Taking a Breath at Year End and Peering Over the Cliff by Guy Messick

This change thing is exhausting.  In 2017 our capacity to adjust to change has been challenged.   Every day we wake up to see what the Tweeter in Chief said in the middle of the night and who he offended.  We wake to discover which TV or political icon acted inappropriately in his past.   We hold our breath with every North Korean missile launch to see what terrifying threats are going to be tossed about by leaders with fingers on buttons.

So assuming we are still alive and can focus on business in 2018, let’s examine the big change issues for credit unions.  The regulatory side looks favorable for 2018.  Now that Mick Mulvaney has taken over the CFPB, we can expect that the regulatory overreach by the CFPB will halt.  NCUA, with Chairman McWatters, is in regulatory cut-back mode.

In 2018, more credit unions will begin to escape from the clutches of legacy core processing systems.   The business model for some of the legacy core providers is to sell you technology that was developed forty years ago and charge credit unions through the roof to connect other software to the core.   That model is excessively expensive, slow to adapt and slow to implement.   In response, credit unions banded together and raised over $26 million to form the CUSO Constellation Digital Partners, LLC.   Constellation is developing technology that will enable credit unions to pick and choose which apps they wish to provide to their members and then easily connect the apps to the credit union’s core system.  It is core neutral.  The technology will enable credit unions to both compete with fin tech providers and take advantage of the technology developed by fin tech providers.   Credit unions will encourage software developers to create software for credit unions using code that will enable the software to be delivered inexpensively and efficiently.  Innovators take note of this opportunity.

In 2018, credit unions will begin to put in place more effective digital privacy protections to prevent data hacks.   More credit unions will be using the services of Chief Information Security Officers (“CISOs”).  Credit unions that cannot afford to hire a full time CISO will use firms that provide the services on a fee basis.  Again credit unions have responded to a big issue by forming a CUSO called CU Ledger, LLCCUNA Mutual and Best Innovation Group are also part of that CUSO.  CU Ledger was formed to develop a distributed ledger or block chain technology system that is a very effective and secure means for identity confirmation, thus greatly reducing the ability of fraudsters to digitally raid credit unions.

In 2018, the impact of artificial intelligence, both good and bad, will be evaluated.  AI is already upon us.  AI drives cars, makes medical diagnosis, and provides investment advice.   How will credit unions deal with a drop off in car loans due to driverless cars?   What will be the competitive pressures to use AI for speed, accuracy and convenience?  What positions at the credit union may be eliminated due to AI?  Yes, I know Siri is lame but her very bright big sister is just around the corner.

What additional competitors will emerge in 2018?  Will this be the year that Amazon, Google or Apple provide banking services?   How will credit unions position themselves to compete against these behemoths?  One thing for sure is that credit unions need more scale to meet the challenges of 2018 and beyond.  Even if your credit union is using mergers to obtain scale, the use of CUSOs and collaborations will super charge your efforts.

In 2018, credit unions that want to have a future must ask themselves four questions:

  1. Does your credit union need additional scale to acquire the technology and expertise to be competitive with current and emerging competitors?
  2. If yes, is your credit union fully utilizing CUSOs and collaborations to increase your scale?
  3. If not, why not?
  4. Once you have the scale to afford more resources and expertise, are you willing to make the changes in the credit union’s policies, procedures and personnel to fully leverage the advantages of scale?

If your credit union does not have a plan to acquire scale through mergers and/or collaboration, your credit union is a merger target waiting to happen.

If you want to see more examples of how credit unions are using collaborative solutions through CUSOs to help shape their future, come to the 2018 NACUSO Network Conference taking place April 16,-19, at the Disneyland Hotel in Anaheim, CA. You can register at  www.nacusonetwork.com.


Guy A. Messick is the CUSO GURU and an attorney with Messick Lauer & Smith PC in Media, PA and General Counsel to NACUSO. He can be reached at 610-891-9000 or gmessick@cusolaw.com