Technology clarity that aligns with your budget can be found by organizing and planning your needs according to innovation horizons, which are divided into three tiers or timeframes that range from 12 months out to 36 months or more.

Horizon 1: Within the Next 12 Months

This tier is, by far, the most important for financial institutions, and should take up 60% of your credit union's innovation focus. It involves change that needs to occur in the short term, and focuses on markets you already serve using current technology. Credit unions should be looking at improving existing technology, improving efficiencies and processes, reducing costs and using current systems to their full potential.

Horizon 2: Within in the Next 12 to 36 Months

The mid-tier should take up 30% of your focus and involves next-generation technology that is already proven and/or expansion into adjacent markets. These are moves your credit union needs to make in the next one to three years.

Horizon 3: More Than 36 Months Out

Although this tier typically garners the most attention, it should only require 10% of your focus. It includes concept technology that isn't yet proven and entirely new markets. Financial institutions won't actively pursue Horizon 3 for at least three years.

Since the next 12 months – Horizon 1 – is vital and should be a priority, let's examine the two most important current technology trends for financial institutions: Digital transformation and data.

Executing Digital Transformation

Effective digital transformation requires execution of three equally important things: Product, experience and delivery.

Digitally transforming your products requires introducing new digital products and services, and adding digital components to existing products and services. It also means digitizing information including prices, processes and quality measures. Credit unions typically do a great job digitally transforming their products.

However, the digital transformation of experience and delivery are more of a challenge because they involve system, workflow and other back-office changes that are often forgotten. Creating a digital member experience requires innovating your member-facing processes, tools, interface and the ability to gather member input.

Digitally transforming delivery could require an upgrade to your internal IT systems, improving your data (we'll talk about how to do that next) and redesigning your internal business processes. It also means examining external platforms like your internet and phone systems, social media accounts, cloud-based hardware and software, and your supply-chain processes to ensure they support your delivery promise.

Mapping the Member Experience

Executing a cohesive digital transformation from product to delivery requires a detailed journey map of your entire member experience. A journey map isn't a new concept, but many organizations don't go into enough detail, get the right perspective, focus on the right products or services, or approach in it an unbiased way.

Journey mapping done right begins with identifying and describing three to five of your most common member personas – not just one. Dig deeper than simple market segmentation by detailing what motivates each member persona and identifying what goals and challenges they face in life; then do the same for the employee personas involved in the experience. This will help you understand how well your credit union is truly meeting your members' needs. It's also important to be specific about which products and services are mapped. Mapping out newly-launched products or a general experience won't uncover friction that is affecting your most common products and services.

Beware of the tendency to dismiss friction uncovered in the process, and justifying it in the name of profitability, regulatory burden, scalability or operational constraints. This is not to say these issues aren't important. But if you start your journey by creating the ideal member experience without those constraints, you may be surprised to discover what you can achieve even after the constraints are added back in.

Another common mistake is to overestimate the effectiveness of the traditional ways your credit union has always done business. For example, onsite branches at SEG companies have a unique competitive advantage for member engagement, but they assume a member who needs to consolidate debt will come to you to discuss the need – the personal relationship may be a barrier in this "case." If you have a robust digital platform that anticipates member needs and allows them to explore solutions in anonymity, on their own terms, they will be better served.

Fintechs have eliminated the need for members to proactively ask for help. Instead, they use AI and data to identify your member's need and reach out to them, preapproving a consolidation loan offer that can be completed digitally and privately, without requiring an uncomfortable face-to-face or phone conversation.

It's In the Data

The use of data isn't a new concept either, but by-and-large, credit unions still aren't optimizing all the ways they could turn existing data into a real strategic advantage that supports digital transformation.

Normalizing and structuring your existing data so you can produce reports is usually the first necessary step, but it's an Achille's heel for most credit unions because legacy core systems don't always integrate well with systems that process and deliver products and services. An effective use of your budget may be to hire an experienced business intelligence officer who can clean up and leverage those resources. Your credit union could also consider working with existing vendors or hiring a new vendor to do it. Effective use of data also requires a shift from using data for descriptive analytics to predictive analytics, and ultimately prescriptive analytics.

Credit unions already do a great job of producing descriptive and sometimes predictive analytics. Descriptive data describes what has already happened; delinquency and charge-off reports are an example of descriptive data.

Predictive data describes what might happen based on historical data. Credit scores and in-market propensity scores are two examples of ways credit unions are already using predictive analytics.

Prescriptive data uses analytics to advise your credit union on what it should do. In this example, your credit union would use its descriptive data and predictive data, combined with other data at your disposal, to determine exactly how best to adjust everything from underwriting and processing, to marketing and determining which loans should be sold on the secondary market.

Using Automated Decisioning to Capture More Loans

Rising consumer debt, the inverted yield curve and even a slowdown in RV sales all point to a correction and potential economic downturn. This is actually an excellent opportunity to use data to increase your automated loan decisioning. Yes, you read that right. Increase.

Too often, credit unions associate automated decisioning with simplistic decisioning, only using system approvals for super-prime and some prime tier members. These decision models may be missing critical red flags that could be detrimental in a downturn.

But consider this: During a recession you have compressed margins and are funding fewer loans. To be profitable, you have two choices: Raise rates or improve efficiencies. When you optimize your loan origination system and back up your decision logic with solid data, your system can make the same decisions a human underwriter would. With the application of emerging data models, it could arguably make the best decision more consistently – while increasing efficiencies and reducing operational expense.

Plus, automated decisioning allows you to capture more loans in a down market because of a faster member experience. You improve your chances of getting the member's loan instead of delaying the decision by kicking it back to an underwriter, only to have them move on to shop for financing somewhere else.

Prioritizing your technology needs according to the innovation horizons planning model will provide the clarity you need to make the most of your technology budget. Focusing on optimizing existing technology that drives your most popular products and serves your current markets will allow you to meet your growth goals, improve efficiencies and control costs. In turn, your organization will be in a position to make the right move when new technology and market opportunities present themselves in 2020 and beyond.

Brian Hamilton

Brian Hamilton is Vice President of Innovation for CU Direct. He can be reached at [email protected].