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If 2020 taught us anything, it was that no business model is shock proof. Many trends that were already in progress accelerated rapidly during the pandemic and some weaknesses became starkly obvious. For the credit union industry, it became exceedingly clear that our interest rate shock tests and ALM projections did nothing to prepare us for the onslaught of change we experienced in a few short weeks.
When COVID began late in the first quarter of 2020, most credit unions were unprepared for the mass exodus of staff, widespread branch lobby closures and the overnight utilization of digital channels for member interactions. The pandemic would prove to put the credit union model under stress unlike anything we had ever seen.
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As the pandemic stretched into months, it became clear that there were two main leadership approaches to address the challenges we faced: Hold our breaths or create a new business model. Suddenly our well-thought-out strategic plan action items were thrown out the window. No amount of modeling could predict what we would be facing in the coming months or years. As leaders, we had to make decisions in rapid succession with little information and very few facts. For those credit unions that had invested in a digital infrastructure that included paperless processes, online access for basic member service functions and an easy-to-implement work from home strategy, the ability to adapt was simple. However, for those credit unions that had yet to complete that digital journey, the challenges were much more difficult. Unfortunately, most small credit unions, which make up the majority of all credit unions, fell into the latter category. When small credit unions struggle, the whole industry struggles.
So, how did we get here? How did we allow ourselves to be so complacent? It is not a surprise to anyone that while the future of our business is digital, so many credit unions still do business like the industry did in 1985. We pride ourselves on our service, but by service we mean personal, face-to-face service – not a digital experience. We have been making decisions based on this service model and COVID showed us that this thinking is flawed.
Credit unions are a highly regulated industry. We must check a lot of boxes, we have stringent processes, we use specialized tools and we comply with lots of rules. Our model, frankly, is boring. Deposits come in; loans go out. That process has not changed in a century. But when we started conforming to regulators' wishes we stopped being innovative. We maintain high capital levels because it makes our regulators happy when we really should be investing that money into our member experience. All the capital in the world will not save us from the rapid paradigm shift we are currently experiencing. Small credit unions are already being merged out of existence due to the challenges of keeping up. Will that accelerate in the years to come or can we adjust now to adapt to the new reality of a post-COVID credit union world?
If you are a credit union executive, you are grappling with how to lead your credit union into a future not one of us expected to be upon us so quickly. As the reality of the situation settles in, we are all realizing things will not go back to how they were before. Consumer and employee behavior have been fundamentally and unalterably changed. How can we be sure we survive the next century? How do we lead this industry into 2021 and beyond? I fervently believe that the initial leadership approaches to this pandemic in 2020 should be narrowed down to one: Create a new business model. This crisis has made it abundantly clear that our priorities were not in the right place and the time to change is now.
All credit unions have limited resources, but those resources are disproportionately limited at a small credit union versus a larger one due to economies of scale. A credit union can grow much larger without adding additional expenses once it reaches a certain equilibrium. Larger credit unions can allocate more resources to a digital infrastructure and many of them have. However, small credit unions have the advantage of speed. A small credit union's investment in a digital infrastructure may be smaller dollar wise than a larger credit union, but the timeframe to implement that infrastructure is greatly reduced. Smaller credit unions should leverage that advantage to get moving on their new digital business model now. The time to act is in 2021.
Creating a new model sounds daunting, and it is. It starts with a change in mindset certainly, but really it is about getting back to our roots. Credit unions were the original crowd-funders! Credit unions disrupted the banking industry! Challenging the status quo is in our DNA.
Change has been forced upon us, so how will your credit union respond? And where do you start?
Moving to a digital business model is a marathon, not a sprint. Depending on where you are in your digital journey determines where you need to start, but start you must. It might take five years to get where you want to go but it all begins with the first step. Here are some things to think about as you plan for 2021 and beyond:
- What lessons has your credit union learned in 2020 about how your members prefer to do business and how your employees work? Are there things you want to continue post-pandemic? Many employees will expect the flexibility to work from home from now on. Is that something you are prepared to make happen long term?
- Can your technology backbone support a robust digital offering? If you have not had your technology infrastructure assessed in a while, you should do that now. There have been major advancements in networking, virtualization and cloud platforms in recent years that most credit unions do not utilize. It makes no sense to spend lots of money on a cool piece of software if your network infrastructure cannot handle it.
- Does your current core platform support full digital service to your members including digital signature capabilities, fully integrated digital banking, real-time payments, data analytics, and online account opening and lending? If not, look for a new one.
- Do your internal processes create hurdles for a 100% digital service experience for your members? If so, they may need an overhaul.
The next three to five years will be pivotal for the credit union industry. The decisions we make as leaders will determine our ultimate success or failure. 2021 is the year to bring back the culture of creativity and innovation on which this industry was founded.
Becky Reed Becky Reed, CEO Lone Star Credit Union Dallas
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