By John San Filippo
In 2012, credit unions averaged about 400 members per employee. One might expect that, 10 years later, with the explosion of digital technology, much of it engineered to drive greater efficiency, this ratio would improve. Yet it hasn’t. In 2022, credit unions are still averaging about 400 members per employee. Finopotamus spoke with financial technology expert and CU 2.0 CEO Kirk Drake to get his thoughts on this apparent lack of improvement.
According to Drake, metrics commonly used to measure efficiency at credit unions can be misleading. He said few credit unions look at the number of members per employee. “They have your normal OpEx (operating expense) ratios and efficiency ratios — based on loan to share, loan to member, share to member — which are all frankly highly subjected to weird whims of the balance sheet.”
Drake noted that compared to 20 years ago, the average American has more in their savings account, more in their checking account, and their loan balances are higher. “You're doing the same number of members per employee, but your efficiency metrics actually look like you've gotten more efficient,” he explained. “Say your assets went from $100 million to $200 million. It’ll look like your efficiency improved quite a bit.”
He added, “We're not actually focused on the right metric. And I'm not sure that members per employee is the right metric, but I do think it's a much better indicator of what we're spending time on. “
Bad Use of Good Technology
Drake told Finopotamus that it’s easy to claim that the technology has failed to deliver, but in his experience, responsibility also falls on the users of that technology. “We've deployed a lot of technology, mostly not very well and mostly not in a way that actually measures efficiency,” he said, “because the credit union isn't necessarily measuring, for example, the efficiency of the new voice over IP phone system based on hold times and how many employees they need to do it. They're measuring it based on member satisfaction, and member satisfaction is not correlated to efficiency.”
Although credit unions may have added a lot of new technology over the past decade, Drake noted that many of them are still on legacy core platforms that are holding them back. “I think it's fair to say that core systems probably have not materially evolved in efficiency in the past 25 years,” he said.
Member Satisfaction = Inefficiency?
Drake posited that member satisfaction may, in fact, work against efficiency. The reason is that members want as much personal attention as possible and a bloated staff has more than enough time to meet that need.
“You don't want your doctor to see you in four minutes,” Drake offered as an analogy. “The more serious your condition, the more time you want them to spend on the diagnosis. Whether they know the answer in 38 seconds or in in 38 minutes, you don't care.”
Digital Transformation Is Part of the Problem
Credit unions have all been warned of the need to embrace digital transformation. Yet according to Drake, digital transformation, at least in its most popular flavors, is part of the problem.
“Transformation is the issue,” Drake noted. “Transforming anything is not efficient. At some point in time, the clean slate of paper and ‘build from the ground up’ is the only way you truly get the disruptive efficiency. If you're transforming legacy silliness into modern silliness, you didn't really accomplish anything.”
Drake understands that no credit union can start completely from scratch, but he added that fintechs offer a way for credit unions to get a fresh start on any number of fronts.
“I'll give an example,” he continued. “Quillo can underwrite and approve a loan in under two seconds. And for less than a dollar per loan on a 100% digital platform. Show me a credit union that can get their unit cost of a loan application below a dollar.”
As a new fintech, Quillo was able to start from scratch. “They looked at it and went, ‘Well, the e-signature stuff is out there, but at a cost a dollar to two dollars per signature,’” said Drake. “’So we're going to write our own e-signature thing. Otherwise we'll never get to below a dollar.’”
Still Hope
Drake believes that (properly implemented and deployed) technology can still lead to greater credit union efficiency. “First off, anything AI (artificial intelligence), I think, is worth taking a very close look at,” he said. He listed a number of areas where AI might impact efficiency:
Loan underwriting
Automatically setting, and removing and dynamically adjusting check holds,
Adjusting remote deposit capture limits on the fly
“How many times have you been to a branch and asked the teller a question? They type furiously for a minute and a half and then they go, ‘Seven,’” said Drake. He added that with a good AI-based system in place, there’s no reason that credit union staff should be responsible for any manual, repetitive tasks that computers can do faster and more accurately.
Finopotamus asked Drake whether it makes more sense for a credit union to identify a problem and then see if AI can fix it, or look at what AI can do and then decide if it addresses any of the credit union’s current problems. He offered a third option. He said that credit unions need to start by looking into the future.
“Let’s say we’re sitting here 20 years from now and AI has won the world,” said Drake. “What does that look like? Credit unions need to work backwards to how that happened and look at what things in the organization have shifted.”