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THE LUMIN LAB

Beyond Growth for Banks and Credit Unions: 5 Tips to Scale Your Operations

by Pamela Michaels Fay

When most people think about growing their business, they’re likely referring to scale. Scale and growth, in the context of business, are two terms that are often used interchangeably but are, in fact, fundamentally different. When banks and credit unions are looking to grow their business, they actually need to scale it to survive. So when “growth” and “business” go hand in hand, what then does it mean to scale?

Growth vs. Scale

For financial institutions, growth typically equates to increasing the business’s revenues and expenses at roughly the same pace. Growth is a positive for any business, but for smaller, community banks and credit unions, it’s a must.

Many businesses do grow by taking in more money, but that doesn’t necessarily equate to profitability. In the case of financial institutions, once they reach a certain size, they’ll need to do more than grow by simply increasing their number of users.

Scale, on the other hand, is different. When a bank or credit union scales, they increase the business’s revenue at a faster rate than expenses. Economies of scale, increased efficiencies, and good planning enable a financial institution to support more users and enhance the bottom line, creating the elements needed for a bank or credit union to scale.

Why You Must Scale

If you want your bank or credit union to survive, you’ve got to scale. By enabling your business to expand its user base, acquire assets, and increase its visibility, scaling creates opportunities to compete in an increasingly competitive market and attract the most talented employees. Furthermore, scaling drives profitability and protects your business during setbacks, such as in an economic downturn. To avoid stagnation or decline, your bank or credit union must have continually increased profits, and scaling is what makes profitability possible. Scaling also provides the capacity to meet users’ changing expectations, especially in today’s technology-driven world.

Big banks have the advantage of centralized operations and deep pockets to hire the staff and acquire the resources required to scale. On the other hand, community banks and credit unions often have comparatively fewer resources. Still, because of their size, they are generally more nimble regarding specific service offerings. And, even despite their lack of internal resources, small banks and credit unions can grow. They just need to find the right partners and vendors to support their efforts.

5 Tips and Best Practices for Scaling Your Bank or Credit Union

It’s no surprise that when it comes to scaling a financial institution, knowing what to do and how to do it is challenging. That’s why we curated the following best practices to help you scale your bank or credit union.

1. Evaluate and Plan

The most critical first step is to assess your organization’s capabilities—honestly and realistically. In order to do so, some questions you should ask are:  

  • What resources do you have in terms of staffing and technology?
  • What are the organization’s capabilities?
  • What challenges do you face, both internally and externally?
  • Where are the opportunities?
  • Which processes support or hinder growth?
  • Where are the opportunities for expansion?

This shouldn’t be an exercise to graze over. Remember, your leadership team may be too close to the situation to provide an objective assessment. It requires a candid approach, so it may make more sense to enlist external consultants who won’t be afraid to “tell it like it is.”

2. Set Concrete Goals

Once you’ve assessed where you are, focus on where you want to be. Determine achievable goals for the next six months, one year, and two years down the road. Be honest about what’s realistic based on your assessment. And while there are many ways to scale, here are some ideas to get you started:

  • Extend your geographic footprint.
  • Deepen your relationships with existing users.
  • Sell more in areas where you excel (e.g., loans).
  • Add more users.
  • Add additional products and services.

You will need detailed revenue and expense forecasts and cash flows based on your plan and your existing resources.

3. Don’t Build When You Can Buy

When it comes to scaling up, one of the most critical considerations for any bank or credit union is determining what’s possible with your existing resources. For most, the answer is obvious. It can take years to scale up so that you can effectively deploy today’s rapidly emerging technology. And by the time you do deploy, that technology will likely be obsolete.

You will likely need to hire additional staff to support your efforts, but in this digital age, you’ll need to implement digital banking solutions to achieve scalability fully. Rather than hiring an in-house IT team to keep up with the constantly evolving digital solutions, it’s more likely that those solutions will come from outside your organization.

And when it comes to digital banking solutions for banks and credit unions, you’re in luck. Several high-quality fintechs have leveled the playing field so that new technologies are available to financial institutions of any size. By outsourcing the digital support needed to scale your business, you’ll be able to focus on your core business while also reducing the cost of operations, eliminating manual errors, ensuring compliance, bolstering security, and streamlining processes.

4. Fix Broken Processes

If you turn over fractured and poorly documented processes to your digital partner, it can make implementing a successful solution exceedingly difficult, and you may not see the ROI you expect. On the other hand, if you go beyond shoring up your documented processes to create new, highly customized ones before you outsource, you and your team may be resistant to any proposed changes, and unaware that these processes are still likely to be inefficient and ineffective. So, when it comes to your existing documented procedures, fix the things that are incomplete and get the knowledge you need so that you can provide your digital partner with the resources they need to optimize your results.

5. Stop the Manual Labor

Automate wherever possible. Minimize reliance on labor-intensive processes. Digital users shouldn’t have to call or come into the branch. If automation is happening currently, it will scale with your business growth.

Big Data and AI offer the opportunity for banks and credit unions to understand their users better so that they can provide them with personalized service offerings. While many users are still reticent when it comes to big data and AI acquiring their personal information, the vast majority are comfortable with businesses they trust using their data to create a curated experience.

Scale for Survival

For banks and small credit unions, scale is a strategic imperative for future viability. In the past, big banks were the primary competitors facing banks and credit unions. But over the past decade, a steady stream of new market disruptors have made plays in everyday banking. From neobanks and PayPal to Amazon today, the likelihood that there will be no shortage of varying ways to bank in our future is inevitable.

As the banking industry continues to evolve, grow, and scale, so too must smaller banks and credit unions. The “wait-and-stay-small” approach is a thing of the past. It’s time to put your bank or credit union’s expansion plans in place, and those plans will, no doubt, include a digital banking solution. If you’re looking for a partner that can be the catalyst to your organization’s ability to scale, contact Lumin Digital.

Pamela Michaels Fay is a business, financial, technology, legal, and lifestyle writer whose work is informed by over 20 years of strategy, leadership, and organizational development consulting for Fortune 500 companies.

Sources:

Independent Community Bankers of America – What Sets Community Banks Apart

Forbes – 50 Stats Showing The Power Of Personalization