3 minutes
OK, we need to be open to innovation. But where on earth do we start? By Graham Seel
This was excerpted with permission from “OK We Need to Innovate – But Where Do We Start?”
Most credit unions accept that they need to innovate—and that they need to be both strategic and tactical about it. But in practice, many CU leaders are asking themselves these kinds of questions: "Where on earth are we going to start? What are our priorities? Where should we apply technology? Which issues need capital? And which depend on organizational change?" For most people, "innovation” means technology. So let’s focus on the top five themes I hear over and over from community financial institutions. They'll give us clues about where innovation is needed.
- Net interest margins are continuing to narrow. The cost of funds can’t go any lower, but competition is squeezing yields on every kind of loan. So although loans and interest income are growing, net income isn’t keeping pace. Interest rate increases would help, but this is outside our control. If we’re to maintain or grow net income, we have to reduce expense (again!) or profitably grow non-interest revenues—or, preferably, both.
- Business members are demanding more and more. True, small-business owners are less demanding than those pesky millennials. But businesses now expect that we will do more than give them loans and allow them to manage deposit accounts. They want cash management capabilities and cross-border services. Some want investment management and all sorts of other things that used to be the domain of the big banks.
- Core banking vendors hold community financial institutions hostage. OK that’s a bit of an overstatement, but doesn’t it feel that way sometimes? After all, who decides what software we should run? And that in turn decides what product features we can offer?
- Regulators demand more and more. From capital controls to anti-money laundering monitoring to lending disclosures, compliance just gets harder and more expensive.
- Cyber-security is a growing concern. It seems like a never-ending race between security geeks and criminal hackers. Can we ever be satisfied that our cyber-security plans are adequate?
Considering this list should give you ideas for a number of ways you can better use technology to innovate. This may include new technologies or new technology partners. It may include new servicing partners or reassessing how you use what you already have. In the original article, I dive into more detail on what you can do to address each of these concerns. Each of these major areas of concern require innovative solutions whether that’s new technologies, old technologies used in a new way, organizational change, or specialist partners. The most important thing is to drive innovation strategically. You must choose priority areas of focus, and then clearly define the business problem to be solved.
Graham Seel is founder and chief consultant at BankTech Consulting.
