The Decision Maker

What is the ROI of Big Data & Analytics for Credit Unions?

Posted by Paul Ablack on Apr 9, 2015 3:46:00 PM


Credit union leadership teams are increasingly realizing the “buzz” around Big Data & Analytics is real. However, there are two significant questions that get asked about this topic:

  1. Why should credit unions care about Big Data & Analytics?
  2. What is the ROI?

Why Big Data & Analytics Matters

Big Data & Analytics (the process of turning huge quantities of data into actionable information) is here, it is growing exponentially, and it is becoming as ubiquitous in our daily lives as the Internet and mobile technology. Many industries have been completely transformed by Big Data & Analytics in the last 10 years and the rate of disruption and transformation increases daily to the point where no industry is protected from this mega-trend.

A great example of an industry fighting for survival is the taxi industry. This industry is in a major battle with UBER and LYFT, two companies that literally emerged in the last 2 years. The taxi business has been around in its current form for many decades yet these upstarts have been quickly amassing market share based in a large part on Big Data & Analytics.

Our world is in the midst of a data and connectivity revolution. For credit unions, member expectations about the value of the information and the seamless delivery of that information are steadily increasing.  Members are being presented daily with new and easier ways of running their lives through information and mobility. From “Fitbits” to home automation, companies are coming up with new ideas every day that appeal to our desire to simplify our lives. Yet, credit unions are behind in the Big Data & Analytics area.  In order to catch up, the industry will need to prepare for an immense transformation over the next 5 years.

What is the ROI of Big Data/Analytics?

Amazon was one of the top 10 US retailers in 2014, which is amazing considering it achieved this distinction without a single brick and mortar retail location. Amazon has proven that consumers want simplicity, low price, and convenience and they want it all at the same time. Amazon has managed to deliver all three by investing heavily in Big Data & Analytics. Their success has come at the expense of such companies as Borders Books and Barnes & Noble, both formidable competitors in their time. Both failed to recognize the disruptive and transformative power of Amazon.

Today, credit unions are seriously lagging other industries (e.g. - retail) when it comes to the use of Big Data & Analytics to better serve members. The industry urgently needs to find a means of becoming proficient in Big Data/Analytics or face the threat of being disrupted in the same manner that companies like Amazon, Orbitz, Netflix, and UBER have disrupted their respective industries.

The overwhelming task of building a comprehensive Big Data & Analytics capability is beyond the reach of 97% of today’s credit unions. However, a failure to make the investment in Big Data & Analytics will lead them down the path of becoming a mere shadow of what they are today as members are drawn away by new analytic competitors.

So, what is the ROI on an investment in a Big Data & Analytics solution for credit unions? The ROI is that they not only get to survive the next 5 years, but also to prosper in the financial services industry. The credit union movement provides a great service to its members but the industry has been slow to acknowledge and respond to changes in their competitive landscape. Too much time and management focus is spent on cost control, compliance, and regulatory issues at the expense of figuring out competitive strategy and re-inventing themselves. Yes, credit unions are “not for profit”, but they still need to generate sufficient revenue to keep the lights on. This means credit unions must provide products and services that members want. Rather than simply thinking about short-term cost and ROI, credit unions need to head down the path to becoming “Analytic Competitors” (from the book Competing on Analytics – The New Science of Winning).

Here are three reasons why credit unions can leverage Big Data & Analytics and become successful Analytic Competitors if they take action now:

  1. They have an industry brand based on trust –credit unions have built an impressive level of trust among their members which will make introduction of new Big Data & Analytics initiatives less risky.
  2. They sit on mountains of data about their members which can be turned into valuable analytics.
  3. They collaborate as an industry and have a vehicle called a Credit Union Service Organization that allows affordable technology solutions to be developed for the benefit of the entire industry. CUSOs specializing in Big Data & Analytics enable the credit union industry to evolve into successful Analytic Competitors.

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Topics: Big Data, CUSO, Data Analytics