Data and artificial intelligence in its fraud fighting efforts, particularly in its Cooper platform.
A final trend CUs will need to begin paying attention to is connected devices and the Internet of Things. While Michaels said this is an area for credit unions to closely watch this year, he noted that consumers are not yet ready to heavily engage in this space.
“Consumers are taking baby steps here,” he said, noting that it will be some time before they become heavily engaged in devices like refrigerators that can order milk. “The easy step for consumers is wearing a device on their wrist, whether that is to tell time, count the steps you take each day … More and more financial services are working through these connected devices, with payments being the most obvious one.”
How Analytics Will Be Used
Tampa, Fla.-based Trellance predicts one of the biggest trends this year will be many more CUs using data analytics to collect, normalize, and warehouse payments-related data and member data together to do things like:
- Predict member behavior
- Enhance member financial wellness
- Develop and enhance tailored product offerings to better meet members’ needs
- Identify member profitability to drive credit union profitability and financial health overall
- Develop comprehensive rewards programs to influence member behavior
- Get ahead of fraud
- Automate processes to reduce exceptions and increase decision making accuracy
“Interestingly, there is no correlation between the size of the credit union and the size of investment in data analytics,” said Trellance President and CEO Tom Davis. “Big and small credit unions alike see the need to make better use of data from their core, debit and credit processors, loan origination systems and external data sources. Several credit unions we reached out to noted that the budget for data analytics is not a one-time item but represents a three-to-five-year commitment of building out systems, software, data warehouse, and staffing.”
Different View of Vendors
The company also believes more credit unions will look at vendors differently.
“We say this based on a trend we are seeing among our CUSO members,” said Davis. “What we are seeing is a more concerted effort to view processors and third-party providers as partners rather than vendors. This means going through an RFP process rather than letting contracts renew automatically. One of the capabilities credit unions are looking for in their processors and third-party providers is best-in-class APIs to access data directly, bringing that data into a credit union owned data warehouse to create dashboards and more sophisticated analytics. Of course, other criteria—such as integration with core, reporting, price, up-time, and fraud protection—are equally important considerations.