Everything is different today in financial services.
That means your credit union.
For the past decade, many credit union executives smiling agreed that they needed to make changes to keep pace with the mega banks—but times have been good and talk was cheap. Almost all clung to their traditional, branch-centric financial services practices.
The branch is king, long live the branch!
Except no more.
In many states, branches have been closed for months.
In just about all states, consumers are steering away from branches to better avoid the coronavirus.
You Can’t Go Back in Time
Enter Brad Smith, with Cornerstone Advisers, who thinks long and hard about what credit unions need to be doing to prosper in a post-pandemic world.
A first reality: we are not going back to what was. Not ever. It will never be February 2020 again.
Many credit union executives had clung to a belief that we would soon be going back, once the Covid-19 virus was slain. Most now realize that is a fantasy.
The pandemic may be with us a year or more.
That means it will always be different. Financial services are especially impacted.
Like how? A massive change that Smith tells clients about is that the branch-centric model is no more. Most of us have learned to do just about all our financial services digitally, or via phone, and we have found it works.
Few of us are likely to become heavy branch goers again.
Smith is not saying to shut all branches—he sees a future for them. But a different, smaller future (think smaller footprints, with less staff).
Some branches too will close. Smith said there’s a lot of that happening, usually under cover of Covid-19, even if the real reason is that the institution simply wanted to shutter an unprofitable branch. Credit unions have not been closing as many as banks—few credit unions are over-branched, and many banks are. But any branch that is unprofitable now is getting a hard look.
What this sets up however is today’s big challenge for credit unions: learning to sell digitally. Most are simply terrible at this. Most, if they use digital at all in selling, use it as a path that leads to a branch visit.
That won’t work anymore, said Smith, and the smart credit unions already are focused on getting digital selling right.
He also says that some tech tools are thriving now—he pointed to MRDC, mobile remote deposit capture, where the need for a branch visit is replaced with a click of a cellphone camera. There’s been an explosion in MRDC usage and expect that to be a permanent change. That’s a convenience few will want to surrender.
Smith also noted that credit unions now are “drowning in deposits.” What they need to focus on is expanding loan and credit portfolios. But doing so safely and soundly has been complicated by the economic fallout triggered by the Covid-19 pandemic. Unemployment is at numbers not seen since the Great Depression. Good credit risks now are more fragile. An 800 FICO score in March could be 700 and falling today. Tough decisions need to be made, and the savvy credit unions are on this.
Another huge trend: video conferencing. Consumers have grown accustomed to video at work, and with family members and friends, and they seem comfortable expanding that tool’s use into financial services.
Does this mean more branch based interactive teller machines? Not so fast. Consumers may not want to go to the branch and are willing users of video at home. Smith pegs this as an issue to watch.
A Trend to Watch: Cutting Costs of Commodity Tech
A last issue tagged by Smith as key to the future of many credit unions is a push to cut costs on commodity tech—that’s core systems, communications infrastructure, and similar—and to redirect money into strategic tech such as true digital account opening. These credit unions are seeking to renegotiate contracts with existing tech vendors and to claw back monies that need to be spent more strategically.
That’s an earful from Smith? You bet it is, and there’s more. If you like what you’ve read, listen in to the CU 2.0 Podcast with him—get it here. It’s a levelheaded, practical consideration of the tech credit unions and their members need today. Hear it from Smith in his words. And decide for yourself what your credit union’s next steps need to be.
