What’s Next in Canadian Credit Union Tech?

transparent Canadian flag displayed over image of computer motherboard
By Rob Palin

7 minutes

Success against the big banks will be fostered by more deliberate collaboration among credit unions.

Canada has some of the largest and most progressive credit unions in the world, and they have been at the forefront of pushing digital technology boundaries and finding ways to drive efficiency. 

These institutions have leaned into being progressive, in large part because of the competitive environment in which they operate. Although a small number of CUs in Canada have recently expanded their scope nationally, most serve a unique geographic region and compete directly with larger, national institutions with hundreds of billions of dollars in assets that spend hundreds of millions of dollars annually on technology. They must keep up and compete. 

CUs traditionally have focused on their close trusted advisor relationships with the communities they serve. With community banking being very limited in Canada because most of the banks are large and national, CUs that have had a strong position in this market niche can build on the pre-existing momentum of member centrism. 

However, this traditional competitive advantage is increasingly challenging to maintain when digital and remote access have become the prevalent means of dealing with financial institutions. More recently, the global pandemic has dramatically accelerated industry movement toward virtual access. As a result, what was once a long-term planning exercise is today’s reality in several key areas:

  • Digital banking, including traditional banking activities and services historically only available to account holders inside a branch. The movement to digital continues to accelerate beyond such basic banking activities as deposits to include account and loan origination and aspects of commercial banking.
  • Real-time payments, meaning instant transactions for business and consumer payments. The benefits include convenience, speed and faster access to funds. Canada is currently modernizing payments, and CUs and related organizations are starting to make significant investments in the necessary 
  • infrastructure. This is driven by emerging 
  • regulatory guidelines and competitive pressure, with major financial institutions already well along the path. 
  • Open banking, or consumer-directed banking, based on open application programming interfaces that enable building applications and services around a CU that allow members to take advantage of value-added financial services. These data-driven services can help people budget, access more affordable financial services, better manage their money and more. But without strategic forethought, open banking could lead to lost member relationships and wallet share.
  • Fintechs, non-traditional financial providers as both an opportunity and a threat. These provide CUs and their members enabling technologies, primarily in the member-facing online space but also as competitors in such niches as low-value lending. While this trend is not unique to Canada, fintechs have certainly helped Canadian CUs address the tech gap with major banks, while also posing an emerging competitive threat.

These key tech trends will contribute to allowing Canadian CUs to execute rapidly in the following strategic areas.

Enacting Digital Transformation

Like other financial institutions, Canadian CUs are looking holistically at digital transformation. This expands beyond the member-facing digital banking experience to look at member journeys from their first contact with the CU through their lifetime. This omnichannel experience must be based on a well-thought-out technology strategy based on secure and easy access to member data.

Digital transformation must also apply to a CU’s internal operations, so the internal digital experience enables staff to efficiently serve members. While continuing to identify and automate key business processes through advanced workflow automation, content management and financial solutions, some Canadian CUs are now implementing such advanced tools as robotic process automation. 

Fundamental to increased efficacy is a better understanding of members’ needs and interactions with the institution, including embracing advanced analytics based on integrated data sources. The strategic use of this data maximizes the return on an under-utilized asset, particularly the member data and knowledge already available to the CU. This knowledge is not being used simply for retrospective or “point-in-time” reporting, but in combination with advanced tools to enable predictive decision-making at any point of member contact and to give executives dashboards that allow rapid understanding and projection of key metrics. 

Enhancing Cybersecurity

The movement to digital engagement continues to exponentially increase the opportunity for cybercrime. Every institution knows that reputational damage is a click away in the cyber universe. 

The increased focus on ensuring member and institutional data is protected is not unique to Canada. However, many Canadian CUs are working collaboratively to assess and share information and technology to help prevent cyberattacks. The need for significant investment in cybersecurity is unending, and the funding and resources required are a challenge even for larger CUs. Canadian CUs are increasingly looking to leverage cybersecurity-as-a-service options. 

Navigating Consolidation

It’s no secret that in recent years, there has been an acceleration in consolidation within the Canadian CU market via mergers and acquisitions. In 2001, there were well over a thousand CUs across the country. The number was down to 252 in 2019. 

We in Canada enjoy the world’s highest per-capita membership in the CU sector, with more than 10 million members, or about a third of the Canadian population. While the sector is active in all parts of the country, it is strongest in the western provinces and Quebec. In Quebec, 70% of the population belongs to a caisse populaire, while in Saskatchewan close to 60% belong to a CU.

Interest in membership is not at all wanting, but market dynamics are making M&A activity increasingly attractive. This activity will be catalyzed by such technologies as APIs and open banking, which can greatly enhance the ability of a CU to close a merger quickly and efficiently by making integration of external parties easier.

To keep up with member needs and leverage these fast-moving technology trends, Canadian CUs will need to make some significant systemic investments. Even large credit unions will be challenged to navigate this individually. A related challenge is for smaller institutions to recruit and maintain the tech talent required. The answer: broad-based collaboration among CUs.

There is a unique inherent advantage for CUs to work together. Fortunately, the Canadian system has already developed such infrastructures as the Canadian Credit Union Association, the CU centrals that represent CUs in a province or a group of provinces, large Canadian CUs that have banded together, and ad hoc collaborative bodies. Notably, while the Canadian CU system is already collaborating to address these types of issues in many ways, this mindset will need to be taken to the next level.

Recognizing When & How to Collaborate

Notably, collaboration within the Canadian CU system has raised some interesting strategic challenges. 

For example, in a technology world that moves quickly and has now accelerated even more, how do Canadian CUs that have traditionally collaborated successfully through committee-based discussions enable rapid decision-making to keep pace? Also, If collaboration and standardization drive efficiencies, how can an individual CU create competitive differentiation? A third question: If Canadian CUs need to spend and invest at the level necessary to “keep up” with the large financial institutions, where/when is there an opportunity to lead the market?

The answers are still emerging, but from a technology strategy perspective, some broad-based principles are being applied:

  1. Enable customization and differentiation by investing in technology that offers and uses leading-edge APIs.
  2. Leverage the scale of partners and vendors. Often the investments required to maintain a future-proofed 
  3. environment are at such a scale that even widespread, 
  4. national CU collaboration cannot efficiently keep pace. Partnerships with global vendors have the potential to help.
  5. Embrace strategic fintech partnerships to help 
  6. address the technology gap CUs faced against major banks.
  7. Continue cooperation and collaboration on critical system-wide technology infrastructure initiatives.

Perhaps most importantly, for a CU to even begin to take full advantage of collective investments and collaboration, technology needs to be a strategic initiative. In any case, if there is anything we have learned in the first part of 2020, it’s that the pace of change can accelerate dramatically, and there is more pressure to work together to compete more efficiently and quickly than ever before. cues icon  

Rob Palin is general manager/Canada for Fiserv, with North American headquarters in Brookfield, Wisconsin.

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