John San Filippo
Industry Leaders Forum: Digital Transformation Advice, Part 3
Updated: Mar 14
By John San Filippo
Finopotamus has assembled a panel of experts in a new recurring series, The Industry Leaders Forum (ILF). Each month, we’ll ask the panel a broad technology question and share their informative responses. Due to tremendous response, we’ve divided the first ILF installment into three parts. Respondents are presented in alphabetical order by company.
Part 3 includes responses from:
Al Pascual, SVP Enterprise Risk Solutions, Sontiq, a TransUnion Company
For February 2023, Finopotamus asked our panel:
Digital transformation is a tough topic because every credit union has a different starting line and there is seemingly no finish line. What’s your most essential advice for credit unions regardless of where they are on their digital transformation journey?
Abhishek Veeraghanta, CEO, Pidgin
In recent years, credit unions have gained market share, especially when it comes to serving businesses in their local communities. For instance, new data from PYMNTS.com shows that 74% of credit unions are seeing increased demand for business lines of credit. As credit unions continue to grow their business membership, they must consider the ways that digital transformation will help solve these members’ biggest pain points, which often revolve around payments. This, combined with the upcoming launch of FedNow, the Federal Reserve’s new faster payments service, means that digital transformation that supports innovation in payments will be crucial in 2023 and beyond.
Credit unions of all sizes should start identifying and executing on new opportunities to serve their business members with faster payment offerings. This can be challenging because businesses that operate in different verticals likely have unique payment needs that vary, depending on their business model. For example, a commercial property owner may be focused on sending bills, processing payments, and reconciling the payment data associated with those transactions. This can be a complex process for a property owner with multiple properties and tenants with various lease agreements, which makes it vital that these businesses have a clear view of their payment data to make the most informed decisions possible. As another example, a local farmer may benefit from faster payments because cash flow management becomes much easier – from paying their suppliers and employees or getting faster access to funding.
These are just a few use cases and depending on the membership demographics, credit unions will identify additional use cases in the coming months, especially as adoption of faster payments is expected to grow significantly this year. According to a survey by the Federal Reserve, nearly 90% of U.S. businesses expect to use faster payments in their operations in 2023. Therefore, credit unions should consider how they can align their digital transformation efforts to the latest developments in the payments space.
Kathleen Craig, CEO, Plinqit
To ensure digital transformation success, start with who your members are today and which product innovations can best help them. It can be easy to focus on the bright and shiny or get overwhelmed. By starting with who you serve and identifying their top needs, credit unions can best prioritize their digital transformation roadmap and strategy.
This is incredibly important today, as competitive pressures are squeezing credit unions at a time when resources are limited. One recent survey by PCSU shows that nearly half of credit union executives say a lack of resources is preventing them from bringing new innovations to market. The good news is that more credit unions are responding by seeking partners to help them develop and roll out the products and services their members want.
We’ve seen a large increase in demand among credit unions and their members for new financial wellness and financial education programs. To roll out a program that makes a meaningful impact for members, credit unions should deeply understand the market and community you operate in and your current member demographics. Is your credit union in a college town or in a large urban market?
For example, in large, urban markets with a younger population, there are often several gig economies, where individuals are working for companies like DoorDash or Uber on a contracted, hourly basis. As a result, these members may need to understand how to set aside money for taxes, or they may not have a retirement savings plan. In an area like this, rolling out a retirement savings product and educating members on the importance of saving for retirement early can be a huge win. Taking the time to determine which products, programs and services will resonate most in your credit union’s market makes it much easier to define the best path forward and if needed, the right fintech partner for your institution.
Amber Harsin, CEO, Prodigy
Legacy software can often present challenges during a digital transformation journey. It may need to be updated, difficult to integrate with new systems, or incapable of meeting the credit union’s or its members’ evolving needs.
Therefore, it's essential to evaluate legacy software's benefits and limitations carefully. Layer those capabilities into what your members are asking for and determine the best approach to updating or integrating it with other systems to ensure a successful digital transformation. If your software is not in a position to allow you to meet those needs, you may want to start with building a better foundation that allows you the access what you need to enable the digital channels.
Sabeh Samaha, CEO, Samaha & Associates
Be sure to implement the cultural adaptation necessary to optimize your digital transformation. Keep cultural evolution moving forward with these new technologies: Teams from all related departments across the entire credit union must immerse fully into all related aspects of these new products all day, every day. Management and staff must be constant participants in these new product offerings from their selection phase through implementation and ongoing maintenance. This is the best way to affect a cultural evolution alongside these product rollouts. A culture that does not embrace digital transformation fully will struggle to reach best-in-class status. Without cultural adaptation, technologies such as digital transformation will not evolve in an optimum manner.
Al Pascual, SVP Enterprise Risk Solutions, Sontiq, a TransUnion Company
Regardless of the twists and turns credit unions take along the so-called “digital transformation journey,” they must remember their true north: exceptional service to the credit union member.
The misnomer “digital transformation” arguably has created more stress in the industry than any financial crisis of the recent past. Unless, of course, you belong to a vendor selling the dream of future-proofed digital banking. In that case, digital transformation has created a business boon.
That’s not to say that the streamlining of back-office processes with technology hasn’t been revolutionary. Many credit unions have experienced massive declines in operating costs over the past two decades. Yet, when it comes to servicing the member, the pursuit of digital transformation has proven to be a costly, moving target often plagued by delays, cost overruns and unmet promises.
In fact, many credit unions executives agree that the thing most affected by digital transformation is the balance sheet.
It makes sense that would happen. Technology advances faster than most credit unions can implement it. Much like Sisyphus, forced to push a boulder uphill for all eternity, digital banking executives often find themselves behind. This is especially true among credit unions, many of which are already hamstrung by budgetary constraints and the practical realities of purchasing most (if not all) of their banking technology from the same small set of mega vendors.
But here’s the deal: While large financial institutions lead in the deployment of the latest and greatest technology, they can’t match the innate ability of credit unions to serve members from a place of good intention. Digital transformation is an ongoing evolution, with shiny objects always around the corner. If leaders aren’t careful, it can pull them away from their core strengths: For credit unions, that is the innate member-first philosophy.
If credit unions maintain a member-centric approach to selecting technology, they will deliver the highest possible value to their members. The loyalty they engender will remain evergreen, and in that way, the boulder they are pushing uphill won’t feel nearly as heavy.
Siva Narendra, CEO, Tyfone, Inc.
Credit unions face several challenges when it comes to digital transformation:
It is too broad of a term, and it could mean different things to different credit unions – even for different stakeholders within a credit union. So the first order of business for the credit union leadership is to define what it means for them and prioritize the “whats” based on why it would add value to their purpose.
Let the “whats” be driven by the business units and not the technology group or external vendors.
Unfortunately most credit unions have severe limits in having a true and complete test environment and severely lack in test accounts, making it nearly impossible to have true replica test outcomes with live production outcomes. This is easy to overlook and hard to solve. Make sure you have a good strategy to get past this serious hurdle.
Be mindful of the Section 1033 of the 2010 Dodd Frank Act ("Consumer Access to Financial Records"—a little known precursor to the more popular 2015 PSD2 in the EU) related to rulemaking that is going to be overseen by CFPB. Even if you are not big enough for CFPB to knock on your door, this could positively or negatively (think next generation of OFX and Plaid Exchange) impact future digital transformation efforts or even what you do now in preparation for it. If you are interested in a CU industry-wide effort being formed, email me at firstname.lastname@example.org with subject "Section 1033."
Barry Kirby, CRO, Union Credit
Digital transformation is more than a buzzword. The concept extends much further than just having a well-optimized website or simply converting paper-based processes to digital formats. Implementing new technologies just to check a box will only set a credit union further back on their transformation efforts.
A shift in mindset is required. Credit unions must rethink their strategic planning processes and digital transformation initiatives to move more quickly and make a meaningful impact on consumers' financial lives. This includes defining a comprehensive plan with short, mid, and long-term visions and clear success metrics established. Credit unions can then seek to leverage digital tools and approaches that will help them achieve these goals, strengthen their competitive edge, and improve the member experience.
Furthermore, digital transformation is a continuous process that demands credit unions to be agile and adaptable. To ensure that they are well-prepared for future needs, credit unions must re-evaluate their existing processes and methodologies. They must determine their relevance and suitability for future needs and ensure they are flexible enough to respond to changes in technology, member needs, and market needs. Credit unions that can adapt to these changes without requiring a complete overhaul can sustain the momentum on their transformation initiatives.
No two digital transformation strategies will be identical. To remain relevant and keep pace with evolving member expectations and external market pressures, credit unions must be flexible, adapt quickly, and prioritize delivering strong member experiences where members are: online. Getting there requires them to reevaluate the way their organization has always done things, define a plan, and have the technology and support in place to move quickly.
Murthy Veeraghanta, CEO, VSoft
Digital transformation should be an ongoing journey and credit unions should consider how the last several years have impacted their members and their financial needs. For instance, the nature of work has evolved tremendously over the last few decades and more recently, the COVID pandemic accelerated the shift to remote and hybrid work policies. It also drove many individuals to pursue career changes, such as starting their own business.
According to reports from Pew Research Center, there are now 16 million Americans who are either entrepreneurs or self-employed consumers. Understandably, trends like these have implications for how people bank and manage their money.
Today, many small- and medium-sized businesses use retail banking platforms, as they often come with intuitive digital banking features. However, a business owner or self-employed member has unique financial needs that retail digital banking solutions do not always support. As a result, they face daily challenges managing their finances, including making and accepting payments, obtaining financing, separating personal and business activities, handling tax obligations, and dealing with unpredictable income streams — tasks that are made more difficult by the lack of digital options available to them.
This is one of the many reasons credit unions should avoid narrowly focusing their digital transformation efforts on one membership demographic. Otherwise they risk excluding other members, such as their members who own small businesses. Keep in mind that an excellent digital experience is not exclusive to consumers; business owners also have heightened expectations for digital now, especially after the pandemic.
Before, having a physical branch or ATM nearby was a key differentiator for businesses when choosing a financial institution. Now, this is less important, as research from analyst firm Curinos revealed that 35% of small business owners surveyed in 2018 said having a credit union branch or ATM close by was important in choosing who to bank with. By 2021 that number dropped to 25%, while 50% of business owners said that strong digital services were important to them. Making it easier for member businesses to bank digitally is crucial in 2023 and beyond, so make sure their needs are factored into your credit union’s digital transformation strategy.