• Jon Ungerland

Three Things Your Credit Union Can do to Prepare for (and Profit in) Another Recession

Cracks in consumer confidence.

Weak manufacturing data.

Troubling (short term?) bank liquidity issues.

Looming full-scale trade war(s).

Is your credit union ready for the next round of economic roller-coaster rides? No, I’m not inquiring about the state of your ALCO models, CECIL reporting, or most recent auditor prescribed stress tests. I’m genuinely concerned and curious about whether institutions in our industry will be properly positioned to continue innovating, identifying opportunity, and achieving growth through an increasingly probable income and expense turbulence ahead. And secondly, I’d like to identify a real frontier, an opportunity for your Credit Union to achieve stability and growth in a potential bear market.

Most of us recall 2008. It was, to say the least, troubling and problematic. And the lingering legacy of 2008 is, of course, the impressively massive and complex machineries of regulation, consumer protection, and banking reform. The mind boggles at the task of contemplating the cost, both in terms of lost income and actual expense associated with the reforms and regulations implemented in the wake of the last crisis.

A decade later, are we more vulnerable or are we positioned for resilience and innovation? Sure, most institutions may be better capitalized, but how vigilant have you been at ensuring you’re in control of your own economic, digital, member experience, and community engagement destiny in the face of another downturn? Are you positioned to innovate, expand, deliver relevant experiences to desperate consumers; or are you likely to bleed out capital on high-cost vendor relationships and scramble to cut expenses at precisely the moment communities require investment and engagement in order to return loyalty and dividends to your institution down the road?

When the Great Recession hit in 2008, most institutions had hardly begun to dabble in the dubious realms of digital banking, digital-first, omnichannel, digital experiences, etc. Sure, many institutions had home banking or online banking in 2008; but, let’s be honest and recall the facts:

  1. The iPhone had only recently been released in 2008, and it primarily took pictures, played music, and made email and messaging as easy as reaching into your pocket;

  2. Fintech apps and digital disruption of banking was barely an idea burgeoning on the possible horizon of a world filled with apps, widgets, and all manner of wonders to make banking easier (and more competitive) in the consumers pocket;

  3. Amazon and Facebook were hardly glints on the global horizon, and certainly hadn’t become formidable players in the lending, financial transaction, and payments space

  4. Cryptocurrency wasn’t even a thing. Now it’s not only possible for people to store money outside the banking system (including your credit union) but its increasingly likely they will as a means of moving money out of the traditional banking sector and into cryptocurrency securities in an attempt to preserve deposits (or even profit on the downturn) in the event of a banking crisis;

  5. Above all, in 2008 we certainly weren’t staring starkly into ‘the upside down’ and listening to former Fed Chairs and current Federal Reserve Board members talk about negative interest rates (a fundamental upheaval of our business models and operations!) while our neighbors in developed countries around the world plowed ahead with paying consumers to take out mortgages and charged depositors to store capital!

Make no mistake, the stakes are higher and the margins are slimmer. Our industry’s fevered rush into the digital-first, digital experiences, digital transformation attempts at flanking fintech, etc., have likely driven our operating expense ratios (and third-party vendor stats) into territory that eclipses the environmental factors of 2008.

Ronald Wright once remarked, while contemplating the dynamics of progress in human history, “Each time history repeats istself, the price goes up.” This is likely to ring painfully true as we confront the prospect of closing out the roaring twenty-teens with yet another round of economic, industrial, political, and banking system instability and turbulence.

For relevant credit unions who own their data, however, there’s great news. In fact, a whole new frontier has opened. When the Great Recession of 2008 happened, economists were still conceiving of money as tied to material limits of supply and demand. Plummeting prices for housing and other material commodities put investments and the market at risk. There weren’t any other options. Today, however, money is data, and data is not a limited commodity. In fact, just like realtors say “location, location, location” investors are now saying, “data, data, data.” Your financial institution is already sitting on top of this digital gold, which will retain its value in both bull and bear markets. Let that sink in for a moment. Your FI’s stability in a potential bear market can be tied to something you already have, which will only increase in value.

I propose three things to help your credit union capitalize on this digital gold, insulate you from external pressures, and keep your horizons open for opportunity, while simultaneously positioning your institution to remain digitally and directly relevant to the communities you serve:

  1. Develop a road map to regain autonomous control of your data, your costs, and your digital strategy, without relying on the bottomless pit of bolt-on vendors. One thing is certain, as we enter troubled waters of uncertain depths, you won’t be able to depend on your vendors to run your credit union for you or make strategic decisions or drive your technology and digital strategy forward with a focus on sustainability. If you’re a DaLand client, you’ve probably benefitted from what we call a Vendor Strategy Map (VSM); if you’re not, you might want to consider what it will be worth to you in coming weeks, months, and years to know which vendors are expendable, endangered, or encumbering to your institutions economics and strategic operations. You might be surprised to find out your future can be brighter if you’re driving into it with your own digital, data-oriented, and deliberate strategy; as opposed to riding along in the ‘SS Bolt On Express.’

  2. Get obsessive about controlling and centralizing your own data. If you’re not on a relevant core, or if you don’t know what that means and what one of those is, then work with a trusted partner to update your techno-business strategy. A lot has happened in the past ten years! If you’re not in a position to powerfully centralize and obsessively control your consumer/member data (and most credit unions are not, because their data is fragmented, siloed, and stored – held hostage – by third party vendors) then you’re missing out on the essential commodity which will power institutions through the impending transition into the future of a truly digital and data-driven world and economy.

  3. Position yourself to control your own digital and consumer experiences. If you’re wondering why Amazon, Apple, Google, and Facebook are taking over the world, it’s because they’ve figured out that banking isn’t difficult or complex. See point 2 above; they’re amassing data, which was the hard part, and now they’re extending that data to create powerful, sustainable, cost-effective, profitable, and predictive/addictive financial services experiences. Again, the last 10 years has seen hyper-speed evolutions in the worlds of database technologies, cost reductions in hardware, proliferation of affordable talent to develop solutions, etc. If you want to emerge out of the other side of a potential crises in a more powerful position, then observe Newton’s third law – leave the clutter of the past 25 years behind and accelerate into a future of relevant, core-extended, autonomously controlled digital experiences predicated upon powerful, modern, and data-rich open cores! It’s that simple. If you’re still making excuses for your 30 year old data processor, you might want to also make preparations to join them on the scrapheap of history.

In the words of Winston Churchill, “Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.” We, like Mr. Churchill at the time he uttered these famous words, are staring down some stark and scary shadows. But the sunset in one place is the sunrise in another. We may or may not be coming to the end of a bull run, but we are definitely entering a new era of data-driven communities and economies – a world of truly digital money. At DaLand CUSO, it’s our hope there are credit unions looking to do more than just weather the storm with their storehouses of capital and positions of privilege. We believe credit unions seeking relevance will leverage these changes as an opportunity to cement their position within the community and local economy – and we’re here to partner with such institutions.

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