New Product Innovation

Here’s a basic truth that few credit union managers like to admit: Innovation sometimes ends up on the back burner because it can be costly in terms of time and money.

Technological innovation is especially daunting because CUs play against gigantic banks, which can afford to take risks on game-changing applications.

But innovation is worth investing in all the same, says Scott Isaksen, president of The Creative Problem Solving Group Inc., Orchard Park, N.Y. He points out that while credit union members are getting older as a group, the future of the movement depends on connecting with younger people where they are. And where they are, increasingly, is not in branches, but online, on their phones, and in social media platforms.

“[Credit unions] have the challenge of being relevant to a whole new generation of members,” Isaksen says. “In a way, it’s similar to the marketing challenges other organizations have to get new customers, but credit unions reside in the financial services space, so they’re competing against the traditional banks around things like Apple Pay, mobile, the digital shift. These things are certainly affecting the ability of credit unions to attract, retain, and delight members.”

Isaksen says because credit unions are member-owned and not-for-profit, they have an advantage over the competition—but only if they can explain that difference to potential members. They must charge their teams with innovating in a way that connects them to their audience.

A Climate of Creativity

How, then, can credit union leaders create a culture of innovation within their organizations? CUES member Brad Barnes, chief financial officer of $490 million, 48,000-member Air Academy Federal Credit Union, Colorado Springs, Colo., with 140 employees, says the first step is to have a willingness to question what’s already being done.

“It’s not just thinking that once you’ve solved a problem that you’ve always solved that problem and you never have to worry about it again,” he says. “As the members demand change, as the technology landscape changes, I think it’s just continually looking to have that mindset to try to improve what you’re doing.”

The second step is encouraging prototyping and not being afraid to fail, he says. “We want to be perfectionists, and we want to do things right the first time. [Innovation is rooted in] accepting the fact that the first time you roll something out, there’s going to be something wrong with it, and being OK with that. [Also] having that ability to look to see what changes need to be made and improving that on an ongoing basis.”

CUES member Michelle Merkley, executive vice president of $76 million, 7,600-member Keystone Federal Credit Union, West Chester, Pa., with 24 full-time employees, says leaders sometimes have a tendency to stifle projects that don’t have a known, dependable return on investment. Instead, she says, they should encourage employees to delve deeper and demonstrate the benefits an innovation might have.

“I think that it’s really, really important not to always just say no, or to think, ‘That’s going to cost money, so we can’t move forward with that,’” she says. “I’d like to see them encourage and mentor the young people in their organization, allowing them to share their ideas and to do research and show the cost-benefit. And if it doesn’t work, that’s OK. Let them start over. But if it does, what amazing concepts we can come up with.”

But credit unions are entrusted with their members’ money. How can they be sure their innovation dollars are being spent smartly? Andrew Downin, innovation director at Filene Research Institute, Madison, Wis., says credit unions should approach innovation-related risk the same way they approach risk in any of their other portfolios.

“None of us would put all of our retirement dollars in, let’s say, risky overseas funds. You may have a high return, but there’s a lot of risk,” he says. “And similarly, no one is recommending that we put all of our retirement funds in an absolutely no-risk CD that’s going to earn a percent, because you’re not going to get the return. You want a balanced portfolio.”

A well-balanced innovation “portfolio” should contain three types of innovation, he explains. The first is incremental innovation: small-scale, low-risk improvement that generates a low but dependable return, such as streamlining a process to shave a few seconds off teller transactions. The second is architectural innovation: longer-term systemic changes, such as a new core processing system or a new organizational structure that will help the CU better meet the needs of its members. The third is disruptive innovation: the “sexy” headline-grabbing inventions, such as Bank of America’s Keep the Change program (www.bankofamerica.com), that are high-risk but high-reward.

“What we suggest is that if you can focus on becoming really good at incremental innovation, you can take the wins that are generated from those changes and put some of those into testing out some architectural innovation,” says Downin. “You can also put some chips on the table for disruptive innovations. If you distribute it this way, you’re more likely to have an overall positive return on that innovation portfolio.”

Close to Home

In 2012, Merkley was part of a Filene i3 (ideas, innovation, implementation) program team. Her team developed a product called Senior Sentry, which leverages a credit union’s existing core processor or Bank Secrecy Act analysis tools to help prevent senior financial abuse. The issue has received press in recent times, and some states have rules to protect elders and their finances.

Merkley’s team saw that front-line staffers were a CU’s best defense against elder abuse, but often they didn’t have consistent training that would allow them to spot it. Senior Sentry was designed to provide an algorithm of questions that could either be plugged into a fraud database (for larger credit unions that have fraud programs in their core systems) or used in back-office reporting (for smaller credit unions that pulled manual reports on a weekly or monthly basis). The product has been prototyped and piloted, but is not yet commercialized.

Like many of the best innovations, the concept behind Senior Sentry came from a careful analysis of the real wants and needs of members. It was also timely from a commercialization standpoint.

“There was a lot about senior financial fraud in the media at the time, with Mickey Rooney coming out and speaking about his experience,” she says. “So not only was it important to us to protect our elderly members with all the fraud that was going on, the media was also embracing it at the time that we developed this product. So we thought it was a perfect time to promote this and try and help our elderly members.”

Downin says when credit unions look at innovation from the perspective of improving members’ lives, they have a much better chance of being successful. They’re not inventing just for the sake of creating something cool; they’re innovating to solve a real problem.

But it’s possible to take that concept one step further and go directly to the members for inspiration. The term is usually “crowdsourcing,” but Downin prefers “member-sourcing.”

“There are a number of credit unions that have systems that are online, often part of the credit union’s main website, that are mechanisms where the credit unions solicit ideas from their members,” he says. “They may be ideas for new products or services, maybe thoughts around new technologies staff members would like to see. A lot of these systems also give other members of the credit union a way to give a digital thumbs-up or thumbs-down to member-submitted ideas.

“The great thing about this is that credit unions can quickly get ideas from their members and hear how popular those ideas are,” Downin continues. “They can see the best ideas bubble up to the top, and the credit union can quickly understand what are the highest potential innovations from their members.”

But members can help with more than just idea-generation. They’re also a readily available (and often extremely willing) pool of beta testers, and they can help CUs know ahead of time which innovations will have traction.

Kristin Scharf is SVP/innovation at Tampa, Fla.-based PSCU, a CUES Supplier member CUSO that hosts 24-hour hackathon-style innovation events called KnockOuts. She says it’s critical for credit unions to be willing to share ideas in development and quick mock-ups or test versions of products with members, even when those concepts aren’t yet ready for prime time.

“We have to be OK with involving members in that process up front,” she says. “That really appeals to Millennials. Those digital natives have grown up understanding that the digital world is moving very quickly, and they’re used to dealing with startups, so if you give them something new to try, they’ll try it.

“Credit unions can say, ‘Hey, take a look at this idea that we have. How would you use it? What do you think? Does it solve this problem for you?’ That’s a big change from how banking has been historically, where you would fully commercialize something before you get feedback.”

Looking Outside

Even though the problems CUs are solving should be the ones that affect members, the spark of great innovations often comes from cross-pollination—looking at ways completely different industries solve problems. Remember the online apps for collecting member ideas that Downin mentioned? Leaders at SchoolsFirst Federal Credit Union, Santa Ana, Calif., modeled theirs after one they saw on the Starbucks website.

Air Academy FCU’s Barnes was a member of a Filene i3 group that had a similar revelation. The group noticed that mortgages were the most profitable member relationships most credit unions had, yet they tended to generate the lowest Net Promoter Scores. Members were dissatisfied because they didn’t know where their applications were in the approval process.

“We ordered a pizza from Domino’s, and Domino’s has that Pizza Tracker,” he says. “You can see at any time that your order’s been taken, the cheese is going on the pizza, the pizza’s going in the oven. It was a really kind of simple, kind of stupid thing, but we thought, ‘What if we did the same thing with mortgages?’”

The result was a mortgage-application tracking product called HomEase, which is currently in the prototype testing phase with a major mortgage provider. Air Academy FCU’s test of it found that not only did member satisfaction improve, but call volume related to mortgages dropped 30 percent.

“Most of the calls coming in were just borrowers saying, ‘Hey, did you get my application? What’s going on with it?’” says Barnes. “It was really neat to be able to find a simple solution and to actually go out and test it and get some good data out of that process. We’re really excited to see where this goes.”

Credit union service organizations, other credit unions, and vendors are also valuable sources of cross-pollination, and they can offer technical assistance in cases where, for example, a smaller credit union might not have the internal expertise to code an app. With this in mind, during KnockOut events, PSCU tries to pair participants with partners who have the technological resources to help build prototypes. Filene does the same for i3 teams.

“There are two paths we really encourage i3ers and credit unions to go down,” says Downin. “One is, if you don’t have in-house technology talent, find another credit union to partner with and collaborate with. There are some success stories we’re seeing around the country where smaller credit unions are collaborating together to innovate around technology. The other is looking to third-party partners—maybe card processors, core processing systems, or other software vendors—as a resource. If the credit union has a great idea, perhaps the third-party vendor has the resources to take it on.”

The results of these partnerships are very often a win-win, benefiting all of the organizations involved,  as well as their customers and members.

“They’re sharing the talent, sharing the risk, and sharing the reward,” says Downin.

Jamie Swedberg is a freelance writer based in Georgia.