Credit unions are struggling to cope with the challenge of switching to digital functionality, according to a global report from the Digital Growth consultancy. While this is also true for banks, it is clear that small credit unions have particular difficulty in adapting to the online world because of cost and often outdated legacy IT systems.
Ireland’s Registrar of Credit Union, Patrick Casey, told January’s Credit Union Development Association annual conference: “Consumers expect choice, ease of access, efficient speedy decisions and service fulfilment across all delivery channels. Meeting their expectations requires business model and operational change, enhanced capabilities, new processes and investment in enabling technologies. The scale of investment and resources required can be significant and is likely to be beyond the capacity of many smaller institutions.”
That message is as relevant to UK credit unions as to their Irish counterparts. “We would agree that there is under investment in digital development and a pressing need to move more quickly,” says Abcul’s Matt Bland. “In all likelihood that will mean they will work together to avoid duplicating investment.” But Abcul accepts that much more needs to be done.
Abcul points out that there are good practice examples of how credit unions are responding to the challenge. “We have seen investment,” Bland says. “That is needed for credit unions to remain relevant.” It had been hoped that ‘Model Credit Union’, part of the £38m Credit Union Expansion Project funded by the Department for Work and Pensions and delivered by Abcul, would be the basis for this. But while the project has developed, it has done so slowly, with just three credit unions – East London, RetailCURe and Voyager Alliance – engaged in the project, many fewer than the 35 that had been expected to be involved. The three do now have online banking facilities, with membership and loan applications submitted online.
Incuto (formerly Efiniti) is a specialist provider of IT services to credit unions, which recognises the difficulties facing many because of often poor existing systems. One of the attractions of Incuto’s offer is that it sits on top of a credit union’s existing IT system, while providing functionality that includes online transactions and balance viewing, plus support for a credit union in its risk profiling, decision-making and financial reporting. “We enable credit unions to be faster than a payday lender and with a better service level than a high street bank,” boasts Incuto’s chief executive Andrew Rabbitt. Incuto has ten credit union clients at present, but has just signed a co-operation agreement with the Scottish League of Credit Unions and will be speaking at Abcul’s coming conference in an attempt to increase its client base.
Derry Credit Union has made substantial progress in providing digital functionality, following a member survey three years ago. Members can download an app that allows them to check their account balance, pay bills and make transfers to their other credit union accounts and to non-credit union accounts. The next stage is to develop an e-contracting function, which will provide members with the ability to approve contracts without having to visit the credit union’s office.
Joan Gallagher, general manager of Derry Credit Union, says that achieving this level of digital functionality has been important for members, but represented a real challenge. “None of the federations has developed an appropriate e-banking platform,” she argues. “So our credit union has started from scratch. There was a real piece of work in terms of risk assessment.” She adds: “These platforms are expensive for a credit union.” Derry has been assisted by its financial stability and large size – it has more than 35,000 members.
“We have had great support from our IT suppliers,” continues Gallagher. “The next person down the line should not have to pay for all the development. The key for us was for the IT supplier to have the capacity to deliver the services.” The system was provided by Progress Banking in Dublin, which has a number of credit union clients in the UK as well as Ireland.
Abcul’s Bland warns that the cost of digital provision means that credit unions will increasingly have to form partnerships or merge in order to afford the type of online presence that members now expect. “The reality is that in 2001 there were some 700 credit unions, but since then the number has more than halved. Those remaining smaller credit unions remain independent because they value their independent identity, but the forces are towards consolidation. As a trade association we are agnostic about this. But it’s inevitable really.
“The collaborative approach enables credit unions to retain independence while benefiting from these things [such as digital functionality], which is what you have seen in the US. We would like to see more of that in the UK.”