Reducing the Cost to Serve

On the first day of university, in the first lecture of Economics 101, professors instruct us “not to make decisions based on sunk cost.”?Reflecting upon the real world however, chasing sunk cost sometimes seems like an athletic event.?While legacy has functioned dutifully in the background until now, digital transformation is well underway in financial services, shifting the utility of legacy technology to disutility, and exposing the liability of technical debt.

Legacy technology is expensive to maintain, and cumbersome to build upon. Maintaining reliance upon legacy while attempting to modernize subscribes financial institutions to a cost structure that is quickly becoming unwieldy vis-à-vis emerging offerings. In thinking about modern finance, we are not just referring to incumbent financial institutions, but also new entrants (including those in other verticals) who recognize the opportunity to disrupt.

In a competitive landscape such as this, unit economics and “cost to serve” matter, including the ability to quickly and efficiently innovate. In a rising cost macro economic environment, high-cost activities become even higher cost, further affecting margins. Unit cost is calculated by dividing operating cost by the total number of users.?And herein lies the power of credit unions and banks with a history of cooperation and collaboration – the more we work together, the more we bring down the cost to serve.?And as a corollary, the more efficiently we build out a modern digital cooperative value proposition that matters when, where, and how.

In a modern environment, cloud scalable solutions and Platform As a Service function to both reduce and spread cost.?Contemporary API’s enhance and accelerate connectivity.?Microservices provide us with the flexibility of Lego. Data imbues digital experience with meaning.?Artificial intelligence informs the caretaking of customer and member wellbeing. Experiences and functionality are configured as opposed to complexly customized.?Within this transformational context, not being in the right vehicle greatly affects a financial institution’s competitive position, and ability to provide first class digital experiences.

In the field, it is not uncommon to hear Young Leaders express concern over the poor usability and nimbleness in financial services technology deployments.?As digital natives, they have grown up with digital, and have different expectations, much different expectations in the manner they expect to be served. This demographic, and those following have market power and will be literally voting with their touchscreen on the digital experiences they prefer.

The impetus of modern digital has put financial institutions on a trajectory of change.?Those that are courageous and embrace this transformation will pivot in their ability to deliver meaningful digital experiences in an impactful and timely manner.?Now is the time to adopt a modern framework that reduces cost, aggregates volume and expedites innovation - we are at transformation.