What can you learn from a digital early-mover?

Digital banking made tremendous gains during the pandemic. While some banks and credit unions lagged, others set the pace.

David Tuyo, head of Los Angeles-based University Credit Union, joins us to talk about what his institution has done, where it’s headed and what others can learn from UCU’s acceleration into digital banking.

A few takeaways from the conversation:

  • The best way to overcome scale-related challenges is to successfully deploying technology to create a more efficient operation.
  • Automation is key: UCU’s embrace of AI has freed up team members to connect more deeply with members.
  • Senior leadership’s primary job is to figure your competitive edge today and to be ready to adapt when that edge changes over time.

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Below is a full transcript of my interview with David Tuyo.

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David, let’s start with you giving us a quick overview of University Credit Union, the size of your membership base, who they are, your asset level, that sort of thing.

University Credit Union was founded in 1951 by half a dozen of UCLA employees that we’re looking to create financial alternative to the big banks. And since then, we’ve expanded from serving employees at UCLA to serving the student body, alumni, faculty, administration, and their family members, and then expanded from there to include other schools and institutions of higher learning across the great state of California.

I don’t have to tell you how increasingly competitive the financial services space is getting. You live it every day. University Credit Union is among the larger credit unions in the country, but you’re still a tiny fraction the size of the big money center banks. How are you looking at the future and where do you see the biggest challenges for credit unions in the, say, short to medium term?

Yeah, I think we could probably spend 30 minutes on this, to be honest, but just to keep it brief, at a billion dollars in assets and about 45,000 members at University Credit Union, obviously size and scale are something that we’re going to be challenged with. And so in the short term, it is “How do we leverage technology in a way that allows us to achieve those economies of scale at a much more efficient level than what was attainable just a few short years ago?” I think in addition to that, I think the regulatory framework that we could be seeing the next couple of years could be a major challenge for all financial institutions. And, of course, the economy – that’s always something that can have a large effect on organizations, especially financial services firms. And so I think that, should we see a stall or possibly even a downturn, obviously that would have a tremendous risk and impact to all financial institutions across the country.

Now let’s look at it from the other side. Where are today’s natural advantages for credit unions that they need to fully exploit to be competitive and, for University Credit Union specifically, where do you see your best opportunities to distinguish yourself and carve out a defensible niche?

I think for us it really is leaning into our roots inside the university community. We launched an initiative called “Automate and Elevate,” and what we’re trying to do is just automate workflows across the organization at every touch point to reduce friction, reduce error, increase the member experience, and then simultaneously allowing us to elevate our team members’ conversations and knowledge base. We do that through a partnership with UCLA, where each of our team members will spend two years at UCLA learning a very rigorous curriculum around financial planning. They focus in on retirement planning, expense management, tax planning, insurance planning and estate planning, and it’s been a fantastic program. All of our employees go through a certified financial counselor program to start, and then they graduate into the UCLA program I referenced before. So again, just focusing on automating and elevating our performance, and we think that’s going to be a strong indicator of our performance in the near term.

Let me follow up on that financial planning training that you’re stressing for your team. A lot of banks are envisioning a future where providing comprehensive financial advice will be at the core of their customer relationships. Is that something that credit unions broadly should be preparing themselves for as well?

Absolutely. I think that, for us, we view ourselves at University Credit Union as the professors of our industry. And so our team is … they may be looked at as experts when you’re working with members across the country now. They have access to a variety of source information, some good, some bad, some accurate, some inaccurate. Having that unbiased, conflict-free voice for your member-owners is key. I think you’ve seen a lot of credit unions move that direction, not just in the United States but globally. And so again, for us definitely at University Credit Union, the financial advice will be and is the core offering to our member-owners.

I want to come back to what you were saying about wanting to automate all of your processes, that you’re trying to remove those frictions in there. What can you tell us about how you got to this decision to be a relatively early mover on this? And it couldn’t have been a cheap process that you’re undertaking here. Where a lot of institutions may have dipped a toe in, you seem to be just taking a plunge.

We wanted to take advantage of the pandemic, so to speak, take advantage of the crisis. And although this has been horrible in many ways, there have been some silver linings for us operationally. We were making a large investment in technology that we’ve ever done last year and this year. So last year was a record investment year; this year it’s going to be even larger. And we really just recognize that members are moving faster than ever. The days are fuller than they’ve ever been. Every minute of our time is scheduled, whether you’re on Teams or Zoom or BlueJeans or Google Meets or whatever your platform is. People are busier than they’ve ever been, and we had to find a way to become more relevant in the digital space and, of course, that requires a large investment in technology.

What of your key processes, your key functions, which ones have you already automated? And what’s been the impact that you’ve seen on your operations? And also, when jobs were affected by the automation, how did you deal with that?

At first, we converted from a live-chat option to a chatbot. And then from there we started launching and having AI assistance for our member-owners at the membership application, loan application and mobile and conversational banking. And also now we have AI – our bots are literally answering every single phone call – 27,000 phone calls last month in our contact center – and fully automating those calls. Over 26 percent of those calls are fully automated, often beginning to end, first-call resolution with our AI bots. And so when you think about the effects of COVID on your team, for us, we were severely impacted in March. If it wasn’t for the bots, we would had severe service disruption with our member-owners. And so leveraging and using technology like these AI bots to scale – again, it’s been a part of our secret of our success over the past year.

And what about the jobs part?

Yeah, so from a job perspective, we have seen some of the jobs obviously be automated, and the team’s really been encouraged by that. Originally, there was some fear, like “the bots are coming for our jobs.” But then, as we moved into that education piece, the elevation piece from the “Automate and Elevate,” the team really responded well – they embraced it, they loved it. They’re looking forward to having much more robust and in-depth conversations. The pressure to give somebody their checking balance and get them of the phone so they can answer the next call has been relieved because the bots are taking those easy conversations, that burden off them, so they can focus on more on the complex issues with our member-owners. And so actually, it’s been a huge blessing. And now we’re seeing across the entire organization where everybody wants a bot – HR wants a bot, training wants a bot, everybody … admin wants a bot. So again, these are things that culturally we start out with something as simple as moving from live chat to a chatbot on our website, and then this is just transitioned and transformed our culture across the board.

Being an early mover, there are obviously pros and cons with that. You’ve covered a lot of the pros in the conversation that we’ve had so far. What about some of the bumps that you’ve encountered along the road and maybe some of the lessons that you’ve learned as a result of those bumps?

You have to communicate, communicate and communicate. And some people say you have to say things seven times. It might be closer to a thousand. I think I think we all like commas. I think we just use it as a rule of thumb – you have to do everything with a comma to make sure that it’s redundant and clear and communicated effectively across the organization, and to your member-owners as well. I think some of the things we learned that early on… When you’re using technology and you’re continuously having something evolve on a daily basis, like our website bots or in our contact center, those upgrades of what the bot can do and the capabilities and competencies of that bot, you have to remarket and reeducate your member-owners.

You have to remarket and retrain and bring it back up to speed with your employees as well all the new functions and capabilities of the bot because if not, they may have thought the bot couldn’t do it before, but that was yesterday, but now today can do it. And so they may choose a different option or a service or for an inquiry. That was one of the big things for us. Also, I think you can’t test it enough. But when you’re working with software engineers, when you’re developing this tech, especially new technology, when you’re on the cutting edge, they’re not used to working with banks and credit unions or even extremely member-focused organizations. And so a lot of times the programming will come across as being very “software engineer,” meaning that you might say, “How can I help you today?” But a software engineer… when you first launched, when the question was, “What is your inquiry?” That’s not how my team members interact with our member-owners, and so we want to make sure that the language that we’re using and how we’re interacting using our technology is the same way that we do from a human perspective. So having that human-centric design is a key component of this.

David, a few weeks ago, we did a deep dive into a hot topic these days, and that’s the personalization of the customer experience. And one of the experts we spoke with was from Gallup, and he cited research that they’ve done that finds that, in banking at least, trying to personalize digitally for the customer tends to be more about avoiding negative experiences than creating positive ones. And by that, I mean banking institutions… this is his view… banking institutions don’t get much credit when the digital experience goes well, but they really take it on the chin when the digital experience for any reason falls short. So how does Gallup’s view on this line up with your lived experience at University Credit Union about digitalization and the customer experience?

I think it’s probably spot on. To be honest, I don’t know if it’s any different than service levels in a non-digital world, too. I mean, you look back 10, 15 years, I never heard many times from our member-owners that our team is doing a phenomenal job and serving them around their home loan mortgage or whatever their needs may be – car loan, credit card. But then, I did hear when we got it wrong. I think it’s the same thing today. Obviously, you want to make sure that you have the right capabilities. We track accuracy levels of all of our bots, and we have a target standard level that we try to maintain across all channels, across all bots, and that’s both internal as well from our internet and IT ticketing system, marketing systems. But right now, our bots are running about 97.33% accurate – accuracy levels across the entire organization. From a member perspective, our members are receiving it well. They understand that it’s a bot, they understand sometimes there’s some things that the bot doesn’t know. And so making sure you get that transition from the bot to a real person, a live agent, one of our coaches, that is a key piece of the experience. If you get that piece wrong, then I think you’re going to see a lot about what Gallup’s talking about – that negative experience, really, maybe even working against you and then having the customers, clients or members go to another financial institution.

At BAI, we look a lot at generational aspects of banking, whether it’s for personalization or for usability or something else. It seems that the millennials and Gen Z have different sensibilities, different values than the boomers and Gen X that preceded them. How are you thinking about the younger generations? What kind of value prop are you using to attract them? And what kind of success are you having with it?

From a value-proposition perspective, our value proposition is really straightforward, and we find that resonates really well with the millennials and Gen Z. And that is, first off, we were founded by the university community for the university community, so for those that are involved in that area of higher ed – whether it’s community colleges, universities, or various colleges across the state of California – we understand the unique needs and what they’re going through in their life better than anybody else.

We offer conflict-free and unbiased financial advice. That’s a big piece. None of our employees have individual incentives across the organization. So that way, when our members come to us, when millennials and Gen Z, that trust factor is the highest it possibly can be at our organization.

And finally, you need to offer a good deal. And so we give a top 1% guarantee …  our “best rates in the nation” guarantee that we have, the most utilized consumer products across the country. So those are things that we find really resonate.

But then, on top of that, our core values. We look at millennials and Gen Z. They value and embrace having a partner that cares about the same things they care about. And so for us, we want to make sure that actually we need to be highly engaged in the university community to understand what they are most passionate about, how they want to be served, what causes and how they want a partner to look and act from a corporate citizenship perspective. So we focus very heavily in that area to make sure that our core values and our activities – not just our intent, but our behaviors as a corporation, as an organization – reflects what they desire as a partner.

“Buy Now, Pay Later” is one of those innovations that’s fast growing with the younger generations, and it’s attracting a lot of investment capital as well. By some estimates, this fintech-driven system of paying off purchases in a handful of installments, it’s expected to grow to nearly $200 billion in the next couple of years. Are you feeling Buy Now, Pay Later in your card business yet. And how are you thinking about that innovation over the longer term?

We’ve already heard some member requests and inquiries around “When are we going to do something? What is that going to look like?” It reminds me a lot of the days when I was a young child and we had layaway, right. The difference is now you can actually get the item and then pay for it later. Back then, you had to you reserve the item and then you make payments and you eventually get the item at the end of that. So it is a nice convenience. I think that Buy Now, Pay Later, you need to be … Because of the size, when you talk about $200 billion in the next couple of years, it’s definitely a market that you can’t just turn your back on. You’re going to have to figure out what that looks like. And of course, with our technology upgrades that we’re making this year and early in the spring of next year, we’ll have the capabilities and competencies to be able to meet the market where it is. And in the past, that wasn’t necessarily the case.

David, the size of your credit union and your decision to embrace technology in a big way, to go with an ambitious plan, that comes with risks but also a lot of upside potential. Let me wrap up our conversation by asking you for the best advice you have for credit unions, and maybe for smaller banks as well, that haven’t started plotting their future path, or those that are maybe a little bit further along, but still haven’t reached the point where they’ve committed to a certain course of action. What’s your best advice for them?

The best advice that I can give is you need to recognize what is your niche, what is your competitive advantage that’s unique to your organization, and the senior teams need to understand that their primary job is to move from the current competitive advantage to the next competitive advantage. And it is a continuously moving target. And I highly encourage that, if you don’t understand what it is today, you need to get into the business and figure it out. And then also you need to plan, what does this look like in the future? What opportunities do we have, and how can we have a sustainable competitive advantage before we look on to the next one? And I think that’s the best advice I can give. And obviously, as you have those conversations, the majority of those are going to revolve around technology and digital as we continue to lean into this new world.

Finding that defensible niche is no doubt a tough task under any conditions, but especially when scale is an issue and there’s a steady flow of new competitors into the space. So David Tuyo, president and CEO at University Credit Union, we appreciate you spending time with us on the BAI Banking Strategies podcast.

It’s been a wonderful experience. Thank you for having me.

Terry Badger is the managing editor at BAI.