On Saturday it was my pleasure to participate on a panel at the AGM of CUDA, the leading trade association for Credit Unions (CU) in Ireland.
The discourse was broad but a recurring theme was that Irish CUs can draw valuable lessons from other sectors.
This will allow them to improve their client value proposition and business model while avoiding pitfalls which cost valuable cash and reputation.
FINTECH
During a decade of decline for CUs, FinTech has emerged, gone global and created numerous companies valued at in excess of EUR 1bn. CUs can learn from the FinTech playbook in 3 ways…
1. Corporate Structure
Hierarchies are flat, ensuring communication is swift. Strategy is built to be agile, recognising that if the world around us is changing then so must we. Failure is not stigmatised, rather part of the iterative process required to get to a winning solution.
2. Head of Product
HOP ensures that validated client requirements are reflected in the offering, today and tomorrow, and that the ethos of the organisation is felt by the client. With very result focused KPIs, HOPs are empowered to smash down internal and external barriers to ensure product is always improving.
3. Tip Top Tech
FinTech’s utilise better, more modern technologies. This takes many forms – programming language, open architecture for integration, cloud based – and provides competitive advantages such as better capabilities, agility and costs. Digital leaders often achieve cost income ratios of 40% versus 70% for legacy operators.
GBS
A question was raised about what should CUs do internally and what should they outsource. An interesting proxy here are the GBS (Global Business Services) organisations of multinationals, the centralised department stasked with delivering service and transformation projects.
First and foremost GBS view transformation as a journey, it takes time. In order to make complexity understood the first step is simplification – reducing complexity and removing duplication to improve unit cost and transparency on functions.
Over time better structure and control allow processes and services to be analysed and optimised, increasing effectiveness and efficiency.
Later still, deep insights on performance from across the business, can be used to adjust the business model to fully support delivery of strategic objectives.
But where do you start? Always with the client requirement – who, where, what, how and why will the use us. There are different enablers to then deliver this…
1. Processes
Regardless of whether manual or automated, always optimised.
2. People
Staff must be aware of their importance, resourced properly and measured using KPIs.
3. Technology
IT creates the lowest cost of delivery but it has other advantages too – new insights from better use of data, new capabilities or products and as a productivity tool to free-up staff to spend time with clients.
GBS organisations also utilise ‘leveraged delivery’ of standardised services through the best channel. Options here include…
4. Self Service
Empowering clients with anytime, anywhere, self-service is efficient, increases interaction and in the case of CUs can improve cross-sell to those who prefer digital channels over the branch.
5. Shared Services
To achieve economies of scale and leverage best practice GBS organisations operate shared service centres. This is feasible for Irish CUs too, indeed already exists in Germany where Landesbanks have centralised risk services, in the UK where ABCUL offer shared credit scoring and in Finland where the co-operative movement have shared IT infrastructure.
6. Outsourcing
Using third parties is appropriate where a CU lacks the expertise or resources to create their own capability. IT is perhaps the most obvious example and this is fine so long as the contract is clear on cost and service level and the vendor appropriate for the business and regulatory requirement.
NOT BANKS!
There was much discussion about whether CUs should copy banks and, as was clear throughout the day, CUs have a unique ethos and client loyalty.
They also have a very different B. Sheet and regulatory profile. In these times of aggressive lending – PCP was mentioned – banks can utilise tools such as derivatives, securitisation and portfolio sales to pass-off exposure. CUs cannot and when the interest rate or economic cycle changes, as it always does, someone will get stung by the over aggressive lending, as it was in 2008.
Ditto with mortgage and SME lending, this does make a positive contribution in benign conditions but when the cycle turns the negative impact of market, liquidity and counterparty risk very quickly creates large losses. With 20yrs capital markets experience it was shocking for me to hear some CUs pursue this path without the necessary tech and skills, let along regulatory approval.
On turnaround times, there is much CUs can do now on this topic. Know your client better using tools such as CRM so the best borrowers can be pre-approved. Automate some of the heavier aspects such as bank statement verification and credit analysis. For those with appropriate capability full automation from origination to disbursement is already common elsewhere. Not everybody needs an answer in 15mins but if your offer is easy to find, understand and purchase people will wait.
When I look at Irish CUs there is much which can be done to improve short and long-term financial viability. This does not involve abandoning ethos or taking undue risk, rather replicating best practise, ensuring change is managed properly and better utilisation of the unique collaboration opportunity which common bond offers.
For additional insight please read our whitepapers on FinTech for Irish Credit Unions.