The Time Is Now to Prioritize Technology for the Future

With the economy improving, the unemployment rate being the lowest it has been in nine years, and consumer confidence building momentum, credit unions continue to experience steady member and loan growth, low delinquencies and charge offs. These are all very positive signs, but can foster a false sense of security if not careful.  History has taught us that conditions like these won’t last forever, and it is critical that CEOs, shareholders and other decision makers make technology a true priority to remain viable when the market becomes tighter and an already competitive landscape, even fiercer.

In conversations with credit unions, many C-Level executives will admit they have a deep desire to incorporate the latest in industry methods and innovations to advance their credit unions, but meeting the daily demands of their members, boards, and the oh so burdensome regulatory environment, execs are stymied by the amount of time, resources and money it will require to take those steps.

In many cases, this has led to a slow adoption of new technology. And, as a result of this paralysis incurred upon both banks and credit unions, startups and fintech companies have managed to gain momentum in the market from consumers who are willing to venture beyond the traditional banking and lending channels, in search for faster, more efficient and digitized experiences.

Companies like Kabbage, Lending Club and even GoFundMe have become alternative sources for consumers and small businesses to access the funds they need. Visit any of these sites and you will be teased with claims of 10-minute approval times, deposits into your account within 24 hours and simple finance terms.  This has become the new expectation of many consumers.  “Silicon Valley is coming” signaled Jamie Dimon, CEO of JP Morgan Chase, in an annual letter to shareholders where he bemoaned the emergence of this new type of competitor in the marketplace.  While many are not convinced of the future success and viability of these new business models, one thing is undebatable: these companies have been able to change the consumer and small business lending market and it will never be the same.

You may be surprised to learn that there are really only two main ingredients in the”secret sauce” found at the foundation of the these fintech companies that makes what they’re able to do possible — neither of which is out of reach for credit unions.

The first is data, and lots of it!

Fintech’s have leveraged Big Data in new and inventive ways.  Thinking beyond traditional loan origination guidelines and risk attributes, like credit score and job history, fintech financing companies are creating and defining new risk attributes and turning to social media, utility and cell phone data as the new risk predictors.

“Data is the new oil of the twenty-first century” says Perry Rotella of Forbes.  If this is true, credit unions should be loading up the truck and moving to Beverly Hills!  Credit unions, often unaware, are sitting on mounds of valuable data, amassed over the decades of their strong relationships with their member base.  From loan performance to transactional data, if done right, credit unions can leverage this data for proprietary data analytics and multi-decade insight that newbie startups would salivate over.  Pulling this data together from every corner of the credit union to create a centralized source of truth would be the first step in gaining the upper hand.

The second component of the fintech’s foundation is robust, but nimble business intelligence platforms.

The new, younger generation of financial firms determined early on that weeks, days even hours was far too long to wait to get answers back from their data.  In addition to speed they wanted the ability to drill down into deeper segments of very large datasets to uncover opportunities that would have otherwise been hidden.  Some have built their own platforms, while many others procured expensive state of the art BI (business intelligence) packages that put the power into their hands, which have allowed them to gain immediate access to the insights they want when they want it.

Unfortunately, credit unions have lagged behind in this regard. The love affair with Excel and her pivot tables and V-Lookups have dominated in credit unions for several decades now.  It’s hard to picture life without her, but the time has come to move on.

Let me be clear, Excel is perfectly acceptable for quick low-level slicing and dicing, but not as the primary BI platform. The volume of data credit unions have to work with requires enterprise level reporting tools that are flexible, fast and support adhoc segmentation, as well as filtering for deeper dives into the data.  Finding the right tool to engage the data is critical.  In fact, active Lending Insights users have reported up to 75% reduction in the time spent assembling and running their compulsory reports.

As a result, credit unions using Lending Insights are benefitting from this gift of time to better plan, strategize and innovate new ways to improve the member experience. “We have been really leveraging up the system this year for loan quality data, loan origination data, loss history to assist us in building a loan pricing tool.” says Sam Grove, AVP – Finance and Data Analytics of Credit Union of America.

This is a very common next step. Once these two foundational components are in place, credit unions feel empowered, and oftentimes immediately begin looking at the member journey in ways they weren’t able to before and asking questions like:  Am I losing loans because my decisioning process is too slow? Do my underwriting guidelines match the real risk observed in my portfolio, and do my loan products match the needs of my current and future members?  Yes, your data can answer all of those questions and many more!

Many forecasts predict slowing auto sales, increasing interest rates and more discerning consumers in the near term. Credit Union’s ability to build a genuine relationship with its members, other credit unions, and CUSOs provides a unique advantage that banks, fintechs and startups simply do not have.

Implementing strong data platforms and employing innovative tools to deliver continuous value to its members will make credit unions unstoppable in an ever growing competitive landscape.  Every credit union holds the key to valuable data at their fingertips. CU Direct’s Lending Insights loan portfolio management system can help quantify your data into interpretable results, minimize risk, and uncover new opportunities.