As the financial services landscape evolves at an increasingly faster pace, it becomes more difficult for individual institutions on their own to meet the changing needs and expectations of consumers. As a result, despite credit unions reaching record levels in assets, members, and employees, collaboration will become even more important in the coming years.
Collaboration In Credit Unions
Industry investment in and loans to credit union service organizations surpasses $3.5 billion. According to data from CUSO Analyzer by Callahan & Associates, there are more than 1,100 currently active CUSOs. Single credit unions own approximately two-thirds of these organizations. The remaining one-third are multi-owned, collaborative CUSOs.
CUSOs provide credit unions with a broad range of capabilities — from retail insurance and investment services or lending programs for cars, mortgages, student, and business loans to operational services such as data processing and payments. Lending and operational capabilities, which typically benefit from scale, are most often collaborative efforts among local, regional, and national credit union networks.
Perhaps counterintuitively, CUSO involvement increases with asset size. More than 95% of credit unions with assets exceeding $1 billion have an investment in or loan to a CUSO. For credit unions with less than $50 million in assets, that percentage falls below 20%. In other words, smaller credit unions that seemingly would benefit most from the collaborative benefits of CUSOs are less likely to invest in or loan money to one.
There are a number of reasons this dynamic exists; for example, smaller credit unions have less time and fewer resources to explore collaborative opportunities. However, remaining relevant to members will only become more challenging for credit unions going it alone.
Today’s consumers expect insightful, simple, and easy-to- access solutions. As such, credit unions need to look beyond their own capabilities to deliver the value consumers demand. Fortunately, the environment has never been more conducive to collaboration between credit unions and other firms because the rest of the business world is waking up to its value.
Leading companies and business scholars are touting the importance of collaboration to the long-term viability of a business. The role of collaboration in incorporating new ideas and meeting consumer needs is a demonstrated asset.
Proctor & Gamble has opened up product development to new firms for years. The company reports that more than one-third of its innovations today are derived from work with outsiders. P&G’s executives believe product development has evolved from the internal efforts of research and development (R&D) to incorporating outsiders through a connect and develop (C&D) process.
In the financial services realm, similar thinking has emerged as the financial technology industry grows. Bank of America, Chase, and Goldman Sachs have ramped up their work with and investments in fintechs. This fall, Chase announced plans to build a campus in Silicon Valley to attract new talent and connect with more disruptors. The facility is expected to house more than 1,000 employees when it opens in 2020.
Credit unions, also, are engaging with fintechs.
Digital Federal Credit Union ($8.5B, Marlborough, MA) has been working with Boston-area startups for the past few years via its DCU FinTech Innovation Center, a space where entrepreneurs further their ideas and businesses by interacting with one another, with mentors who have launched new firms, and with DCU’s leadership team. BECU ($18.8B, Tukwila, WA) recently began partnering with CoMotion, an innovation incubator run by the University of Washington, to create a Seattle-based fintech hub. CULedger, the CUSO exploring distributed ledger technology, has joined R3, a global consortium that includes tech companies and global financial services firms.
These organizations are connecting outside their own walls, and industry for many reasons, but a major factor is the ability to tap into new ways of thinking. Early-stage firms think of development time in days, not months. They are not afraid to reach out to consumers with an unfinished product. They put ideas into the market, learn from market feedback, and develop the next iteration as quickly as possible. Increasing the speed of their learning allows them to quickly identify what works and what doesn’t, hastening the development cycle while ensuring the product addresses the right needs.
Is Collaboration Part Of Your Strategic Plan?
Credit unions are launching initiatives in 2019 that move their strategic plans forward, but how many plans call out collaboration as a key success factor?
A number of credit unions Callahan has worked with on strategic planning are doing just that. They realize that, as product offerings become more complex and consumer demand for digital capabilities increases, they are unlikely to keep up on their own.
So, how can credit unions of all sizes and resources incorporate “external” collaboration into their plans? First, look locally. Is there a college or university with which to partner? Is there a shared workspace in which credit union team members can connect with startup firms? Is there a network of techies or entrepreneurs that the credit union can tap into?
The key is that it’s on the credit union to find and connect with these entities. Despite the growth and success of the movement, credit unions are unlikely to be seen as a go-to for most entrepreneurs. However, the time is right for credit unions to pursue this type of collaboration.
Credit unions have a mission that resonates.
They have a base of loyal members that any early-stage firm would be attracted to.
And, the movement has a track record of collaborative success that is as long as its history.
Credit unions must deliver ever-greater value to their members. This requires constant investment that is made easier, and more successful, by collaboration. How will your credit union’s plan elevate investment in collaboration for 2019 and beyond?
This article appeared originally in Credit Union Strategy & Performance. Read More Today.