Navigating the credit union tech spend conundrum
Many credit unions struggle to bridge the gap between the ideal of seamless digital experiences and the reality of outdated systems and cost concerns.
A new article from McKinsey spotlights the need for credit unions to get their digital houses in order — or risk becoming irrelevant.
Many credit unions understand the challenge but are stymied by legacy systems and/or the perception that doing what needs done will be prohibitively expensive.
“This is a real conundrum for the credit union industry for a number of reasons,” said Dennis Holthaus, a credit union consultant and former CFO for $4.2 billion-asset Northwest Federal Credit Union in Virginia.
The issue for many institutions is finding a way to offer (in McKinsey’s phrase) “a seamless, user-friendly digital experience” without breaking their current systems — or breaking the budget.
In other words, how do credit unions close the gap between McKinsey’s blithe advice and the real world?
Story continued below…
Holthaus told Tyfone there are four critical factors to consider:
- The composition of the industry (size matters).
- The technology available to the industry (the core providers are not making the investment).
- The technology expertise within the industry (the smaller institutions just don’t have the in-house IT expertise).
- The proverbial issue of cost/affordability.
“The industry size structure is that there are far more smaller credit unions than larger,” Holthaus said. “These institutions can’t develop the technology on their own due to cost and expertise.”
So unless the core providers to the smaller institutions are willing to make the investment to develop the needed products, which is often driven by the question of whether they get the appropriate return on their investment if they do, then third-party vendors will need to step into the breach, Holthaus said.
And that still leads to the question of whether those firms can find the needed ROI.
“Certainly, the question for these smaller institutions is whether or not the structure of their field of membership is looking for their credit union to provide these products,” Holthaus said. “Since the FOM for a good portion of these smaller institutions is limited or small, the answer may be not really.”
“This is a real conundrum for the credit union industry for a number of reasons.”
– Dennis Holthaus
Credit union consultant
