Tech Time: Are You Pro-Digital?

This article was originally published on D3 Banking Technology’s blog and was adapted by the authors for CUES.

Every year, Forrester analyst Alyson Clarke and her team publish a report on retail banking trends in North America that evaluates trends and provides predictions for the coming year. Overall, the predictions by Clarke and her team for 2017 were accurate. We would give them an A- for accuracy, but they could have been a bit more relevant and also considered the widening gap between credit unions that embrace digital delivery and those that do not.  

In the 2017 edition, Forrester made the following predictions:

1. Optimistic uncertainty will underpin the general economic outlook.
2. Low interest rates will keep interest earnings low.
3. Regulatory uncertainty in the U.S. will create ambiguity.
4. Fintech companies will move away from B2C business models to partner with financial institutions. 
5. Consumers will expect more relevant digital experiences.
6. Competition for millennials will intensify as members of Gen Y enter their prime spending years.

To some degree, all six of their predictions were accurate, but how the details played out varied from their estimations.

• Economic optimism underpinned positive economic growth and increased competition throughout the industry.
• Low interest rates did keep interest earning low, even with some loosening on the part of the Fed.
• Regulatory uncertainty did create ambiguity, with some doubting much would change in the near future, despite the Trump administration’s promises of deregulation and changes in the Consumer Financial Protection Bureau and leadership of the Federal Reserve.  
• Fintechs are partnering with financial institutions, including credit unions, to the betterment of both.  
• Rising expectations concerning digital experiences was a rhetorical prediction at best, since an intuitive and seamless digital experience is no longer a “nice to have,” but a mandatory requirement for financial institutions.
• The prediction of intensifying competition for millennials was an easy one, as millennials/Gen Y predictably continued to permeate all spheres.

Forrester’s predictions perhaps did not emphasize enough the digital transformation that financial institutions have been experiencing. The largest replacement cycle in the history of financial technology began to trickle into the market in 2017 as legacy online systems and aged mobile offerings were replaced. 2018, by comparison, will present a “tsunami” of replacement opportunities.

The momentum of this replacement cycle has exponentially impacted the gap between credit unions that are actively embracing digital transformation and those that have not yet reached that level of commitment. While some CUs understand that investments in digital are not simply organizational costs but rather growth drivers, others remain hesitant.

Our Predictions for 2018

2018 will present an additional twist to the replacement cycle as credit unions discover that simply swapping legacy online and aged mobile banking systems will not be enough. If credit unions want to compete, they must adopt a philosophy of consistent innovation. For most institutions, this will mean some degree of culture change which, even in small doses, can seem daunting. Members today expect new features to be introduced in a matter of weeks, not once or twice a year. Credit unions are discovering that this is a challenge using solely in-house resources. 

Due to this need for fast-paced evolution, the model for partnering with vendors will change. Digital banking is never going to be a set-it-and-forget-it endeavor, so credit unions will need to partner with fintech providers for longer periods of time to keep their solutions nimble and open to updates. In some cases, credit unions may even need to collaborate with their fintech partners on the development of new features and functionality to deepen the partnership and improve time to market.
 
Many credit unions have traditionally managed funding on a project-by-project basis. To keep up with technology and to continually enhance the digital offerings available to their members, credit unions should consider shifting to a budgeting model that includes a “bucket” of discretionary funding to address trends as they emerge. This will allow those in charge of digital banking initiatives to make decisions in real time to better address shifting member and business needs. 

While credit unions have a unique community connection and superior member service, there is still room for improvement. If CUs do not build digital strategies and reshape their organizational configuration for support, they will not be able to bring new features to market at an acceptable pace for members. Savvy credit unions will take proactive steps in 2018, creating both an effective means for attracting new members and the power to retain those members for decades to come.  

Michael Carter is senior market analyst and Eric Brandt is market analyst at D3 Banking Technologies, Omaha, Neb.