THE LUMIN LAB

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

How do you scale a business, and in particular, how can you scale finance business, like banks and credit unions? Scale and growth are two relevant terms that are often used interchangeably but are fundamentally different. 

Growth vs. Scale

Growth means you’re increasing both revenues and expenses at roughly the same pace. Growth is a positive especially when you’re a tiny bank or credit union. After all, you need to have a certain number of users to be viable. 

Absent a strategic plan, many businesses manage to grow. They take in more money, but fail to become more profitable. Once your financial institution reaches a certain size, you’ll need to do more than simply increase the number of users. Furthermore, as the organization grows, small problems become big ones. Those somewhat tolerable labor-intensive processes you used in the past? They become unsustainable. 

Scale, on the other hand, is different. When a bank or credit union scales, they increase revenue at a faster rate than expenses. This occurs through economies of scale, increased inefficiency and good planning. All of these elements combine to enable the business to support more users and enhance the bottom line. 

Why You Must Scale

Your bank or credit union needs to scale to survive. Scaling enables the business to broaden its user base, acquire assets, increase its visibility, compete in an increasingly fierce market and attract the most talented employees. Furthermore, scaling drives profitability and allows the business to survive an economic downturn and other setbacks. Without increasing profit, your bank or credit union will stagnate and begin to decline. Technology is changing the way we live every day. Banks and credit unions of all sizes simply must scale to meet the changing expectations of users. 

Big banks have the advantage of centralized operations and deep pockets to hire the staff and purchase the resources required. Community banks and credit unions may have comparatively fewer resources. However, they are generally more nimble when it comes to loan terms and lending packages. Indeed, community banks are the backbone of American businesses. According to Independent Community Bankers of America, they make 60% of all business loans and 80% of all agricultural loans. They also have extensive knowledge when it comes to their communities and their users with whom they may have deep and enduring relationships. 

Despite the 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

When it comes down to making the decision to be larger, financial institutions may struggle to decide what to do and how to do it. We’ve curated the best practices that will help with your scaling efforts. If you’re wondering how to scale a business, follow the best practices below. 

1. Evaluate and Plan

The most important first step is to assess your organization’s capabilities. This will include, but is not limited to:

  • 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 in navel-gazing. Remember that 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. What is realistic based on your analysis? There are many ways to scale. You can scale up by:

  • Extending your geographic footprint.
  • Deepening your relationships with existing users.
  • Selling more in categories where you excel (e.g.,loans).
  • Adding more users.
  • Adding additional products and services.

You will need detailed revenue and expense forecasts, as well as 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 skill up so that you can effectively deploy today’s rapidly emerging technology. By that time, the technology would be obsolete. It is simply not possible to maintain all of this knowledge in-house.

You may need to hire some managers and engineers, but most of your needs for the digital technologies you want to support will come from outside. A number of high-quality fintechs have leveled the playing field so that new technologies are available to financial institutions of any size. The outsourced help you bring in will allow you to focus on your core business while 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, it can make the outsourcer’s job exceedingly difficult and you may not see the ROI you expect. On the other hand, if you create shiny new highly-customized processes before you outsource, you may be resistant to any proposed changes. The answer lies somewhere in the middle. Fix the things that are incomplete and get the knowledge you need so that you can partner effectively with the outsourcer 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 know more about their users and personalize service offerings for them. While users are resistant to invasive techniques to acquire their personal information, the vast majority are fine 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, the competitors were big banks. Then came the neobanks and PayPal. Now Amazon is making a power play for the core components of everyday banking. Where does it end? It doesn’t. 

Smaller banks and credit unions can no longer take a wait-and-stay-small approach. It’s time to put your expansion plans in place. If you’re looking for a partner that can automate your digital onboarding process in weeks, not months, contact Lumin Digital. We specialize in digital solutions banking that will elevate the experience for your users. 

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