Planning for the Future
Credit Unions, and the financial services sector at large, will be faced with new challenges and opportunities over the next five to ten years. Preparing for those effectively will provide a greater chance of success, and the opportunity to feature more prominently in improving the financial well-being of our existing and future members.
In seeking to determine what scenarios may play out for the sector, two key themes are recurrent; the burden of regulation and the increased reliance and demands of technology. By creating a matrix from these uncertainties, we can develop potential scenarios that can be analysed and evaluated. This will help identify the key strategic questions that can be considered to enable Credit Unions to be robust and responsive to future developments in the market and sector.
This matrix shows four possible scenarios for the Credit Union movement in the UK and Ireland where the two most critical uncertainties are technology and regulation. It is widely recognised within Financial Services that these two areas are amongst the biggest challenges facing the industry. Indeed, it is primarily these factors that will dictate the pace and depth by which non-traditional competitors will enter the market.
Scenario 1 – “Do it all Yourself!”
“Do it all yourself!” is a scenario where large-scale adoption of user-friendly technology, coupled with a diversified product range and light-touch regulatory environment will enable Credit Unions to innovate quickly.
Consumers will have greater choice, knowledge and accessibility. It could be argued that this scenario may cause Credit Unions the greatest challenge, since their ability to invest in leading-edge Information Technology is limited when compared to existing and potential competition. This is the scenario where it is more likely that corporations such as Apple and Google will find it attractive to enter mainstream financial services as they find the regulatory environment favourable. It’s a relatively small step to go from storing credit card details on a phone, to actually providing the credit.
With relatively low regulatory burden, Credit Unions will find it easier to introduce new products. However as stated previously, competition is likely to be greater as the market they serve becomes easier to access.
However, where Credit Unions can collaborate then economies of scale may mean groups of Credit Unions share in the cost of innovation and infrastructure in order to better compete. Should this Scenario become most likely, it would be envisaged that economies of scale will become a major factor in the success of the Credit Union movement.
As a comparison, Peer-to-Peer lenders (such as Zopa and Funding Circle) are expected to capture up to 15% of the credit market over the next ten years, and lighter regulation and technology developments could accelerate this further. (Rogers & Manpreet, 2015)
In 2011, depositors put £92m to work across the United Kingdom’s budding peer-to-peer lending market. By 2018 that had mushroomed to £6.1bn being invested over the course of a year.
Scenario 2 – “Savings & Loans when You Want Them”
In this scenario, the increased burden of regulation may result in two key consequences. Credit Unions may find it difficult to move beyond their current provision of providing unsecured personal loans, and savings accounts. However, the regulatory burden may prove a factor in inhibiting new entrants, which could enable Credit Unions to maintain and grow their share of the market in these traditional product lines.
Nonetheless, the high influence of technology will still require collaboration and partnerships between Credit Unions if they are to provide the channels and accessibility being demanded by their consumers. Automated, online and mobile services, where the consumer expects instant access and service 24/7/365 will challenge Credit Unions – particularly if they are to grow membership within the next generation of workers.
By 2025, 75% of the workforce will have grown up with the internet. To serve this generation, Credit Unions will need to invest in the technology that those future members currently take for granted.
Scenario 3 – “How can we help?”
Should Credit Unions be unable or unwilling to develop technology solutions that provide 24/7 self-service facilities (whereby banking is essentially an app on everyone’s phone) then this scenario sees them able to develop niche products in a relatively light-touch regulatory environment.
These could be products for vulnerable persons or those that wish to deal with a person rather than technology. This scenario does see Credit Unions remain very niche in the UK and Ireland, as technology becomes increasingly taken for granted amongst future generations. Ultimately, this scenario may mean a decreasing number of Credit Unions, with a slowly decreasing number of members – potentially a slow death for the Credit Union movement.
Scenario 4 – “The personal touch”
This is perhaps the most challenging scenario facing Credit Unions in the UK and Ireland. Should there be no opportunity or willingness for investment in technology, and at the same time regulatory burden increases, then Credit Unions will be forced to merge or close, as members move to service providers that can better meet their needs. Convenience will outperform price and Credit Unions may face a scenario where they must merge, invest in technology, or die.
New entrants will make accessing the services currently offered by Credit Unions easier, safer and even fun, as gamification becomes a new differentiator.
Credit Unions may be able to innovate around the edges, for example with video links to advisors, however the high regulatory environment will mean that if you don’t want the narrow product range available, you’ll need to go elsewhere.
Preparing for the future
The next decade will see Credit Union leaders focused increasingly on the challenges and opportunities presented by technological disruption, changing regulation and consumer behaviours.
It is likely that the consolidation of the Credit Union movement will continue and that the ability to deliver services via mobile digital technologies will become increasingly important. (Rogers & Manpreet, 2015, pp.5-6).
Whilst Rogers & Manpreet (2015) concentrate their research on the US Credit Union system, there is no reason to believe that their key findings do not apply equally to the Irish and British Credit Union Credit Union movements. Specifically, that technology, regulation, consumer behaviour and Credit Union consolidation will be the key areas of challenge and opportunity over the next decade.
CMutual is seeking to provide insight and best-practice sharing to help Credit Unions be stronger, better and smarter in the digital age.
Our partnership with the Filene Research Institute can add significant value to the Credit Union movement, and we encourage everyone to register and use the online research.
Any new way of working will bring new risks. From a product perspective, CMutual is working to build the protection needed for the Credit Unions of the future. For example, cyber crime will continue to dominate headlines (Goldberg, 2015), and Credit Unions will not be immune. Therefore, Credit Unions are increasingly seeking Cyber Liability insurance, and CMutual leads the market on developing products tailored for Credit Unions that helps to mitigate the financial costs of data breach, data loss or corporate cyber crime.
Our robustness in managing regulation will need to be maintained too, as regulators seek further assurances that members needs are met, and that products are fit for the intended market.
These two factors (regulation and technology) and how they play out over the next decade will have significant influence in how our movement will need to adapt.
Questions that can be considered include:
What skills and competencies will we need to serve our members in an increasingly digital world?
How will our existing value propositions need to adapt to meet changing needs?
What cultural and organisational changes, if any, will the business need to make in order to deliver on its goals. For example, in an environment where home-working and portfolio-working become the norm?
By considering these scenarios in detail, our strategic plans can build in the adaptability and agility needed to maintain the strong results seen over the last decade, into the next. (Bettis & Hitt, 1995).
In summary, the future for the Credit Union sector in the UK and Ireland is a positive one. However, disruptive forces are at play, and those Credit Unions that survive and thrive will be those that can adapt to the changing needs of their existing and future members, whilst maintaining and leveraging their core values.
Credit Unions may be well served by developing a further understanding of strategic scenario planning, and using tools such as the Strategy Canvas to assess and develop opportunities (Kim & Mauborgne, 2005, pp.110-13).
Scenario-planning and strategy become increasingly important as the lifecycle of organisations and products continues to shorten (Zhexembayeva, 2015). Those organisations that are skilled at re-invention, nimble enough to switch tack, whilst retaining core brand values are the ones that will survive and thrive.
Think of Apple evolving from being a computer manufacturer to what it is today. An organisation that has expanded its range from personal computers to designing, manufacturing and marketing mobile communication and media devices and portable music players. As important, it now sells and delivers its products and a huge amount of software and services, peripherals and digital content both online and through a worldwide retail store footprint.
So, as the pace of change continues to increase, Credit Unions and CMutual can mitigate risks and take advantage of new opportunities by focussing on their business models, their member needs and their strategies. Reviewing these areas regularly and diligently, could prove to be more of a requirement than ever before.
These elements together will keep Credit Unions on the path to serving more members, with better products, more often.
Over the next decade, the landscape will be very different, but the strength of partnership and collaboration can help to steer the Credit Union sector toward continued growth and success.
With a skilled focus on strategy, scenario-planning and effective execution, our Credit Union movement can be confident that the relevance of People Helping People will be as important in the future as it has ever been.