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:
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”:
Collateral Valuations are essential while serving members and maintaining a healthy credit union. However, credit unions are relying on inaccurate valuations of their members’ collateral values because of disintegrated data.
Millennials are living in a vastly different world than their Baby Boomer parents. They live in a time in which a phone isn’t just a piece of plastic used for making calls, it’s now “smart” and acts as an extension of oneself. A time in which “going shopping” or “depositing a check” no longer requires you to leave home. We are living in a world dominated by the rise of online/mobile and the demise of brick-and-mortar. This changing consumer landscape is being primarily driven by Millennials as they demand more personalized experiences.
“Everything negative - pressure, challenges - is all an opportunity … to rise.” – Kobe Bryant
Getting ahead of the new CECL requirements is a strategic initiative for all credit union executives in 2016. Being complaint will be no easy task, however. The new CECL requirements require life-of-loan loss forecasting capabilities. In most cases, this means the credit union will need to collect data, A LOT OF DATA. Unfortunately for most credit unions, collecting, storing, and analyzing data has not been a priority and most do not have the proper infrastructure in place to do so.
“…wallets may generate substantial data that will lead to better member insights and possibly also profits.” – Kirk Drake, founder and CEO of Ongoing Operations, LLC
Last week in my blog, Credit Union Industry Disruption: NACUSO 2015 – Part 1, I talked about the pending threat of Big Bang Disruption in the financial services industry and the growing prominence of predictive analytics. In this second and final blog on the learnings from the NACUSO 2015 conference, I will cover what we learned about how credit unions can respond to Big Bang Disruption and the strategic importance of Predictive Analytics.
The promise of business intelligence and Big Data/Analytics has been around for years. Companies have been making claims that data-driven decision-making will revolutionize organizations but have failed to fully deliver. It is true that descriptive analytics (reporting) is necessary and valuable but in order to create real value (Return on Investment) for data analytics, organizations must think about the future. In order to achieve real value from Big Data/Analytics, organizations must execute predictive analytics.
I had the opportunity to attend NACUSO 2015 in Orlando last week. NACUSO is a great conference to interact with other thought leaders in the credit union industry to make valuable business connections. It is the essence of the “credit union movement”, a group of talented industry leaders looking for ways to collaborate to make the industry stronger.
The credit union industry is on the cusp of significant challenges with the potential to disrupt the financial services landscape as we know it. Big Data and Analytics is driving a new breed of competitor into what has been a very traditional marketplace. The industry will need to envision and build out the “Next Big Idea” for credit unions to stay competitive and successfully navigate the next 10 years.