A matter of balance

At a mid-November IT conference in a Toronto hotel, Doug Whalen, a 49-year-old technology executive whose all-black attire gives him the air of an orchestra conductor, takes the podium. It has snowed all weekend, and the view from the conference room on this Monday afternoon resembles a kitschy Christmas

card. Inside the room, however, it is a different story. “”I’ve got the dreaded after lunch spot, so I’ll do my best to keep you awake,”” says Whalen, vice-president of product development at the Toronto-based Credit Union Central of Canada, a national trade association that represents this country’s mixed bag of credit unions.

But before he has a chance to launch into a presentation about his pet project — a connectivity initiative that will give credit-union customers across the country a single view of their entire financial portfolio, from savings accounts and mortgages, to RRSPs and insurance policies — he gets a question from the floor.

“”How many credit unions are there in Canada?””

Whalen pauses to consider his answer. “”Who merged today?”” he replies with deadpan humour. It turns out there are 646 credit unions in this country with combined assets of $64 billion. (The Big Five banks have about $300 billion in assets for the same lines of business.) Twenty years ago, however, there were 2,700 credit unions. We do not hear much about credit unions in this country because they play David to the Goliaths of the financial-services industry. But the fact is 4.6 million Canadians bank with credit unions. And if you include Quebec’s caisse-populaire network, one in three Canadians banks with a credit-union style institution.

“”When it comes to service we are not more brilliant than the banks,”” says Sean Jackson, CEO of the Niagara Credit Union based in St. Catharines, Ont. “”We just do a lot of little things better.””

Despite pockets of successes, however, credit unions have been consolidating at a furious pace in the last five years because the changing financial services climate is making it harder than ever for small guys to survive. This transition has been painful because on the one hand credit unions want to remain true to their community roots. And on the other hand, they need to keep up with the Big Five banks by offering competitive products and services.

Can credit unions do both? The short answer is yes. But how successful credit unions will be in future — indeed whether they will survive — depends to a large extent on the ability of Canadian Central and its provincial counterparts to push for smart IT initiatives; from investing in bill-presentation and person-to-person payment technology, to the issuance of multi-purpose chip cards.

“”There is most definitely a place for credit unions in this country,”” says Toronto-based banking analyst Jaimie Keating with Merrill Lynch. “”They should be encouraged to thrive. However when it comes to IT they are marginal to middling when compared against the Big Five banks. On the plus side, their position is improving as IT becomes more democratic, and applications can either be outsourced or bought off the shelf.””

Says Helmut Pastrick, chief economist with Credit Union Central of B.C., “”Sometimes small is okay. We are not competing for Argentinian loans. Our job is to satisfy local members, that is our strength.””

Pastrick admits IT is a sticky wicket for the 66 credit unions operating in his province, the largest of which is VanCity Savings Credit Union with $7.5 billion in assets, and 280,000 members. To help members get on the technology fast track, B.C. Central offers a variety of tools, including an Internet-banking product known as MemberDirect. Also, in a bid to reduce operating costs, B.C. Central is negotiating a partial merger with Credit Union Central of Ontario.

“”Market timing is critical for us when it comes to investing in new technology,”” says Whalen. “”We don’t want to be wrong and waste money. But at the same time we can’t let the market pass us by.”” The connectivity project, piloted by Canadian Central in 2002 in the Maritimes, will go a long way toward helping credit unions catch up to the Big Five banks by giving customers multi-channel access to their portfolios.

“”From an IT perspective it’s not a big initiative,”” says Whalen, who expects a national roll-out early in 2003. “”It’s a big initiative from a business perspective.””

All this talk of automation, however, begs the question: Will an increased emphasis on technology destroy the high-touch service credit unions are known for? “”We want to use high-tech to enable high-touch,”” says Whalen. “”For example, the connectivity initiative will make it possible for credit unions to redirect their investment in human resources from tellers to wealth-management counsellors.””

That sounds good in theory, but does it work in practice? The jury is still out, but whichever way opinion swings, credit unions are sure to know in a hurry. The reason is anyone who is a member of a credit union can call the CEO if they feel the need to air their views. (Try doing that at one of the Big Five banks.)

The other technology initiatives on the drawing board at Canadian Central is a National Learning Organization (NLO) portal designed to give e-learning a place of importance. And when the NLO is launched in 2003, Canadian Central also hopes to get a better handle on knowledge management and information sharing.

“”As things are we have 600 guys who scratch the surface of a 1,000 topics 1,000 times,”” says Whalen. “”What we need is a system that answers key questions such as: How do I best address operational problems? How do I best introduce new services? What are best marketing practices? There is a need to share that kind of information.””

To accomplish his objective, Whalen plans to create a kind of Yellow Pages that will walk a credit union through a particular issue. For example, if Southwest Credit Union of Swift Current, Sask. decides it wants to introduce relationship pricing, which takes into account a customer’s portfolio in determining service charges, all questions will be answered in one place. The NLO will provide a number of studies on the topic, a list of other credit unions who have implemented relationship pricing, and a list of suppliers and consultants.

With credit unions playing Pac Man, the obvious question is: How many will be left standing in a few years? Whalen says it’s not hard to imagine a 30 per cent reduction in three years. That translates to about 200 fewer credit unions, but still guarantees a healthy level of competition. That’s a good thing because credit unions and banks are likely headed for a showdown in this country.

When high noon finally rolls around, credit unions may find themselves swamped by an exodus of Canadians looking for a better way to bank. It’s up to Whalen to make sure they are not disappointed.

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Jim Love, Chief Content Officer, IT World Canada

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