Investing in back-end technology during challenging times

Amidst uncertain macroeconomic conditions like rising rates, inflation, the war in Ukraine and an end to stimulus, credit union leaders may be wary of pursuing new fintech partnerships and digital transformation efforts.

However, rather than scaling back on their digital transformation efforts, the majority of credit union leaders are now doubling down on innovation and strategic partnerships. In fact, 95 percent of credit union leaders are increasing their innovation spending, with almost a quarter saying their budgets are increasing 25 percent or more in the next year, according to American Banker and Digital Insurance’s report, “Innovation Readiness 2022: The Innovation Revolution.”^[1]

The report goes on to explain that credit unions were more impacted by the pandemic than other financial institutions due to branch closures, and that the shift to digital-first processes exposed gaps in their service offerings. It is evident that leading credit unions are looking to close any innovation gap vs. large banks and fintechs, and they’re doing so by increasing their digital transformation budgets this year.

Rather than dedicating this funding to front-end, member-facing technology, credit unions are actually investing more heavily in back-office operations. Solely investing in the front-end experience can leave back-end processes riddled with manual intervention that only further exposes members to system inefficiencies. For example, while a credit union may offer an online application, members may still need to visit a branch or speak with a representative to move forward with their application.

Sleek applications can help credit unions initially attract members. However, a system that can perform credit decisioning, verification and closing, and servicing augmented with AI ensures that members receive fast service while limiting risk on the credit union’s end.

• Credit decisioning – By employing thousands of member data points, including details on repayment, credit unions can more accurately price risk as well as show when a member may fail to make payment. In fact, 58 percent of bank and credit union executives believe that AI has the biggest potential to impact credit risk and scoring at origination.^[2]
• Fraud verification – AI decreases manual processing and increases approvals when applied to fraud protection. Upstart’s fraud detection has limited fraud to <0.3 percent.^[3]
• Servicing – With AI, credit unions can predict what members will become delinquent and tailor messaging to limit borrowers at risk of defaulting on their credit obligation. This allows credit unions to differentiate their servicing messaging as well as separate borrowers at higher risk of defaulting from borrowers at lower risk.

Credit unions are undoubtedly investing more in back-end technology even through challenging times. By augmenting these processes with AI, credit unions are empowered to grow and nurture new member relationships for long-term opportunities, grow and diversify their loan portfolios, safely automate approvals and implement an end-to-end digital experience to retain existing members and attract new ones. In fact, in a survey of 80 credit union executives, 46 percent stated that they are already using or planning to implement AI in the next year.^[4]

As credit unions look to weather turbulent economic conditions, they must strategically invest in end-to-end solutions powered by AI that will deliver the greatest long-term value in the form of loan and membership growth.

^[1] American Banker and Digital Insurance. “Innovation Readiness 2022: The Innovation Revolution. March 23, 2022.
^[2] Brighterion and LendIt Fintech. “AI perspectives: Credit risk and lending.” 2022.
^[3] Based on an internal Upstart data analysis of personal loans first payment defaults as of 9/30/2020.
^[4] NAFCU. “State of Lending: Long-Term Risks and Opportunities” webinar survey. June 11, 2022.