Digital Federal Credit Union On Innovating To Meet Members’ Digital Demands

By  |  July 23, 2021
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    Some of the latest data holds good news for credit unions. PYMNTS research confirms that the majority of credit unions (CUs) are meeting the challenge to offer digital services and products that members have come to expect. The Credit Union Innovation Study, a PYMNTS and PSCU collaboration that surveyed 5,239 U.S. consumers and 100 CU decision-makers, found that 80 percent of members said their CUs innovate either “somewhat” or “very” well. Respondents said that their CUs are introducing new products and services and investing in the kinds of tools members say they want. In addition, 98 percent of credit unions have invested in loyalty and rewards programs,  and 93 percent are putting more funding into security and authentication.

    Still, there are barriers to innovation. Gregg Stephens, fraud and Bank Secrecy Act manager at Digital Federal Credit Union (DCU) told PYMNTS that the Massachusetts-based CU, which had more than 917,000 members in 50 states at the close of last year, aims to address these barriers by assisting members where they are.

    “By that, we mean not only physical locations, but also where are they in their life cycle, and understanding how that translates into products and services,” he said.

    The company’s mission could be working. DCU added 45,436 new members last year, a 5 percent increase over 2019. Stephens noted that DCU has prioritized not just making banking more seamless with digital innovations, but also security.

    However, PYMNTS’ research revealed that despite DCU’s and other credit unions’ recent victories, 63 percent of CU decision-makers still feel that they lack the data analytics needed to craft tailored, relevant bank products for their members. Meanwhile, 51 percent of CUs said their core operating systems prohibit them from implementing the products they want. Stephens approaches these gaps differently.

    “The challenges the survey reveals are very real, but they also present opportunities for innovation and investment, and that’s what we are focused on … particularly in the digital space,” he said. “The operating system does present challenges, as many CUs are firmly entrenched in legacy platforms. In some instances, customization is necessary in order to overcome systemic limitations. The risk in going that route is that you create an environment that is difficult to support, so striking a balance between standardization and customization is key.”

    Security Challenges

    DCU has not been immune to innovation hurdles. The company reports that fully half of its members never set foot in a branch, and are located outside the CU’s 23 locations in Massachusetts and New Hampshire. This has made seamless digital innovation more than just a nice-to-have — Stephens sees it as an opportunity.

    “We have the opportunity to continue to drive nimble digital mobile experiences for everyday banking, while also allowing members to apply for products and services, loans [and] lines of credit as seamlessly as possible,” he said.

    CUs also want to match the cutting-edge innovations offered by FinTechs so as to not lose members to the competition, but this presents even more challenges. The idea of offering technology that allows members to just wave a device to do their banking is appealing, Stephens said, but one thing that keeps him up at night is security.

    “There’s a whole lot of baggage that goes along with that,” he said. “It’s challenging to make sure that members’ data are protected.”

    The answer to better security, Stephens said, is using a layered approach to determine that the customer is who they say they are through digital identification and analysis.

    “The first part is identity verification, and once we validate your identity, we need to have high confidence that it is you who is transacting,” he said. “Does any information look anomalous, weird or strange in the digital space? That’s anything from wire transfers all the way through to P2P. We will look at amounts of different things to try to understand behavior.”

    Supporting Innovation

    DCU introduced the FinTech Innovation Center in 2018 at the edge of Boston’s Financial and Seaport districts to foster FinTech startups in New England. The mission of the Center, which is funded by DCU, is to accelerate the development of innovative products and drive the region’s FinTech ecosystem and banking industry forward. The Innovation Center also plays a role for DCU executives to learn how pioneering minds create new technologies and rethink tradition.

    Credit unions that prioritize investing in artificial intelligence (AI), data analytics, mobile banking and online lending can help reach more members who may not live near branch locations, and can help deliver the digital features that members have come to expect. CUs must therefore work to overcome the barriers holding them back from innovating quickly and effectively as they compete in the digital-first banking ecosystem.

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