Since introduction of the Credit Union concept in 1955 (cuaghana.com), the socio-economic role executed and the contribution to poverty alleviation especially in deprived and less-endowed communities has been immeasurable. Credit Unions have been the backbone of “nano-economies” in localities where traditional commercial banks have shied away in the past. The over 500 Credit Unions in Ghana have indeed tended well to the financial services need of low-income earners and the financially disadvantaged in society and the positive implications are bare-evident.
However, the pace of change expected of Credit Unions in the form of enterprise upgrade and level of sophistication in service delivery is unjustifiably lagging. Without a doubt core challenges persist, and the quarters responsible for the needed growth and advancement of the sector are indeed taking unprecedented steps to reposition and situate Credit Unions in their rightful space. The not so long ago introduction of the Credit Union Legislative Instrument (L.I 2225) has in a contributory fashion set the tone for concerned actors to push for various growth agendas. And one of the trending and embraced areas of banking which Credit Unions have evidently failed to prioritize is digitization, automation, and the concept of Digital Banking.
According to the Ghanaian Times newspaper, “internet access has made it possible for people to stay at home to transact business online and online banking today, has emerged as a major channel to supplement face-to-face banking” (ghanaintimes.com.gh). Backbase & Efma also emphasizes that “people love digital services ……….. because they are easy to use and delivers great customer experience”. Without a doubt digitization, automation and leveraging the internet is the new order and not walking the path is losing out on huge market opportunities.
In a recent presentation to the Ghana Credit Union Managers Association (GHACUM) annual conference held at the Training School of the Ghana Co-operative Credit Unions Association (CUA), I had the opportunity to speak to a gathering of Credit Union Managers on the topic “New Trends In Digital Banking” and successfully drove home the need to embrace the new order in banking. Without a doubt, the house shared the conclusion that digital banking is the present and will constitute the core of service delivery in future banking. What was also obvious during the deliberation was that, only a fraction of Credit Unions in Ghana have adopted some form of digital banking. And for the few in mention, the journeys to incorporate the full strand of digital banking platforms is clearly yet to begin.
The issues militating against Credit Unions in this digital direction are known, understood and to a large extent resolvable. What however seem fundamentally worrying is that, Managers and Board of Credit Unions are lacking in their ability to conceive of the growth opportunities that digital banking throws out on its path. Whilst to some, it is a matter of not knowing how digital banking can be relevant to the members (credit Union customers) they serve, to a good majority the challenge bothers on the reluctance to depart from legacy systems and “how we have always done things around here”. Whilst the benefits of going digital was well demonstrate and acknowledged, it was obvious that only continuous education and relevant workshops in that regard can drive the necessary change. Some of the insights shared with the participants were indeed impactful and embracing.
The changing landscape of banking globally creates a sense of urgency in embracing and delivering banking services through unlimited customer touch points (omni-channel). Technology is defining everything given the fact that added facilitation by the internet has made us more connected than ever before globally. Thanks to technology advancement and the affordability factor created by China, the mobile is the most widely adopted device globally (over 6.8 billion). Ghana has over 35 million mobile phone users as against a population of about 27 million generating about 128% penetration rate. This is a telling statistics explaining why banks are increasingly leveraging the mobile phone to deliver greater banking experience and to get hold of a wider audience as well in a cost-contained manner.
The customer is an ever evolving solution-seeker. Changing lifestyle is driving the search for financial services that saves them time, money, hassle as well as keeps them safe. These are core value drivers in the banking space and it is proven that digital banking delivers these benefits in a manner that increases customer experience. This possibility is also largely driven by the availability of willing collaborators, such as financial and technology firms, who are interested in leveraging their expertise to create the digital platform for financial transactions.
Strategically, digital banking presents growth opportunities for Credit Unions. Own research and analysis conducted in the sector revealed that, one out of every two Credit Union members also holds an account with another commercial banking institution. It was also estimated that of the Credit Union members that also operates accounts with commercial banks, the share of business ranges between 30-40% in favour of Credit Unions whilst the rest is transacted with commercial banks. Whilst other reasons such as proximity accounted for this outcome, it was increasingly clear that there were other core factors. Interview with sampled respondents of the survey clearly pointed to the fact that the combination of the level of digitization and automation to offer prompt and extended array of transactional banking services is a key factor. This is because most if not all Credit Unions, although doable, are unable to deliver such required service and as such are stacked in the limited and slow banking services afforded by the legacy systems in place.
If this were to change, greater fortunes will follow. Credit Unions do not only stand to benefit from increasing their stake in members’ wallets (even as their businesses grow to demand higher level banking services), but also the opportunity to break the tradition of targeting only the illiterate, semi-literate and the low-income earners in communities. Thus, going digital can significantly appeal and result in the capture of market share in the affluent and educated segment of the banking population. The possibility of banking the elite and well-endowed in society can only be boosted with fundamental change in operating model of Credit Union Organizations to incorporate digitization and automation. By embracing digital banking, Credit Unions stand to eliminate costly back-office transaction processing, record fewer errors and have access to wider geographical audience. To members they stand to benefit from lower transaction cost, 24/7 service availability and own-time banking flexibility. Without a doubt, the growing time-pressured lifestyle means that convenience is everything to the consumer of financial service and if that can be delivered with digital banking, Credit Unions are undoubtedly set for growth.
Going digital involve resource commitment, and as a result critical decisions remain. Given the financial muscle of Credit Unions, a good advice will be to consider riding at the back of commercial banks in a strategic partnership mood in the arena of infrastructure sharing. This has the impact of significantly minimizing the associated cost and cash flow implication. However seeking such partnerships requires internal systems and processes of Credit Unions to be set sound; digitization and automation shall undoubtedly become a key demand.
Whilst embracing digital banking creates wave of growth opportunities, it is important to acknowledge the repercussion of doing otherwise.
1. Digital banking is gradually becoming a threshold capability in competitive banking. Credit Unions not possessing this baseline capability thus place them in a disadvantageous position opening them up to attacks from the competition.
2. Banks are searching for growth from non-traditional customers and they are leveraging digital to capture far-away customers that previously were outside their purview. Going digital is thus Credit Unions’ best bet to fight them off.
3. Without meaningful digital base, Credit Unions are ill-prepared and ill-placed to benefit from crucial alliances and collaborations.
4. Financial services are increasingly shifting online, and in the end digital banking will rule every available space. If Credit Unions are not there at the time, where will they be?
Customers want to pay for goods and services, transfer money to relatives and friends, apply for loan, and check their account balances without having to make a trip to the Credit Union office. And only digital banking can deliver these service needs. Notwithstanding, the approach to digital banking must be strategic and different depending on the growth agenda of Credit Unions. Cautiously noting, there is no one size fits all approach. Assessing internal readiness; systems, processes, and people is paramount. According to McKinsey, “we estimate that digital transformation will put upward 30 percent of the revenues of typical bank……. in play, particularly high-turnover products such as personal loans and payments. We also estimate that banks can remove 20 to 25 percent of their cost base by leveraging this digital shift to transform how they process and service. Put together, the economics of a digital bank will give it a vast competitive edge over a traditional incumbent. It is fair to say that getting digital banking right is a do-or-die challenge”.
Credit Unions have waited way too long to change with the times. Customers are evolving and they will stay loyal to Credit Unions that know them and make banking convenient and easy. The benefit of going digital and the threat of not doing so bother on the survival of Credit Unions and must be taken serious. The digital banking journey may be one that will take years to travel but the first step must be taken today; thus thinking it.
Author:Ellah Makuba is a banking professional with over 5 years experience with particular interest in strategy work.