Financial institutions have increased their tech capabilities drastically during the pandemic. This wasn’t so much a matter of choice as it was a necessity. The result of these improvements can be seen by the number of bank branches closing across the nation and decreased staff at the remaining branches. While making great progress, credit unions have struggled to keep up with the technological improvements of larger banks.
Despite these technological improvements, non-bank providers, such as fintechs, have taken market share from credit unions in primary services such as mortgage and auto loans. Fintechs have done this mainly by offering these services directly to consumers.
While fintechs have certain agility advantages, financial institutions aren’t sitting idle. A recent McKinsey survey found that only 13 percent of financial institutions had at least 50% of their IT footprint in the cloud. However, 54% said they would implement at least half of their workload in the cloud over the next five years.
Implementing new software platforms is uniquely complex for financial institutions. Many have legacy systems that are difficult to replace. These limitations lead to an incremental migration strategy. Some programs are easier to replace than others and generate quick wins. But such migrations require planning. Otherwise, financial institutions can lose potential value.
Despite these concerns, many cloud-based solutions are decreasing timelines and cost of ownership by 50-70%.
The benefits of cloud solutions include increased speed, scalability, and a reduction in operating costs. Some institutions are getting the same output but with smaller teams.
AI (artificial intelligence) is an area credit unions can turn to for a competitive advantage and increased efficiency. Some may view AI as too expensive to implement, but those costs are coming down.
Credit unions are non-profits owned by their members. They don’t have the large bureaucracies that other financial institutions must navigate for project approvals. Such nimbleness can allow credit unions to move quicker.
A hot area for AI utilization is credit risk monitoring. Many financial institutions are considering implementing AI over the next few years. According to a LendIt and Brighterion study, about a third of them will use AI for credit risk monitoring.