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The following is a transcript of the podcast episode host by Ryan McEndarfer, Editor-in-chief at PaymentsJournal.com
Yvonne and Nish, Welcome to the podcast. Nish, I’d like to start with you. As we look forward, is 2019 shaping up to be such a transformative year for credit unions and financial institutions services in general?
Nish Modi, Vice President, Strategy & Product at CO-OP Financial Services
The way consumers engage with credit unions and financial institutions in general is rapidly
changing with the changing demographics, with the changing set of technologies being available. The way that consumers engage with the credit unions and financial institutions is changing. The way we are paying by using messaging for e-commerce transactions or peer-to-peer payments. Using APIs (application programming interfaces); a lot of technology companies are starting to use APIs to integrate nontraditional players to build from others’ innovations. That’s expanding the horizons of how we consume technology, enhance technology and our offerings to members and consumers. In general the world is going digital. By 2020, the numbers are staggering: 20 billion IoT devices globally, including wearables by 2020 about 720+ billion digital payment transactions. That’s just mind boggling. So all of that is literally leading up to setting up 2019 as a very transformative year for us as the financial services industry.
Yvonne Stelpflug, VP, Credit Products
You’re exactly right. As you mentioned, the consumer expectations are changing at such a rapid rate. And that experience is what is trumping product as a key brand differentiator. As we look toward 2019, all of this spells out new opportunities and challenges for the credit union. Within the coming year, digital transformation is no longer a question, but it’s imperative. It is absolutely important to maintain and grow their business within the credit union.
Ryan McEndarfer, Editor-in-chief at PaymentsJournal.com
Certainly great points there. Nish, that is staggering, the 20 billion IoT devices globally. And Yvonne, when you talk about digital transformation as imperative, we’ve already started to see the tip of the iceberg in 2018, and it just gets exponentially important in 2019. But shifting gears here: Yvonne, how do you think that the changes in the payment space will impact credit unions in particular?
Yvonne Stelpflug, VP, Credit Products
Payments are the most frequent touch point between a credit union and the member. And so when you look at what that means to the business, 25–50% of a credit union’s non-interest income comes from payments. So that’s a huge segment and an important one for them to pay attention. I’s so important to get their payments and their payment strategy right for what their members and consumers are wanting. Again, it comes down to that experience. That’s what the members want: faster data-driven frictionless payment experiences. And as consumers embrace those third-party payment providers outside of the credit unions and outside the financial institution areas, credit unions must increase that share, making sure that they are playing that space of the digital wallet and modernizing that payments experience.
Nish Modi, Vice President, Strategy & Product at CO-OP Financial Services
As you look at the landscape for the enhanced, when you look at the nontraditional players, right? We already knew PayPal, then Square, traditional payment services companies, and now you look at Apple and Google and Facebook jumping into payments. It is scary but a fascinating landscape now, we look at P2P. You have PayPal’s Venmo and then you have Zelle challenging Venmo, and it’s creating some interesting dynamics in our space. Add to that, Amazon jumping into it with both feet. I mean look at their wallet and e-commerce. That was anyways growing at a staggering pace. And now they have these cashless stores, Amazon Go. It’s incredible how radically the way consumers are interacting with the financial institutions and the method of payment is changing.
Ryan McEndarfer, Editor-in-chief at PaymentsJournal.com
Thank you for bringing up those companies. The companies that you mentioned, PayPal, Zelle, Amazon, a lot of them are tech first and a lot of them then have access to a lot of the data. Nish, how does data enable credit unions to change the payment experience?
Nish Modi, Vice President, Strategy & Product at CO-OP Financial Services
Look at the amount of data these digital interactions and transactions are generating within our space, generally the financial services space. Credit unions and financial institutions are at the heart of it. Every transaction, whether someone originates a P2P payment from Venmo or someone transacts using Square or Facebook Messenger, ultimately the transaction does get routed past who are creating it, the financial institutions. So they are starting to recognize that they’re sitting on troves of data that they can then start to understand how members are interacting, transacting, and begin putting together strategies to ensure that their solutions, their products stay top of wallet — their card products or any sort of offering stay top of mind, top of wallet for credit unions.
When you look at data, using that data in multiple ways, it’s a pretty complex process. If you have multiple vendors, disparate systems, unstructured information. Having a data strategy from credit union’s perspective or a financial institution’s perspective is the first step toward transforming that trove of data that you think you have into making sense of it all. At CO-OP, we recognized this a couple years ago. We’ve started investing massively into building out our data strategy into our data infrastructure to enable our clients, our credit unions, to harness these transactions, make sense of it all, understand their businesses better, and make more data-driven decisions to scale their business and set themselves up for success in the future.
Yvonne Stelpflug, VP, Credit Products
Our Smart Growth Consulting product can help with that initiative and it does do what you’re talking about, Nish, in leveraging that credit card portfolio data to deliver business intelligence and predictive analytics to help a credit union drive growth.
Ryan McEndarfer, Editor-in-chief at PaymentsJournal.com
At the beginning of 2018, a lot of people started throwing around the term “data lake.” As you point out, there’s this large collection of data that we’re getting, but at the end of the day, data is just data. Unless you have a strategy that’s built around that, the data itself is kind of useless. You have to have a strategy to gain insights from it. It’s the insights that you are going to be able to leverage to understand your consumer better. One of the tools that people have been using in 2018 and I can really see exploding in 2019 is AI. So Nish, I want to kick this over to you: How will AI and machine learning evolve in 2019?
Nish Modi, Vice President, Strategy & Product at CO-OP Financial Services
It will continue to exponentially grow as more and more companies start to invest in data strategy and more companies mature the data strategies to form meaningful interactions with the data. The next natural iteration is leveraging that data to learn from it more so you could be more predictive. You could then use artificial intelligence to take action and take the human out of some basic functions, even though the human interaction is still going to be the key to success especially in our space where members and credit unions pride themselves on human interaction. Leveraging artificial intelligence and machine learning to enhance the consumer’s experience is going to be the key.
AI or machine learning are continuing to automate and streamline a lot of our business operations, fundamental things that used to be manual in the past. An example of that is identifying credit card fraud was manual up until 7, 6, or 5 years ago, there used to be teams of fraud analysts combing millions of data points trying to identify fraud and then picking up the phone and calling consumers. You have technology to help with that. The immediate impact for credit unions is going to be in fraud detection using the data, using machine learning, using artificial intelligence to detect fraud and prevent fraud is the first step in leveraging these technologies. An example again, CO-OP Financial Services’ Cooper is a CO-OP product that is leveraging transactional data across our shared branching network to detect fraud faster than ever before. An added benefit of collecting and processing all of this data will be understanding members and member behavior and how they interact with the credit union, which branch, and within the network. In the world that we live in today, personalization is key. Credit unions are striving to even further personalize, and their experience with the members’ data enables them to do that. Data enables them to better understand the consumer’s preferences, better understand their purchasing and buying patterns, and it will help credit unions deliver that next level of customized personalized service to the members.
Ryan McEndarfer, Editor-in-chief at PaymentsJournal.com
Next I want to drive home with our audience that you’re using AI to enhance the customer experience. I know that CO-OP recently issued a white paper looking at the customer journey. One of the things that came up in that was also the emotional element, the human element. That the AI and machine learning data is only going to get you so far with insights You still need that customer interaction to complete the customer journey. The other thing concerns Cooper as well. Data scientists say, “The more data that you have, the better the machine is going to be.” But what about credit unions? Large financial institutions have access to huge amounts of data. You came in with the Cooper product and said, we’re going to go with all of our members and that is a lot of data. You’re able to compile this all into this one great machine learning tool, Cooper. And I realized that’s how credit unions are going to do it. That’s how they’re going to be able to stay in the game.
Switching gears here, Yvonne, there’s a lot of things that are going to be changing on the horizon. So how do the credit unions prepare for these challenges and position themselves for growth?
Yvonne Stelpflug, VP, Credit Products
It’s important to do that as we’re all trying to remain relevant and leading in the space, providing sound and very good business products to our members. First, the perspective that I’d like to talk about is the need to adapt to an ecosystem mentality. We need to stop thinking about each channel or each payment method as an individual or disparate product and solution and look at it more as a unified experience. You mentioned journey mapping. That is a huge way to start looking at how do financial institutions serve members and their needs beyond just processing transactions? To do that, a lot of times you have to do is stop and think, What are members wanting to accomplish? Where do they want to accomplish it? When? And how? What are those different channels and mechanisms that they might want to use? And then what are their expectations if they go into the branch or if they go to an ATM or if they go online? How do I make sure that I am really wrapping around those so that we can serve those members’ needs? Also, think about it beyond the transactions because you never know what you might find when you start uncovering what they are really trying to do. What’s the end goal of it? And not just, “Okay, they want to process a transaction.”
I think then when you do that, it’s critical to be prepared to understand you may have to reinvent. You may have to change your business model and work with partners outside of banking in the digital space and to really help adopt and put a member-centric model front and center for your credit union. We already see that a lot of this happening in open banking and the rise of that. And the more collaboration and data sharing between data providers and banking providers and also the fintech industry, it’s amazing what kinds of experience opportunities that are out there to really wow those members and those consumers. At the same time, though, you’ve got to make sure that cybersecurity is top priority. Yu can’t go too far without making sure you’re looking at that and making sure that you’re safeguarding that member data, you’re using it transparently, and maintaining those overall relationships by knowing that you are protecting them and looking out for them. The best way to do that really (it’s hard to accomplish all of that as a credit union by yourself) is looking for partners that can help. You become that omnichannel and build out that digital ecosystem. Here at CO-OP, we absolutely want to be that partner and to help with providing that integrated ecosystem for credit unions.