And Barry noted that while the overall number of credit union members increased 6% from 2002-2006, the number of credit unions themselves decreased 14% over this same period due to consolidation. Such exponential consolidation, the Aite Group analyst said, places a premium on business strategy to not only thrive but simply survive.

"Competition within the credit union space is growing, and institutions are being

forced to shift away from traditional strategies," Barry said. "They are challenged to overcome thin margins, address new member demands, and identify new ways to attract members."

In response to those challenges, credit unions are increasingly migrating toward technology upgrades as a way of obtaining competitive advantage. Technology creates a more level playing field for smaller institutions while simultaneously allowing these same institutions to expand geographic reach and provide improved customer service.

As could be expected, technology expenditures vary widely across the industry. The majority of credit unions–approximately 60% according to the Aite survey–allocate $250,000 or more per year to technology upgrades. This figure, found Barry, is expected to rise over the coming years.

Of the technology upgrades slated for adoption and/or expansion, commercial lending solutions, consumer analytics, online cash management solutions, core banking systems, and CRM headed the list. These upgrades focused on five areas of identified benefits:

- Enhanced member service and online user experience;

- Increased cross-selling and new member-acquisition abilities;

- Improved operational efficiency and workflow automation;

- Stronger network, site and authentication security; and:

- Expanded product portfolios.

Somewhat surprisingly, given the widespread adoption of Check 21 technologies, imaging was not identified as a credit union need of particular note. Similar adoption lag emerged in the area of remote deposit, with 85% of surveyed credit unions labeling it a non-priority.

Interest in business services was high, as was the adoption of automated lending programs, and online banking–already present in nearly 60% of credit unions–emerged as a key technological priority. Of those surveyed, a whopping 30-49% of their members already used the service.

Barry said she also expected a variety of key online banking upgrades in the coming two years and cited that as an area of particular promise for credit unions.

"The majority of Internet channel investment over the next 24 months will focus on enhancing the user interface and member service tools, adding new capabilities to improve sales and cross-selling, and improvements to security," she said.

Meanwhile, the bigger the credit union, the greater the locus of control for these institutions over their IT infrastructure. For credit unions of $100 million or more in assets, nearly three-fourths of these organizations licensed, maintained, and housed (versus outsourced or remotely hosted) their own technologies.

"Credit unions tend to be technologically savvy and far more sophisticated users of technology than banks of a similar size," Barry said.

She concluded that credit unions, despite being outnumbered, are in a good position to compete, especially those that take tech tools and run with them.

"In many ways, credit unions' attitudes toward technology place them at an advantage over many banks, especially community banks who tend to be more cautious technology adopters," the Aite Group analyst said.

"In today's environment, where technology can help to level the playing field, an aggressive technology strategy is key to survival. While credit union budgets are often limited, many seem to be focusing in the right directions and investing in areas and solutions that will offer the greatest return."

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