Money 20/20 - Notes From The Field

The departure lounge at my home airport, Vancouver International (YVR), was bustling with energy and excitement as familiar faces queued to board our flight to Las Vegas to attend Money 20/20 on the weekend.?Similar to other departure points globally, the air was laden with a sense of anticipation.?Not because of the high desert winds and sandstorms that were to affect our flight’s landing (although this is certainly a good metaphor for the journey that we are currently on), but because it is recognized that our operating environment in financial services is dramatically changing and action must be taken to preserve our respective value propositions.

Perhaps I am dating myself, but I have been steeping in information technology for more than 40 years.?I began to use computers in the 70’s, having my first computer before I was ten.?I made my first dollar in IT when I was 12.?I was programming at a university level by the time I turned 14.?I was featured in local 80’s media as a “Whiz Kid,” earning my title of “nerd” in the infancy of personal computing.?I am not writing this to expound?technological prowess, but to provide context for my next statement - for me, having lived through waves of technological innovation for decades, the undercurrent of change driven by technology is palpable.?And I can feel it flowing forcibly in 2022, in the process of altering the world as we know it in financial services irrevocably.

I’ve been to many many “Technology Extravaganzas” over the years, starting with Comdex in the 90’s and continuing from there.?In the early days, these gatherings beckoned people from afar paying homage to the promise of technology. At this juncture, the excitement was palpable, but the ingredients necessary for “step change” were not necessarily present. Companies amassed surreal valuations that seemed utterly disconnected from the value or potential value that they could actually provide.?Collapse however brought a return to sobriety, leaving behind a plethora of emaciated companies, but also clear winners that have ushered us into the era that we are in today.

The Venetian has hosted many events over the past couple of decades.?In some ways, not much has changed - “quaint” air conditioned canal rides under an artificial sky surrounded by shops selling over priced products. ?What has changed however, is the fact that technology has “actualized,” over the years.?We are now at a point where we cannot look back - economies of scale rule the day with ecosystem and platform.?Technology adoption requires scale, and a clear recognition exists among contemporary venders that small and medium sized financial institutions may not be candidates for products that require breadth and depth of expertise to implement, in addition to a technology environment that can accommodate.

For financial institutions needing to act in 2022, scale either exists, or it is conferred. For those that have this scale, the doing and dabbling is already taking place.?For those that don’t, there is an acknowledgement that riding the rails of legacy will result in a precipitous fall, and pondering is occurring. Pipe dreams are not an option - going it alone, saviour applications, and immersing in conversation without tangible result are an unnecessary distraction. Furthermore, achieving requisite scale by either organic growth, or merger are both unlikely to result in the required change within the time constraints that we face as an industry, waiting is not an option.?This leaves conferred scale.?And this also leaves what credit unions and community financial institutions do best - cooperate, collaborate, collectively consolidate operations, and work together to achieve what otherwise would not be possible.?If there ever was a moment for cooperation, it is now.?The sharks are circling and the cooperative value proposition deserves preservation.

Question from Mike O'Shaughnessy -

"Very thought provoking as usual,?Chris. I'd like to more fully understand the term "conferred scale". As far as I can tell, this transitive verb "confer" means bestowed or given … perhaps something like "baked-in"? The intransitive verb would mean to compare views or take counsel … perhaps cooperate? Is there a more specific definition in this context? You've been calling us to urgency in the CU space, and I'd like to be crystal clear on your assessment and recommendations. That will go a long way as I help my clients navigate these waters - thanks!"

Response,

Great question Mike, I am using the verb “confer” in a transitive sense, conveying that scale is achieved collectively by working together under a shared umbrella to accomplish what would not be possible individually.?Scale is further compounded by a shared network effect, where organic innovation can be made available to others participating in this collaborative construct.

It is important to note that constructs conferring scale will all fall somewhere on the “sub-optimal to optimal” continuum. ?Credit unions and community financial institutions need optimal scale, where they are working within a framework where every step is a step forward.?Innovation compounds over time and is deliberate - very seldom do we see radical overnight transformations.

There is urgency in the credit union space from my perspective as you note.?Existing constructs for innovation are suboptimal and after over a hundred years of cooperatism, taking the same trajectory as “Flight ML 370” is not what we want to be doing as a system, especially when options exist for evolving the financial services business model within a modern ecosystem/platform/framework.?This is technically possible, and again from my perspective, credit unions can be participants in the digital evolution of finance as opposed to spectators.

To borrow an analogy from my friend Wesley Campbell, you wouldn’t build a house with a Swiss Army Knife.?Rather, you would select the appropriate tools and use them in a manner and within a framework that leads you to the best possible outcome, a home.?Credit unions are in a position to build a digital home for themselves in 2022 and I look forward to seeing how this evolves.