TAMPA, Fla.—Look for even more focus on data analytics by credit unions next year, according to CSCU.
“In 2018, we believe our member credit unions will be focused on growth strategies and remaining profitable,” said President and COO Tom Davis. “So, they’ll be concentrating on ways to generate and increase non-interest income, improve earnings, acquire new—primarily younger—members and decrease fraud. We will be focused on assisting them to collaborate with other credit unions to accomplish these objectives.”
Davis said a big part of the effort will be helping CSCU credit unions harness technology.
“Specifically, to implement data analytics solutions, for use cases such as targeted offers, loan decisioning and portfolio growth,” he said. “Another part of our 2018 strategy will be helping small to mid-size credit unions reach the next plateau. The number of mergers in the credit union space is not slowing down, and there’s a sense of grow or be acquired. As a CUSO, our mission is to help those credit unions that want to grow.”
Davis acknowledged that while some of CSCU’s focal points for 2017 are the same going forward—such as helping CUs grow and fight fraud—CSCU also sees several areas that are inspiring the CUSO to change the way it approaches and solves existing challenges.
Options More Cost-Effective Today
“One example is the use of data analytics,” Davis said. “Commercially available solutions are getting more mainstream and cost effective, and the experience base to extract multiple sources of data (core, CRM, processor, purchased demographic data, etc.) and merge them with the expertise of the credit union staff is becoming more available for mid-size to small credit unions. The challenge there is that mid-size to small credit unions don’t always have the resources to take this on themselves. We are changing our approach to not only provide the analysis and recommendations but to implement the appropriate solution and then provide follow-up to make the necessary tweaks as the credit unions’ staff see the power of using data and want to do more.”
Davis said that in 2017, members’ expectations have been heightened.
“Amazon’s online purchase experience and Apple’s apps have raised the bar on how online and mobile experiences should look and feel,” he said. “A world-class user experience is no longer a nice-to-have, it’s become a make or break deal for members.”
Tom Davis
While consumer expectations are raised across the board, the needs and desires differ across markets and across generations, Davis noted.
“A Baby Boomer expects remote deposit capture to be easy and intuitive, while a Gen Z expects card controls,” explained Davis. “A member who is a New York Metro rider expects to be able to tap-to-pay at the turnstile, while elsewhere someone values their card rewards. This is where segmentation of the data, and accurate peer comparison groups, becomes even more important.”
Davis said that of all the issues credit unions are addressing that the continuing fight against fraud is the biggest concern.
“The sophistication of fraud is increasing at an alarming rate,” Davis said. “Skimmers on fuel pumps and shimmers at ATMs, synthetic fraud—opening accounts using stolen data, online e-commerce fraud, account takeover, they all create an increasingly sophisticated cat-and-mouse game.”
Keeping Up With Crooks
Davis acknowledged that it can be difficult for some CUs to keep up-to-date on all the existing and emerging forms of fraud and the various tools to defend against them.
“Reissue upon each breach is not a permanent solution,” he said. “That’s why we’re extending our response beyond providing thought leadership and making recommendations to assisting credit unions to execute their solutions. For example, mass enabling tokenization and setting appropriate authorization request decline parameters to minimize false declines while still capturing fraudulent transactions.”
Overall, Davis said there are two key competitive threats facing the credit union industry—one internal and one external.
“The credit union space is evolving into a grow-or-be-acquired state. And we are seeing both,” said Davis. “It has become the norm to see 10-20 mergers a month where the acquired credit union was less than $100 million in assets. But we are also seeing some progressive, technology savvy credit unions under $100 million adopt technology, adopt data analytics, and leverage CUSOs to help them grow their card portfolios, their member base and their top-line revenue.
The threat to CUs from outside the industry is fintechs.
“And it’s not the threat of some small start-up coming along that will ‘eat our lunch,’” said Davis. “It’s the slow creep of ‘banking at the fringes.’ Venmo, the highly successful P2P app issuing a debit card, PayPal offering online banking out of a user’s PayPal account, getting personal loans from Marcus by Goldman Sachs, getting a home loan from Quicken Loans using the Rocket Mortgage app or getting a small business loan from Amazon. The need to grow the average number of products per member, to have the credit union become the primary financial institution, and then stay in that position, is becoming more challenging as the number of fringe banking options grow and become more prevalent and mainstream.”
More Financial Choices
Longer term, what are the challenges ahead for credit unions?
Over the next five years consumers will have many more financial services choices, especially the underbanked, said Davis, noting this is a segment credit unions are adept at serving.
“Large tech companies, like PayPal and Venmo, Apple and Amazon will offer banking-like services. Mobile payments will have gained significant traction, increasing the use of tokenized payments and decreasing fraud at the POS,” he said.
Davis offered two other predictions: Expect credit interchange to decrease through large merchant agreements and the now raging credit card rewards battle to end—replaced by better customer service, fraud protection, and card features, with annual fees replacing interchange revenue.
Davis added that as the total number of credit unions continues to decline that those remaining will rely much greater on data analytics to target offers.
“Credit unions, too, will adopt artificial intelligence to replace many staff functions,” said Davis. “Chatbots will respond intelligently to inquiries 24x7. Loan decisioning will take into consideration hundreds of data points and return a response instantly. Drive-throughs will be ‘staffed’ by AI functions that handle transactions full-time.”
Finally, credit unions that succeed over the next five years will have learned to use their unique “superpower” – the power of collaboration, said Davis.
“Credit unions will work together, through CUSOs, to aggregate data across multiple credit unions, sharing needs, sharing staff expertise, and sharing solutions,” he said.