Lagging Banks & Credit Unions Can Still Catch Up with Digital Disruption

Missing the wakeup call doesn't mean 'Game Over.' Keep calm but get moving. Banking institutions that have been slow to grasp the tectonic changes happening as digitization takes over financial services can regain lost ground. That is, if those bank and credit union leaders willingly examine the present, seek a viable path to the future that fits their own markets, and make it clear to employees that survival demands change.

Digital disruption of financial services has been debated in articles, podcasts and studies for years. Conference planners have crammed agendas with the theme. Yet many community banks and credit unions are just waking up to the prominence of fintech and bigtech platforms and the realities of digital age competition. In fact, for many senior management teams and boards, the wake-up call has been followed by sheer panic.

No wonder. Some felt they had plenty of time to get their digital act together, seeing no incentive to tackle digital transformation quickly. Some serve smaller communities where consumers appeared content with the status quo. Paralysis by analysis hit some, while others simply became desensitized to the common buzzwords and deferred to old habits.

But like Rip Van Winkle, I have found, many bankers and credit union executives are now awakening to a world that has been changing dramatically while they were focusing on other priorities. A study from process mining company Celonis — a disruptor themselves — found that many C-suite executives just don’t know how to respond to disruption or where to start in developing a digital transformation strategy.

If you find your institution in this predicament, you can still catch up. There are three steps to take as quickly as possible.

1. Acknowledge the Problem, Communicate a New Direction

Efforts to respond to disruption often derail due to a lack of shared understanding of the scope of a problem or a collective sense of a clear path forward.

“It is not a sign of weakness for a leader to acknowledge that the decisions that have yielded success up until now will not do so in the future.”
— Jim Perry, Market Insights

Disruption demands radical change. Response begins with admitting the new reality and confidently building a plan with your team. In a world where new technologies are continually introduced and consumer behaviors seem to shift overnight, it is not a sign of weakness for a leader to acknowledge that the decisions that have yielded success up until now will not do so in the future. In fact, openly recognizing challenges can activate creative thinking and drive collective problem solving.

However senior executives in most industries don’t do a good job defining and communicating organizational direction. In the report “State of the American Workplace,” the Gallup organization found that:

  • Only 22% of employees strongly agreed the leadership of their organization has a clear direction for the organization.
  • Only 15% strongly agreed the leadership of their organization makes them enthusiastic about the future.
  • Only 13% strongly agreed the leadership of their organization communicates effectively with the rest of the organization.

I have found that you can see similar patterns in many financial institutions, large and small. And at a time of near-constant disruption in the industry, leaders need to ensure their entire organization is working toward the same goal, and teams perform better when they understand why change is required. Surviving disruption requires strong communication, collaboration and engagement skills.

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2. Analyze Relevant Data and Figure Out Where You Stand

“Know your market” is a familiar phrase. But it is essential for identifying the threats and opportunities of disruption. Current data about the consumers your institution serves, its competitors and a realistic view of market opportunities must guide your choices about adjustments to your business model, the integration of new technologies, automation of processes, creation of new digital products and the evolution of your customer experience.

Unfortunately, many community banks and credit unions lack access to clearly organized, consolidated data. They face the classic silo problem. Responding to disruption requires getting your data house in order.

Disruption is, after all, about customer centricity. Harvard Business School Professor Thales Teixeira believes “disruption is a customer-driven phenomenon. New technologies come and go. The ones that stick around are those the consumers choose to adopt.”

Analyzing relevant customer and member data (e.g. their profile and preferences, their digital and mobile behaviors, their longevity and profitability, etc.) will help you determine the scope and timing of digital transformation initiatives. Augmenting that data with conversations or focus groups will expose and explain barriers to digital adoption and deepen understanding of people’s changing behavior.

Taking a closer look at your competitors and the current state of their digital evolution is another vital data point to consider. What are the strengths and weaknesses of their mobile and digital channels? How is technology deployed within their branches? Does their marketing suggest new products and services aligned with consumer digital behaviors?

Knowing your institution’s relative positioning within a market can sometimes identify disruptive opportunities it can exploit. At a minimum, an analysis of competition will help determine how to position your institution within the digital ecosystem.

Examining the competition also means learning from the disruptors that are chipping away at your market. What are the pain points that fintechs and neobanks have identified and exploited through their marketing in your area? Online account opening. Faster credit approval. Seamless money transfer. German mobile bank N26 and U.K. challenger Monzo are set to launch in the U.S. this summer. Have they announced events in your area?

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3. Assess Your Brand and Take an Honest Look at Your Culture

Before crafting your institution’s strategic response to this era of disruption or diving headfirst into tactical investments in technology, you have to take an honest look at your brand and culture. You have undoubtedly heard Zappos CEO Tony Hsieh’s observation that a company’s culture and a company’s brand are really just two sides of the same coin. The condition of that coin will determine your institution’s future success or failure.

A review of your brand — its promise and its attributes — will identify whether your institution is optimally aligned with consumers in this digital age.

What do consumers know your institution for today? Will they value that factor in the next year? In five years? How will digital transformation add to, or distract from, your brand position?

A review doesn’t need to be a full-blown brand audit. However, it should reveal which aspects of your brand are misaligned with an increasingly digital future.

A tough but vital step: You must ask whether your employees have the right skillsets and capabilities to ensure successful digital evolution. In many community financial institutions employees have been doing the same things, in the same ways for so long, major change is difficult. Digital transformation often is perceived as the enemy. Do you have tech-phobic employees? Do you have enough people in key roles who can implement a transformation strategy? Does departmental collaboration occur easily? Do communication patterns support swift information sharing?

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Moving Forward Now That You’re Up to Speed

These three steps provide a starting point on a long journey.

They put your team on notice that disruption is not some future event, but a current reality your institution must face. They give you the basic information to discover what must change, what to prioritize and what resources — both capital and human — will be required for success.

Additional data will be required as your strategy takes shape. But you have to start somewhere if you hope to quicken the pace of your own evolution and meet the challenge of disruption head-on.

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