What Now? The Internal Considerations of the Digital Consumer Shift
The future of business in 2021 will include major cost transformations. Changing consumer behavior and impacted finances means structural cost reduction will become a priority for credit unions. Digitizing traditionally manual processes as well as adopting digital tools, intelligent automation and advanced analytics may create operating efficiencies and reduce cost. The goal is to ultimately move past the current crisis response mode and make the transition to recovery mode as quickly as possible.
The bold cost-cutting measures many credit unions implemented last year will continue well into their recovery. A few years ago, the very idea of shutting down a branch required months of monitoring and evaluation before the bold step was taken to shut it down. Today, initiatives focused on the modernization of credit union infrastructure have taken center stage to address potential long term margin compression and reduced earnings. The looming changes to the regulatory environment are also a concern.
As we approach the one-year anniversary of the mass digital transformation, changed consumer behavior becomes further embedded and likely permanent. For credit unions that had branch networks prior to the pandemic, there will be a need to maintain branches, with foot traffic volume likely to return as it becomes safer to do so. This means finding and optimizing the right mix of in-person services and digital services will be important to balance the needs of those consumers who prefer one or both channels to conduct their banking. Consumer perceptions of convenience and efficiency are a result of their routines and comfortability with the service channels that the credit union offers. This mix of in-person branch services and digital services will require a staff adjustment to match the staffing levels to work volumes and find ways to utilize staff to support both in-person and digital interactions. These improved efficiencies will further reduce costs, improving cost efficiency ratios and offsetting missing revenues.
For consumers who prefer a fully digital experience, a 100% online account opening and loan application process is another area credit unions can pursue to reduce costs. Credit unions which had already gone digital with their account and loan application processes are recognizing efficiency gains, reporting a 30%-40% reduction in acquisition costs. With many of the simpler applications running through a fully automated process, credit union staff can focus on the more challenging applications, potentially resulting in more accounts and loans.
In addition, eSignatures deliver another level of efficiency for both the members and the credit union. eSignature capabilities, when used to finalize the account or loan, support the convenient experience that drove those consumers to apply digitally in the first place. Service requests requiring signatures are also fertile ground for automation. A process that enables a consumer to digitally initiate a request but then requires a physical signature is counter-intuitive to the convenience expectation of the consumer and limit the operating cost saving potential for the credit union.
Digitization may also help credit unions realize significant cost savings from using less paper and toner. Eliminating paper has been known to reduce operating expenses by as much as 25% annually because it reduces the specialized destruction services most credit unions use for security purposes. Some states even offer tax credits and rebates for going paperless.
Events of the past year have altered consumer expectations on service and delivery. Consumer shift to the digital channels has been well documented, but the expectation for return of at least some consumers to the physical channels is unknown. Once in-person contact becomes less of a risk, credit unions with both physical and digital channels will need to measure the usage of those channels and prioritize operating budgets accordingly. Increased digital usage may mean that fewer branches are required to service the in-person members, or that existing branches will require less staff due to reduced demand. Credit unions using analytics tools have the data to quickly address those changes, resulting in faster recognition of operating efficiency opportunities.
If there is a lesson that the past year has taught us, it’s that rapid consumer behavioral changes as a result of shifting societal norms (whatever the cause may be) requires a new level of agility in the credit union business model. That increased agility will not only enhance the ability to balance member needs with member satisfaction, but it will also accelerate potential efficiencies and cost savings as a result.