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With digital-first Financial Technology companies (FinTechs) and highly resourced banks accelerating their focus and investment into transforming customer experiences, the landscape for credit unions and community banks has changed forever. What was already a highly transformative industry has exploded into an unrelenting cycle of digital disruption.  

According to IBISWorld, credit unions and community banks in Australia have experienced an annualized market decline of 12.5% over the last 5 years. They forecast this decline will reach 15.5% in 2021, declining at a faster rate than the overall economy. They attribute this continued decline to more industry operators converting to banks, reducing industry assets and revenue, declining interest rates leading to reduced interest earned on loans, increasing wage costs, and credit impairment charges increasing during the pandemic.

We recently had the pleasure of hosting a fireside chat discussing and sharing insights on digital imperatives that credit unions and community banks are grappling with. We spoke with two highly seasoned industry experts, Deane Johns and Geoff Wenborn. Deane Johns is the Chief Technology Officer at Banzpay, originally founded as a credit union in New Zealand and now one of the key disruptors in the payments space. Geoff Wenborn is the former Chief Digital and Technology Office at People’s Choice, one of the large credit unions in Australia. 

In our conversation, they revealed some thought-provoking themes. Both Deane and Geoff have seen firsthand the impact of digital disruption and the pandemic on credit unions and community banks and built successful transformation paths across the industry.

Composability offers a competitive advantage in digital banking for credit unions 

What came to light was the unique opportunity that credit unions and community banks have to build sustainable growth in a highly disruptive and intensifying competitive landscape. Why is their opportunity unique? Credit unions and community banks have built their success on fostering trusting relationships in local communities through their cooperative, member-first model.

“Credit unions having grown up in local communities and around specific interest groups….they have an advantage in terms of already having a member base and providing member-centric services”.

-Geoff Wenborn, former Chief Digital and Technology Office, People’s Choice  

If credit unions and community banks can transpose the trusting bond they have with their members into personalized, connected member experiences, they are primed to compete head-on with digital-first FinTechs and highly resourced banks. According to Deloitte in their Future of Retail Banking report “Hyper-personalization is an imperative, not an option, in a digital economy…new opportunities arise for banks to meet customers’ needs on a highly-personalized and dynamic basis.” 

This theme surfaced from the discussion and how credit unions and community banks are challenging the status quo and rethinking their approach to technology, embracing FinTech-like principles to deliver and optimize hyper-personalized digital member experiences. 

Geoff Wenborn reinforces the need for change stating that “Credit unions and community banks need to operate like FinTechs, particularly if you think about what FinTechs do, they use technology to create fast-paced experiences for customers and members. The challenge becomes how do community banks and credit unions organize themselves to operate the way a FinTech does but leveraging strengths in scale and loyalty”.

The future of business is composability

Organizations like FinTechs who are successfully navigating the current digital landscape have a core, common DNA in their approach; composability. According to Gartner, “the future of business is composable…it means creating an organization made from interchangeable building blocks delivering modularity, autonomy, orchestration, and discovery”. In Gartner’s 2021 survey of CIOs and technology executives, they found that “sixty-three percent of CIOs at organizations with high composability reported superior business performance compared with peers or competitors in the past year. They are better able to pursue new value streams through technology, too.”

What is composability? Composability is the ability for organizations to turn all their assets – data, processes, and applications – into reusable building blocks. These standardized, reusable building blocks – like APIs – allow organizations to deliver new experiences, products, and services with greater speed, agility, and efficiency, helping solve pressing short-term challenges while simultaneously laying a foundation for future growth.

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Composability is powered by APIs and integration

Central to achieving composability is an integration architecture that empowers all parts of the organization to innovate efficiently. During the panel discussion, both Geoff Wenborn and Deane Johns spoke about how integration was fundamental to successful transformation. Deane stated “to gain competitive footing against nimble and well-resourced competitors, credit unions and community banks must create and leverage an integration architecture that will allow them to scale at speed and quickly adapt to change”. Geoff highlighted that “fundamentally, integration architecture helped me and my team at People’s Choice pivot in the direction the organization wanted to go with changing needs”.

Monika Sinha, Research VP at Gartner also reinforces the critical importance of integration in a composable organization “Business runs on technology, but technology itself must be composable to run composable businesses. Composability needs to extend throughout the technology stack, from infrastructure that supports rapid integration of new systems and new partners to workplace technology that supports the exchange of ideas.”

As the global leader in integration, MuleSoft has long advocated an API-led methodology for integration, which has enabled more than 350 financial institutes to start building composable enterprises.

Unlike traditional integration approaches that rely on a myriad of point-to-point connections and custom code that drain both cost and productivity from any IT organization, API-led connectivity allows organizations to turn IT assets into reusable building blocks. On average, financial institutions that adopt an API-led approach to connectivity with MuleSoft deliver projects 3x to 5x faster compared to legacy approaches. 

Not only can credit unions and community banks gain much-needed agility, but they can also future-proof their IT organization by decentralizing IT teams and streamlining operational practices, allowing them to spend more time innovating and less time maintaining custom environments.

Both People’s Choice and Banzpay are great examples of credit unions and community banks that have adopted composability to help them compete with major players, enter new markets and offerings, and innovate with speed, agility, and efficiency. 

When entering new markets we’ve given members more functionality. MuleSoft helps that by exposing external systems to connect with core systems internally rather than us creating bespoke development for each customer. MuleSoft has been supporting us to do this to give our customers a more digital experience and be able to enhance that experience.”

Deane Johns,  Chief Technology Officer, Banzpay

Credit unions and community banks are facing stiff competition as part of their digital transformation journeys, but by embracing composability and transposing their strong and trusting member-centric DNA to digital experiences, they will establish a growth engine and foundation for ongoing growth.

Interested in learning more about how credit unions and community banks have successfully adopted MuleSoft’s API-led approach? Listen to the on-demand webinar “Digital imperatives facing credit unions and community banks.”