In a June article I advocated for credit unions to take a “fast follower” approach to payments innovation.
I suggested that most credit unions don’t need to be on technology’s bleeding edge, and should instead monitor the market and be prepared with a plan for prompt action when a new solution shows signs of traction.
While I continue to endorse this position overall, dialogue at the recent Bank Customer Experience (BCX) Summit reminded me of its limitations.
I find the best value of industry conferences often comes from my own brainstorming while absorbing the random nuggets of various presentations. BCX clearly delivered in that regard and, despite its name, I saw several credit union colleagues in attendance as well.
BCX’s opening panel addressed the challenge of balancing simplicity and security in electronic transactions. The perspectives of Bud Yanak, head of product for Fujitsu’s biometric identity arm Frontech, were particularly interesting.
The North American financial services market has a lot of fast followers, he said, but not many true innovators.
“No one wants to be first and put their brand at risk,” whether through fraud or a bad customer experience, he added.
This strikes me as a classic case of prisoner’s dilemma, the scenario used to teach game theory in classroom settings.
The concept is simple: two suspects are taken into custody, accused of collaborating on a crime, and detained in separate cells (whether they’re guilty is irrelevant to the exercise).
Each must decide whether to implicate their colleague and gain more lenient treatment—or possible release—or to stand together and deny the charges.
Although the latter strategy yields a better overall result for the duo, each faces the temptation to turn against his/her counterpart to earn a better personal outcome. If both choose that path, however, both wind up worse off.
It’s easy to apply this model to a credit union setting. The overall market certainly benefits when a few brave souls move the technology marker forward.
On the other hand, it’s tempting to remain perched on the sidelines and let others venture forward with those risky first steps.
The wait-and-see approach is even more appealing if one believes any “first mover advantage” will be short-lived, as is often the case in today’s “me-too” world.
The risk is that, like each prisoner selling out the other, no one elects to step forward and the market is left to stagnate.
Or worse, large banks make the bold moves and burnish their reputation as the go-to providers for forward-looking financial solutions.
Fortunately, the credit union movement includes some true innovators with the wherewithal to seize that front-line role.
Not surprisingly, these credit unions are typically motivated by member expectations (e.g., a highly tech-savvy member base) or specific member needs (e.g., widely dispersed memberships extending well beyond its branch footprint).
First Tech Federal Credit Union in Palo Alto, Calif., and Digital Federal Credit Union in Marlborough, Mass., are leading examples of innovators.
Both prominently feature digital wallets on their home pages, likely in keeping with the high-tech legacy of their initial member bases.
For a different approach to innovation, consider $31 million asset Evergreen Credit Union in Neenah, Wis., Along with a full array of financial services, it promotes environmental responsibility on its website and touts a solar array that meets 85% of the credit union’s energy needs.
My fast follower recommendation was not based on the fears of fraud and poor customer experience that Yanak pointed out. With solid planning and good member relations those risks can be managed.
The bigger issue is that most credit unions lack the research and development budgets to place the numerous bets on aspiring technologies necessary to yield the few winners.
We should be grateful for and supportive of the handful of credit unions able and willing to blaze these trails. And we should work through the credit union service organization channel and collaborate with other service providers to foster cost-effective approaches to shared innovation.
And when a financially reasonable opportunity presents itself that speaks to your member base and credit union mission, by all means go for it!