The Role Of Innovation In Today's Credit Union

Alliant Credit Union CEO David Mooney talks about the importance of innovation in the credit union movement.

 
 

As the sixth-largest credit union by asset size in the country, Alliant Credit Union ($8.23B; Chicago, IL) helps guide the future of the credit union movement. To stay on top of innovation in the industry, executives at Alliant attend conferences including Finovate, a quarterly showcase of up-and-coming technologies in financial services and banking. A sellout crowd of more than 1,100 attended the FinovateFall conference in New York City to watch 69 companies unveil their latest financial technology.

For the past three years, Alliant CEO David Mooney has attended FinovateFall. After this year’s event, Mooney shared his impressions of the most buzz-worthy presentations and talked about why credit unions should care about what’s on the horizon for financial services providers.

For me there are two motivations for attending Finovate and similar innovation conferences, one practical and one philosophical. I will start in the concrete and work my way toward the abstract. The practical motivation for attending Finovate is to learn about the innovations and new financial services technologies that have direct application for Alliant. For example, Interactions—a voice-based, virtual assistant that can interpret unstructured spoken questions, instructions, and comments with accuracy—piqued my interest and my team is now in talks with the company to see if we might want to make its service work for our members.

 

Beyond the practical, attending Finovate is about opening up my thinking to the major trends and developments in financial services. Getting out of the office and contemplating the world in a different environment helps to challenge some of my firmly held beliefs. Detaching from the day-to-day tasks of running Alliant allows me to think more broadly about the markets we operate in; so it’s a good opportunity to step out and open up.

As an industry and individually as institutions, we as credit unions should be pursuing innovation. Speaking for Alliant, there are some limits to our capacity to innovate. I don’t think we need to grab every shiny thing that comes by us, but we need to be aware of developments and innovations, even if they’re not yet ready for the market. Whether products are market-ready, innovations often signal solutions to problems and points of pain. The solution might evolve and eventually take hold or it might become disruptive. For example, Float, a company that offers interest-free loans funded by marketing commission, presents an interesting and potentially disruptive business model.

Here are my three takeaways from FinovateFall 2013:

(1) Personal finance management (PFM) tools are evolving and maturing. Historically PFM tools were treated more as an accessory, available within the financial institution’s website. Although I’m not sure if it’s taken hold in the marketplace, I’m sensing a trend toward PFM becoming the front-end of banking activity rather than an accessory, particularly with PFM tools provided by non-financial institution. This raises the question of whether PFM will become the consumer interface to financial accounts, to billers, and to all financial relationships. In addition to aggregation of account information and budgeting tools, we’re also seeing PFM tools with transaction capabilities, which allows the user to select what accounts to use, select billers or family or friends they want to pay, and use the PFM tool to truly integrate their financial life.

The implications are interesting because if PFM evolves in that direction, then the tools—and quite frankly, the non-financial institution PFM tool providers—become the consumer interface, relegating the financial institution to a utility that’s in the background. For PFM providers, the big question is how to get users to input all of their financial information and maintain their accounts. Even representatives from PFM companies agreed that penetration for PFM tools is still very low.

(2) Another theme this year, again, lies in the crop of mobile payments offerings. I noticed much more attention given toward user experience rather than trying to pin success on a tech-savvy, cool image. This year, much more attention was given to simplifying the user experience and reducing data entry, but my takeaway is that the compelling case for mobile payments is still lacking. Even though the new platforms are much more attentive to user experience, they still seem to be much more effort than a plastic card. All of the presenters at Finovate promote discounts and rewards to induce use, which suggests the mobile payment form in and of itself has limited value. Mobile payments continue to develop and more attention is being given to the experience, but I’m still not seeing a compelling case.

(3) The last theme I noted was security, specifically unobtrusive security methods including biometrics, behavior, and usage patterns to authenticate. With more consumers making transactions outside the branch, security is becoming a dominant issue and institutions are trying to find ways that are unobtrusive and accurate to authenticate.

I think it’s important for credit unions to be aware of what’s developing in the marketplace and look forward to the future, pick our spots, and decide with which innovators to partner. We don’t have to do all the research and development work, we can partner with others who have made the big investments, but we have to stay abreast of what’s out there or risk losing competitiveness and relevance. Innovation is what will allow us to remain competitive in our marketplace and have the services and capabilities to win the business and loyalty of our members over time.

One of the advantages we have in the credit union industry is the inclination to collaborate and do things collectively, which allows us to innovate while keeping costs down and risk relatively low.

 
 

Oct. 21, 2013


Comments

 
 
 
  • The single largest opportunity (and challenge) in this sector right now that I'm seeing is one of business model innovation. In part that will be driven by disruptive behavior change on the outside (e.g. the PFM and disintermediation mentioned), but the real opportunity is to see ahead of the inevitable changes and decide where the opportunities reside within shifting the business model itself. In the disintermediation example, it's a non-starter. In the existing business model you either ease the process of the PFM tools through more complete access to systems (API's) and become that 'utility' to drive customer growth, or you try and block and tackle by having your own PFM (to date, a losing proposition in all industries w/ similar issues. Travel/Hospitality comes to mind for example). Being relegated to a transactional utility isn't the worst model if tweaked appropriately, but most have a hard time dealing with the sense of a loss of customer control. But there *are* other options, they just require dealing with some fundamental business model investigation which can be just as uncomfortable (understandably so). Credit Unions in particular have an advantage in that their customer demographics (age specifically) give them a bit more time to be prepared, or as I would suggest, an opportunity to capture new market share from the younger generation if implemented properly. Cheers, Matt Ridings - SideraWorks Organizational Transformation
    Matt Ridings
     
     
     
  • I applaud David Mooney for venturing out of the C-suite and keeping his finger on the pulse of innovation within the credit union industry.
    Todd Nelson