FRANKLIN, Tenn.—Should credit unions outsource their data analytics needs to a third party?
It’s an ongoing debate in many credit unions, only the largest of which can really afford to go it alone in capturing and sorting through the terrabytes of information available on members and non-members. Moreover, there’s the expensive issue of hiring the talent who can make sense of it all.
As a result, many CUs have turned outside their own operations as they wade into or look to improve their data analytics capacities.
Keith Richmond, director of analytics for Franklin-Madison, which provides such services said credit unions, said the advantages offered by third parties shouldn’t be a surprise, although not every CU will recognize them. Those advantages, include, according to Richmond:
- Considering the cost associated with data analytics services, engaging a third party could release capital for investment elsewhere in the credit union.
- By partnering with a vendor, the credit union is likely to save on research, development, marketing, and distribution expenses.
- The credit union could avoid having to hire additional employees to support the initiative.
- Bringing on a third party can allow the credit union to focus on what it does best—offering relevant financial solutions and services to its members.
Pros Outweigh the Cons
“While there are risks to consider when engaging a third party, the potential benefits and savings for credit unions exceed the cons,” said Richmond. “Engaging a third party could look like bringing in a specialized group to build a data platform or it could be investing in a company to conduct your marketing, ensure brand consistency and free up other internal resources.”
Since utilizing data and analytics has become a key for credit unions in accomplishing their business goals, considering third-party assistance could include investing in a company to develop and maintain a data platform, Richmond explained.
“That data platform can be the source of truth for the credit union’s data but it can also include outside data that could help the credit union measure itself against other financial institutions in the local, regional, or national market. This platform could also help in maintaining good data hygiene and assist in making you competitive with larger institutions,” said Richmond. “Lastly, this data platform can also build the necessary foundation so the CU can be Current Expected Credit Loss (CECL) compliant, which will be effective for credit unions beginning in fiscal years after Dec. 15, 2020. Credit unions transitioning to CECL need robust systems to aggregate data, calculate expected credit losses, derive provisions, and report on key risk drivers as stated within Moody’s overview of CECL.”
Other Advantages
In addition to developing and maintaining a platform, a third party can help the CU enhance its own systems to capture and present the data that it is already collecting today, such as account types, average balance, credit union specific financial wellness, Richmond posited.
“Or, you could also include enhancing your current data awareness by purchasing data from third parties that could speak to media channel preference, net worth, overall financial wellness,” he said. “While there is a good amount of free data out there, such as the census, that can be helpful in building out member segments, considering other third-party options could expand your efforts exponentially.”
Having the right technology in place is critical to achieving efficiencies, added Jared French, senior analytics and client reporting analyst with Franklin-Madison.
“Technology can include things like systems, so you can access relevant data efficiently, and member platforms, such as chat, email, mobile, social media, website, etc.,” said French. “The goal of member platforms is to be able to say with certainty, ‘If a member contacts us through a channel, they will get a timely response.’ By bringing a specialized third party to assist with your potential technology gaps, you are better equipped to address your members’ needs, which will lead to increased member satisfaction and loyalty.”
A Personnel Issue
Finally, ensuring that the credit union has the best personnel to meet current and future needs, in order to continue growing member satisfaction and loyalty is key, said French.
“Credit unions have service benefits that larger financial institutions don’t typically offer. However, they can sometimes struggle to keep up with the larger financial institutions from a digital and technology standpoint,” French told CUToday.info. “Credit unions need to make sure they are investing in hiring the best and brightest minds in the industry to ensure they are able to close the technology gap with the larger financial institutions before it is too late. When a credit union engages with an industry-leading third party, they are partnering with subject matter experts that will be able to help drive the credit union forward. When a credit union partners with a specialized third party to accomplish business goals, they are expanding their bandwidth and capabilities to be able to not only meet, but exceed their objectives.”