It’s not enough to weather change. Credit unions must learn to rocket ahead.
Are we approaching a tipping point? On the heels of the biggest economic disruption in over 50 years, new challenges are afoot for credit unions. It is not simply that times are changing, nor that technology is changing. The world is changing, and the people in it. Go back in time a mere 10 years and you’ll meet a version of yourself that is completely different. You have a cell phone and the Internet, but you don’t live there. You don’t know what your secret high school crush ate for breakfast this morning (thanks to Facebook); you don’t shop Gilt.com for bargains on your smartphone; and you don’t expect to deposit a check by snapping a picture of it and zapping it off to your credit union. Today you do. And, increasingly, so does everybody else. Taken together with the not-so-distant banking crisis, the credit and real estate bubbles, the up-and-down economy – and all the millions of individual stories they’ve shaped – the world of financial services is both disrupted and disruptive. We have changed. And we’re looking for change in the way we deal with our money. New attitudes toward corporate responsibility, new solutions for damaged credit, greater convenience, community through social media, new payment systems, trustworthy financial planning: Bring it all. The good news is, where credit unions are meeting new challenges, they’re making real headway. “In the third quarter of 2012, we saw literally the strongest member growth since H.R. 1151 was passed 15 years ago,” says John Lass, Senior Vice President, Strategy and Business Development at CUNA Mutual. “If you look at the numbers, we added 700,000 new members – and these were not largely driven by indirect lending. We’ve made real gains in terms of market share.” Credit union members are happy with their access to convenience technology – with 85 percent of credit union members reporting excellent access to online and mobile banking services in the most recent Chadwick Martin Bailey Consumer Pulse survey. Yet, the game continues to change. Remote banking eliminates the need to visit a branch – and make personal contact. New payment technology threatens to make the conventional checking account a thing of the past. Better still, your new competitors may be Wal-Mart and Target – both of which are dipping their toes into financial services. Revenue structures are toppling and being recreated in strange ways. Big data makes it possible to learn more, and interact differently, with members – but do we want it? If you didn’t arrive ready to play, you are toast. BUT WAIT, THERE’S MORE? There are internal challenges to grappling with disruption as well. For one thing, it’s possible that living the improvisational dream doesn’t come naturally to all credit union leaders. Why? Until fairly recently, financial services had a long run of success by more or less maintaining the status quo. “As much as anything, the directive was, ‘Let’s not screw this up,’” says Jeff Marsico, Executive Vice President of The Kafafian Group, a Parsippany, N.J., consultancy specializing in strategic planning for community financial institutions (see his blog at www.Jeff-for-banks.blogspot.com). “This industry also highly regulated. So many of the people who populate financial services are great at managing what they are already doing. But the system isn’t set up to encourage renegade thinkers.” Several consecutive years of upheaval haven’t helped matters. “Some people are like boxers in the ring,” says Marsico. “They’re weary of change.” Change is now constant – and it’s everywhere. “The level of confusion and fear is high, and often fear drives the decision-making in this kind of environment.” Reacting with fear isn’t ideal, but it’s completely human. As Margaret Heffernan, author of “Willful Blindness: Why We Ignore the Obvious at Our Peril,” points out, people turn a blind eye to everything from infidelity to dangerous UV exposure – even when they know better. “Whether the metaphor (of the ostrich burying its head in the sand) is scientifically accurate or not, we all recognize the human desire at times to prefer ignorance to knowledge, and to deal with conflict and change by imagining it out of existence,” Heffernan writes. “All of us want to bury our heads in the sand when taxes are due, when we have bad habits we know we should change, or when the car starts to make that strange sound. Ignore it and it will go away – that’s what we think and hope,” she continues. “It’s more than just wishful thinking. In buying our heads in the sand, we are trying to pretend the threat doesn’t exist and that we don’t have to change. We are also trying hard to avoid conflict: If the threat’s not there, I don’t have to fight it. A preference for the status quo, combined with an aversion to conflict, compels us to turn a blind eye to problems and conflicts we just don’t want to deal with.” Though some people tackle every challenge with alacrity, it’s normal to flinch – particularly when the challenges at hand are large and looming. Gearing up for a disruptive future is going to take skill, teamwork, insight and a boatload of technology, but even before all that, it’s going to take will. Successful leaders will have to overcome inertia, nostalgia and any urge they might have to hunker down and wait for the challenge to pass. As financial services become more and more competitive, any challenge that passes you by is leaving you in the dust. GETTING IT RIGHT What does it look like to thrive in disruptive times? Ask the team at Boulder, Colo.-based Elevations Credit Union. Elevations ended 2008 with a solid 76,520 members and $891 million in assets. Then the Great Recession hit – and along with it came worries over the future of lending, regulation, shifting revenue, social media, member relationships, technology and relevance. How did Elevations respond? With steady growth, followed by more growth. By the end of 2011, Elevations reported 95,167 members and over $1.1 billion in assets. That big story encompasses many victories, each one a triumph of focus. Talk to Dennis Paul, Elevations’ AVP of Business and Community Development, and he’ll emphasize the success of their financial education program. “During the downturn, we wanted to explore new ways to generate noninterest income,” says Paul. “Financial education is part of our mission, so we focused on that. We now do 80 to 100 seminars per year, and they’re open to the public. It’s a benefit to our community and our members.” The seminars give prospective members a reason to join and create new interest among existing members for Elevations’ financial services division, which has become a major source of revenue growth in an uncertain revenue climate. Because financial education and wealth management increase revenue and engagement, the team at Elevations is leveraging their seminars by reaching an even wider audience. Working with social media agency Room 214, E-marketing specialist Jennifer Harris has posted video versions of several of the seminars on YouTube. Now anyone can check them out, anytime. Elevations’ social media channel doesn’t end there. On YouTube alone, the financial education videos share space with videos showing an Elevations spokesperson disrupting people’s dinners in order to offer to pay their checks. “Has your bank ever bought you dinner?” he asks. Elevations’ Facebook page highlights its community involvement, with information on donation drives, charity events, energy-upgrade financing and more. “The social media environment couldn’t be better for a credit union like ours,” says Harris. “We have the opportunity to listen to what the needs are in our community – and to express who we are and what makes us different. We’re part of a community that is very locally-driven: Elevations plays into that spirit.” Listening is a big theme at Elevations, and it’s fueling the credit union’s mortgage growth. “We determined that mortgages were a key product for us,” says Jay Champion, Chief Lending and Member Services Officer. “When we think about our value proposition, long-term relationships and trust are right at the top of the list. And if you think about long-term relationships in financial services, mortgages often act as the anchor.” While members are less and less inclined to visit branches for routine transactions, they’re still interested in personal interaction when applying for home loans. So Elevations decided to turn the heat up on those relationships. “About two years ago, we set out to pull together an outstanding mortgage team,” says Champion. “We were able to attract the best originators, processors and loan officers in the business, and we gave them the challenge of delivering excellent service. We save members time. They don’t have to go to multiple lenders. We have a convenient application process. But it’s also personal. We’re meeting with members about one of the most complicated transactions they’ll ever do, so we provide a consultative experience. We go to closings personally.” The result is rave reviews from mortgage applicants – and realtors who in turn refer business. These aren’t the only areas in which Elevations excels. They’re leaders in providing energy-upgrade loans, which are a perfect fit with the environmentally-conscious Boulder community. They’ve been aggressive about adopting mobile and online technology. With University of Colorado students as a core constituency, this brand of convenience is a must. Elevations has been recognized nationally for outstanding marketing. It won the “Best of” award for financial services from readers of the local paper for an unprecedented 12 years running. These people are serious. MAKING IT OFFICIAL Reading about Elevations’ success might leave you wondering what role disruption actually plays there. If anything, this organization appears seamless. Yet, Elevations has dealt with the same disruptions as everyone else in financial services. They just decided that interrupting the status quo wasn’t going to be disruptive. Instead, they made it deliberate. As a result, they aren’t constantly ping-ponging between problems and reactions (or denial), and instead are responding proactively. This strategy is not accidental. In 2009, Elevations decided to pursue the Malcolm Baldrige National Quality Award. As part of this process, they’ve been working on organizational excellence from the ground up, by sharpening their core values and mission, looking for improvement opportunities on every level (along with the processes that make those improvements replicable), listening to members, providing exceptional customer and community service, and working to create the best, most competitive organization possible. If that’s a mouthful, it’s also a job. Nothing about the pursuit of organizational excellence is easy. But, says Champion, who spearheads this effort at Elevations, “You’re creating a framework that makes proactive change part of your organizational process.” So it’s not just about winning an award, but about becoming a better organization – with your core values and mission at the center of everything you do. Elevations isn’t succeeding by taking wild risks. It’s systematically rejecting limitations and delivering what its members want. Quality indeed. ROCKETING AHEAD Can you succeed by following suit? Yes. In fact, learning to adapt to changes – both small and massive – may be the only way to succeed now. While the following principles have always been valuable, they’re going to be critical in the years to come: Study your market and your membership. “The most basic segmentation factor is age,” says CUNA Mutual’s Lass, “but age is not the only factor to look at. There are also major differences in attitudes, needs and behaviors.” Are there stage-of-life issues you can address? Is there a local need that big banks might overlook? What do current trends in your membership suggest in the way of new services? For instance, if mobile banking is hot, P2P payments might also catch on quickly. Gather intelligence and join the conversation. Not only should you be figuring out how to do social media well, you should be using it to become more responsive. “Ideally, social media creates more of a one-on-one relationship with members,” says Ben Castelli, agency director at Room 214. When you post relevant content that speaks to members’ interests; when you create a process for responding to comments and concerns; when you get your content promoted on like-minded sites, you build community. “Social media provides an opportunity to find out what the people you serve are interested in,” says Castelli. “And it’s an opportunity to show them what your values are as a company.” Be a leader. Your members should get what they ask for, but they should also get what they don’t know they want yet – provided that these kinds of innovations make your organization better. “Sometimes, to be a visionary, you have to be a leader,” says Lass. “The role of strong leadership can be to offer consumers something completely new,” whether that’s a new piece of technology or a new way to interact with your credit union. Be a teacher. Innovation is great, but it also creates a learning curve. Successful credit unions won’t simply embrace disruptive change; they’ll bring their members along with them. How will you introduce and acclimate members to new technology? How can you bring them on board with new (or enhanced) services like wealth management? “I see credit unions doing a great job of training members in the use of new technology,” says Lass. “You’ll see staff walking around a branch with an iPad, showing the people in line how to use the credit union’s app. That’s a terrific way to engage your members – and improve your branch experience.” Stop focusing on obstacles. No question, there will be roadblocks ahead. But in order to progress at a productive rate, you may have to ignore them or work around them. Case in point: member business lending. “Instead of waiting for Congress to increase MBL caps, what if credit unions focused on simple business banking packages that include cash management and low-level lending consultation?” asks The Kafafian Group’s Marsico. “If something like two-thirds of all small-business owners use their credit cards to finance their businesses, there’s clearly business to be had in extending this kind of credit. Or helping them with home-equity lines of credit to use in their businesses. And, if you want to provide access to larger commercial loans, look for a partner that will let you act as the liaison between your member and commercial funding. Maybe you don’t get the giant loan, but you get a new source of business based on strong member relationships.” READY TO GO And finally, proceed with enthusiasm. As credit unions are launched into unfamiliar galaxies, they bring with them core strengths worth revisioning. We may be approaching a tipping point, one at which the same practices and processes will no longer carry the day. But at the same time, if credit unions can figure out how to engineer their own evolution, they have strengths that other organizations don’t. “There’s a real need for cooperative financial services,” says Lass. “The question is, how can credit unions hold on to the confidence they have, so that they’re viewed as a trusted partner – and they’re providing the services their members want? Credit unions clearly have found a way to resonate with consumers. With nimble leadership, they can make themselves competitive even as the market moves through dramatic change.”