How can credit unions remain relevant? Here’s what Constellation’s Kris Kovacs told us during GAC

Credit unions continue to fight to stay relevant and attract future members. In order to do so, credit unions need to recognize that a younger member will have different needs than an older one, and that improved efficiency in their processes will be necessary to bring those younger members in.

The Credit Union Connection Cofounder/Publisher/Editor Sarah Snell Cooke sat down to talk with Constellation President/CEO Kris Kovacs to discuss how credit unions can achieve a better vision for their credit union and how data can drive credit unions to meet their members where they are.

Read the full transcript below:

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Kris Kovacs 00:00

So hi, I'm Kris Kovacs, founder and CEO of Constellation Digital Partners. For background, I've been in the industry more than three decades, the first 25 years, were with natural person credit unions half with Navy Federal half with Coastal in Raleigh, North Carolina. And then 2017 stepped out as the CIO role to found Constellation, which is an online and mobile banking company that is a CUSO founded by credit unions to bring FinTech innovations to the digital banking space,

Sarah Cooke 00:26

which is what we really really need. One of the many things now. Yeah, yeah. Keeping relevant, obviously, for members of today. Yep. Of all agents. Yes. Especially, you know, you want your future members too. And while, you know, people who have been there already, like myself, and maybe even my parents will adapt these things, right. Young people won't even come in. No, if you don't have the things. No, right. So,

Kris Kovacs 00:52

and it's a shame because because the cooperative financial principles of credit unions fit so squarely with the with the with the principles and priorities of this generation. But the challenge is we're not connecting with them, right? And part of the reason why is, we believe is that we're delivering the same experience to a 70 year old member who's been there for 35 years, we're delivering the same mobile experience and trying to use it to attract an 18 year old who just got their first job and need some place to cash their checks, right? Those two things are not going to happen, because their friends are telling them, hey, it's easy, go open account at Chime, go open an account somewhere else, they're guaranteed you don't have to worry about this, or am I a member or not thing, they're going to take care of you. And that's what we have to overcome. So we've got to, we've got to, we've got to build beautifully elegant experiences for young people that are attracting them, and then give them the tools they need, so that they start telling their friends. That's really the key thing is

Sarah Cooke 01:49
that's that's the brand time has built, you know, that the brand they have built already. Right.

And you know, more people probably know what time is and then know what a credit union is.

Kris Kovacs 01:59

Certainly for that age. They do. Yeah, right. Absolutely. And the thing is, Chime didn't really do anything different. Like, can we be honest, when they first came out? They did four things, right? I could accept I could I had a debit card, I could accept checks, I could see transactions, and I had a balance like that was it. Right? They've added things since then. But even the things they've added since then, like their their credit builder card. Have you seen this? It's just a charge card. We had those in the 80s. Yeah, right. And it's it's their approach to product management, or they're trying new things, refiguring how things work, existing services, but refiguring how they work that really is making the difference. And that's what we try to bring those same level of capabilities to credit unions to allow them to be able to make changes not once every five years when their contracts up, but new services every single day, if that's what they want. And

Sarah Cooke 02:51
that's like BNPL, buy now pay later. Yes, the old lay away.

Kris Kovacs 02:54
That's exactly right. That's exactly right.

Sarah Cooke 02:57
But yeah, so So and that kind of brings us to what we're talking about a minute ago is the branch experience versus the online mobile.

Kris Kovacs 03:06

So one of my favorite stories is I took my youngest son, he I'm a credit union lifer. Right. So my children are born as part of the part of being born, they get credit union accounts, right. So so he had a savings account, the day after he was born, 16 years old, get his first job, I take him in to open the checking account, because you can't open a checking account online for a minor, even if they're already a member. Right. So I take him into the branch, it takes 45 minutes for them to open a checking account for an existing member. We're walking out and he says to me, that I opened my Coinbase account in 10 minutes. You guys have a lot to work on. It's like, wow, right? So then then the moment of truth comes, he gets his paycheck, right? And I say, now you're gonna see the magic son, download the app, enroll, take a picture of the check, you're going to be bang, it's going to be in your account, it's going to be the most amazing experience you've ever had downloads the app, it looks at it and says, um, it says they're sending me a code to some number I don't recognize. And I looked at the numbers like, oh, that's your old home phone number. So in the 45 minutes, you were in the branch, nobody confirmed your contact information. That's why we're losing. That's member service. Right there. That's member service. It's what credit unions are always proud about. That's right. And members, credit unions go out of their way to provide members with great service. We're not saying that right. But it's giving them the toolset to reach out to the member when the member needs right with accurate information with real connectivity that allows them to be able to do those things. If I can only make decisions about my online experience once every year once every five years, because I got to worry about the vendors roadmap and the vendors project timelines and all this. That's not a recipe for success. That's how we got to where we are. And that's why our credit unions who founded Constellation decided we needed to do something different, right

Sarah Cooke 04:58

because you there are those vendors out there that you're right, some credit unions are held captive to very much so don't have flexibility to go after what would be best for their members, or at least they make it super ridiculous expensive if you want to go after, what's best for your members and add in a different group, and

Kris Kovacs 05:16

part of the expense becomes now that in order to justify it, I have to have all my members use it? Well, the reality in the future is members aren't going to a particular member is not going to use every service, right? So if it's so expensive that I have to have every member to use it for me to get ROI on it, right? That's part of the problem. A 17 year old should have a different experience than a 75 year old, right? They need different tool sets, my 17 year old does not need wealth management. He thinks he does he does not. Right. And in the meantime, my father who's 75, right, he needs a whole different set of advice tools about Social Security, and which accounts to draw retirement funds from, like, if you try to cram all that into one app for a member, it's going to be a horrible experience, right? Because what makes time and others really successful is something called strategic deletion. Right? They don't muck it up with a bunch of other stuff, they put just the stuff they need in there in order to meet their needs. And then they'll take things out as quickly as they put things in, in order to speed up the process and clean it up. Right now, many, many credit unions believe we've got to put all of this into one app, one super app, they're talking about super apps, right? For a while. And the reality is, that's not a great experience for the member, right? You've got to personalize, you've got to in some cases, I'd be strongly advocating delivering multiple apps to members, right? There's a reason if you go to Bank of America, there's 14 apps in the App Store for Bank of America. Here's business, here's high net worth individuals. Here's Merrill Lynch, like all of those are there under their brand umbrella, because they're they're delivering the needs to a particular member set, right? Even Coinbase, you would think us coin bros, right? We'd only have one app. No, even they have more than one app, right? Because they have different needs. And that's part of what we have to come to realize. And we can't do it on the same expense structure that we have done in the past. Because it isn't it can't be, it can't be an x times 2x times 3x times four kind of scenario. You need more flexible platforms to be able to do that.

Sarah Cooke 07:18

and we were talking earlier about AI? And that's gonna help a lot with all of this can it can, we're gonna know what we're solving for. Right? Yes. Gotta know what we're doing with it.

Kris Kovacs 07:54

Yes. Yeah. So so we have to have a vision in mind. Right? If our vision is just chasing the same solution other people have put in, right, we're not we're doing a disservice to our members or members capital, because we don't know why we're doing it. We don't know how we're doing it. Right. We've got to look at what is the end goal that we're trying to drive to right? So I firmly believe that the end game for AI are completely autonomous employees, right, a level of tier one member service support that's performed completely by artificial intelligence services, right? There's even some early stage examples that are now coming in outside of our industry that show customers get better responses, fewer callbacks, they're, they're happier with the results, if they have something that's really tuned to listen and support them, and who is knowledgeable about everything that's there. If we're not thinking about that as the end game, what are we shooting for? Right? I feel like we're just we're just throwing things on. And maybe it builds something, right? I think we need to be talking about how do we aggregate our data in such a way, because the data is such the important training material that these AIs are built on. And most credit unions today have a hard time even understanding how much their data is or accessing their data,

Sarah Cooke 09:17
right, five or 10 or 20 different systems. Yeah,

Kris Kovacs 09:19

that's exactly right. So if credit unions had a mechanism to be able to pull their data together, and then we could train AIs on it to support members, it would be it would be really, really valuable in the end to providing better member support. My fear is that AI is being treated a little bit like the cloud. So when the cloud came out, credit unions couldn't run away fast enough. From the cloud. It was this big dangerous thing, right? We lost 10 years of digital, 10 years of development. 10 years of better expense management by being slow to adopt the cloud, right? Thankfully, many are now. But the reality is, if we take 10 years to finally get comfortable with AI and what it really should do with us, we, we might be out of business. Right? Because by that point, those who are using it have such a competitive advantage. They'll have 10 years of training under their belt, 10 years of those experiences. And we'll just be getting started. Yeah. So there's a there's an effort, there's a moonshot opportunity for credit unions to figure out how do we come together, and really leverage AI in order to build the next generation of member support tools. But I dare say, there isn't a credit union big enough to do it by themselves. And they need as much varied data, a wide variety of data, recordings, you know, CRM messages, texts, back and forth. Emails, they need as much information as possible to train these AIs on. So that's, I think that's really the next big leap and challenge for us.

Sarah Cooke 10:57

Interesting. And so the, I think, also talking about the evolution of technology and how it isn't, because you're right, it used to be here, and unfortunately, sometimes still is. Let's do this piece. Let's take this piece. Yes. It's not a strategic decision. Yeah. That, you know, is necessarily member servants. Or it's, it's only in the tech. Yep. Silo. Yep. Versus That's right. Not gonna affect my MSR is and how is that? That's right, our ability to market to your target market?

Kris Kovacs 11:33

That's right. Well think about the challenge that the average CIO or CEO walks into, when they become in that role, a new role in a credit union. The reality is they've got a they've got a whole portfolio of contracts that were signed by the last person, right? Giving them the opportunity to innovate in these tiny spaces, right? Because you're locked into contracts. So I get these opportunities to innovate in these tiny spaces, right? And I don't have the opportunity to really paint a larger vision, right? So what credit unions need to seek out in those cases are they need to seek platforms that give them choices, because I can innovate here. And then when the next opportunity opens up, I can add to it. That's the real value, right? So a great example of that is, when we looked at Digital Banking, one of the things that we really saw was a need was wasn't just a web page that shows balances, right? We we built a platform that would that is open API's microservices, that allows the credit union to refigure solutions on need. But because it's powered by fintechs, they can bring new fintechs in anytime and extend it even before they go live with banking. Right. So we have, we have a model now that we use for credit unions who are headed toward a conversion, where they can actually deploy our app alongside their legacy app, and start immediately delivering new solutions. We have one credit union that in the last year has delivered 10 new solutions to their members, right? They can start delivering new solutions to it. And then when their banking contract is up, we open up banking inside the same app, their members are already there. The first time we did this for a credit union, a large credit union, California, they made the conversion. And by the six hours later, they dismissed their overflow call team because we weren't getting any phone calls. Everybody had made the transition. So you've got to think about not how am I? How am I just backfilling what's there, I have to be painting against a larger vision. And even if I can only innovate here, having platform based solutions that allow me to build on and add on it from there is really the key, right? Yep.

Sarah Cooke 13:42
Absolutely. To have that flexibility. That's right. You think credit unions have the scale? Or does, a CUSO is kind of the solution right? To that scale? It

Kris Kovacs 13:54

should be it should be Yeah, it should be. The difference is CUSOs of the past, right? We're largely seen as these kind of demand aggregators, right? I got a demand for business loans. I've got demand for mortgages, I've got a demand for card processing services or something else. So let me go to a CUSO, I'll be able to bundle my demand and get a lower price. Right? What we're seeing now in some cases, like ours is deep technology CUSOs. So a credit, when we started in 2017, I had a PowerPoint presentation. That was it. Right? So we had this big idea, a big vision painted, and we said, now we're gonna go do it. Well, that takes time, effort and money to be able to do that. Right. So this isn't the kind of thing where you can make an investment in a technology like digital or like AI and say, Okay, well, it's been six months. How much money am I making now? Right? It's like, Guys, this is a lot of research. This is a lot of development. We've got to build 100 things before the first customer goes live on it, but once they do, right, then every other credit union has the opportunity to come after them, right? So I don't know of a better model than CUSOs and CUSO and credit unions coming together to form them in these kinds of deep technology challenges. And to

Sarah Cooke 13:55

have the expertise to 'cause there a lot of people Yes, like yourself, and I don't know your story, but right, you know, I have worked at credit unions, love credit unions. Yep. They'll stay in credit unions. Right. But aside, you know, you're credit union adjacent.

Kris Kovacs 15:22
Credit union adjacent. I'm still I still consider myself in the industry. Yeah.

Sarah Cooke 15:28

Well, yeah, like, credit unions, an individual credit union being able to afford that kind of technology, leadership. Yes. And then hire the technology expertise. Yes. And so I feel like, like you were saying, CUSOs are the ideal mechanism. When you struggle, one

Kris Kovacs 15:44

of the key elements that a CUSO can allow credit unions to do is it can allow them to get better talent, right. And it's, and it's often because it's not, and this isn't saying anything about the talent in credit unions today, credit unions are filled with people who are very talented, right? But when you want somebody who is a master at let's say, information security, right? Is a master in information security, going to be somebody who has served one credit union and seen their challenges, or somebody that serves 20 credit unions and sees all of their challenges and answers all of their challenges, right? That's a, that's going to be a higher talent, higher opportunity, right. Because of the reps they get, right? It's all about practice, and reps. So the more reps I get, and everything else, one credit union is going to give me but so many reps, more credit unions supporting more gives you more reps, necessitates having a higher level of talent. And let's be honest, big players want to play in big games, right? So you'll find people who do want to step out and do want to do something different and build it up and developing and nurturing that talent, both inside the credit unions and outside the credit unions through CUSOs is a really great way to do it. I

Sarah Cooke 16:58
had a little flashback there when you said reps because I played college volleyball, yeah, everything was hit and run or set and run, right? Everything and run.

Kris Kovacs 17:05

That's right. And the reason you do that is to become an expert become a master of those skills, right? If I'm, if I'm honestly in a credit union, and I'm only getting whatever that talented group of executives brings me as a problem to solve, I will achieve a level of success, anybody would they would achieve one level of success. But if they're doing that, for another credit union, and another credit and the variations between them, and another credit union, that's when you see real talent. So that's where outsourcing opportunities come into play, you know, working with CUSOs, to be able to do those things. And I think in the long term, that's going to be a big part of the answer for credit unions to solve this challenge around shrinking margins, right, being able to take to outsource things to CUSOs have them done competitively by very talented people who can then offload that work and expense for the credit union.

Sarah Cooke 17:55

And IT has become so much more complicated. You kind of touched on it, I don't know if it was intentionally a minute ago. Right. But there is help desk, there is yes, you know, cybersecurity There is... That's right. The member growth side. That's right. Or the member service side of it. That's right. There's just so, appointing somebody or having somebody who has expertise in all of them. Right.

Kris Kovacs 18:15

Yeah. And doing it for 4000 credit unions isn't saying, right, every credit union trying to repeat that for themselves is is is an exercise, and we're going to find out how difficult it is to get talent, right. And

Sarah Cooke 18:31
the smaller credit unions, they only have so many people who can

Kris Kovacs 18:37

but but I'm working on a project with members development company around credit in the future, and had a really great discussion with the team at CU Answers, right? CU Answers is processing for 300 credit unions, right, mostly smaller credit unions, but some larger ones as well. And they're doing it with they're getting that experience. They're demonstrating that model of being able to outsource those things. Because let's be honest, no member walks into a credit union and says, I will only open an account if you're running Scimitar.

Sarah Cooke 19:05
They don't care. With any luck, they've never heard of it. It's

Kris Kovacs 19:07

exactly right. That's exactly right. Listen to the Fiserv Credit Union. But but but the reality is like, things like that we need to extract that expense out of our core businesses, credit unions, put them in CUSOs get really talented individuals to run them, and then focus on what we do best, which is serving the member, right meeting the member where they are understanding their needs. Those are things that we have to be really, really good at. It's not about, you know, am I executing my nightly, my good night cycle at the right time every day? That should be a contractor or CUSO even better, who does that.

Sarah Cooke 19:45

everybody complains about compliance burdens and stuff. I mean, not exactly your area. I'm sure some of the technology dealt with that. Yeah, but yeah, I mean, there's just so many things that are used to take advantage of and we talked about collaboration and don't always do it. Yeah.

Kris Kovacs 19:59

In fact, it compliance is one of those things where if you're not if you don't have the very high end player, and it can trap you, right, because compliance walks in with the weight of law and regulation behind what they say, even if it's not exactly true, right? So what that means is oh, well, yeah, oh, Security says we can't do that. We can't do that. No, no, no, Security says that it's dangerous. Let's figure out the right way to do it. Exactly. Right. That's the key.

Sarah Cooke 20:30
And it also depends on the person who wants to do whatever the thing is to say, why? yes. That's

Kris Kovacs 20:35

exactly right. What explain to me help me understand that's exactly right. Somebody figured out, for example, by reading the rulebook in football, that they could create something called the Wildcat offense, right. Everybody else had never seen it before. But they understood the rules, right? What we need are people who understand the rules, and how to play right up to the edge of of not because we want to be dangerous, but because we want to do the best for our members, right? So being able to understand the rules play within them, but not be bound by them. Right. Everybody's always done this before. So that's the way we're going to do it is probably the indicator that it should do it a different way.

Sarah Cooke 21:12
Who's now retired once said to me, and I'm sure he said it many, many times. But, you know, if you're a camel one, you're not doing your job.

Kris Kovacs 21:20
I've heard that. I've heard that. Yeah. So

Sarah Cooke 21:22
okay. This has been great. I could probably go on another half hour, anytime. But I'm gonna give you the final word. Final thoughts.

Kris Kovacs 21:33

Wow. One, give Constellation a call. We'll talk about how we can help you with your digital services. Number two, is that, be brave in our leadership, right? Don't lose hope in your dreams and your ideas. Right? Constellation is an example of it was an idea. It was a dream that we set forward. It was a lot of work, where they're serving many large credit unions now, right? Like, our best years are in front of us, but we have to free ourselves up to dream and believe in our dreams, and really take down the biggest tasks we think we can take. Because that's how that's what's going to set us up with the foundations for the future. Yeah, yeah. Love it. Thank you. That general enough? Sarah, good to see you. Good to see you.