According to a recent survey, over 94% of credit unions expect IT to drive their spending in 2023. The accelerated use of technology throughout the financial industry over the last two years has raised consumer expectations for customer care. Financial institutions, including credit unions, are looking to technology providers to help deliver financial products and services cost-effectively.
Heading into 2023, credit unions should keep the following trends in mind:
- Debt Management: Consumers continue to spend at pre-pandemic rates. That may result in fewer loan approvals because of higher debt ratios.
- Competitive Lending: Credit unions compete against Rocket Mortgage, SoFi, and other fintech for consumer loans.
- Tax and Insurance: Credit unions may have to pay tax and insurance on delinquent accounts, placing stress on their balance sheets.
- Consolidation: Credit unions may have to consolidate unless they can attract younger members.
Between 70% and 75% of all deposits are held by people over 60.
Each trend places stress on credit unions trying to survive. To ensure yours stays afloat, let’s go over the top software to use that’s convenient and improves efficiency.
If economic conditions continue and consumers accumulate more debt, credit unions may need to rethink their lending portfolios. They may need to improve operational efficiencies to offset fewer loans.
They should also assess their lending processes to improve customer experiences and remain competitive. Finally, credit unions should look to technology to attract younger members.
Here are five ways technology enables credit unions to remain competitive.
Financial institutions segment information to protect customer data. However, the siloed approach increases operational inefficiencies as data is on multiple systems. Each system has a "version" of the details, which can result in conflicting reporting.
Technology can automate data collection processes into a centralized system. Secure controls can restrict access while establishing a single source of truth.
Data consolidation ensures that everyone is working from the same set of facts. Accurate data supports a consistent member experience.
Credit unions with limited digital banking options fail to attract younger members. Less than half of Gen Zers have an account with a traditional bank. Technology plays a crucial role in attracting younger consumers.
With the proliferation of online financial services, younger consumers may use as many as 30 or 40 providers. They use merchant apps for purchases, check credit scores with Credit Karma, and consolidate their financial accounts through a fintech application. Credit unions must leverage technology to ensure sustained growth.
Technology can reduce the reporting burden that the financial services industry has. Whether it is compliance requirements or management requests, collecting data from different sources to produce scheduled and ad hoc reports can consume hours of an employee's time. Technology helps with that.
Robotic processing automation, for example, can produce routine reports without staff involvement. End users can configure the software to generate and distribute reports on a set schedule. Not only does it save employees time, but it also ensures reports deliver on time.
Compliance requirements continue to increase. Changes in sections of the Dodd-Frank Act will require reporting on women- and minority-owned businesses and disclosure of corporate actions under the Corporate Transparency Act. Financial institutions have added restrictions on consumer credit cards and requirements for data availability.
As more compliance requirements become law in the next 12 to 24 months, credit unions will experience significant resource constraints unless they deploy technical solutions to address the added data collection and reporting. Lending practices are coming under scrutiny, as are payments outside Reg E.
Technical solutions can assist credit unions and their members in managing debt. Automated solutions can quickly perform credit checks and other underwriting actions to inform the loan approval process. Faster loan approval processes are what attract younger members to non-traditional lending platforms.
An online debt management tool is another way to deploy technology to attract more members. People are looking for ways to manage their debt and begin saving or making investments. Without technology, credit unions will struggle to meet their customers where they are.
Software solution providers offer technical answers for institution-wide operations. From risk management to collections, the following are a few examples of technology for credit unions.
Credit unions, like all financial institutions, manage a range of risks. Credit risks are associated with loan processing and transactions related to fraudulent purchases. Cybersecurity risks concern reputation as well as system compromises.
Risk management solutions can incorporate into core systems such as those offered by FiServ or Jack Henry's Symitar. Stand-alone management systems may cover multiple risk categories or specialize in lending or cybersecurity.
Cybersecurity insurance can help credit unions mitigate loss due to a cyberattack; however, most insurers require minimum security measures before granting coverage. In some instances, they may require an audit.
National Credit Union Administration has an assessment tool for credit unions to use. Their website also includes other agencies that provide assessment tools. Credit unions should conduct a self-assessment to collect data on their vulnerabilities.
With that information, credit unions can discuss cybersecurity capabilities with their core processing vendors to determine what they have available and what, if any, third-party providers they support.
Customer relationship management (CRM) software organizes interactions with existing and potential members. It records each touch point and tracks marketing campaigns.
CRMs serve as a member activity database outside financial transactions, enabling a more personalized experience. Customer interactions should begin when they open an account.
Although most core banking software includes a CRM component, the feature may not be as robust as some stand-alone systems such as Salesforce or Sugar CRM. Credit unions will need to compare the elements of a core banking solution with a stand-alone product to determine the best software for their institution.
Accounting software is a central element of a core banking package. A core system processes debits and credits for member accounts and maintains the credit union's financial records. It records accounts receivable and payable, looks at purchasing, and generates financial statements.
Accounting in a core package replaces ledgers in a manual-based system. It serves the same purpose as accounting does in any business. When looking at a possible solution, credit unions should look for systems that work with their existing architecture and deliver the necessary functionality.
Credit unions may need collection software to minimize delinquencies and reduce labor if consumers continue to rack up debt. A manual process requires staff to monitor the credit union's loan portfolio and identify members with late payments. Someone then generates a letter to initiate the collection process.
With collection software, credit unions can use technology to identify loans or credit cards with late payments. The software can generate letters, emails, or texts to remind the individual and monitor the accounts going forward.
The longer late payments exist, the harder it is to collect. Automating the process means addressing delinquent accounts immediately to mitigate the risk of default.
Core processing solutions such as FiServ, Jack Henry & Associates, and Temenos offer software tailored for the credit union market. They share accounts and members. The precise capabilities depend on the provider.
In some instances, an open relationship may allow for the integration of third-party solutions to provide functionality not available on the core system. For example, core banking solutions may use third-party solutions to interact with cloud-based solutions. Others may offer a solution as part of the core package.
Digital platforms are software solutions that facilitate the delivery of out-of-branch products and services. They include digital engagement features to attract and retain consumers.
These may include onboarding new members, online or mobile loans, or payment processing. Fintechs are examples of financial service providers that use digital banking platforms.
Credit unions should ensure that the vendor offers a consistent omnichannel experience when evaluating a digital platform. Member interaction with digital channels should be the same regardless of the device. Using the cloud for digital experiences can make the omnichannel strategy a success.
Digital platforms supporting loan processing have changed the manual-based loan process, allowing fast approval from a member's home. The digital solution reduces staff's time on intake, processing, and underwriting loan applications. It also delivers the convenience consumers are looking for.
Fintechs have been a driving force in the lending market. Credit unions could lose as much as 75% of their loan business if they do not offer a simplified lending process.
As credit unions face an uncertain economic outlook, they need to find ways to increase member growth while cutting costs. They need solutions to deliver digital experiences that make lending more competitive and help members manage their debt.
Cotribute's credit union solutions offer a digital platform for loan applications and account openings. It delivers the frictionless interactions that members are looking for. Contact us to discuss how technology can help make your year profitable.