Live From The Forum: How Credit Unions Can Innovate at Scale
April Clobes, CEO of Michigan State University Federal Credit Union, discusses how her organization innovates at scale through partnerships, data-driven decision-making, and a culture of experimentation while balancing risk and attracting top talent.
By Justin Estes, Contributor at The Financial Brand
As banking technology and operational standards evolve, credit unions face unique challenges in keeping pace with rapid advancements and changing customer expectations.
April Clobes, president and CEO of Michigan State University Federal Credit Union (MSUFCU), has been at the forefront of driving innovation within her organization and the broader credit union industry.
At The Financial Brand Forum 2024 in Las Vegas, Clobes sat down with host Jim Marous for a live recording of the Banking Transformed podcast. She shared valuable insights on how MSUFCU leverages partnerships, data-driven decision-making, and a culture of experimentation to drive innovation at scale.
The Journey to Digital Innovation in Credit Unions
Q: Can you share your career path and how you got to where you are today?
April Clobes: I’ve been at our credit union for 27, almost 28 years. I started in our marketing team. I have a marketing consumer behavior background, and I’ve not been in banking as long as you have but I feel like it’s a long time.
I tell all of our new hires I started when there was no internet, and I had the opportunity because, at the time, we were a smaller institution to digitize our entire system. So, anything that you could have done as a member and what I now say, kindly analog in person on the phone, we took and created a digital process for it.
I created our first website — we made it all in-house — our mobile apps, the employee intranet, and the messaging systems. That made me uniquely qualified to have a higher leadership role over the years. I’ve been the CEO for nine years.
Q: How does your CUSO, the Reseda Group, enable innovation and partnerships?
Clobes: The Reseda Group is just three years old now. We put it together to do a few things that permits us to do investments in new tech through CUSO investments, and then it allows us to scale what we can utilize for the membership faster.
We have a lot of niche products in there that, if we were doing for the entire membership, it wouldn’t be very efficient or cost-effective if we did them all ourselves. We have products for young people that are rounding up to pay off student loans. We have a partnership with a fintech called Silver that is for individuals who are nearing retirement.
We have made 26 investments that are active in that space and a lot of our partners are here. We have digital brands, we have nudge messaging, all of those things that we wanted to create but could never have achieved so quickly.
Q: How do you prioritize or determine your next steps in innovation?
Clobes: We take a data-driven approach. We look in consumer behavior, member behavior. We have millions of dollars leaving our institution monthly, going to Robinhood and Acorns and so forth. So, when we have an opportunity, now we are partnering with Tap Engine. It’s a very similar concept because we see our members are doing that behavior.
We do a lot of detailed diving into data to determine where members are going. Now, of course, everything is focused on AI and what we can deploy and learn. One of the programs we’re working on creating in-house is digital ID. I checked in at the airport this morning with my digital ID, had my picture taken, and walked in. And can we do that? We still have branches, so can I do that in a branch and have someone recognize and greet them and have their account pulled up by the time they meet the employee?
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Balancing Risk and Innovation in Financial Services
Q: How do you factor in and manage risk when innovating at speed and scale?
Clobes: We still do all of our due diligence. But we do a different version of due diligence. When we do pilots, because we partition off what we’re doing, that is a different list of security measures to meet.
We have internal ethical hacking teams. They test the software. We have legal, we have compliance, and they have, it’s almost a light version that applies because it is not as fully integrated as some of the other software, and it is routine now.
We go into every partnership with a new fintech partner or a new product to say, this may not make it, and it’s okay. We have a portfolio of 26, and every time we either partner with or invest, we present to the board; we have a separate board for the Reseda Group.
There’s a whole section that says, "If this doesn’t work, here’s the unwind plan. Here’s the cost that we will have incurred, and here is the impact on our financials; here’s the impact on capital." But if you do enough and you take that risk, now I’m spreading it against 26 partners. And each one of them, if one fails, is very immaterial to the entire organization.
Q: How do you select your fintech partners and ensure they’ll collaborate effectively?
Clobes: We spend a little bit of time with them, have a lot of meetings, and make a lot of phone calls. We evaluate their tech stack. There are a lot of ways to get into it. Build relationships with people over time, and we vet them based on the needs that we are trying to solve for the members.
We look to see, are you interested in the credit union industry in space? Will you create products that serve the members’ needs? Will you be willing to co-create with us? Will you listen to our ideas and know that they may make a difference in the industry? And we pick our partners, the people that want to engage in that space.
Q: How do you determine KPIs for your innovation efforts?
Clobes: We set goals for those; some of it is financial, some of it is usage and engagement, and some of it is incremental product engagement. And then some of it is, are we creating efficient processes? Sometimes, we select a partner because we’re just looking for deeper member engagement and teaching and providing those members with a financial education platform that may not have an immediate return.
In the Reseda Group, one of the things that we track is the success of all of our investments. What we track is what are our contract savings if we didn’t have that investment. What is the incremental value to the credit union for the cost of creation versus the cost of purchase? So, we have so many metrics to create the outcome that we determined to be successful for the Reseda Group as a whole.
Navigating Economic Challenges while Investing in Innovation
Q: What’s the biggest challenge you’re facing today as a leader of a mid-size credit union on the front edge of innovation?
Clobes: I think we are all facing similar challenges. I think the economics of the world today are challenging for all financial institutions. What that means for us in particular is that we can invest 1%, and it’s tied to our growth. So, when the money supply is shorter, and we’re all fighting each other for it, we’re not growing as fast as we were. So, it doesn’t provide the same ability to make investments in technology as we had, say, two or three years ago.
I think we’ve made the right investments that take time to grow and be successful, and you have to be patient to see those returns in about two more years. And that gets harder when your revenue and your net interest margin are squeezed right now. Our board is patient; they see the ability for that to pay off in a couple of years.
Q: What’s the biggest lesson you’ve learned over the last four years of massive change in the industry?
Clobes: People adapt more than we give them credit for. And what I mean by that is, as humans, we get used to things. You got used to going to the office every day until you didn’t. Then you got used to staying home. Now, you’re getting used to a hybrid work schedule.
I think what we’ve learned is that everything is incrementally faster and faster to market, and the reactions are also faster, so you can iterate faster. And that’s what I think we have to learn how to harness. We have to take that immediate feedback, the immediate adoption of technology, and the responses from the membership, listen to it and make the change.
Q: How do you compete for employee talent and differentiate your organization as an employer?
Clobes: We focus on innovation; we focus on the future. We provide you, especially if you’re interested in technology, which people like to go to organizations to build great technology, we do that and we partner and give you experiences that you may not have at a traditional financial institution.
We will continuously provide you opportunities to learn and scale your own knowledge — that if you’re curious and you want to experiment, we have the place for you. We listen to you, we take your ideas for new products and services, you can be a part of the lab innovation team to see it come to fruition and we talk about that.
I think that younger generations coming into the workforce certainly want to be heard. They want you to know they have great ideas, and they want to have them implemented and heard. We have processes to really help them in that journey, and I think that is appealing to someone.
For a longer version of this conversation, listen to "Innovation Through Dynamic Co-Creation" on the Banking Transformed podcast with Jim Marous. This Q&A has been edited and condensed for clarity.
Justin Estes is an award-winning writer, strategist, and financial marketing expert with expertise in banking, investments, and fintech. His clients include the NYSE, Franklin Templeton, Credit Karma, Citi and, UBS, and his work has appeared in Forbes, Barrons and ThinkAdvisor as well as The Financial Brand.
