Why Building Digital Banking In-House Can Work for Small Institutions

The standard approach for community banks and credit unions to stay up with digital technology is to rely on a few vendors for mostly off-the-shelf solutions. Doing your own tech is just for the big guys, most feel. Not necessarily. One $3 billion institution embraces fintech to the point of having more than two dozen programmers on staff. Here's how it works.

Complaints about lack of attention and lack of speed from technology vendors is a long-running and rising chorus among community financial institutions. A handful of new core technology options have appeared, along with dozens of specialized fintech solutions. But for the most part the situation has not changed for the majority of community banks and credit unions.

Many feel the status quo hampers their ability to move quickly enough to meet new customer and competitive demands. But bringing technology development inhouse isn’t feasible. Or is it?

UW Credit Union, Madison, Wis., has succeeded through an unconventional approach to digital development. While it uses outside vendors for some tech needs, for projects such as mobile banking apps and card reward programs, it develops them in house. The Financial Brand posed questions to Eric Bangerter, UW Credit Union’s Vice President of E-Commerce, to see what lessons other financial institutions might apply to their own situations.

What sets your approach to digital development apart from other community institutions’?

Eric Bangerter: It starts with embracing technology. Consumers demand modern, user-friendly financial technologies. If banks and credit unions reject fintech or lag in adopting these technologies, they’ll struggle to meet consumers’ expectations.

Digital success hinges on choosing the right opportunities and pursuing them at the right times. We carefully consider which opportunities will work best for our members. We also like to hire people who think a little differently about technology. This is true whether we’re hiring for a tech position or a position elsewhere in the organization.

When you’ve grown up using a computer and smartphone, you understand technology in a different way than someone who started using these items later in life. You think differently about how to apply tech to daily living and how to make it more convenient for both members and employees.

Eric Bangerter set a high bar quote

UW Credit Union has 29 programmers. Isn’t that a lot for a $2.7 billion institution?

Bangerter: It is if you do a side-by-side comparison with another credit union or bank that’s our size. But it’s not if you consider our “we do it better ourselves” approach. We constantly ask ourselves how we can make smarter investments and bet on the right products and projects. Not only because it’s a best practice, but in our case as a credit union it’s a way to return value to our members.

Many companies that make and sell tech products don’t set the bar high enough when it comes to functionality. We want to create a more integrated, customized experience for consumers, an experience that reflects what UW Credit Union is all about.

Does your connection to the University of Wisconsin give you an edge with tech talent?

Bangerter: We do benefit from being in Madison, a city that’s heavily invested in technology. With graduates of the University of Wisconsin system of colleges and technical schools, plus people who move here to work for software companies and app developers, there are many in the community who know tech. Not everyone wants to move to California to work in tech, and Madison is known as a great place to live.

We also hire internally for our group. There are quite a few people who started as tellers, for example, who later assumed tech roles. They already understand our culture.

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Is in-house technology development a better model than the alternatives?

Bangerter: That is a question we’re often asked. Customer experience is a big part of the answer. We really want to own and drive this experience. That’s why we’re so focused on providing a high level of consistency and integration.

“The vendor remains involved, but we do the heavy lifting on integration and own more of the user experience.”

We don’t want to build tools that already exist and we can’t improve on. When we do buy from outside, the integration into other technology vendors’ systems is very important. Sometimes banks and credit unions buy different solutions that can’t talk to each other. Because we do the integration, we don’t have some of these problems. The vendor remains involved, but we do the heavy lifting and own more of the user experience. This also means we can collect data and integrate it into our other systems. We also tend to add lots of back-end functionality.

How does a bank or credit union shift from relying on vendors to having in-house capabilities?

Bangerter: You have to start somewhere. We did well by encouraging an entrepreneurial spirit. We hired a few technology-minded people and gave them free rein to figure it out.

Attracting and hiring that kind of talent is almost always a smart move. This process may take time and require a culture change, but it’s really useful to have strong technologists working in your organization. Fintech can bring efficiency and value to community financial institutions and their customers. That’s something to leverage.

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What factors go into your decision in selecting which new products to work on?

Bangerter: We look for ubiquity. For example, we ask if a solution works well across devices, if it’s something everyone is using or will be using, and if it solves a problem for most of our members.

But we also look for red flags. For example, does it seem like a fad? Does it only speak to a narrow niche market?

UW Credit Union recognized mobile as a full delivery channel, not just a supplement, early on and made it a priority. A lot of early mobile experiences were a subset of online banking, but we’ve never taken that approach. Our mobile approach is “feature to feature.” In other words, we try to give mobile device users the same experience they’d have on a desktop computer.

Zelle is an example an outside product that is ubiquitous and can make things easier for a large percentage of our members. For that reason we were the sixth credit union in the country to get on board. There’s been unprecedented cooperation among the biggest banks to implement Zelle, which indicates to me that this product is a smart bet. And most bank accounts in the U.S. are now covered by Zelle. That creates ubiquity quickly.

Have there been any digital products you’ve declined to pursue?

Bangerter: Voice banking, like using Amazon Alexa, is one option we haven’t pursued much. It isn’t too difficult to pull off, and most people want some voice-controlled banking features, but there are other things to consider before saying yes.

It’s important to think about the tipping point when it comes to new technology products. We just haven’t reached that point with voice banking, in our view. There are features that sound cool but that people aren’t going to use much. We try to avoid investing resources in those applications. We’d rather wow you with something that we can build in house and that you can use for the long haul. In other words, we try to return value to members by implementing only the most useful tools.

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Given your focus on digital, how do you decide how much to invest in physical facilities?

Bangerter: It’s a balancing act. We want to meet consumers where they’re at, and with the services they need most. In fact, many UW Credit Union accounts are opened online, and we have a call center for customer service, but that doesn’t mean that people don’t want to visit a branch. Face-to-face interactions are a way to help consumers start off on the right foot for whatever they’re trying to accomplish. They’re also a way to steer people to the right digital tools.

Will your approach to technology enable you to stay relevant?

Bangerter: The impact of generational differences is something to consider. Millennials tend to prefer larger banks because of their technological advancements. That said, people often tell us that our app does everything the Chase app does. We want to stay on par with the big players, but we also want to offer something a bit different.

With community banking, you’re closer to your customer than the bigger players are likely to be. At UW Credit Union, our member-first philosophy is reflected in our technologies. We invest in technologies that people will use and that make their lives easier.

With this in mind, we’re being more strategic about being digital first. An example of that involves our new credit cards, which have rewards built into them. The cardholder accrues points that can be redeemed for cash back or a credit on the card’s billing statement. We’ve designed the digital experience so the cardholder receives this credit within seconds.

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