Look for Opportunity in Adversity

CU360
February 5, 2009 | COMMENTS

While it might seem somewhat presumptuous to look into the future of retail financial services while the economy recedes, there really is no better time to examine the future than during difficult times. Adversity tends to focus leaders, making them more receptive to taking action. Here are some ideas regarding financial-service trends in the future and what credit unions can do to take advantage of them.

Technology and opportunity. During downturns, financial institutions typically get back to basics: reducing expenses and increasing profitability. But these days, getting back to basics is not so basic in the face of a unique set of converging challenges: a dismal economy, the advent of mobile banking and Web 2.0, and the rise of non-traditional competitors in both financial services and payments. One answer is to leverage technology.

The good news is that the technology necessary to identify and serve the most profitable members has come a long way. First generation customer relationship management (CRM) programs did little more than centralize data from disparate silos within the credit union.

Now, however, second generation CRM programs can interpret that data and produce actionable business intelligence. This intelligence not only informs product strategy and pricing, but equips both management and frontline personnel with the information necessary to anticipate the needs of specific member segments and profitable individuals. Second generation CRM programs not only identify profitable members, they enable financial institutions to optimize pricing and achieve profitability with members who historically haven't been profitable.

Rational vs. emotive member service. While financial institutions have historically done well with the rational aspects of customer service—minimizing wait times in teller lines or shortening pick-up times on incoming phone calls—they've failed miserably on the emotive aspects. An example of this is making members feel protected by offering timely advice specific to each member's unique needs. And it's precisely this emotive aspect of member service that financial institutions must master in the wake of the current crisis of confidence in the financial system.

Web 2.0—from monologue to dialogue. The essence of Web 2.0 is applications and solutions that allow members to speak to one another, critique or praise their credit union, discuss solutions to common problems, share advice, and develop collective/collaborative wisdom. Instead of one-way advertising and provision of balance/transaction data to the member, institutions looking to meet Web 2.0 expectations provide their users with the technology for dialogue: blogs, chat rooms, and online forums about specific topics. Social networking is another way to build trust and community.

Remote deposit. In the short term, financial institutions must get their payment priorities in order. First, get serious about remote deposit, especially to business members. The biggest opportunity in remote deposit lies ahead. Only 5% of small- to medium-sized businesses have remote deposit now, and checks still make up 70% of receivables among two-thirds of all businesses, creating huge, sustained demand for the service. The competition for low-cost business deposits will be won or lost between now and 2012.

Debit and ACH. In the mid-term, debit card and ACH are financial institutions' biggest growth opportunities. By 2010, 25% of all financial institutions will be offering rewards on debit card purchases. Rewards will promote transaction activity on debit cards institutions have already issued. Further out, Visa/MasterCard-branded prepaid cards are projected to outpace private label gift cards in the next two years. This presents an opportunity for credit unions to increase fee income.

Smaller, smarter branches. Today, teller transactions represent two-thirds of all branch activity, and 90% of these transactions are check-related. The average number of branch transactions per day will drop by more than 25% over the next two years, according to projections from the FDIC, Federal Reserve, and Celent consultants. As check volumes continue to decline (fueled by debit cards, remote deposit, and online bill pay), branches built around check transactions will change and evolve. Specifically, they'll become smaller, more sophisticated and less costly—perhaps one-third to one-half the cost of today's full-size branch.

Not only will fewer tellers be needed per branch, the tellers who remain will emerge from behind the counter to service more complex, sales-oriented transactions in open lobbies that feel more like living rooms than transaction centers. In these new branch environments, education and consultation will replace check deposits and check cashing as organizing principles.