Credit unions must change their relationship with data and technology

By Sarah Snell Cooke, Cooke Consulting Solutions

A recent Gartner report predicted that by 2025, 80% of data and analytics governance initiatives focused on business outcomes “will be considered essential business capabilities.” Companies are on the move in a big way when it comes to data analytics and optimizing usage, but credit unions, it’s not surprising, are bit behind the curve.

Fintech investor Bryan Clagett (@Clagett) has been tweeting recently about the personalization he gets from service providers versus his credit union and bank. And the comparisons are not good. For example, he shared a screen shot of a text from his Ford dealership when he took his truck in for service. The text addressed him by name and offered that he could text back to connect directly with his service adviser. He added that this mirrored his in-person experience when he checked in. One cohesive, streamlined brand experience.

Bryan had a similar experience with his airline, while his decently sized bank and credit union offered him a product he already has and another that’s completely irrelevant regarding his “kids,” who are adults.

How are these experiences so different? Data.

What’s wrong with credit unions’ data?

Nothing. Except it’s across a patchwork of disparate systems that 1) may be difficult to navigate and 2) don’t talk to each other. Even some tech stack bundles credit unions have purchased from a single company are not on speaking terms. SMDH.

We’ve all heard half of all marriages end in divorce. Did you know that the average length of a first marriage that ends in divorce is 8 years?

About the same length as many credit unions’ core processor contracts. Interesting.

That’s not to hint that all cores are bad. Some, I’m sure are magnificent. Check out this ranking from CU Collaborate for the best cores for various size credit unions as rated by users.

It may be as difficult as a divorce – going through the selection process, getting the systems synced and retraining staff. The process sounds like a headache, but what else is there to do? Wait until “a better time?” There will never be a better time to at least evaluate the many core options for credit unions, ones some credit union leaders might not have heard of – or at least don’t know much about. Some might be smaller but are built on modern cloud technology, like CUProdigy and Corelation as noted in the CU Collaborate article, and are more collaborative for third-party integrations, so you can build the tech stack and data capabilities you want and that your members deserve.

By 2023, 60% of organizations will compose components from three or more analytics solutions to build business applications infused with analytics that connect insights to actions. - Gartner

Putting data analytics’ importance into perspective

During the recent Mitchell Stankovic & Associates Underground 2Xperience in Vegas – just head of Money 20/20 in an effort (partly) to entice more credit unions to that fintech mecca – Brian Kaas, president of CMFG Ventures, commented, “We should be scared shitless about fintechs.”

Why? Fintechs are investing in the technology and data and figure out how to make banking work better for consumers. To the tune of $130 billion in 2021, according to Kaas.

Wanna know what credit union’s tech investment was in 2021? $6 billion.

It’s no wonder that in just 10-15 years, 34% of consumers are transacting through fintechs per FICO. They may not get it right every time, but they get it right often enough. Credit unions are often too timid and miss out on opportunities, which is why we hold just 7% of market share after more than 100 years in business.

At the same time, consumers are expressing a growing concern about their data privacy – 85%, KPMG found. Credit unions have consumers’ trust that they can handle their data appropriately. That’s what credit unions have earned over time that fintechs have not necessarily earned – yet.

Setting Your Credit Union Up for Data Success

Anne Legg, CEO of Thrive Strategic Services and a regular speaker on the topic of data strategy, recently shared that 92% of credit union fail to leverage their data effectively. The technology is important, of course, but start by assessing your data. Then, she recommends these five components for credit unions to find data success:

1. Set a clear data strategy aligned with your credit union’s overall strategy, including a path to data maturity, talent development and clarity around workplace adoption.

2. Ability to translate data strategy into tangible use cases for easier understanding of its importance, focusing on solving the member problem or reducing member friction.

3. Develop a 1-page high-level road map that clearly communicates the pathway data will be leveraged to improve members' lives.

4. Establish a formal data governance program, but don’t get bogged down in the complexity of it. Start small, she advises.

5. Ensure your credit union has the right talent to translate data into valuable action. “This is the area where most credit unions fail…A defined plan to infuse data into the credit union combines critical and design thinking in a proactive environment,” Anne advised.

Credit Unions’ Endgame

All credit unions were established to bring about financial inclusion for the financial wellbeing of their members. Yet, we are not succeeding. We’ve seen the oft-quoted datapoint that two-thirds of Americans are financially unhealthy. Additionally, according to QCash CEO Seth Brickman, one in 10 are “credit invisible.” That’s the opposite of inclusion.

As Brickman pointed out during the Underground 2Xperience, 35 states have more predatory lending storefronts than they have McDonald’s. I’m betting the comparison to credit union storefronts is even bleaker. Leverage your data and your business partners to help fight the good fight. Brickman put out a challenge at the Underground: Five years from now, I want there to be no predatory lending storefronts, because the credit union industry is meeting its members’ needs.

Let’s do it!

But how? At the same conference, GDS Link Head of Marketing Services Scott Lascelles pointed out that a common way many credit card issuers are less than helpful in serving those with less than perfect credit is to trap them into a $500-limit card. The idea is to help people build credit and avoid costly payday lenders, but once these borrowers hit 30% usage, “their credit score drops like a rock.” He suggested that credit union beat the issuers at this game by loosening up their underwriting, while reserving for slightly higher losses because credit unions have a much lower cost of funds than other issuers who have to securitize and pay upward of 5% for money to lend. “You can beat them at their own game if you underwrite differently,” he concluded.

That’s one way to change the way we consider data. Another is what we actually ask our members about. Erin Mendez, CEO at Patelco CU, and Bill Cheney, CEO at SchoolsFirst FCU, explained that their credit unions focus on leveraging the Gallup financial wellbeing survey and use that data to really understand how members feel about their finances and how their respective credit unions can help members more holistically.

Which means not only having the data, but also having the competency to glean insights for actionable plans that better serve the members. Sounds a lot like what fintechs are doing.

CMFG’s Kaas explained that when his organization is looking to invest in fintechs, “We really like founders that share our common view of helping be more financially inclusive. There are more commonalities than we might think.”

Perhaps fintechs aren’t the enemy, and with more open core systems we can bring to bear the complementary powers you have to offer. To that end, Co-op Solutions CXO Samantha Paxson observed, “The big winners have moved through digital transformation and are focusing on becoming an ecosystem of value.”

To wrap up the sentiment of many progressive and caring credit union leaders, I offer this comment from Unitus Credit Union Director Frank Chinn at the Underground regarding the data around credit unions’ market share: Why are we fighting as credit unions for that 7%? Why are we not fighting for that 93%? I think it's communications. I think it's education. One of the strongest things we can do is educate.

We must understand their needs. Being all in on technology partners and data is the way.