Digital Transformation and Data Strategies Should be Top of Mind in Tech Budgeting (Part 1)

by Brian Hamilton
Digital Transformation and Data Strategies Should be Top of Mind in Tech Budgeting (Part 1)

As your credit union finalizes its 2020 technology budget, are you confident that you are effectively judging the magnitude of change that will occur in the short-term, while keeping an eye on long-term trends?

Technology experts say you must deliver a service standard that compares to Amazon. Members expect an experience that compares to the retail giant, which provides service so personalized, it’s a “segment of one.” That is, successfully using data to anticipate a customer’s wants and needs, recommends customized products, and brings it home with a purchase process that requires as “few clicks” as possible. This is what emerging fintechs and other lenders that understand the tremendous value of user-centered design are investing in.

Budgeting for technology investments to align with your strategy can be achieved by organizing and planning your needs according to innovation horizons, which are divided into three tiers or timeframes that range from 12 months to five years or more. For the purposes of this article, I’d like to focus on the first innovation tier or “Horizon,” which covers the next 18 months.

This tier is vital – and by far the most important for financial institutions. 60% of your credit union’s focus should be on horizon one innovation. It involves change that needs to occur in the short-term in markets you already serve. Innovation in this horizon should be focused on leveraging technology to optimize processes, improve business intelligence capabilities, and reduce costs to bolster operational excellence and deliver better experiences for all stakeholders.

Let’s examine the two most important current technology trends for financial institutions: digital transformation and data analytics.

Executing digital transformation

Effective digital transformation requires execution of three equally important things: strategy, product, and experience.

Before investing anything in digital solutions or technology, it is imperative to have a well-defined digital strategy. How, specifically, does it tie to your overall three-year business strategy? What problems are you trying to solve? What outcomes do you expect? Only move forward once there is a clear understanding and universal alignment with what your strategy is.

Many credit unions do a great job of presenting their products through digital channels, and even kicking off processes for members with on-line account opening and loan applications. However, true digital transformation requires re-imagining the entire experience from shopping through funding for all roles, including back-office operations. This may require changes in legacy processes and practices that create unnecessary friction in some cases, and not the right friction in others. It also requires proper infrastructure enhancements to ensure that your IT platform can support new solutions and ways of doing business. For example, even if you have not decided to migrate to the Cloud, are you developing the infrastructure to be Cloud-ready?

Finally, enhanced data collection and analytics capabilities are paramount. Structured data must be “clean” and investing in solutions to normalize unstructured data is something to consider. These are usually table-stakes in order to leverage emerging machine-learning and AI solutions that take your business intelligence to the next level.

Mapping the member experience

Mapping the journey in detail from product offering through product delivery is a critical early step in the digital transformation journey. A journey map isn’t a new concept, but many organizations don’t go into enough detail, get the right perspective, focus on the right products or services, or approach in it an unbiased way.

Journey mapping done right begins with identifying and describing three to five of your most common member personas – not just one. Dig deeper than simple market segmentation by detailing what motivates each member persona and identifying what goals and challenges they face in life; then do the same for the employee personas involved in the experience. This will help you understand how well your credit union is truly meeting your members’ needs as well as the experience your employees are having – a key driver of member satisfaction is employee satisfaction.

While starting with a simple product is a good exercise, it’s imperative not to stop after the first deliverable. The objective should be to break down and re-imagine the process for your most common offerings to maximize the member and business impact.t

Another common mistake is to misunderstand the dynamics of traditional business models. For example, SEG-based credit unions with on-site branches have a unique competitive advantage with extraordinary member engagement. They experience high foot traffic and develop close personal relationships with their members. In the case of a debt consolidation loan, however, the personal relationship may be problematic as shopping in anonymity may be preferred.

Offering a robust digital platform where members can shop and apply for loans without coming into the branch is beneficial in this case; and having the analytics capabilities to know that your member may be in need of a loan – then offering it up as a prescriptive solution is next-level member service.

In part 2 of this article, we’ll discuss how optimizing data and using automated decisioning are key to supporting credit unions’ digital transformation

About the Author

Brian Hamilton
Brian Hamilton has 25 years of experience with financial institutions and fintech start-ups, where he has managed all facets of consumer lending operations, and has led key initiatives in the development of groundbreaking on-line applications, custom scorecards, and loan origination systems. He joined CU Direct in 2017 as the Vice President of Innovation, where he leads research efforts on emerging trends and product innovation. Prior to his position with CU Direct, Brian was Vice President of Lending at UNIFY Financial and Chief Credit Officer at BlueYield. He previously served as VP of Lending at SchoolsFirst, First Tech, and the Golden 1 Credit Union.