Leaders and business intelligence at credit unions are putting a tremendous focus on ways to use advanced data analytics to identify trends, detect patterns and glean other valuable findings from the sea of information available to them. Without question, member data is valuable. But the greatest value lies in the ability to empower each line of business to achieve strategic initiatives and performance goals. When this empowerment is coupled with improving member service, a proven, repeatable best practice results.
OnApproach CEO, Paul Ablack, and Mike Lawson of CUbroadcast caught up at the NACUSO Network Conference in Orlando to discuss credit union industry trends and the upcoming 2017 AXFI Conference.
The interview covers credit union collaboration, fintech disuption, enterprise data integration, predictive analytics, data pooling, member experience, Identity and other exciting topics relevant to today's financial services industry.
Data continues to prove itself as a necessity for decision-making in financial institutions. For years, major banks and innovative companies such as Google and Amazon have taken advantage of “Big Data” to gain better insights into their customer base and make business decisions to position themselves for the future. The credit union industry is finally beginning to take advantage of their data and utilize new technologies. However, credit unions are much smaller than major banks and simply don’t have the same quantity of data that banks are able to collect from their customers. Fortunately, data pooling serves as a great solution to this problem. Here are 5 reasons your credit union should participate in data pooling:
Just as healthcare is developing robust analytics for patients, credit unions have a great opportunity to empower members to track their financial health and take actions to improve it.
Being raised in a small town, I never thought about the healthcare I received. I had the same doctor from birth until I moved to college. As long as nothing seemed wrong to him, I felt confident that I was healthy. However, when I moved to a bigger city, everything changed. I was no longer able to rely on my hometown doctor, and I needed a way to monitor and maintain my health. At the same time, the healthcare industry was going through a data revolution. The traditional relationships between doctors and patients were changed forever. In shopping for my new healthcare provider, I felt the most comfortable with the one that had the best analytics and enabled me to make data-driven decisions to improve my health.
In the fifth Data Analytics Series BIGcast, Sorting Socks: A Data Automation Conversation with Graham Goble, John Best speaks with Graham Goble of BankBI about financial performance management, reporting, and business intelligence.
The Excel Curse
One primary point of discussion during the podcast is about the use of spreadsheets in comparison to data automation. “The Excel Curse” is certainly not unique to credit unions, but it is absolutely a problem across the industry that requires action. Excel is a powerful tool and serves a number of purposes very well, but advanced analytics for financial institutions is not one of them. Even for a spreadsheet guru, there a several fatal flaws in using such a software as a primary reporting tool in credit unions:
In the third Data Analytics Series BIGcast, The CECL Effect, John Best speaks with Joe Breeden of Deep Future Analytics about CECL, data pooling, and predictive analytics.
The Impact of CECL
As Joe Breeden explains in the podcast, CECL stands for Current Expected Credit Loss, and is the new accounting standard for how financial institutions will set loss reserves. Typically, organizations under $10 Billion assets have utilized moving averages to calculate loss reserves, but this model is backward-looking and will not be acceptable for the new regulations. A moving average model will always set your loss reserves too low moving into a recession and too high moving out of the recession.
When discussing how to meet CECL requirements and create a forward-looking model, Breeden states, “There is a lot of flexibility on how you implement it, but there are two things that are pretty much unavoidable”:
Credit unions interested in advancing their data analytics efforts will find a wealth of information in a recent article in the McKinsey Quarterly. Simply entitled, “Making Data Analytics Work for You – Instead of the Other Way Around” (Mayhew, Salah, and Williams), the article provides an easy to follow list of steps for any organization to get the most out of their investment in data analytics.
The authors emphasize that improving corporate performance is the only meaningful reason for organizations to pursue data analytics. As a result, they state two important principles:
A professor at the University of Minnesota once taught me that death and taxes are not the only certainties in life, because you can also always count on your budget being wrong. While this (annoyingly) still seems to prove true, there are a number of practices to improve budget planning and optimize the potential of your budget to prepare you for data analytics.
With fall around the corner, many credit unions are entering the budget planning stages for the next year. If you are planning to remain competitive in the industry, this does not mean you are simply tweaking minor adjustments from last year’s budget.
It’s often easy to overlook the obvious. As a team member of OnApproach, a company that integrates all of the disparate data sources within a credit union into a single source of truth, I have failed to recognize the value of ALL the data available to credit unions. At the 2015 CUNA CFO Council Conference, I attended a session presented by Bill Goedken, President & CEO of Idea5, entitled “Mining Gold – New Trends and Discoveries in ‘Big Data’ That Will Help Your Credit Union Compete.” During Bill’s session, he discussed the ways credit unions can leverage external data to better serve their members. While both internal and external data are extremely valuable, the combination of the two is where the real value lies.
As a generation who has been raised online begins its financial journey, digital demands on financial services will begin exploding
The credit union industry is the middle of a digital revolution. As technological innovations continue, members will shift toward digital channels to interact with their credit union. Basic transactions continue to take place though online and mobile banking channels where members can take control of their financial needs. Depositing checks, transferring money, and paying bills can all be accomplished through this channel. Members no longer need to rely on the branch for basic transactions. The main drivers of digitization are the millennials who were born at the advent of the internet. Their lives have been surrounded by the interconnected digital world. Consequently, they will demand a digital credit union that meets all of their financial needs when (and where) they need them.