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For the past six years, Constituent has been supporting credit unions in the UK & Ireland on the digital journey. The primary goal of such activities has always been to identify and acquire the available technology that will help unlock the full potential of the credit union.
Whilst there has been clear progress made across the credit union sector, especially with the influx of new and exciting FinTechs, it is observed there has perhaps not been the same level of transformation witnessed elsewhere in the wider financial services sector. Indeed, the common complaint remains of a disconnect between the service offering of the credit union versus the wants and needs of members (customers); with access to the necessary technology cited as the key factor.
So, how crucial is technology really to future of credit unions? Is it as simple as identifying the technology or do credit unions need to do more for themselves to ensure future success? And is there reason for credit unions to look forward with optimism when it comes to technology?
Digital Transformation – why bother?
As most would agree, Technology now impacts every aspect of our lives, including how we work and how we consume services. The unrelenting influence of technology compels all service businesses to commit to the digital journey as an enabler towards future success. This can be especially challenging for those from a more traditional service delivery model, such as credit unions. But the starting point from credit unions is not too dissimilar from that of high street banks - traditional counter transactions shifting to the telephone services and then, more recently, to digital channels through online portals and smartphone apps.
The entire financial services sector has faced the digital disruption brought by the challenging banks such as Starling, Monzo and Revolut in recent years and their access to evolving services through modern channels. Such digitalisation of financial services actually replicates many of the technology features first witnessed in the UK by the unscrupulous pay day lenders of a decade ago, with their quick access to exorbitant high interest rates. Indeed, arguably, the less ethical finance providers continue to utilise the technology most, with the ability to circumvent credit unions through direct access to customers.
For credit unions there is a growing realisation that it is not good enough to simply have access to the technology, but it’s what you can do with it that really matters. Many innovative and progressive credit unions cite a determination to succeed in the digital world and are keen to develop and deliver well thought through transformation strategies. But, for many others, the digital journey remains confusing, too fast-paced and one to be resisted.
A warm welcome to the FinTechs
So, what is the “tale of tape” for credit union technology over the last five years. Well, firstly, there has been positive change witnessed. The Sector has seen an influx of many exciting FinTechs offering new and exciting functionality to credit unions – in many instances for the very first time. Some FinTechs have offered “wrapper solutions” to complement and enhance the existing functionality of credit union’s core platforms, which has allowed the potential for members to have an online and app experience more akin to challenger banks. Whereas other FinTechs have honed their own specialisms in particular components of the digital experience and made these available to credit unions, for example apps, communications, loan decisioning engines, open banking etc. All such available technology has brought the “front end” experience closer to the expectations of increasingly tech savvy members.
Of course, for such functionality to be fully effective there needs to a relationship with the credit union’s “back end”. The core platform vendors deserve a great deal of credit for their willingness to respond to the shifting digitisation of the Sector. The traditional model of the core platform “does everything” is pretty much a relic of the past, with relationships now formed with chosen 3rd Party FinTechs to create eco-systems of functionality that more closely align to the wants of credit unions or more pertinently those of their members.
However, with 37% of UK credit unions indicating a desire to shift core platform it does suggest such efforts are not enough (Source – Fair4All Finance, Understanding the role of technology in Community Finance, December 2020). But why?
Core Platforms – ‘Plug and Play’?
An observation is made that credit unions are now more informed than ever over their technology requirements. But, notwithstanding the positive developments, the core platform providers have generally been slow to respond to such needs and wants. Furthermore, there has been little in the way of a shift from the dominance they exert in the relationship with their credit union customers. Indeed, such referenced “eco-systems” remain firmly in the control of the core platform vendors rather than the credit unions themselves, and, in reality, are not always a seamless as presented (i.e., clunky)
Where compared more widely within the financial services sector, and elsewhere, it is clear the ‘customer’ has more control of their own technology stack, with access to FinTechs more than likely a determination by them. This is simply not the case in the credit union sector at the moment.
For a large proportion of the Sector, this leaves the credit unions still heavily reliant upon the core platform providers, necessitating the operation of “workarounds” and / or reliance upon standalone systems, with time-consuming, manual steps and interventions in their business processes in the back end facilitating the digital front end desired by members. Moreover, it should be noted that such multi-vendor systems usually come at an increased cost to the credit union with each technology component requiring its own financial outlay.
But, despite the disquiet, very few credit unions have shifted core platform. This would suggest that those credit union seeking alternatives are struggling to identify suitable options. But are things now changing?
There’s new technology ahead …
It has been recently commented that there is a “buzz” about credit union technology. Our own research suggests the 37% back in 2020 has now significantly increased, with a growing number of credit unions now seriously discussing their intentions to migrate to a new core platform over the next 12-18 months. But, why now?
Firstly, the credit unions themselves are exerting greater confidence than ever around technology, especially in their expectation of all vendors. This has had a positive impact upon those vendors already serving into the Sector, with the overall balance shifting back in favour of credit unions. Secondly, there is genuine excitement over the enhanced functionality being launched by the existing FinTechs based upon their actual needs i.e., for credit unions, designed by credit unions.
Finally, there is an awareness of the arrival of new core platform entrants over the next two years. Such platforms are being promoted as being designed specifically for credit union, and therefore comprehensive in terms of functionality, and presenting the control and flexibility to the customer to build their own technology “eco-system” of FinTechs to work with. Interestingly, such new core platform options are observed as being developed from a diverse range of providers; from ‘new generation’ systems by existing vendors, to new entrants into the credit union sector from elsewhere in financial services sector, to a bespoke platform developed by a large, successful UK credit union.
It should be noted that when available, such new options should help credit unions move more quickly in the future in response to the rapidly shifting needs of members as technology continues to evolve.
Conclusion – Technology is only the start of the Journey!
Whilst identifying and acquiring suitable technology has been the biggest barrier to digital transformation over the last decade this appears to be about to change. Such available technology from variety of suppliers means more choice than ever for the credit union customers, and this should provide for more control in their favour.
This is a very positive development, but there are clear lessons from the past to observe over the need to mitigate the organisation risks alongside the acquisition of technology. In the excitement of what the future technology may hold, credit unions leaders must ensure informed decisions are taken and the necessary preparations are put in place before embarking upon such fundamental organisational change.
At Constituent we support all aspects of the digital transformational journey with a range of holistic services designed around the specific needs of credit union leaders. Our Organisational Readiness Assessment is specifically designed for those credit unions about to embark on the migration to a new core platform or simply looking to consider their options.