Fintech future for credit unions

Digital innovation is transforming lenders’ relationship with members and their communities, writes Kevin Johnson

CREDIT unions are Ireland’s most trusted financial institutions but they have challenges to overcome if they are to continue growing and serving the ordinary people of Ireland and their communities.

A soon-to-be published report from the Oireachtas Finance Committee states that Irish credit unions have an “unsustainable” low level of loans and should be allowed to offer a wider choice of loans, including being able to help fund housing agencies to address the housing crisis. The report will confirm that the loan-to-asset ratio for the sector stands at a very low 26pc, which means that Ireland is in the bottom five out of 105 countries with credit union movements in terms of loan volumes. We believe that this figure should be closer to 60pc to ensure a sustainable sector.

In June credit unions were again found to be, for the third year running, the most trusted brand in Ireland – out of 170 brands – by the CXi survey, conducted by the CX Company in partnership with Amarach Research, in June 2017. This is not surprising as credit unions are different, in particular, from other financial institutions, not just because we are not-for-profit, but because decisions are made at a local level and tailored to the individual needs of members.

But credit unions must capitalise on marketplace changes and continue to develop our use of technology. As in other sectors, digital transformation is under way in financial services and fintech provides opportunities to improve customer service, back office efficiency, decision making and governance. Credit unions have excellent market share and member trust but with increased competition, new regulations and architecture looming, they must refresh their approach. Fintech provides such an opportunity.

THE OPPORTUNITY

Fintech is already paying dividends for many Irish credit unions. The Solution Centre — funded by a group of the country’s strongest credit unions and managed by the Credit Union Development Association (CUDA) — is reporting that since it began rolling out its “Facebook Loan” digital loan service earlier this year, those credit unions involved have seen their interaction with younger adult members increase tenfold. The initiative has already been a huge success — and now accounts for up to 15pc to 20pc a month in loan enquiries for some credit unions.

The Irish market is undoubtedly lagging some way behind our European neighbours on fintech adoption. Manual, paper-based processes are expensive and risk-prone. Automation allows new members to be originated online, loans can be disbursed within minutes and back office management is executed in real-time. The benefits are compelling. Members are offered an even more personalised service with higher convenience.

And the cornerstone of credit union success — the human touch — is not lost. Fintech is about doing more, faster and better. Staff time is freed up to focus on direct relationships with members. Market reach is extended and members empowered by convenient, anytime, anywhere service. Credit unions can approach fintech in an incremental manner, automating easier elements and up-tiering as the business need grows.

A DATA-DRIVEN ECONOMY

We have entered a data-driven economy where data is transformed into business intelligence and used to provide members with personalised offers and services. While many credit unions have been positive about digital transformation, thorough and long-term commitment is required to satisfy members’ growing expectations for frictionless processes and the constant desire for enhanced governance and management. Digitalisation can create a virtuous circle: credit unions can reach out to the next generation of members with a personalised service, while regulators will receive better data, driving confidence and security.

For example, with the manual credit assessment process operated by most credit unions, loyal members are forced to wait for credit decisions. Modernising the credit system can increase member interaction and drive business and loans online by approving and disbursing loans in minutes while still being prudent and compliant. Applied effectively, fintech can empower borrowers, and the potential benefits for credit unions and their members are huge.

THE FUTURE FOR EARLY ADOPTERS

On first appearance, the digital transformation journey appears daunting for the credit union sector — new technologies, cybersecurity, cost, uncertainty. While these considerations should not be underestimated, there are methodologies to ensure we get it right. This is just the beginning, as advances in technology, analytics and user sophistication look set to unlock new possibilities for those with the data and digital capabilities to exploit it.

Our motivation behind the recent drive into the fintech space was bolstered by findings of a nationwide survey of 1,000 people we commissioned recently. Almost 57pc of respondents said that, if given the choice, they would prefer to apply for credit with a lending institution using an online channel such as Facebook, rather than attending the branch office and meeting with a bank or credit union employee.

Credit unions hold a unique position in that they have loyal members, a trusted brand, local knowledge and a positive local impact. There are adequate resources that can be leveraged to create movement-wide initiatives.

Fintech is the missing component which is now enabling and assisting credit unions to become masters of their own destiny again and deliver upon their social ethos and commitments like never before.

We believe credit unions will continue, and should continue, to be consumer-owned, co-operative financial services organisations, whose primary business is to provide a competitive return on the savings of their members — by using those savings to make convenient, affordable member loans.

We are committed to our agenda for change and are delighted that many of the country’s leading credit unions, with a combined membership of more than one million people, are currently implementing fintech projects, through the Solution Centre, that will enhance their ability to delivery even more value to more members.

‘Fintech can make credit unions masters of their own destiny’