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The Defining Technology of The Next Decade Is…

As we enter a new decade, credit union executives around the world are reflecting on the past ten years in hope of identifying trends that will define the 2020s. The last ten years brought revolutionary technology to the forefront of banking, regulatory changes that continue to impact day-to-day operations and the rebuilding of consumer trust.

Credit unions in particular experienced historic growth in membership, despite the overall industry landscape shrinking. According to data from the National Credit Union Administration,

As we enter a new decade, credit union executives around the world are reflecting on the past ten years in hope of identifying trends that will define the 2020s. The last ten years brought revolutionary technology to the forefront of banking, regulatory changes that continue to impact day-to-day operations and the rebuilding of consumer trust.

Credit unions in particular experienced historic growth in membership, despite the overall industry landscape shrinking. According to data from the National Credit Union Administration,

What is DLT?
In the simplest terms, distributed ledger technology is a digital decentralized system that leverages nodes and cryptography to record static data, which does not change over time, and dynamic data, such as transactions. Since it does not depend on a central authority, there is no central database that can be easily targeted or hacked. Instead, each node processes and verifies every item in real-time, generating a record of each item and creating a consensus across the network. If an inconsistency occurs, whether by error or with intent, it is flagged immediately – a significant advancement compared to traditional databases, which can take days or week to notice.

Why are credit unions adopting a decentralized network?

There are many reasons why credit unions are adopting this new technology at a rapid rate.
One of the universal challenges it helps to address is the limited geographical footprint that many credit unions have. Despite consumers increasingly relying on online and mobile banking, there are still many reasons why a branch visit may be necessary. This can take the form of opening an account, depositing or removing funds, financial planning and more. If a member is traveling across the country or internationally and needs to visit a branch, they may be out of luck. 

Credit unions that are part of a decentralized network, however, are connected with credit unions across the globe. DLT establishes a true peer-to-peer network, enabling credit unions and their members to participate in shared branching in a highly secure way. Since there is no central authority, members can conduct business at any credit union on the network by using their credit union-provided decentralized digital identity (also known as self-sovereign identity, or SSI). 

The decentralized identity acts as a KYC-backed portable, interoperable digital identity. It provides a seamless way for members to interact with any credit union on the network, as well as their primary credit union through any channel, whether in-person, via phone or online. 

What are some other examples of how DLT is being used by credit unions?

Aside from creating a vast network for members worldwide to safely engage with, DLT is being adopted to address a host of challenges credit unions face.  
Reducing friction in authentication and fighting call center fraud

Call centers are one of the most vulnerable areas of any financial institution. Bad actors rely on traditional authentication methods deployed by credit unions – such as verifying recent transactions or the last 4 of the member’s social security number – and employees risk falling prey due to customary performance measurements. 

Instead of relying on personal identifiable information, credit unions that provide members with a decentralized identity can verify members’ identities within a matter of seconds without ever asking for sensitive information. In order to verify identity, credit union employees “ping” the member’s app with a request to authenticate. Members then use built-in biometrics, such as Face ID, to validate their identity with the credit union. If a bad actor is attempting to fraudulently call in, the member can simply select “no” when the app asks for verification. This quick, simple process provides unparalleled protection to both credit unions and their members while enhancing the member experience. 

Unparalleled member benefits

Between data breaches and unethical data sharing amongst various industries, from social media to retail, consumers are becoming more concerned about the privacy and security of their personal information. Additionally, consumers have come to expect easy-to-use, instant digital experiences. Unfortunately, many companies have exploited consumer trust and data under the guise of selling data in order to provide a better experience. 

Decentralized identities give members the chance to not only have a positive, fast-moving digital experience, but also allows them to control all their personal identifiable information. Credit unions that offer decentralized identities can truly ensure members that their data is safe, private and only being used when the member allows. And, since the identity relies on built-in biometric safeguards, conducting financial business on a decentralized network is faster, more streamlined and more secure than any other solution available.

How will DLT evolve in the 2020s?

The opportunities with distributed ledger technology are near-limitless. Some key areas that will be explored early in this decade include cross-border transactions, streamlining the lending process and positioning credit unions to provide authentication support to other highly regulated industries.

Cross-border transactions

Historically, cross-border payments have relied on outdated, slow methods that are highly vulnerable and provide little to no transparency. Credit unions that are participating in a decentralized network, however, can provide a variety of near-instant, affordable and secure payment options domestically and internationally. By leveraging the member’s decentralized identity, the need for manual entry of recipient details can be eliminated. Additionally, KYC and AML compliance requirements are met as the identity is incorruptible and nontransferable. Further, DLT can provide members – and regulators – with deeper visibility into the transaction as the nodes are continuously updated to reflect new advancements. 

Streamline the lending process

Despite all of the technological innovation over the past ten years, the consumer lending process has changed very little in decades. Additionally, lending has become particularly vulnerable to fraud as internet and mobile-based transactions become more common. Credit unions offer notoriously competitive rates when it comes to consumer lending, especially to members. This is often cited as a key benefit to credit union membership. In the 2020s, credit unions will increasingly rely on decentralized, digital identity to swiftly and securely open accounts, transact and engage in the lending process. 

Position credit unions as a trusted resource for identity verification

As member-owned and operated financial institutions, credit unions are often regarded as trustworthy, reliable organizations across various industries. Coupled with the high regulatory standards that credit unions must meet when engaging with members, credit union-provided decentralized identities are positioned to meet the rigorous authentication standards of other industries, such as government and healthcare. 

Decentralized identities are interoperable and portable by design, allowing for the authentication and onboarding of other entities. This enables outside organizations to leverage existing, credit union-provided decentralized identities instead of developing their own solution – further enhancing the trustworthy reputation of credit unions while providing an opportunity to support those who need it the most, such as refugees or underbanked members.  

While the interest in DLT grew during the previous decade, the 2020s will bring an explosion of interest and growth in this rapidly evolving ecosystem. Credit unions around the U.S. are already experiencing the benefits of a decentralized network, from reducing call center fraud to driving member engagement. Unlike any other industry or business, credit unions are uniquely positioned as trusted financial services organizations that embrace a collaborative, cooperative element into member services. With the current and future possibilities DLT provides, there is no doubt that the credit union industry will thrive in the years to come. 

Julie Esser is chief experience officer of CULedger, a CUSO that delivers a trusted, peer-to-peer services network of verifiable exchange for financial cooperatives. CULedger is an IBM Blockchain partner. For more information, please visit  culedger.com. 

This content is for CU BUSINESS eMagazine + WEB ACESS and THE TEAM BUILDER (GROUP SUBSCRIPTION) members only.
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