MINNEAPOLIS, Minn.–An analyst with Aite Group has offered a near- and longer-term forecast for how digital transformation is playing out for credit unions and other organizations.
Noting COVID-19 has become the “accelerant” for such transformation, Rodney Nelsestuen, senior analyst with Aite Group, told a CO-OP THINK Forum that most financial institutions have done well in the short term, at least “so far,” when it comes to responding to digital transformation, with management now evaluating everything related to the physical footprint of organizations.
But it has come at a cost, with ROA in credit unions declining 40% over the past year, and declining even more quickly in the community banking space.
Among the clouds Nelsestuen sees on the short-term horizon are customer/member service issues, especially as it relates to collection and defaults with PPP loans, consumer and commercial debt, and credit cards.
Another longer term challenge: customer/member experience and whether an institution can personalize the digital experience enough to provide the level of member service always provided.
“That’s going to be an open question,” he said. “But the increasing willingness of people to interact digitally makes that easier.”
Then there’s the issue of whether a remote, distributed work force could be effective. “We know of one bank that sent half its workforce home and within a week a half-dozen called and begged to come back in,” Nelsestuen related.
The Longer Term
For financial services, Nelsestuen said the longer-term implications include:
- FIs will need digital transformation to survive
- FIs will employ a mixed workforce model. That means both fully distributed, with work from home and temporary services, disciplined and dedicated space, at least partially reimbursed. The partially distributed model involves shared or drop-in office space. And there will be an in-office model, driven by role, customer
- Branch configurations will change, vary, become less important to the future customer
The Implications
The implications for humans and financial institutions include recognizing operational issues are HR issues, he said. The other implications include:
- Paying off technology and process “debt”
- The branch footprint is permanently altered
- Profit compression will occur
- Disintermediation risk increases as fintech advances
- The rise of the digital native as the driving force
- WFH and in-home office configuration will be industrialized
- A WFH/distributed workforce will affect pay grades