Why Credit Unions Need to Integrate Technology in 2023
According to a recent Cambridge Center for Alternative Finance report, digital lending platforms facilitated more than $10 billion in global loans to SMEs in 2022. This is a significant increase from the $1.7 billion facilitated by digital lending in 2016.
What accounts for these shifts in behavior?
Most obvious is the pandemic, in which most U.S. businesses received PPP loans (Payment Protection Program) to fund their payroll and overhead costs. Due to unpreceded demand for PPP funds, even the least sophisticated of lenders set up digital loan intake platforms to administer PPP loans.
Since 2020, most commercial businesses have officially had their first digital loan experience, whether through PPP or otherwise. The result? The vast majority of business owners have no inclination of moving backward into “outdated” practices of printing and scanning their loan applications.
Credit unions are impacted by this shift in SME behavior; and their adoption of digital lending platforms has never been more significant. Known for being member-focused, a credit union’s investment in technology will not only enhance the members’ journey but derive sustainable impact. Here are four steps credit unions can take to initiate or expand technology that will support the member experience.
Determine how technology will elevate your members’ experience
It’s important to outline what pain points your credit union needs to solve through technology. In this undertaking, deliberately focus on your member’s journey. Ask your members for optimal solutions to their challenges through new—or updated—technology. (And, hey, if at least one response doesn’t ‘sting’ a little, you may not be asking the right questions). Once you have a clear and actionable map forward, it’s time to stop talking and start acting on their behalf.
Everyone wants to “know someone” who can get them what they need. In the financial industry, this “someone” may refer to the lender who quickly provides financing without the consumer needing to shop around. However, credit unions can also be that “someone” every one of their members knows and trusts. They can deliver quick solutions for their clients, so they aren’t wasting time and resources shopping around each time they need a loan. Technology can quickly and easily remove the guesswork from a member’s mind as to where they will source their loans. As a credit union, you can be “someone” with good technology.
In addition, technology allows credit unions a chance to collaborate in a larger marketplace. Consider this example: Credit union ‘A’ sources a loan but can’t fund it for any number of reasons (it’s too big, outside the geographic footprint, or requires a loan product that the credit union doesn’t deploy). However, let’s imagine the member’s loan request has merit, and through digital means, the loan is routed on to another credit union in a matter of seconds. In this way, technology acts as a bridge for credit unions to collaborate, acquire greater market share, and continue to build trust with their members. Using technology to partner with like-minded and like-missioned credit unions is a better solution to passing on the loan entirely and potentially sending a member to a bank that may or may not take the member’s deposit relationship too.
Create what-if scenarios to gain clarity on anticipated outcomes
Creating what-if scenarios is a valuable tool that allows decision makers to consider the potential outcomes (and consequences) of their actions. This helps them make informed decisions. Here are two what-if scenarios to consider as it relates to why and how your credit union should adopt or expand technology offerings now:
· FinTechs represent a growing percentage of all loans. Will FinTech players better serve your members if you choose not to invest in technology?
· What are the effects of not keeping up with technological advancements in the industry? Within your competitive landscape? And most importantly, how do your choices impact an upcoming generation of members who expect technology to play a major role in their member journey?
Create your budget: build or buy or partner
There are three primary options when considering the adoption or expansion of technology for your credit union.
First, you can build. As credit unions are in the financial services industry and not the technology industry, credit unions inherently are not set up to build their technology from the ground up. Building technology requires a team – at a fixed cost – and someone with an understanding of how to manage said team. Managing people from the technology industry is different from managing traditional credit union staff and projects. It’s important to consider these foundational differences when considering the option to build a proprietary solution.
Another option is buying, which can be expensive. It is unlikely that your credit union’s needs will be available in an “off the shelf” platform. But if it is available, it is even more unlikely the technology company or platform is available for purchase.
This leads to the most viable option for credit unions when it comes to technology: partnering. A technology company will often refer to this as “white labeling” their platform or solution. Normally a technology partner understands the industry and is growing their products by understanding the needs of their target market, or in this case, a credit union. Partnerships have common goals and seek to create a mutually beneficial result.
Regardless of the technology solution you choose, it’s important to make a shopping list before you build, buy, or partner. What do you need, what do you expect, and how do you expect to get it?
Stop talking and do something about it
We all have experience standing at the end of a diving board. Building up courage to jump into a pool is not easy. (Maybe that’s why the first time I jumped off the diving board was due to a strong nudge. Thanks, dad!)
Gaining courage to change your organizational systems is not unlike standing on the edge of a diving board and staring down into deep, deep waters. At the end of the day, there is something to be said about gathering your courage and simply jumping in. Once you’ve hit the water that first time, it becomes far easier to get up on the platform and dive in again.
When it comes to adopting technology, credit union leaders should be more like divers. First, we should take stock of how we will successfully and safely enter the water; but then, we just need to jump in. Whether we executive a perfect swan dive or a belly flop doesn’t matter. Either way, we’ve given ourselves the forward momentum to enter the pool. That’s where the actual swimming happens.
Finally, it's always helpful to know we’re not alone. That’s true here, too. We are all in the pool together, entering a new era for credit union financing. As seen with the adoption of digital lending platforms in the past few years, businesses and consumers have come to expect technology-integrated solutions for their financial needs. Before taking the plunge, we can identify pain points and desired outcomes, budget accordingly, and then take action. If we need a pair of water wings, floaties, or even a loving nudge off the diving board, credit unions can partner with CUSOs to provide financial and operational services. What matters is that our bravery to integrate with technology will help us remain relevant and valuable for our members.
Jump on in, the water’s fine.
About the Author
Bryan Doxford has over 20 years of financial industry and leadership experience and today serves as the Chief Strategy Officer of AVANA Companies, a comprehensive lending and asset management platform. After starting his professional career as an analyst at Zions Bank he quickly rose to an executive vice president position at Pursuit. From there he became the CEO of Prudent Lenders. Throughout his career, he has special...