Credit unions have been chipping away at digital transformation and process improvement for some time, but member demands for a fully digital credit union experience, and competition from non-credit unions, have thrown the need for transformation into overdrive. Your credit union may have adapted by launching mobile platforms and automating previously manual tasks, but those efforts are not enough.
The need for digitization and modern data-driven process improvement is urgent. Credit unions are facing constant market shocks. Interest-rate hikes are cratering loan sales. There’s the turnover issue: long-tenured staff are retiring—only to be replaced by younger workers who are ready to jump ship for the next “shiny” offer. There’s the ever-increasing capability constraints (not to mention cost) of your core systems. And that’s all in addition to the member demands mentioned above.
Perhaps your online account-opening platform is underutilized. Or maybe you can’t crack the secret of targeted marketing to acquire new members digitally. Or your loan-origination process frustrates your members. Maybe your legacy core system from Jack Henry, FIS, or Fiserv is inflexible and holding you back. The list goes on.
Credit unions have always prioritized customer service, using it to differentiate themselves from banks. And that service typically relied on in-branch member interactions. But members are not as likely to set foot into a branch as they were in the past: in 2020, 55 percent said they will visit branches less often. That is only accelerating.
To compete, credit unions will need to invest in process improvement and digital transformation to better engage with members, improve operational efficiency, and increase operating leverage. Gartner writes: “Many finance organizations are trying to figure out the digital landscape and ways to identify and execute cost-saving opportunities in order to allocate more funding to digital initiatives.”
Transformation and process improvement can seem overwhelming, but there are a number of ways to ease the transition. In this long-form explainer case study, we’ll take a look at what digital transformation in credit unions really is, the benefits and challenges, and key tools such as robotic process automation (RPA) and predictive analytics that will enable you to transform both your member-facing applications and back-office operations.
However, the major challenge all credit union executives must consider before diving deep into the digital-transformation matrix, though, is how to keep the process perspective before the technology itself. The technology is a process “supercharger,” but if the process itself is not optimal, your members will be in for a rough ride.
According to Gartner, digital transformation, often simply referred to as digitization, is defined as the process of changing from analog to digital form. However, you only achieve true transformation when you also change the processes themselves.
In other words, digital transformation is more than just digitizing paper with OCR and database-driven “core applications.” It’s completely rethinking processes without installing or changing the underlying core technology.
Digital transformation relies on small, lightweight, and easy-to-program software tools that can automate a range of digital activities that impact your staff, your members, and your operating cost. These new digital tools enable transformation without gutting entire business processes, yet maximize your existing platform investment by adding a layer to your current existing technology “stack.”
A few technologies and tools that credit unions can use to support digital transformation include:
Many credit unions have begun pilot projects with the above technologies; many have not. Some of our members are at what we call “Level 4” maturity for all of the above, which is the pinnacle of digitization with robotic process automation. But if you have not started yet, fear not: The majority of credit unions we work with are just getting started. So, it’s not too late to dip your toe in the pond of the emerging field of effective technologies.
One of the most highly implemented tools for digital transformation in credit unions is robotic process automation (RPA). RPA robots, or “bots,” mimic how humans process data between systems, and how they perform repetitive tasks and processes. These bots are the “glue” that bind together underlying un-integrated applications such as aging legacy systems with mobile integration.
RPA bots are rules-based and can be easily configured to knock out thousands of hours of work on routine processes in a short amount of time. Most bots can be implemented in less than six weeks. Think of RPA as the next logical step in credit union process automation.
RPA is a significant time-and cost-saving tool: McKinsey estimates that 85 percent of organizations’ 900-plus processes can be automated. This automation reduces human error and improves data accuracy. And it’s a godsend for turnover-stressed credit-union executives: Rather than fearing robots (as old popular culture used to depict), credit-union employees absolutely love RPA bots and the tedious labor they eliminate. That equates to improved job satisfaction (and retention), not to mention newfound capacity for customer service. It’s little wonder, then, that, nearly all (97 percent) enterprise IT decision-makers believe that RPA is vital to digital transformation.
By connecting previously-unconnected data sources, you can use RPA for a wide variety of tasks.
Bots are an ideal solution for common credit union transactions and reconciliations that staff must manually perform on a daily basis. Here’s just a few:
Wire and ACH Transfer Processing
ACH Stop Payment Processing Digitization
Regulation E and Debit Card Fraud Processing Automation
Brinks and Loomis Daily Recon Automation
ATM Network Reconciliations Digital Transformation
The top-use RPA use-cases can save credit unions 5,000 to 10,000 hours of labor, while most reconciliations save 500-plus hours per year.
The RPA market is booming, growing at a 34 percent CAGR and is expected to reach $11 billion by 2027, according to Grand View Research. The good news is that competition among software providers is intense, giving you a choice in the tools you use. That also means the price is coming down.
Here are the Gartner Magic Quadrant Leaders in RPA:
Business intelligence or BI turns data into observable insights, helping you make more informed strategic and tactical decisions. Big data visualization works hand-in-hand with business intelligence to present this information from disconnected systems in an easy-to-digest format and management dashboard.
When you think of business intelligence, you often think of dashboards that, at a glance, let you know what is happening at the moment, such as the impact of non-performing loans on portfolio risk, or member attrition rate trends.
Here are the Gartner Magic Quadrant Leaders for Analytics and BI Platforms:
The end goal of business intelligence is to gather and present data that allows credit-union management to make more informed decisions. BI leverages analytics, data mining, and visualization tools to present current and historical data, and to identify trends.
Data-driven BI leveraging operational dashboards can provide a holistic view of operations and processes. Not only does BI enable better decision support, but you can use the insights to define your roadmap for additional digital transformation.
Use BI throughout the organization. For example, if you are looking to launch a new card product, use BI tools to analyze and visualize card transaction data and member demographics to determine what type of card product would most appeal to your target audience.
Business Intelligence and Analytics in Retail Banking:
How Business Intelligence and Analytics Can Rationalize Credit Union Networks:
If business intelligence shows you what did happen, artificial intelligence and predictive analytics shows you what could happen. For instance, these tools can predict how many members will leave your credit union for a competitor based on a decrease in your net promoter score (NPS).
Machine learning is an AI technology that finds patterns within data, and then uses what it learns to predict future patterns.
Credit unions frequently use the following programing languages to develop digital products based on AI or machine learning, and predictive analytics:
Artificial intelligence (AI) and predictive analytics take a forward-looking view, learning from current data to draw conclusions. For instance, AI can learn the patterns that indicate fraud in transactions, and score the fraud risk of individual members.
Credit unions can use AI and predictive analytics to:
• Analyze members’ financial relationships and personal data
• Determine members’ behavior and preferences based on location and activity context
• Educate members about different types of checking accounts
It’s not an exaggeration to say that every credit union area can benefit from digital transformation. Whether member-facing or back-office tasks, digital transformation can make your credit union more competitive, more nimble in adapting to ever-changing market shocks, better able to weather bouts of employee turnover without sacrificing quality, and better at simply engaging members.
Here are just a few examples of how digital transformation impacts different business areas:
• Retail branches
• Lending front office sales and acquisition
• Loan operations
• Credit administration
• Consumer and auto lending
• Commercial
• Mortgage and home equity
• Back-office operations
• Support groups
Retail Branches
Brick and mortar is expensive. According to Callahan & Associates, salary and benefits, which account for 51.4 percent of total operating expenses at credit unions, have increased 9.8 percent year-over-year.
Anything you can do to reduce manual work will enable you to not necessarily eliminate employee positions, but to free employees up for higher-value tasks, such as member engagement and community outreach. As noted earlier, that’s essential in today’s tight talent market.
Lending Front Office Sales and Acquisition
Processing loan applications requires many steps that involve credit, background, and fraud checks, along with processing data across multiple systems. Digital transformation allows you to process these applications faster and more consistently, without any errors or rework.
Information or documents missing from the loan application? Automate sending an email to the applicant and confirm when the information is received. The bot can then forward the loan application to the correct underwriter. Or, if the loan meets credit union-defined criteria, the bot can approve or decline the loan on the spot.
Lending is also paper-intensive, making information-finding painful and time-consuming. Digital transformation tools allow you to convert paper to electronic data that is more easily stored and indexed. And with ever-changing regulations, automation ensures you have the most up-to-date information you need to stay in compliance.
Loan Operations
When interest rates eventually decline from today’s historic highs, members will be requesting loan modifications. The usual process is for the member to request the modification from a loan officer who then sends the requests to the underwriter and then back to the loan officer.
Using RPA, this process could be reduced to hours, rather than days. And low-risk modifications below a certain threshold can be approved immediately rather than needing underwriter approval.
Credit Administration
Rather than manually requesting credit-check data, automate performing the credit check and input the data into your lending, CRM, or any other system. You can set credit limits based on a score or flag a potentially vulnerable account for human review.
Consumer and Auto Lending
Automating the member verification-process during a consumer or auto loan can reduce loan processing time from hours to minutes. Validate member data on DMV, tax payment, and property appraisal sites. Eliminate the need to copy-and-paste member information from system to system.
Commercial
Businesses want a personal relationship with their credit union that goes beyond simple cash management. They increasingly want you to be a partner in their success.
To facilitate this relationship, digitization allows you to receive data feeds directly from your members’ general ledger and analyze that data to provide additional product recommendations for their business, such as payroll or lockbox services.
Mortgage and Home Equity
Mortgage lenders conduct business in an environment of relentless operational and regulatory change, not to mention ever-changing interest rates. At the same time, many continue to rely on complex legacy systems, multiple databases and spreadsheets, and manual processes.
The resulting dependence on human labor to perform repeatable, relatively simple processes cuts into the time employees could be using to focus on analysis, process improvement, and member experience.
Back-Office Operations
Back-office operations such as deposit operations and treasury management rely on gathering data from disparate and siloed systems such as multiple databases, legacy core systems, and business-specific applications.
Often, systems aren’t integrated, so employees waste time copying and pasting information from one system to another. Digitization drastically reduces manual tasks, freeing employees to focus on more complex work and decision-making. At the same time, digital transformation ensures that data is consistent and accurate across the entire organization.
Support Groups
Support areas of the credit union such as finance, risk and compliance, human resources, and IT also benefit from digital transformation. For example, it can take your accounting teams days to complete the month-end financial close.
Digitizing financial close dramatically lessens the amount of time accountants spend doing repetitive tasks like gathering spreadsheet data; instead, they can focus on analytics, financial discrepancies, forecasting, and improving reporting transparency.
Although it’s tempting to only focus on technology, digital transformation encompasses more than just technology. Addressing the people component is critical to digital transformation success. In fact, a Cornerstone survey found that 85 percent of executives blame “corporate culture” as a barrier to digital transformation.
Digital transformation tools such as AI and machine learning are touted for their ability to reduce costs—and often employees deduce you’ll achieve those cost savings by downsizing. Employees could be worried that automation will literally cost them their jobs.
This very real concern can derail your digital transformation efforts. Employees may not consciously sabotage digitization, but they surely won’t work with you to digitize themselves out of a job. The push-back may be subtle, but consistent, and it will significantly impede the transformation progress.
Address these often-misplaced fears and concerns head-on. Be honest about the potential impact of digital transformation on employee jobs and outline your plans to reskill or redeploy employees. Demonstrate how automaton will enable them to do more challenging and rewarding work rather than tedious, manual tasks. Explain to them how their jobs will be redefined instead of cut.
Get employees on your side to see the value of digital transformation. Who knows processes better than the employees who live and breathe them every day?
You’ll need to lean on these employees as you document existing processes, determine where you can make improvements, and consider process changes and reengineering.
Employees will likely welcome the challenge: research from the University of London found that more than 60 percent of employees are interested in the opportunity to experiment with new automation technologies.
Thanks to Amazon, consumers expect fast turnaround times and proactive and personalized communications. Members demand faster processing of loans. They want to know their loan status. They are frustrated by frequent requests for additional documents or information.
Personalization has also changed new member acquisition. Traditionally, credit unions acquired members face-to-face in the branch. But now they have been forced to update their acquisition methods and embrace mass-scale outbound marketing and sales efforts. Tools including RPA can leverage the data you already have, with external data sources such as LinkedIn, local business prospecting data, NCUA data, and social review website data to personalize your communications to your target market.
You may have endured large-scale technology enhancements in the past that ran over budget and took longer than expected, and at the end of the day, you were disappointed that the effort did not deliver the expected benefits to your credit union.
Digital transformation is a different type of technology project and because it relies on agile technology, you can begin reaping the benefits of digitization quickly. You don’t have to wait for project completion (by the way, think of digital transformation as a journey, not a destination) to see results. And, if you need to change course due to economic factors, employee turnover, or changing member dynamics, you can pivot at any time because the technology is so flexible.
Here are some of the most common benefits credit unions report as they digitally transform their organization:
• Improved efficiencies/workflows
• Better member/employee experience and engagement
• Member attraction/retention
• Increased cross-selling into existing member base
• Increased processing speed
• Reduced reliance on core provider
• Iterative process of incremental changes
• Lower operating costs and increased operating leverage
• Faster implementation timeframe
Improved Efficiencies and Workflows
Chances are, there are quite a few more manual processes in your credit union than you’re aware of. Somewhere there are employees cutting and pasting information from one system to another or entering data from a paper form. Some employees are overwhelmed with tasks; others, not so much.
Data digitization automates these manual processes, such as using optical character recognition (OCR) to automate data entry. You can also use digitization to analyze workflows, routing tasks to available employees.
Better Member and Employee Experience and Engagement
The top technology priority for credit union executives is to improve member experience, with 70 percent saying experience and engagement are critical.
Members reach out to their credit union for everything from current branch hours to loan modifications. And when call centers, which are hardly immune to the current talent shortage, struggle to handle the volume of calls, members grow frustrated.
RPA bots can answer routine member questions, such as whether or not a branch is open, reducing member wait times and allowing employees to focus on more complicated issues that require a human response.
Member Attraction and Retention
More than six million consumers use Venmo, and some of them do business at your credit union. If you don’t link an easy-to-use payment app to member accounts, they’ll sign up with a credit union that does.
While it’s true that credit unions do enjoy a high retention rate, members will switch—especially millennials—if your credit union doesn’t provide the digital offerings they expect.
Increased Cross-Selling into Existing Member Base
Increasing share of wallet is on every credit union executive’s wish-list, but in reality, cross-sale success is abysmal. By providing more insight into members and their behaviors, digitization allows you to create marketing campaigns that increase wallet share. Digitization can also prompt tellers and call-center agents with the right offer based on member behavior and current product offerings.
A member has a checking account? Offer a credit card. A member with a savings account may be in the market for an auto loan. A member runs a small business? Offer bill payment and payment-acceptance services.
Increased Processing Speed
Core legacy systems are the workhorses of the credit union industry, excelling at transaction processing and handling a huge volume of data. But they are inflexible and rely on batch processing. And your members want real-time transaction data. They don’t understand why a deposit they make using their mobile phone doesn’t immediately appear online.
Digital transformation offers true omni-channel transactions: what happens in one application is reflected in all other channels in real-time.
Reduced Reliance on Core Provider
More than three-quarters (77 percent) of financial-services executives say that their current systems are the biggest roadblock to digital transformation. And Cornerstone found that only seven percent of credit unions believe that their core vendors have added “significant” value to their digital transformation efforts.
Many credit unions have been with their core providers for years, if not decades. The big core providers will acquire fintechs so they can offer you fancy digital front ends, but behind the scenes is an integration nightmare. If something goes wrong, you’re at the mercy of your provider.
Digitization is an opportunity to bring apps in-house or access them in the cloud, giving you more control over your own destiny.
No Rip-and-Replace
Rip-and-replace liberates you from your old legacy system and replaces it with modern technology. Sounds great—but it’s a long, painful, costly, and very risky project that few credit unions have the appetite to undertake. Instead, digital transformation is an iterative process of incremental modernization. And, you don’t have to wait for project completion to gain business value. Stay with your existing systems and harness the power of RPA to integrate them.
Lower Operating Costs and Increased Operating Leverage
Core systems are expensive. There are the capital costs of the actual equipment or the annual fee paid to a core provider. There’s the cost for maintenance and updates. There’s the cost for backups and storage. And because there are few COBOL programmers, they command high salaries—if you can find them.
How costly are legacy systems? The Financial Post reports that more than 60 percent of IT budgets go to ongoing infrastructure maintenance. That’s a big chunk of your technology budget that you can spend on digital transformation rather than just keeping the lights on.
Faster Implementation
Your credit union decides to launch a new product and wants to add it to your online system. The product team brings the specifications to the IT team, who then inform them that the programming changes will take six to eight months.
By that time, your competitor down the street will have been up and running with a similar product for months, potentially encouraging your members to switch institutions. You don’t have months to wait!
Updates to core or database-driven technology take months; implementing bots takes only four to six weeks.
Digital transformation presents challenges, but they’re not insurmountable. The most common barriers to digital transformation include:
• Lack of standardization in processes and data
• Project management roadblocks
• Lack of skills
• “Tagging the base” mentality
• Not seeing the big picture
Lack of Standardization in Processes and Data
Legacy systems store data in a certain format, yet modern applications (like remote credit union apps) rely on a different approach to data. This lack of standardization in data and processes requires an extraordinary amount of work to achieve the elusive “one version of the truth.”
Digital Banking Report found that legacy systems are a primary barrier to transformation because credit unions have to spend so much of their budget just on supporting these core systems, limiting the amount they can spend on modernization.
Project Management Roadblocks
Traditionally, credit unions use the waterfall methodology for IT project management and information security governance. But waterfall methodologies kill RPA projects. With a waterfall project-management approach, you complete a project step-by-step in distinct phases. That core system replacement that takes at least 18 months to complete and runs over budget was probably approached with a waterfall methodology.
Instead, working with RPA and other technologies requires an agile approach to project management. Agile is an incremental and iterative approach that separates a project into sprints. Agile also provides flexibility and can adapt to changing requirements.
Lack of Skills
Courses in COBOL programming language hardly ever appear in college catalogs, but that doesn’t mean that you won’t need programmers with these skills. Most of your employees have never seen a line of COBOL code even though your legacy systems still rely on it. There’s a small labor market available to maintain your 40-year-old legacy system.
“Tagging the Base” Mentality
“Tagging the base” mentality refers to not going deep enough into your credit union to enact real digital transformation. Installing five bots and calling it a day won’t do it alone. Reaching Level 1 maturity of digitization is just the first step.
Don’t just go after the next “cool shiny object technology” that comes out, without going deep into strategic implementation. Deep digitization is about including all organizations of your credit union in the digitization process, and implementing strategically to solve large operational problems after you have “tagged the base” and invested in learning RPA.
Not Seeing the Big Picture
Digital transformation involves every area of the credit union—from finance to retail to lending to marketing, and others. A common mistake is not taking a full end-to-end “factory” approach to digital implementation. Instead of digitizing strategic groups of tasks, credit unions too often focus solely on individual use-cases.
While RPA most definitely yields benefits at the micro-process level, credit unions that focus only on use-cases squander the opportunity to transform entire value chains. Keep in mind the big picture of what you want the end-to-end process to look like and avoid getting mired in automating only sub-processes.
While every credit union will approach digital transformation differently, there are several components that are key to any successful transformation effort:
• Process and data standardization
• Data wrangling
• Member journey and operations mapping
• Process analysis and process mapping
Process & Data Standardization
Credit unions need to own their data. Without access to data, you can’t proactively shift gears due to changes in member behavior, economic pressures, and competition. If your data is locked in legacy core systems, siloed data warehouses, or even spreadsheets—in different formats—data transformation will remain elusive.
Digital transformation success requires that you standardize not only data, but work and processes as well. Unfortunately, credit unions often overlook process and data standardization, thinking that “core technology” will solve any standardization issue. It won’t.
Data wrangling—also called data cleaning, data remediation, or data munging—data wrangling prepares data by transforming raw data into more usable formats for increased flexibility.
Here are two examples of data wrangling and standardization:
• Merging data from your core system, data warehouse, and various spreadsheets into a single dataset for analysis
• Ensuring that member names and addresses are consistent between your core system and CRM
While you can manually complete data wrangling, automating data clean-up is obviously much faster and less prone to errors.
One barrier to data standardization is the lack of data governance. Business units within credit unions are free to extract data as they see fit, and then import that data into spreadsheets and other applications without oversight. The result: many versions of the truth, and a lack of confidence in any single data set.
Not in good order (NIGO) documents can erase any operational efficiency gains you may have enjoyed from digitization. Whether due to a human input error, incomplete fields, or a missing member signature, NIGO is a process killjoy. Process and data standardization can drastically reduce the number of NIGO documents.
Member Journey and Operations Mapping
Every member is different—and each one interacts with your credit union differently, depending on what they want to accomplish. Perhaps a member visits your website to learn about the type of mortgages you offer. They may then step into a branch to talk to a lending officer. Other members may start their journey with a call to your call center.
Members don’t think in terms of channels. They want to move seamlessly from one platform to another depending on what’s most convenient for them at that moment in time. Their journey can be unpredictable, leaving you to wonder whether the effort to map member journeys is worthwhile.
It is worth it. Aberdeen Group estimates that organizations that perform journey mapping achieve 200 percent more employee engagement and 350 percent more referral revenue.
Successfully mapping your members’ journeys requires feedback from employees as well as members. Invest in a formal journey-mapping program. Ask employees to put on their “member hat” and describe what they observe members do. At this point, don’t worry about process but focus on the actual member journey from the member point of view.
To get members’ perspectives, use surveys, focus groups, and other feedback techniques. The goal is to understand which parts of the journey present roadblocks and which improve member satisfaction.
Process Analysis and Process Mapping
Inefficient processes waste time and money and frustrate employees and members. Process analysis and process mining encompass the practice of identifying and creating an inventory of tasks and processes that could be done cheaper, faster, and more accurately. Process analysis and process mining are gaining favor: Gartner predicts that process mining revenues will triple in the next few years.
One of the best sources for input on existing processes are your managers and employees. You could also engage outside consultants or vendors to streamline and improve processes. Or consider training your employees in methodologies such as Lean Six Sigma.
During process analysis and process mining, you will likely find hundreds of unique processes. Prioritize processes by volume and member impact. Collect process metrics such as cycle time, cost per transaction, head counts, and error rates. Most credit unions elect to go after the low-hanging fruit, make a quick fix, and move on to the next process.
For example, one credit union used process analysis and process mining to very quickly improve adoption of online statements. In an effort to transition members, tellers were instructed to offer the paperless option to members visiting the branch. Out of the 900 offers made each month, fewer than a dozen members converted.
Through process analysis and process mining, the credit union changed the process to have tellers flag the member’s account after offering e-statements. The next time the member completed a transaction online, they received a message reminding them how they could convert to paperless. If the member still didn’t convert, an employee called the member to walk them through the process. The conversion rate then jumped to 30 percent.
Digital transformation can have a huge impact on how you acquire members and close sales. Currently, the process of identifying cross-sell opportunities and onboarding members is painstakingly slow.
Your tellers and call-center agents may already offer products and services during member interactions but these cross-sell attempts often miss the mark and annoy members.
But bots-plus-analytics can identify those members most likely to accept an offer based on their previous behaviors, products they already use, and demographics. Rather than just offering the latest product du jour, tellers and agents can target members with the offer most likely to succeed.
During mobile and online member interactions, bots can deliver personalized marketing messages to members based on their propensity to accept the offer. Instead of casting a wide net and hoping for a few wins, digitizing sales and member acquisition pinpoints the most likely wins.
Digitization allows you to address the changing role of your brick-and-mortar branches, too. As members transition to more digital interactions, staffing needs will have to change as well. Tools such as AI and predictive analytics allow you to optimize staff and reduce operating costs.
Digital transformation for credit unions is gaining momentum, spurred by market shocks, changing member and staff expectations, and the need to reduce operating costs, among other pressures.
There’s no need to start over—digital transformation doesn’t require a rip-and-replace of your existing systems and processes. Technology and tools including RPA, AI and predictive analytics, and business intelligence and visualization tools allow you to craft your own digital transformation journey, so it aligns with your strategic goals. You can take your time—but it’s time to get started now.
Simply call (201) 526-1200 or email info@thelabconsulting.com to book a call with our friendly experts today!
