In recent years, credit unions have made significant strides in enhancing their digital banking platforms and addressing challenges posed by the pandemic, such as high deposit rates. However, today credit unions are facing a new focal point—data—which the 2023 Strategy Priorities Benchmark Survey conducted by Jack Henry & Associates® explores. In the report, respondents, including credit union and bank CEOs, provided insights into their future focus areas, which helps financial institutions understand where the industry is today, where it’s going, and how these focal areas are driving bold strategic initiatives to overcome ecosystem disruption.
Lee Wetherington, senior director of corporate strategy at Jack Henry, joined Doug on “C.U. on the Show” to present key findings from the study and their implications for the future of the credit union movement. Lee directs the development of actionable insights, forecasts, and strategies for Jack Henry and the financial services industry at large. His team of analysts tracks the trends and implications of emerging technologies disrupting and transforming the financial services industry.
To gain deeper insights into how credit unions can elevate their members’ experience and uphold the core principle of “people helping people,” Lee delves into actionable strategies, such as harnessing the potential of generative artificial intelligence (AI) technology and establishing a “first-app” status among members.
The Current Credit Union Challenge
Credit union survey respondents disproportionately focused on data strategies this year, which Lee believes is a way to level the playing field with banks and other disruptors. Lee explains that credit unions and financial institutions in general are facing a significant ecosystem disruption. Unlike an industry disruption that considers new competitors taking market share, an ecosystem disruption is entirely blurring the lines of value a credit union provides its members with so many direct-to-consumer fintech and other non-chartered providers offering similar products and services. Lee shares that credit unions must build a strategy around these challenges or risk operating with major blind spots, further weakening their industry position and success.
How Credit Unions Can Leverage Data to Meet a Member’s Moment of Need
Lee provides several data-centric examples and use cases for how credit unions can improve the member experience and recapture market share and loyalty. Some of those examples include:
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- Expanding services to micro and small businesses. Lee shares that 13% to 35% of retail checking accounts across all types of financial institutions are being used to operate a micro or small business. Without basic business capabilities, like payment collection, Lee says members are moving their money and activity to third-party providers like PayPal and Venmo. Lee suggests analyzing payment inflows and activity between these third parties to understand how to better serve and retain their small business members, who may be camouflaged as standard checking account holders.
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- Defragmenting members’ financial information. A significant challenge for the average American is the fragmentation of financial information. Lee shares that on average Americans have up to 20 financial relationships and around 14 financial apps on their smartphone. According to Lee, if credit unions can help defragment that data and provide a consolidated, understandable view of a member’s total financial picture, they can help members make better financial decisions, provide meaningful value, and create first-app status among them.
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- Using generative AI to improve the velocity and quality of personal member service. The influx of AI applications is no doubt spurring a focus on data. However, Lee says credit unions can begin to apply these tools using the data they have today. According to Lee, while deploying AI without mitigation or expectation can hinder service, AI in collaboration with actual human interaction can help credit unions differentiate themselves and win among competitors. For example, credit unions can structure the years’ worth of communication, such as ChatBot data they already have, to train large language AI models to help them provide accurate, personalized answers and feedback to more members faster than ever.
Lee paints a bold new vision for the future of the credit union movement, which he predicts will come to fruition much faster than we expect. Stream the show to hear his insights, analysis, and strategies credit unions should seriously consider if they are to compete in today’s landscape.
In this episode, we only scratch the surface of findings in the Jack Henry survey. You may access the complete study and analyses at JackHenry.com.
Lee Wetherington and Jack Henry & Associates® are not affiliated with or endorsed by ACT Advisors, LLC.
Audio Transcription (pulled from the podcast)
Doug English 00:00
Welcome to “CU on the Show”! Today’s guest is Lee Wetherington, a leading expert in the financial services industry. He directs the development of actionable insights, forecasts, and strategy as the senior director of corporate strategy at Jack Henry. In this episode, we’ll discuss the 2023 Strategic Priorities Benchmark Study as well as the future of open banking and applications for generative AI within the credit union movement.
Well, Lee Wetherington, welcome to the show. We’re delighted you’re here and good to get to talk to you. So as always, I love to hear about how a person got connected to the credit union movement. So what are your origins of your connection to this wonderful movement we all serve?
Lee Wetherington 01:01
Yeah, so for me, it’s a family story. And I’m sure that’s the origin of a lot of people’s identification with the credit union movement. My wife’s father worked for Georgia Power, which is a big utility in the state of Georgia, where we’re from, and in the town where we both and our families grew up they had a credit union, the Georgia Power Valdosta Federal Credit Union. Quite a mouthful. But once my wife and I were actually together, we started doing quite a bit with the credit union. In fact, my father-in-law was chairman of that credit union, down in Valdosta, for a long, long time. And so we were fairly active; we did a lot, obviously our auto financing through the credit union and savings and the kids had accounts, that kind of thing. So that’s where it started. Now, one thing of note you might find interesting is that my father was actually a banker. So whenever we would get together for holidays, it was a beautiful, delicious time of conversation between my father and my father-in-law about the relative merits of the credit union movement versus the banking ecosystem. So anyway, I got it honestly, both ways, from both sides of the family, but I’ve been a big advocate of the credit union movement and believe very much in sort of the origins of that movement and its story.
Doug English 02:40
Since we’re going to start out with this beautiful crossover, thanks to you, of taste words associated with credit unions, let’s just keep working—working that through our discussion. We’re going to talk about some delicious data points from the Jack Henry annual Strategy Priorities Benchmark Survey of credit union CEOs. I saw you guys put that out and read that data and found it very interesting. So that’s what we want to talk about today. So tell us a little bit just you know a little bit about your role of Jack Henry, and then about that survey, please.
Lee Wetherington 03:16
Yeah, sure. We’re really excited about that survey and the findings. So, I serve as senior director of corporate strategy at Jack Henry. And to tell you what that means, practically, is I’m the generalist on our team of strategy analysts. I’m really fortunate to work with a very capable team of really good human beings who are responsible for different domains that comprise financial services, financial technology. So for instance, I’ve got a colleague who is responsible for all things payments, I have a colleague who’s responsible for all things lending, I have a colleague who’s responsible for all things digital banking, fintech, etc. So, we’ve got this fantastic team of deep domain expertise. And then my job as the generalist is to take all of their analysis and tie it together into a comprehensive framework and picture for where we are. And then of course, doing forecasting off of that to where we’re going. That’s my job. I’m the guy who’s connecting dots between the different domains. And that drives a lot of our corporate strategy. But we also try to share the benefit of all this, not only our own analysis and our own primary research, but we also consume almost all of the research from the major analyst houses covering financial services, fintech, all of it. And so it’s a fun job because it’s just a firehose every day. And then we try to put together the best framework for making sense of that. And when it gets really exciting, you get to make connections that no one else has yet made. And suddenly, you get this epiphany and these lightbulb moments and it’s a great gig. It’s a lot of fun.
Doug English 05:09
But let’s make that our appetizer because you’re serving credit unions and banks. So you look across and can kind of contrast the two. And I know that’s kind of part of what we’re going to talk about. So starting with the survey, tell me about how big the survey is? How many credit unions and banks participate?
Lee Wetherington 05:26
Yeah, so for this year’s Strategic Priorities Benchmark, we surveyed 118 CEOs of credit unions and banks, and it was roughly 50/50. If anything, I think we had a few more credit union CEOs than we did bank CEOs completing that survey, but a very balanced 50/50. And by the way, we think it’s really important, fundamentally, to have those different charters represented in this benchmark, because for those of your listeners who aren’t familiar with this language yet, we are very much in the middle of what’s called ecosystem disruption. And that’s very different from the industry disruption we typically talk about in conferences and whenever credit unions get together their leadership teams and their boards to do strategic planning. Typically, we’re talking about industry disruption. In other words, what new competitor has come into our industry and is taking away market share, and we should be concerned and what should we do about it? Well, the border that defines or the line that defines our industry versus everything that’s not in our industry has functionally disappeared at the hands of things like banking as a service, payments as a service, lending as a service, deposits as a service. So you now have big tech companies, you have direct-to-consumer non-chartered fintechs, you have direct-to-consumer non-chartered neobanks, quote, unquote, and they all are offering things that look and feel and smell just like the products and services credit unions offer. And so in that context, you’re completely disrupted. It’s not just within your industry; your industry as such is not nearly as clearly defined as it once was. And so we think it’s not only incumbent upon a credit union to understand what banks are doing, and why they are doing that. And why are they prioritizing XYZ? Or why are they pouring their tech budgets into XYZ technology? It’s also important to understand everybody outside of the chartered financial institution industry, and how they’re using banking as a service to compete. What’s their end game? Because most of those players are playing a completely different game than the average credit union or even the average bank. And so that’s what we call a Jack Henry ecosystem strategy. It’s where you’re using a much wider lens to do your strategy work and without that you’re operating and you’re making strategy in the context of huge blind spots that materially dampen your odds of success, even if you’re executing on what the old game used to be in terms of just a tightly defined industry.
Doug English 08:07
There’s a lot of different angles for us to look at. But let’s just start out with what’s the differences you notice in the data between the priorities of credit unions and banks, and takeaways from that?
Lee Wetherington 08:18
The differences are really where it gets interesting. That’s where the fun is for us when we’re looking at those results each year. And this is an annual piece of primary research we field among the CEOs of our credit unions and our banks to Jack Henry, just to make sure we’re clear about that. And we’re trying to ask questions that are not only are not only strategic but have also not been asked by anybody else. In terms of the differences, let’s talk about those first. So this year writ large, it’s no surprise that in aggregate, all financial institutions, deposits are a big concern, right? Deposit acquisition, deposit protection, deposit retention. Obviously we’re in the middle of deposit churn, rate wars, all that kind of thing. So that’s not a surprise. However, that really is the bank headline but according to our credit union CEOs that was not, is not, the number one strategic priority and concern for 2023 and 2024. In fact, our credit union CEOs said data was their number one strategic priority for 2023 and 2024. And throughout the questions we asked in the survey we kept seeing this being rounded back to an outsized priority by credit unions on data and more specifically using data to acquire members to retain members and to improve member experience across the spectrum. And so I think in my mind, that is a really important distinction and difference between the lenses right now of credit unions, on the one hand, and banks on the other end, for my money, unless you’ve been in a hole for the last six months. It’s really important that if we were all thinking about what are the implications of things like generative AI for financial services? Is that a leveler? Or is it one that’s going to disproportionately be an advantage for those largest financial institutions in the country that have the most data to feed those large language models that give you things like chatGPT and these other really cool generative AI applications we see. And we can drill down on that if you want, but at a really broad scope level that to me was the most most interesting finding from our study, that difference.
Doug English 10:41
This study has gone on for a while. So I assume you have kind of paid attention to those trends. Is that change a 2023 change? Or is that something that has been in development?
Lee Wetherington 10:52
Yeah, absolutely it is. Now I will say historically if you go back longitudinally and look at our survey instrument over the last several years, credit unions have always been a little bit more data centric. And the reason for that is because they consider it a leveler. Remember, the average size of a credit union in the United States is still appreciably smaller than the average size of even a bank in the United States. So I think credit unions have always thought, well, we’re member driven, we want to know our members better or as best we can, and we want that knowledge to inform everything we do in terms of rendering service, personally, digitally or otherwise, to those members. So it’s always been a marker for credit unions relative to banks. But this year, it was just disproportionately so. And I think it’s becoming a conspicuously important differentiator, especially given now this new power of AI that is broadly in the hands of everyone. And everybody’s trying to figure out how to make the highest and best use of that. If you go back in our survey, if you look at 2021, what was the number one strategic priority? It was digital, right? We were fast forwarded by the pandemic into whatever version or whatever qualifies as digital transformation at your credit union. Then you go to 2022. And suddenly it’s like, oh my gosh, we’re sitting on all of these deposits that have flooded in from government funding through the pandemic, everybody’s sitting on trillions of dollars literally. The average credit union had enough deposits on hand 18 months ago to fund three or four years’ worth of loan growth so that was last year, we’ve got all these deposits. So lending was the number one priority in 2022. And then suddenly, by the time we get into 2023, with the rate hikes and the cascade of inflection points in 2022, suddenly it’s flip-flopped and everybody’s like, oh my gosh, where are my deposits going? Where is that big fat buffer we had to feed lending and now deposits now, again, credit unions still prioritize deposits. But this is an important distinction as well. Credit unions as a group did not experience a total decline in deposits in 2022, whereas banks did. This is something a lot of people don’t know. But according to the FDIC, the entirety of the deposit pie on the bank side contracted for the first time in 80 years in 2022. So no wonder bank CEOs in our survey are saying, man we’re totally concentrated on deposits this year. Whereas credit unions are like, well, yeah, that’s important, but we really want to leverage data to level the playing field with not just banks but these other ecosystem disruptors we’re now competing against so we can differentiate on the people helping people movement, driven by the latest technology, that helps us realize that movement’s ethos better than ever at any point in the history of credit unions.
Doug English 14:04
That is really interesting. I’m immediately wondering, I’m assuming the data is there that banks have probably a lot higher percentage of commercial deposits? Do you have any breakout between commercial and retail?
Lee Wetherington 14:18
Well, I can’t tell you just off the top of my head what those percentage differences are. But I can give you what I consider to be the most telling thing that is largely unknown about deposits. Among both credit unions and banks, by the way, but this is particularly important to credit unions. For the average financial institution, it doesn’t matter whether it’s credit union or bank, for the average financial institution in the United States, somewhere between 13% and 35% of retail checking accounts are being used to run micro and small businesses. This is everything from independent contractors, solo entrepreneurs—by the way, just a reminder everybody, 80% of all small businesses in the United States are a single-person entity. It’s somebody who might be running a side hustle or somebody who maybe does Uber in their off hours. Somebody who just got a side hustle of one form or another. And what credit unions have really awakened to, and this gets us back to another interesting finding in the survey, is that all of those camouflaged small and micro businesses that are sitting in your retail DDA accounts and share draft accounts with the credit union. When it comes to something as simple as just collecting payments as a micro business or a small business, usually the average retail share draft account at a credit union doesn’t give them that capability. So what do they do? They go to a third party, they go to a PayPal, they go to a Block formerly called Square, they go to Venmo, whatever, to collect those payments. And here’s the thing that will blow your mind, Doug, is that when those camouflaged consumer members are using third- party apps to collect their small and micro business payments, only $1 out of every $8 they’re collecting outside the credit union ever makes its way back to the credit union share draft account. Only $1 out of every $8. Now let me tell you the blind spot that creates, right? You now have credit unions thinking, oh, it’s okay. We still have the primary checking relationship for this member. Everything’s fine. They’re not looking at payment flows. They’re not doing analysis and seeing just the sheer quantities of deposits that either leave their credit union and go to a PayPal or go to some of these third parties, but they’re certainly completely blind to what’s being collected outside of the credit union and never making its way back. Why? They don’t even know these retail members of the credit union are small businesses, they don’t even know that because they haven’t done the basic payments flow analysis to surface that information.
Back to the survey. That’s why, to our astonishment, 65% of all financial institutions, including credit unions, are prioritizing expanding services to small businesses this year and next year. 65%. The other thing driving that is because of all the downward pressure on driving and realizing revenue from providing retail financial services at the credit union, you think about all the downward pressure on overdraft fees, on insufficient funds fees, you go on down the line, the scrutiny the CFPB is bringing to bear there. The challenge now that we’re looking at from a legal and regulatory standpoint, that may be coming on interchange revenue on your cards, all of that has really forced credit unions to think very strategically about what has heretofore been a big blind spot, and really getting serious about serving micro and small businesses, which like I said, there are already a substantial number of them are sitting camouflaged in the existing member base.
Doug English 18:08
Is there a suggested action step to become aware of that data and how to think about that and your own institution?
Lee Wetherington 18:16
Yeah, very, very simple. Do some basic analysis on payment inflows and outflows to find out what percentage of deposit inflow and outflow activity do you have going on between your credit union and PayPal? What do you have going on between your credit union and Block formerly known as Square? What do you have between your credit union and Venmo, between your credit union and Intuit, for that matter? That will give you by the way, gird yourself, because when you do that analysis, it’s going to be an epiphany, it is going to both blow your mind and scare you to death. I guarantee it. I’ve seen it over and over and over again. But yeah, action. Step number one is do the basic payments flow analysis to understand what’s coming in and out of your credit union in terms of payments. And by the way, Doug, I grew up in payments, I cut my teeth at a payments fintech. This is 30 years ago now. And we have a word for what you call an incoming payment today, and that word is deposit. If you’re at all concerned about deposits, which seems to be the writ large strategic priority of 2023, then you want to understand more about your deposit inflows and outflows. We talk a lot about concern about rapid deposit outflows given the bank failures that happened earlier this year. What about deposit inflows? Where is that traffic coming from? And going to? If you can’t answer that basic question, you’re operating with a massive strategic blind spot that maps to the number one strategic priority for this year and next.
Doug English 20:04
Very, very interesting. Thank you for that. That’s just the first point of our discussion, how big a takeaway that is. So let’s kind of go into the other takeaways from the survey, like things credit unions are worried about and how that compares to banks and just other ideas you’re bringing to your customers—okay, here’s the data, here’s the best possible use of this data and your situation. So let’s go into that.
Lee Wetherington 20:34
So staying on that theme of data. What is the biggest challenge for not just the average member but the average American when it comes to money in the United States this year? It’s financial fragmentation. And let me give you this statistic to bear that out. The average American has relationships with between 15 and 20 different financial service providers and financial apps. 15 to 20. Let me put that another way. The average smartphone in the United States has 14 different financial apps on it. What do we mean by financial app? Any app that you use to store money, move money, pay for things, etc. So everybody knows about Cash App and Venmo and PayPal but what about Coinbase. What about wherever your 527 college fund is? What about wherever you have a 401(k)? What about wherever you have your investments? Do you have a Coinbase account, etc., etc., etc.? People initially when I tell them this number say no, I’m nowhere near 15 to 20, then they take three minutes to do a really quick inventory. And they realize, oh my gosh, yeah, I’m quickly into double digits just with some mental math. Now there’s this great paradox about how we got here to this picture of financial fragmentation. And the reason why this is important is because credit unions say, look, we’re all about our members, and we’re specifically about our members’ financial health. Well, you can’t get to financial health if you don’t know where you are with your money because it’s scattered across 15 to 20 financial service providers. This is what we call financial fragmentation. It is the biggest problem and it is the biggest challenge. And it’s also the biggest opportunity for credit unions to solve. Now, how do you do that? How can you solve all that fragmentation? Lee, are you saying we can do something at the credit union that will magically make them drop all those other relationships and come running back to the credit union? No, that’s absurd. That’s delusional. But what you can do is achieve what I would call, what we call, first-app status among those 15 to 20. Now, how do you do that? Well, you’ve got to be the app, meaning all the other apps and where all the other money is for that particular member. How do you do that? Well, this is where we want to talk about open banking rails. We have the most mature open banking rails and open banking ecosystem in the United States versus the rest of the world. Open banking is the system of financial data exchange platforms by and through which a given member can share information from a financial account over here and share it with another financial account over there. So the best example of that is Venmo. If you’re on Venmo, you’re using open banking rails. You may not know that, but when you signed up for Venmo, you checked a little box. And that allows a third party, Plaid in this instance, financial data exchange platform. And then Venmo is going to use Plaid to go all the way back to the credit union and check your shared draft account to see if you’re good for the money you’re about to P2P to someone else, right? That’s an application of an open banking rail. Now, zoom out and think about that writ large. Here’s the biggest opportunity for credit unions this year. And next, and actually, for the next several years, it’s to lever those open banking rails to give your member a solid, full, comprehensive, and comprehensible picture of all of that money that is otherwise hopelessly fragmented across 15 to 20 different apps. Now, as I mentioned to you before, there’s 14 financial apps on the average smartphone. Doug, do you want to know the average amount of time the average person spends on each of those financial apps when they log in? It’s three seconds. So like, well, how much money do I have in this one? Okay, great. How much money do I have now? Great, close it out. How much money do I have over here? That’s ridiculous. They can’t get a bead, a full bead, on the full picture of their money scattered across those apps. So credit unions, the biggest thing and the most powerful thing they can do is they can solve for that financial fragmentation. By plumbing into the open banking rails, that would be not only Plaid, but like MasterCard’s Finicity and Akoya. Intuit itself is a big financial data exchange platform. Your digital banking platform at the credit union needs to be fully plumbed into these open banking rails because they’re all standardized on APIs. By the way, this is a much safer way to share and exchange financial data for the member versus screen scraping. We’ll get to that in a minute. But this eliminates inbound screen scraping for credit unions at the same time. When you plumb into those, the basic plumbing of open banking in the United States, you can replace inbound screen scraping, which causes all kinds of problems, exposes every credit union in the country to all manner of cybersecurity threats and a different new zero day vector on the credit union. And you replace that with standardized secured APIs that no longer require the member to share their username and password with third parties anymore, right? That’s a huge deal. So it’s win after win after win. Your show is about big ideas. I’m giving you the biggest idea and opportunity there is for credit unions, plumbing to open banking rails, aggregating all of that otherwise hopelessly fragmented money information for members to bring it all into one place. When you give them the comprehensive picture, guess what, they’re much more likely to act on a next best product or service recommendation when it’s based on the whole picture. And it’s comprehensible to them at the credit union. And by the way, it’s more meaningful through the lens that the credit union can provide than it is going, app to app for three seconds trying to put that picture together to make very simple day to day decisions. It just doesn’t work that way.
Doug English 26:42
That would be an incredible memory experience that I have not yet seen in my credit union relationships, but I am optimistic. Are there credit unions that are executing on this that you can talk at least a little bit about so my listeners can talk to them and see how they’ve figured this out?
Lee Wetherington 27:01
That’s a great question. I’m not going to name credit unions right now, just simply because I don’t want them to be deluged. This is happening already today at scale. This is happening today, at scale with credit unions, not just the large ones; I’m talking about small and medium- sized credit unions are making this happen. The thing that credit unions need to really begin thinking about, not just thinking about but asking about if you want to talk about action is, is your digital banking platform plumbed into the open banking rails of the United States? That’s step number one. Step number two is it only into one financial data exchange platform? Are they plumbed into all of the biggest ones, all of which I’ve already mentioned? What does that look like at these credit unions that are today making this happen? That means the members using those credit unions, mobile apps, and/or online banking applications are able to see at the credit union in one place all of the third party entities with whom they’re sharing their financial data. And here’s the thing now, Doug, it’s not just making it visible and transparent for the first time; everywhere you’re sharing your data all in one place, you now have toggles at each of those, toggles for each of those third parties. And the member inside the credit union’s digital experience can go, you know what, no, I don’t want to be sharing my financial data any longer with that third party; I don’t like them, I don’t trust them, or I don’t use them anymore. Toggle right here inside the credit union to toggle them off. So we’re not just talking about visibility. And we’re not just talking about understanding your money better and being able to act on the next best product and service. It’s literally empowering the member now to be able to turn on and off access to their financial data at the credit union. And by the way, this is all in advance of what we expect the CFPB to begin requiring with its new open banking rule on section 1033 of the Dodd Frank Act that’s going to come out this year and be effective next year in 2024.
Doug English 29:00
I hope to see that kind of data sharing and that kind of power across credit unions. I know that would be incredible. I don’t have anything even remotely like that. And any place I’m doing my personal banking, that would be truly amazing. That is a heck of a vision for credit unions to try to achieve. Early in our conversation, you mentioned the buzzword these days, which is generative AI. How are you starting to think about credit unions incorporating that technology into the member experience?
Lee Wetherington 29:33
This is a beautiful question for you to ask, Doug. And it actually is a perfect bookend to where we started in terms of the differences in the priorities of credit union CEOs in 2023 and 2024 centering on data. What do you have to have to do anything successfully with any AI application, any application of generative AI? You have to have a massive data set. That’s why credit unions that know that are keenly focused on data strategy, as is borne out by our own survey, are now worried that wait a minute, we’re only individually a small credit union. Do we have enough data materially to train a large language model to do anything meaningful for our members? Okay, this is where it gets really good. You’re a credit union, right? So you’re about collaboration. It’s about the movement. You’re not alone, right? Credit unions work well together, credit unions can pool their data, anonymize it, and feed these large language models. But here’s what’s interesting about generative AI. There are already fintechs out there that are using generative AI to create synthetic data that has a profile that is exactly like a small batch of real data that has been anonymized. So now this is going to blow your mind. Generative AI can feed itself. So in other words, generative AI can produce enough data synthetically that is identical in profile to a smaller real data set that has been anonymized to feed a large language model that then makes the applications of the generative AI coming out of that for a particular credit union and its members unbelievably relevant and accurate. You can drive personalization, etc. Now, let me give you the first use case we’re seeing already and you will see it. The credit union movement is about people helping people, right? So anytime I think where credit unions have been a little bit frustrated in the past four years is they’ve been focused on data and they’ve been using data to do things with chatbots. Chatbots unleashed without mitigation or without the right management of expectations to members are actually degrading to member experience and frustration. Adds frustration, right? That’s what mega banks do. Mega banks go, no, we’re gonna force you to jump through all of the self-service hoops and all of the self-service technologies and wrestle with our chatbots before we will reveal to you the magic way to talk to a real human being and finally get your money moment of need resolved, right? That’s not credit unions. Now, credit unions are about people helping people. So how will generative AI help? This is the real question to ask for 2023. How will generative AI help credit unions more fully realize the people helping people movement? And it’s in the following way. This is the way credit unions are going to differentiate. And this is the way credit unions are going to win—they are going to use generative AI on the back end, that is to say what the credit union staff member can see. So when a credit union member has a money moment of need or curiosity or a problem— maybe they see a transaction they don’t recognize and they’re having a mini panic because they’re thinking, oh my gosh, this is fraud—they can tap inside that mobile app, a single tap connects them to a real live human being at the credit union, this is people helping people. But the person on the side of the credit union has gotten not only full access to the credit union member’s information and data, but the problem also comes in through that authenticated chat channel that’s baked into the mobile banking application with the digital banking application. Generative AI is going to be suggesting the best answer to the question to the person on the credit union side. And the person at the credit union, the human being at the credit union, is going to decide, yeah, that’s the right best answer to give right away, or they’re gonna say no, that’s not correct, I need to tweak this answer just a bit, boom, now send it on. What I just described to you is going to increase the quality and the velocity of personal service rendered by credit unions across a greater number of members in shorter amounts of time. It’s going to improve the quality and velocity of people helping people at their respective moments of need. Generative AI in that context, and in that use case, is going to do that very thing. And that’s huge. And that’s why I think credit union CEOs are right to be focused on data, data strategy, machine learning, what’s required. And by the way, we’re also moving into the world of real-time payments. The Federal Reserve right now is launching the first new big public payment trail in 40 years. And so now you’ve got to be able to do things, do analytics in real time if you’re going to hope to have a chance at containing real-time fraud that comes with real-time payments. By the way, all that presumes you’ve got your data in the right form in the right places inside of systems that can talk to each other in real time. This is what we’re now talking about streaming APIs versus rest of the APIs. But all of that requires strategy. It requires thought and it begins with data to do all of those things. And to realize that turbo charging of the credit union movement.
Doug English 35:16
That idea of having staff be able to get generative AI to look through a member’s data and be able to suggest an action for the member is exactly the kind of content I’m hoping to talk about, because that is the bold idea I think is a wow moment for a member experience. Again, I know you may not be able to name names, but this seems very, very recent for someone to have been actually able to act on it. Have you seen credit unions actually be able to actualize what you’ve just described?
Lee Wetherington 35:55
Before the end of the year, you will see these applications of generative AI in the back office, helping credit union human beings and staff help members live in real time in their moments of need in synchronous and asynchronous support. In the digital context, you will see that before the end of this year, and here’s the thing, the credit unions that are already sitting on not just several years’ worth of communications data with their members through digital channels but those that have especially structured that data. There’s something called augmented chat, which is authenticated chat baked inside of digital banking and mobile banking applications. Think about this: the member if they see that transaction they don’t recognize and they’re suddenly feeling like, oh my gosh, I’ve been defrauded, how much damage is going to happen? How much pain am I going to be in? They tap a button. And instead of having to describe with typing, right, instead of having to describe, well, it’s this transaction on this date for this amount. And this is the one I don’t recognize, all that stuff you also have to verbally explain if you were to call into the credit union and explain all of that, by the way, after identifying yourself and trying to remember account numbers, and all of that, all of that goes away in augmented chat. Which is to say the member can go, oh I don’t recognize that transaction, or oh my gosh, I don’t recognize this other transaction to tap tap attach the transactions to a real live conversation, an authenticated augmented chat conversation going on with the credit union. So now they don’t have to describe anything, they don’t have to type anything. They’re just like tap tap inside of that mobile banking or digital banking experience that can literally be attached to the conversation to expedite reference and resolution by the human being on the credit union side. And like I said before, by the end of the year that credit union human being is going to be made a super power human being by the likes of generative AI. So my point is that for those credit unions that had augmented chat, where these years’ worth of conversational data between the credit union and credit union members are structured by the attachments in the conversation, this is a very big deal. They’re going to be way ahead of the game when they now are using that data to train a generative AI model that now is suggesting very accurate, very personalized, next best answers as credit union members are coming in with their moments of need.
Doug English 38:43
You really painted an incredible, incredible picture of a member experience and a member in an interface that I hope our industry is able to get to and I can imagine that a lot of our listeners may see that as a great distance from where they are now—a great distance from the user experience the members are having and an almost an insurmountable distance. So if you can put yourself in those executives’ shoes, maybe at a smaller credit union or one where the board has not empowered that much of a digital drive, where would you start?
Lee Wetherington 39:24
What I’m describing to you, if a given credit union or any financial institution for that matter, actually, irrespective of size, had to do what I just described to you on their own, it would literally be almost impossible. That lift would be too heavy. And it is too heavy for any given credit union, not just a small credit union, any credit union, any bank for that matter. This is all about your partners. This is all about, like I said, ask your digital banking platform provider. Are you plumbed into open banking rails? What are you doing? Can I use those same open banking rails to defragment my members’ money lives and aggregate everything securely, safely, and reliably back to the credit union? Okay, once I’ve got all of that data, guess what, like we talked earlier about, hey, how would a credit union know that 13% to 35% of their members are using third-party apps and are collecting all these deposits that never make their way back to the credit union? Once the credit union through their digital banking platform is fully plumbed into open banking and they’re aggregating all that information for each member back to the credit union, the credit union doesn’t have to guess anymore. Whether they’re the primary financial service provider or not, or whether they have the primary checking account, they’ve got literally definitive absolute and comprehensive business intelligence on everything their members are doing with every other kind of financial service provider out there. Now you’ve got a feedback loop to begin iterating on product service improvements or additions as a credit union. So back to the CEO who’s going, man, why is this guy talking so much? And we can never get to everything he’s describing. No, no, you just have to partner with the right platforms with the right vision and the right strategy, those who have already made headway in augmented chat, not just regular chat, authenticated augmented chat that’s native and inside of your digital banking channels and mobile apps, right? You’ve got to make sure your digital banking provider is fully plumbed into the open banking rails so you can eliminate inbound screen scraping, so you can help members aggregate their otherwise hopelessly fragmented lives back to the credit union. By doing so, achieving first-app status, you’re now back in the driver’s seat, you’re bringing meaning back to that relationship with the member, right? You’re not just checking the box or just sitting on your laurels thinking you’re still the primary checking account; all of that is doable. And by the way, the best digital banking platforms are doing a lot of these things. And a lot of what I’ve described is a part of what you get. It’s not at all, there’s not an expense, right? It’s just these digital platforms are all at war with each other trying to be the best digital platform of choice in the future. And so a lot of this infrastructure in terms of open banking, in terms of generative AI applications on the data you already have or the data that can be synthetically generated for you to help feed and train models that are specific to your credit unit and your members—all of that is within reach. It is not out of reach. In fact, like I said, and we can talk later, and you can say Lee, this either happened or didn’t happen. Everything I just described here in this conversation credit unions will be doing before the end of this year, all of it; some of it they’re already doing. But the generative AI applications will be coming online, literally in the next few months. And you will see this and begin to point to and learn from other credit unions that are doing this.
Doug English 43:06
You know, they’re just absolutely fascinating cutting-edge ideas you’ve provided here. And I do want to kind of on air have an offer: I would like to have that discussion. If you have a credit union executive or two who implements this and creates this user interface that does what you describe, I’d like to circle back and be able to have a conversation with them about all right, let’s talk about the process of going from here to there. Let’s get into the details.
Lee Wetherington 43:40
We can absolutely do that. That’s not a problem. We can make that happen.
Doug English 43:44
I want to make sure it’s actionable by our listeners. So let’s go back to the survey and give the listeners some idea of how to get a hold of the survey if they want to kind of see where this conversation began and look at the data that drove us to get into these bold ideas. How do they get a hold of the Jack Henry survey?
Lee Wetherington 44:06
Yeah, the survey is available for any and everybody. I’ll give you two different ways. One is you can go to Jackhenry.com and you can go to our resource center and you’ll see it sort of top right there at the top; you’ll see 2023 Strategic Priorities Benchmark, and you click on that and it’ll take you to the site. If that’s too much for you to remember, just google Jack Henry 2023 Strategic Priorities Benchmark. And you’ll get to the same spot. It just asks for your name and an email address; you can download the full report—we didn’t scratch the surface of what’s in there. But you’ll find you’ve got the sort of executive summary findings up front if you don’t want to read the whole thing, but it’s a 40-plus page document with all the charts and by the way, the responses compare and contrast between credit union CEOs and bank CEOs. That’s really where the juice is; that’s really where the value is. So pay attention to that. And then you’ve got recommendations. At the end, if you just want to fast forward to the way we see all of this, where we’re going into what matters most in the next couple of years, all of that is simplified for you on the front end and the back end.
Doug English 45:25
Awesome, Lee. Lee Wetherington with Jack Henry, thank you for joining me today. Thank you for your bold ideas to push the credit union movement forward. I cannot wait for my banking interface to look just like you described. I think that is an exciting vision. And I want to come back and talk to someone who has created that vision for their members so we can really make this tangible and actionable by the credit union movement. Thanks so much, Lee.
Lee Wetherington 45:54
Yeah, thank you. Thanks so much, Doug.
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