SETTING UP FOR SUCCESS: Information Technology
Alignment of values between young people and credit unions is touted by the industry, yet there are many factors that influence a young person’s decision to choose or switch financial institutions. Credit unions have an opportunity to demonstrate alignment with young people’s values, but they first need to align their respective organizations to serve them. This means developing robust digital and mobile platforms that provide unique and valuable member experiences.
“Millennials want a good online application-based interface and while some credit unions have strong websites, I have seen others that are not in this century, from both an information and user experience perspective,”
- Rob Carrick, personal finance columnist, the Globe and Mail.(i)
Young people want frictionless user experiences from their financial institutions. They expect the ability to visit a credit union’s website or mobile application and be able to open an account, apply for a loan, deposit a cheque, pay bills, transfer money, and receive notifications — all on the go while expending as little effort and time as possible.(i)
To meet these evolving expectations, credit unions must adapt. Disruption to the status quo will require large-scale operational changes, designing new lending policies, implementing proactive and modern information technology systems, and adopting a revamped ethos on what it means to be a credit union member. Outstanding digital and mobile experiences are the new normal for all consumer-oriented services. Credit unions, if they do not aggressively modernize their IT and member experience platforms, risk being left behind by both banks and emerging FinTech providers.
IT Modernization
The way credit unions approach innovation and the modernization of their respective IT systems is a matter of immense strategic importance for attracting and retaining younger members. The key goal from a digital perspective is to encourage young people to both join a credit union and, importantly, to stay with one. There are numerous IT tools, systems and user experience platforms available to credit unions seeking to innovate. These solutions are neither cheap nor simple and their application requires an answer to the question of whether to buy, lease, partner or build. While the large banks have embraced a strategy of building proprietary technology solutions, credit unions have much smaller innovation budgets and, as a result, less flexibility to adopt this model. It is therefore no surprise that many credit unions have embraced alternative models such as FinTech partnerships to help achieve their innovation objectives.
Creating Value Through Fintech Partnerships
Partnerships with Fintech companies have been a logical approach for credit unions to adapt in the race towards innovative digital and user experiences. These partnerships should be viewed as symbiotic relationships where credit unions bring their extensive member reach, rich data, and capital; while Fintechs contribute innovation, the potential for plug-and-play functionality and augmented member experiences.
There are many examples of successful Fintech / credit union partnerships. For example, First West Credit Union recently partnered with American Fintech ClickSWITCH and Central 1, to develop Quick Switch Assist, a tool that enables new members to automate the switching of their pre-authorized payments to their First West account.(ii) This tool has allowed First West to address one of the primary barriers to new member acquisition; the inconvenience of switching over payroll deposits and recurring bills to a new bank account.(ii) Fintech partnerships like these continue to enable credit unions to improve their user experiences with younger consumers and lower the barriers of switching financial services providers.
Easing Technology Integrations and Open Banking
Canadian credit unions will need to continue to reduce the complexity in partnering with third parties in order to lower costs, increase speed-to-market and enable digital transformation. Amid ongoing regulatory reforms, the financial services industry is shifting towards open banking (or as it is being labeled in Canada, consumer directed finance), a transformation of the financial system where customers can easily and securely share their data held by financial institutions with third parties. This could enable credit unions to offer their members better integrated user experiences that Fintechs provide, while retaining them as members. What matters most to Fintechs is that banking systems have provisions for them to collaborate. For credit unions to capitalize on Fintech and third-party partnerships, they need to enable a digital environment that can easily integrate with new applications, platforms, software, and, critically, with data.
Closed IT systems are one of the leading factors preventing financial institutions from adopting innovative technologies. For decades, credit unions have relied on inflexible core system providers for their IT systems, which has resulted in vendor lock-in, holding credit unions back from adopting new technologies and applications. Legacy core systems require a tremendous amount of resources to integrate Fintech offerings. According to David LaCroix, Project Manager at the Credit Union Financial Exchange (CUFX), “Integration expenses can exceed 30 percent of a Fintech’s available budget during implementation and take months to develop, which has often eliminated the possibility of FinTech partnerships altogether."(iii)
Because credit unions still rely on a patchwork of dated core systems, they continue to be constrained in what they can do from an IT standpoint. Leonard Hendricks, former Chief Technology Officer at Celero Solutions, has long been a supporter of credit unions breaking down barriers to integrations.
“Any cloud-based future roadmap comes with a lot of interfaces, and if you don’t have an ability to quickly and easily connect interfaces to each other, how are you ever going to take advantage of cloud-native software?”
– Leonard Hendricks
Hendricks told MNP “Credit unions need to realize that, for a lot of Fintechs, they are not that attractive of an option to them, considering their relative lack of size, and the fact that integrations can be extremely cumbersome. You have to get those barriers to entry way down for them to have interest in partnering with you."
The landscape for Canadian businesses is rapidly changing, thanks to technological advances and growing demand from consumers for new options. These realities, combined with business change accelerating, have financial institutions facing increasingly complex decisions. Credit unions must implement change and embrace innovation but finding the right path forward — and appreciating the complexities of making the right choice — can be a challenge. MNP is here to help you identify and navigate the possible barriers of transformation and the impacts on your organization.
Our latest whitepaper has been released - Ideas Aren’t Enough: Does your Credit Union Practice Executable Innovation?
For credit unions to leverage the promise of open banking and third-party partnerships, a common application programming interface (API) integration standard needs to be adopted across the industry. An industry-wide integration standard means one language or connectivity framework that third parties such as Fintechs and managed service providers can use to easily connect to credit union systems and data and provide plug-in applications and services. Common integration standards and digital readiness can help credit unions fast track partnership-based business models and implement cutting-edge technology while managing costs and is an urgent priority to attract both Fintechs and younger members.
Andrew Wilczynski, Managing Director of Innovation at the Large Credit Union Coalition (LCUC), viewed choosing a common API integration standard as mission-critical for the Canadian credit union system.
“Having different API standards increases time to market, development costs for third parties and system maintenance. It was our view that the credit union system needed to adapt and keep up with unfolding technology developments.”(iv)
This view was echoed by Concentra Bank Chief Operating Officer Neal Oswald, who told MNP “having a clear-cut way of connecting and integrating with third parties is absolutely paramount.” He recommends credit unions adopt API libraries and dedicate resources to API management in order to ensure APIs are known and reusable within the organization.
The LCUC has recommended Canadian credit unions implement CUFX as a common integration standard, and in the past two years, many Canadian credit unions have worked to implement this standard into their IT systems.
Wilczynski highlighted a number of exciting projects underway systemwide, with the integration standard being implemented and used effectively. For example, Me-Dian credit union in Manitoba recently partnered with Celero to facilitate an open API digital ecosystem. As a result of this partnership, Me-Dian was able to quickly and easily integrate with QCash Financial, a digital lending platform, and now offers its members a cloud-based, automated lending solution that can approve a loan with no credit check in less than a minute.(iv) This example underscores the advantage of credit unions removing barriers to integration with third parties and driving the types of experiences expected by younger Canadians.
Collaborative, open IT architectures enable Canadian credit unions to forge partnerships that respond to the preferences and demands of younger consumers. Plug-and-play integration combined with a credit union’s retail banking competencies can lead to powerful competitive differentiation, particularly given the IT bottlenecks of the large banks. While LCUC members are beginning to see the benefits of a common integration standard, smaller credit unions should note this trend and work with managed solutions providers to help get them keep pace with the latest developments and innovations in the sector.
i Rob Carrick ii https://www.mnp.ca/en/posts/FinTech-companies-are-joining-forces-with-credit-unions iii David LaCroix iv Andrew Wilczynski