The financial services industry is facing big changes in 2017, with the shifting tides in Washington, D.C., filling in just part of the picture. Even more significant for credit unions may be the technical limitations they need to overcome to meet the evolving expectations of members, who continue to expand their use of remote services. Many, if not most, credit unions continue to rely on antiquated, siloed legacy core systems that were built decades ago. It can be both difficult and costly to connect such outdated systems with the ever-growing number of channels members want to use.
Not so long ago, consumers were stuck with whatever financial services were offered to them. This is no longer the case. Such digital powerhouses as Amazon, Google and Netflix have conditioned members to expect all services to be available anywhere, anytime and from any device. Such companies as UPS and Domino’s Pizza have followed their lead, inviting consumers to place and pay for orders digitally, while providing complete transparency on order status via smart devices.
Credit unions that fail to offer a comprehensive set of modern, intuitive digital services will be left behind. This realization prompted the early stages of a major online and mobile banking replacement cycle that began in 2016. As more credit unions seek to grow customer bases and solidify technological strategies, the digital movement will increase in both speed and scope. Over the next 12 months, this replacement cycle will not only continue but gain momentum. Transformations will likely be incremental, with credit unions replacing disparate legacy systems as contracts expire or technology budgets become available one channel at a time, allowing for a more paced, manageable evolution.
Traditional cores are often comprised of several aging channels and applications built on top of one another over time, making it difficult for systems to properly communicate with one another. This disparate approach often results in operational inefficiencies and a clunky user experience. Instead, credit unions should consider adopting a new digital core, something Jost Hoppermann of Forrester describes in his report “An Introduction to Digital Core Banking” as an end-to-end, single digital banking platform system with a comprehensive set of services.
Using the digital core approach integrates so seamlessly because all applications associated with serving members through digital channels are contained within a single digital layer instead of being scattered across several disparate channels implemented at different times. This approach allows credit unions to increase operational efficiency and more easily introduce new innovations. IT and operational staff will especially benefit from such a core, as it reduces complexities of traditional systems, allowing employees to more easily access member data and have a comprehensive view of the member relationship. For members, this type of core would result in a more consistent, intuitive digital experience from any device they choose.
This shift will also allow credit unions to more nimbly adjust to business and market changes while reducing overall risk and improve their ability to better leverage member data. While the industry has been talking about the importance of data for years, credit unions have often had difficulty converting the member data available to them into deliberate action. This year, credit unions will not only continue to expand their personalization of offers but also begin to anticipate member needs. By identifying what financial guidance, counsel or services they will need—such as auto loans or mortgage assistance—before members realize those needs themselves, credit unions can add significant value to the overall relationship they have with members.
As a means to deploy this digital core strategy, more credit unions will adopt hosted and software as a service offering. According to a recent JD Power survey, customer satisfaction at regional and community institutions was lower than satisfaction levels at the largest financial institutions in the United States. However, recent scandals at national financial institutions present the opportunity for credit unions with an advanced, long-term digital strategy to reclaim the lead.
By leveraging cloud-based and SaaS technology that provides strong flexibility and configurability, credit unions will be able to more easily deliver innovative technology that provides a superior user experience, all at more affordable costs. In addition, hosted and cloud-based options eliminate a significant amount of the infrastructure associated with a credit union managing a solution on premise. These attributes can empower community and regional credit unions to successfully compete with larger institutions despite budget and personnel limitations.
Credit unions that want to maintain their competitive edge will take the necessary steps required to ensure that the modernization of their digital channels is a priority. They can accomplish this goal by carefully considering their digital strategy and vetting and selecting solutions that best support this journey. Forgoing antiquated technology and systems in favor of a new, streamlined digital core will provide unrealized benefits in operational efficiency as well as the member experience. Such an evolution will require an upfront investment of time and resources, along with the inevitable learning curve associated with any change of this magnitude. On the plus side, making this commitment will secure a significant competitive advantage for credit unions as they embrace the digital future.
Mark Vipond is CEO of D3 Banking, Omaha, Neb.