EXCLUSIVE: “State of the Unions” – Matthew Williamson and Ruby Walia, Mobiquity and Cyrus Taheri, Mambu in ‘The Paytech Magazine’
Can America’s credit unions adapt their unique customer relationships to the digital age? They can and must, say Matthew Williamson and Ruby Walia of digital experience consultancy Mobiquity, and Cyrus Taheri, from Mambu.
Firstly, a quick history lesson. Credit unions (CUs) have roots stretching back to 19th century Germany, where the first rural cooperative saving and lending institution was started in 1864 by social reformer Friedrich Wilhelm Raiffeisen to help farmers collectively even out good and bad years.
The first to be incorporated in the US was in New Hampshire in 1909 and the Massachusetts law that enabled it to happen was later used as the model for President Franklin D Roosevelt’s Federal Credit Union Act in 1934, which allowed CUs to be formed in all states to ‘promote thriftiness and prevent usury’ as part of his famous New Deal measures during the Great Depression.
The now 5,000 or so not-for-profit and member-owned cooperatives, historically linked to an organisation or place, play a vital and significant role in the US economy, with latest estimates showing they have combined assets of $1.9trillion and some 125 million customers. But they now face challenges around the need to balance their traditional USPs of iron-clad customer relationships, embedded in their local communities, rock-solid trust and ultra-low operating costs, with increasing customer demands for ever-more digital capabilities, which have been accelerated further by the COVID-19 pandemic.
Although there are some notable exceptions, there is a commonly held view that CUs are struggling to keep up with their banking peers when it comes to innovations. The 2020 American Customer Satisfaction Index showed credit unions’ rating falling behind the banks’ for a second consecutive year, and much of that disappointment was linked to the payments experience. That prompted Alloya Corporate Federal Credit Union, based in Naperville, Illinois, which provides services to 1,400 credit unions in addition to its own members, to launch Alloya Insights: Faster Payments community in February 2022.
The network aims to help it and fellow CUs better understand the evolving landscape of faster and real-time payments ahead of the launch of the Federal Reserve’s FedNow instant payment service next year. By then, the Fed may well have come up with a strategy for a central bank digital currency – and crypto is another area of payments in which CUs trail.
That’s not to say that the credit union community is backward or unwilling to evolve. For example, Alliant, an 86-year-old Chicago credit union with £14billion in assets and more than 600,000 members, has already added the ability to use digital payment apps like Apple Pay, Samsung Pay and Google Pay. Now, heeding further demands from its customers, Alliant has introduced an account supported by a contactless debit card, a mobile app and an online banking platform. And Leverage, a for-profit subsidiary of the League of Southeastern Credit Unions, has partnered with Los Angeles-based payment processor CheckAlt to roll out a loan payment app for users of its Leverage Payment Solutions.
Benefits to CUs utilising CheckAlt include application programming interface (API) capabilities that allow for a direct integration into their core systems, enabling them to streamline the tasks of processing consumer loan payments and settling funds into a ‘one-stop shop for payment processing’. As the deal allows access to CheckAlt’s online payment app, LoanPay, customers of participating CUs can also set up their loan repayment plans.
Matthew Williamson, global VP of digital experience consultancy Mobiquity, is convinced CUs can deploy their traditional values to flourish in a digital environment, and so offer their customers the best of all worlds.
He says: “Credit unions have always had a really strong customer relationship. In our line of work, we talk about know your customer, not just in the regulatory sense, but in the sense of actually understanding your customer’s needs, wants, desires and what they’re going to do next. CUs already have that relationship. Today, it’s about moving that from the physical to the digital, augmenting that relationship and moving it forward.”
There is a significant reward awaiting those that can successfully achieve this.
“If we consider that credit unions are often specifically tied to states and are not coast-to-coast providers of financial services, digital would potentially enable them to expand their scope and offer services to customers outside of their traditional network, as well,” adds Williamson. “So, there are a lot of elements attached to giving more access to digital products, not least at a lower cost point, which they can pass on to customers.”
Ruby Walia, a senior advisor for Mobiquity, goes a step further by suggesting CUs would also benefit from greater collaboration among themselves.: “Because credit unions tend to be bounded by state lines, their customers have a common bond and CUs are focussed on serving those communities. But, as customers move from one geographic area to another, their ability to serve that customer sometimes drops. So, an area where they could easily collaborate is where one credit union hands off a customer to another credit union, and there could even be a commercial handshake in that,” he says.
“You already see credit unions collaborating over back-end services, with common core banking systems or other platforms that they share. It’s a logical extension for them to collaborate on the front end, too. Banks have historically shared their ATMs, so is it that much of an extension for CUs to say ‘we’ll share some of our branch services’?”
Cyrus Taheri, head of partnerships at banking-as-a-service platform provider Mambu, says fintechs such as his are geared up to help CUs with their digital journeys. Giving a direct example, he says: “In Canada, one of our largest customers today is League Data, which offers aggregation, technology management and managed services for 46 different credit unions. Those CUs are jumping on the Mambu platform as we speak, and sharing that tech to allow for economies of scale.”
The pandemic-fuelled demand for digital payments and other services has left CUs in America at an ‘inflection point’, says Walia. They must act promptly or risk losing customers to those banks and other financial service providers that have been quicker to adapt, he warns.
“The strength of CUs is around the connection they have with their customers,” he says. “But all of those customers, whether they’re consumer or businesses, have been going through a transition. Things are becoming increasingly digital. And, while the traditional CU customer loves the personalised service they get from credit unions, they’re looking at the digital capabilities that the bigger banks, with their greater funding pools, have been first to offer, and they are undoubtedly attracted by some of that.
“So, the challenge for CUs is how do they provide those same kinds of digital capabilities that are so attractive to customers, while retaining that connection and emotional bond they have with them?”
Williamson agrees that ‘we can take a lot of the parallels from traditional retail banking, and map that appropriately to the credit union-style customer’ in order to service those customers. Given the place they hold in the economy, though, failure to digitise doesn’t just risk customer attrition at the level of individual CUs; it could also have a knock-on effect on entire swathes of the country. Williamson points to agriculture, as an example. The industry has traditionally been supported by both state and federal-chartered CUs, many of which are involved in America’s Farm Credit System, providing financing and other financial services to rural businesses and individuals in the industry.
”The biggest agricultural producer in the US is California, which has annual revenues of $42.6billion,” says Williamson, ”while even Alaska – the smallest agricultural producer of the 50 states – posts annual revenues of $58million.
“The numbers, if you add up all the 50 states, are staggering,” he says. “There are 21 million direct and indirect employees within the agriculture and food services industries, and that market has already started to digitise. Credit unions need to support that.
“And, if you go back to the things we talked about earlier, about cross-state interaction and collaboration with other credit unions… agriculture is a multi-billion-dollar industry where credit unions already have an entry point, whether it’s servicing someone’s personal finances, chequing account, savings plans, etc, or lending through credit facilities for farmers and the food supply chain. It opens up the potential for credit unions to not just survive, but thrive, coast-to-coast.”
Taheri points out that a move to a digital ecosystem will also allow CUs to expand their services beyond the areas in which they’ve traditionally operated – payments and savings.
“I think there is a lot of opportunity for credit unions to think beyond the traditional and enrich their member experience. That also brings an opportunity for fintechs to understand the credit unions better, and be able to tailor some of their offerings for CUs’ market strategies,” he says.
Walia agrees: “Community banks and credit unions, being smaller organisations, haven’t really participated as much in terms of leveraging fintech-developed capabilities, licensing those, embedding them in their products and making them available to their customers.
“And I think this is a space where Mobiquity can really help to a) partner with them to understand what their strategy is and what capabilities would really work for their customers, and, b) help them to select the right fintech partners for that particular organisation – even help them with the implementation of that.”
And not just financial technology, but any digital partner. Williamson, for instance, sees a future where technology such as AI will be able to produce sufficiently accurate data on a farmer’s future crop yields to influence decisions by agriculture-focussed CUs on loans and investment opportunities.
All three experts point out that CUs start down the path of digital transformation with a huge reservoir of community trust that has been banked over generations. That puts them in a good position as data, its security and responsible use becomes ever-more widely debated.
“Trust is the foundation of being able to provide financial services,” Walia emphasises. “It is the word traditional banks have used for decades, centuries even, as a foundation for their relationship with their customers, and we’ve seen, in the digital landscape, social media companies that played fast and loose with their trust, have suffered financially and otherwise.
“When you’ve got that much data – and the metaverse is going to make more and more of it accessible and usable – then the trust factor becomes even more important.
“If organisations are transparent about what data they’re collecting and how they’re using it, and make it clear that they’re using it for the customer’s benefit, not just their own, the customer then feels good about the relationship with the financial provider. And the reality is that these digital interactions can be just as emotionally satisfying as physical ones, when it comes to financial providers and their customers.
“The ability to know a customer’s context, where they are, what they’re doing, what services they need, and then be able to offer them those services, remotely, is fantastic; it’s like having a banker follow them around, enabling all these real-world experiences because the data, and the computing capabilities in the Cloud, enable that.”
Taheri adds that third-party providers like fintechs must also be firmly locked into that chain of trust.
“Trust extends beyond the walls of the institution to the partners, and the partners need to be evaluated and also held to those standards,” he says.
“If you are a credit union that is able to find an ecosystem that you trust, and that is really going to add value, then you will be able to create those great touchpoints. Creating that interaction with the customer on a frequent and valuable basis then allows you to maintain trust throughout their journey.
“The ecosystem of collaboration is going to be key,” adds Williamson. “We’ve seen it in various regions, across retail and commercial banking. So, it’s a lesson learned. Credit union groups could take those learnings and cherry-pick the best collaborative partnerships from key players; really drill down and manage those efficiently, and get the best value for their customers. We’ll see more and more acquisition of clients that way, I think, through ecosystems, collaboration and platforms. We’re going to see opportunities, cross-industry and cross-vertical, and therefore more revenue opportunity for the credit unions.”
This article was published in The Paytech Magazine #11, Page 6-8
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