As credit unions continue to engage with members during the pandemic to address their financial needs and concerns, there is a stark realization that recurring interactions with members have migrated primarily to a digital channel. The result for many credit unions has been a shift in understanding their members’ digital expectations, as well as an outlining of strategic objectives to a focus on a broader perspective of digital transformation. As strategic assessments are performed, credit union leaders are contemplating fundamental questions such as: 

  • What are the consumer expectations creating the demand for a significant shift to secure, digital interactions? 

  • What are the immediate and long-term factors my credit union needs to take into consideration? 

  • How encompassing is the process of digital transformation, and what are the next steps? 

Throughout this article, we will answer these questions and provide guidance on the path to digital transformation. We will examine the reasons all credit unions must continue to pursue digital transformation efforts, which have become increasingly important given not only the near-term and long-term impact of the pandemic, but also because of the declining occurrences of in-person engagement and an increasing level of digital engagement from large financial institutions and fintech providers. 

Defining Digital Transformation 

Before we begin, let’s define what digital transformation is as it relates to the financial industry and credit unions in particular. Digital transformation is the process of using digital technologies to create new business processes (or modify existing ones), cultures, and member experiences to meet changing business and market requirements. This reimagining of business in the digital age is called digital transformation. 

Reimagining the business of financial services delivery has never been more evident than during the challenges presented as part of the COVID-19 pandemic. To understand this resounding shift in the usage of digital services, as well as consumers’ expectations of being able to interact securely within their digital channel of choice (e.g., online and mobile), several factors must be examined. 

The pandemic has already changed consumers’ financial behavior. 

It will come as no surprise that many consumers have already changed their financial behaviors due to the impacts of COVID-19. According to a recent Credit Union Times article in March titled “Coronavirus Is Already Impacting Consumer Banking: Survey,” 63% of consumers are more inclined now to try a new digital app or website than before the pandemic. In addition, an article by the Financial Brand in April reported the results of a J.D. Power survey in which approximately one-third of retail banking customers plan to increase their use of online and mobile banking services post COVID-19, and only 46% of consumers will go back to “banking as usual.” 

A quote in another recent article by the Financial Brand, titled “Banking Without Branches a Matter of Life and Death,” sums up the situation quite well: 

“The fear and anxiety brought on by the rapid spread of COVID-19 is resulting in a change in overall consumer psychology. Social distancing and the awareness of disease vulnerability could change the way consumers who previously visited branches regularly conduct business forever. For those financial institutions that invested in creating seamless, easy-to-use digital products and services, these investments will finally pay off. As consumers seek out digital options, this may also result in greater awareness and usage of fintech alternatives.” 

With the shift to digital interactions growing at a rapid rate, next we will examine key market factors driving the need for credit unions to enhance and transform their digital services portfolio. 

Consumers’ expectations for their financial institutions have increased, especially with the delivery of secure, digital interactions. 

Even prior to the impact of the pandemic, consumer expectations in their money-movement experiences were increasingly focused on three main attributes: convenience, speed and simplicity. Fiserv’s 2019 “Expectations & Experiences: Channels and New Entrants” reported that most consumers already preferred to interact with their primary financial institution through digital channels (online or mobile). This same report stated that “the net preference for digital interactions (online plus mobile) is 58 percent – significantly higher than the 32 percent who prefer branch interactions.”

In addition, according to the March article titled “Coronavirus Is Already Impacting Consumer Banking: Survey,” 84% of consumers stated they expect brands to find ways to maximize digital interaction to keep consumers safe, but, unfortunately, 58% “found their digital journeys still broken and requiring physical or offline efforts to complete banking interactions. 

Specifically, as it pertains to security, the previously referenced article “Banking Without Branches...” says: “With the possibility of a major influx of new digital consumers and transactions, it has never been more important to ensure that the security around transactions remains strong. Communication around how digital transactions remain safe also needs to be communicated to a new segment of consumers who may be completely unfamiliar with digital privacy and security.” 

Overall, the impact of COVID-19 will potentially establish a new expectation from members of secure digital interactions from the credit unions, including their call centers, which will become increasingly challenged in meeting the required level of member experience while controlling fraud. 

The enablement of comprehensive functionality within the digital channel will allow credit unions to compete with larger financial services firms and retain valuable member relationships. 

Now that we’ve examined the importance of digital transformation based on consumers’ expectations and preferences and the evolving industry, let’s look at a few examples of focused digital services expansion efforts.  

  • First, the Cornerstone Advisors study called “What’s Going on in Banking 2020” revealed that 36% of senior executives at U.S.-based mid-size financial institutions plan to expand their digital presence this year.  

  • In addition, 85% of business firms and financial institutions are either in the process of implementing real-time payments (RTP) functionality or plan to begin doing so over the next three years, according to the article “Getting Real About Real Time Payments.”  

  • And, in 2022, North American banks are expected to spend nearly one-half of their total information technology budget on new technology, as reported in the Deloitte Insights “2020 banking and capital markets outlook.”  

Another key factor to take into consideration is the dominance of digital presence and engagement within the largest financial institutions. According to a study from Quidini issued in March, “a survey of U.S. consumers found that close to two thirds (62%) of the more than 2,000 respondents say they bank with one of the top four megabanks – Bank of America, Chase, Wells Fargo, or Citibank.” The important aspect of the survey response is the diversity of generational segments (ages 16-72), which indicates digital services expectations are foundational for financial services relationships. 

Considering The Next Steps 

With the impact from COVID-19 and competitive positioning of large financial services firms and fintechs, digital experiences are more paramount than ever due to so many branches closed and the need for most banking services to be conducted remotely. More importantly, the focus on enhanced digital services functionality will increase as the industry transitions to a new post-pandemic delivery and business model. So where should your credit union go from here? Questions your executive team can contemplate during the transition period may include the following: 

  • What is your credit union doing to take advantage of the opportunities to offer your members greater convenience, speed, flexibility, and security in their digital services transactions? In addition, a newer consumer trend has been the desire for transparency in transactions with financial institutions: Members want the ability to view the details of their payments, such as the obligations, options, requirements, etc. Is your credit union accounting for this increasing consumer preference? 

  • Will credit unions experience a loss of engagement with members or even a decline in membership if they remain unable to offer the digital channels their members not only want but also demand? If so, what digital experiences do your members want, and what can your credit union provide? 

  • What is the digital communication plan your credit union is evaluating to complement the increased usage of the digital channel for financial services delivery? 

  • How is your credit union planning to address the longer-term transition from a financial services provider who distributes services through a digital channel(s), to a digital technology services firm that enables access to a suite of financial services through an open and flexible digital transformation framework? 

We realize each credit union will chart a unique path to digital transformation. The journey of digital transformation efforts is never ending and contains a series of challenges and iterations. We hope this information is useful in understanding the need to begin the journey and that we can be a resource to assist you with the complexities of outlining a digital transformation plan and strategizing its execution.