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CUs' choice: Embrace digital banking or 'die a very slow death'

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As credit unions move to further expand their membership rosters, the right suite of digital banking offerings is likely to be crucial in wooing customers away from competing institutions.

A recent study from A.T. Kearney found that 39 million adults switched their primary financial institution in 2018, an all-time high since the financial crisis a decade ago. While that figure has climbed in the last three years for national banks, credit unions have not fared so well, though there may be some small consolation that many community and regional banks are also losing ground to national competition. Still, the study suggests that digital offerings can not only help poach consumers from other banks and credit unions, but also help with retention.

“It’s a great opportunity to gain ground,” said Will Callender, a partner at the firm and co-author of the study. As the ability to manage personal data improves, he added, FIs will likely prioritize data that helps them better serve and understand the consumers they serve.

The A.T. Kearney study arrives at a time of fierce competition in the financial services landscape. Banks and credit unions are both seeing significant consolidation, and the number of CUs purchasing community banks has never been higher, including Wisconsin-based Verve CU’s announcement this week that it plans to buy Chicago-based South Central Bank. Amid those changes, credit unions are not only looking for new ways to attract and serve members, but also looking for data-driven ways to predict future business opportunities.

Those topics and more are expected to be explored in detail as part of the Credit Union Summit at the 2019 Digital Banking conference, kicking off today in Austin, Texas.

With all that in mind, many credit unions are getting creative with how they use their digital platforms. SAFE CU in Folsom, Calif., last summer launched a digital banking offering from NCR. Chief among the features are mass push notifications, which have a 97% acceptance rate for members who opt in to location-based notifications. About 150,000 of the credit union’s 235,000 members are active online banking users.

SAFE’s in-app notifications also help promote the CU’s cash-back rewards program, a feature that helped boost engagement rates by 30%. And when card readers go down at a particular retail location and members plastic is declined, push notifications have helped alert members and reduce call center volume by 88%.

But sources say those features also require a delicate balance of alerting consumers without irritating them.

“It’s important to not over inundate people,” said Danielle Juarez, SAFE CU’s assistant vice president of digital banking strategy and innovation.

Along with finding the balance between informing members and spamming them, credit unions also have to size up their competition. That’s because CUs aren’t just competing with banks or other nearby financial institutions, said Charlie White, business transformation officer at Affinity Federal Credit Union, they’re competing with the latest digital experience that a member had.

“Five years ago, the big trend in credit union technology was making the shift to either a new core platform or perhaps mobile delivery of services,” White said. “It’s a whole new ballgame,” he added, noting that FIs are now focusing on driving personalization, building out data warehouses and expanding channel delivery options.

New partners, new risks

For many credit unions, but particularly those on the smaller end of the asset spectrum, the biggest challenge right now is finding the right partner with the right price tag. But with those partnerships – including fintechs, credit union service organizations, traditional vendors and others – come new risks, including cybersecurity and data privacy concerns.

“You’re outsourcing data to a vendor, so there’s a risk,” said Carlos Vazquez, chief information security officer at Canvas Credit Union. By allowing a vendor to access member data, Vazquez explained, additional hedges are needed given that another entity is accessing a member’s footprint.

“A credit union is responsible for that data, regardless if it’s going through a third party,” he added.

Indeed, credit unions are tasked with ensuring that a partner’s methodology is meeting or exceeding its own security standard so that all data remains safe.

The National Credit Union Administration has echoed raised those concerns, including in remarks before Congress last fall when then-Chairman Mark McWatters called on lawmakers to expand the agency’s oversight to include fintechs and other vendors that work with credit unions. Industry groups were quick to point out that this request isn’t vastly different from a decade ago when the agency asked for vendor authority in the run-up to Y2K, but some analysts have suggested today’s increased cyber risks could finally sway lawmakers, though no changes have been made in the nine months since McWatters made those statements.

Some institutions, however, argue that digital banking is safer than old-fashioned member-outreach strategies.

“In a lot of ways, digital banking is probably the most secure form of banking,” Juarez said, pointing out that e-statements are generally much more secure than sending sensitive information to a member’s home via the postal service.

One of the biggest digital banking challenges facing credit unions may simply be strategy – or a lack of it. A recent study from the Digital Growth Institute found 51% of institutions surveyed lack a sturdy, internal digital framework.

James Robert Lay, founder and CEO of the institute, suggested that for credit unions ranging from $250 million to $500 million in assets, the cost of developing and implementing a digital strategy could range from $30,000 to $100,000 annually, depending on how aggressive a credit union wants to be. But, he noted, those costs – for technologies that reach consumers regardless of their geographic location – pale in comparison to a new branch, which can cost upward of $1 million.

While small credit unions continue to struggle against institutions with bigger budgets and more tech offerings, Lay suggested CUSOs are likely to be the best path forward for those institutions, allowing them not only to maintain brand independence but also to potentially avoid merging into a larger CU.

For smaller credit unions "to go out and transform their entire business model, it’s going to take an investment, and you have the choice you have to make,” said Lay. “Either we’re going to invest in this type of growth for the future or we’re going to die a very slow death.”

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