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  • Writer's pictureFred Kelly

How Credit Unions Can Innovate Like Start Ups Without Writing a Single Line of Code

Updated: Oct 11, 2020

When you think of Silicon Valley, credit unions aren’t normally the first thing that comes to mind. I think even the most ardent credit union advocate would recognize there is room for improvement in the industry as far as innovation goes. 30 minutes browsing through the websites of the 5,000 credit unions scattered across the US would seem to confirm this.

Innovation has taken on mystical properties. It’s something that incredibly creative people do, tucked away for years in some lab before revealing some transformative technology like a butterfly emerging from a cocoon.

Perhaps the image of the lone inventor or the digitally-native millennial spring to mind. Innovation is for young sofa-surfing folk, living day to day until they strike it rich and disrupt an entire industry overnight. Or they go broke. It’s binary. Win or lose.

Most credit unions, and indeed most companies, don’t feel that they can be great innovators. Binary outcomes don’t sit well with financial institutions whose job it is to safely protect other people’s money. Besides, credit unions have been around since the 1860s. Membership in the US is at record levels. It works so let’s do more of what works.

That scenario is what Clayton Christensen described as the Innovator's Dilemma. Christensen argued, in his classic book of the same title, that disruptive technologies bring to a market a very different value proposition than has been available previously. Generally, disruptive technologies underperform established products in mainstream markets. But they have other features that a few fringe (and generally new) customers value. For that reason, big companies looking to move the needle often ignore these peripheral areas on the basis of insignificance.

Innovation Isn’t Coding

One of the hurdles credit unions face when it comes to innovation is the feeling that technology is all about coding. If, like me, you struggle to write HTML, you are hardly likely to embark upon a venture that requires fluency in Python and a deep knowledge of machine learning (although luckily for me, my colleague Chris Gifford, is a guru in this area).

But that’s not what innovation or technology is about. Technology is the collection of processes by which an organization transforms labor, capital, materials, and information into products and services of greater value. Alibaba founder, Jack Ma had no experience with computers or coding. Steve Jobs was a designer not a technical person. He would drive his engineers crazy.

A second myth is that you have to invent the next Iphone to be successful. Successful innovation is rarely a Big Bang event. It is a series of small almost indiscernible improvements. Innovation is also normally the result of bringing together existing components or ideas. You don't need to split the atom, you just need to take your creative muscles down to the gym for regular workouts.

Innovation is for everybody. To be successful you just need to follow the process

The Credit Union Innovation Advantage

In fact, because of their size, credit unions have an in-built advantage. Christensen found that small organizations can most easily respond to the opportunities for growth in a small market. The evidence is strong that formal and informal resource allocation processes make it very difficult for large organizations to focus adequate energy and talent on small markets, even when logic says they might be big someday.

However, at the moment, credit unions are not taking advantage of this tailwind. That's why I wrote this article.

The Law of Market Failure

There’s only one rule you need to remember in order to transform your organization into a hub of innovation. Almost all ideas fail. It’s what Alberto Savoia, Google's first Engineering Director and serial entrepreneur, calls the Law of Market Failure.

As Marty Cagan, a Silicon Valley-based product executive with more than 20 years of experience with industry leaders including eBay, AOL, Netscape Communications and Hewlett-Packard, explains there are many reasons for an idea to not work out:

The most common reason is that customers just aren't as excited about this idea as we are. So, they choose not to use it. Sometimes they want to use it, and they try it out, but the product is so complicated that it's simply more trouble than it's worth, so users again choose not to use it. Sometimes the issue is that customers would love it, but it turns out to be much more involved to build than we thought, and we decide we simply can't afford the time and money required to deliver it.”

Once we understand that fundamental truth, we can design a process that allows us to create and test multiple ideas quickly and cheaply. That’s the simple secret to successful innovation.

Unfortunately, most companies do the exact opposite. Someone has an idea, they think it will work, they become invested in the idea, the sunk cost fallacy starts to take hold, and they believe that if they just persevere it will come good.

Nobody is Immune

Nobody is immune from this, not even Google. Remember the Google Nexus smartphone?

Then there was Project ARA an idea to divide all major smartphone components into modular parts. Instead of spending hundreds of dollars upgrading the entire phone, customers would simply upgrade a specific component. Google has a long list of failures, some include:

  • Google Talk — Google’s first messaging app

  • QuickOffice — an alternative to Microsoft Office for mobile platforms

  • Google URL Shortener — a simple tool to shorten web addresses (plenty of other offer this service so the market exists)

  • Helpouts — a user-led online helpdesk where providers could get paid for offering online support and tutorials

  • Google Video — a free platform where users could upload video clips. It failed so they bought Youtube instead

  • Google+ — Google’s answer to Facebook

  • Google Glass — one of Goggle’s best known failures

So the Law of Market Failure is universal - it applies to everyone. Failure is a sign of innovation. Google has many failures because it is highly innovative and has a system for innovation. The question for us is, how do we innovate without losing our shirts?

The Innovation Process

Processes are one of the 3 Ps of business success (the other two are people and product). In innovation, people are designing and optimizing a process to create a product.

The innovation process has 4 steps

  1. Problem Discovery - How well you define a problem determines how well you solve it

  2. Ideation - Since we know almost all ideas fail, we need to create a large pool of ideas to begin with

  3. Idea Ranking - Since we can’t test each and every idea we need a way of figuring out which ideas we will test first

  4. Testing - Because we know that it’s dangerous to rely on our own opinions, we need a way to test the idea quickly and cheaply so that we can make an informed decision about whether to commit resources to progressing it further

Step 1 - Problem Discovery

We need to make sure we have the right ‘problem statement’ – how the problem is framed will influence the solutions that are presented, and will therefore influence potential innovation.

“If I had twenty days to solve a problem I would take nineteen to define it.” - Albert Einstein

Einstein believed the quality of the solution you generate is in direct proportion to your ability to identify the problem you hope to solve. The key to innovation is to fall in love with the problem, not the solution.

“It’s not that I’m so smart; it’s just that I stay with problems longer.” - Albert Einstein

There are many approaches to framing your questions, but let’s look at two, one unstructured and one structured.

The 5 Whys

The five whys and five hows techniques constitute a questioning process designed to drill down into the details of a problem or a solution and peel away the layers of symptoms. The technique was originally developed by Sakichi Toyoda who stated that "by repeating why five times, the nature of the problem, as well as its solution, becomes clear."

The five whys are used for drilling down into a problem and the five hows are used to develop the details of a solution to a problem. Both are designed to bring clarity and refinement to a problem statement or a potential solution and get to the root cause or root solution.

The Phoenix List

The key to understanding a potential problem is learning how to ask the right questions. A great tool for this is the Phoenix List, a list of questions the CIA developed to help with tough or cold cases:

  • Why is it necessary to solve the problem? ​

  • What benefits will you receive by solving the problem? ​

  • What is the unknown? ​

  • What is it you don’t yet understand? ​

  • What is the information you have? ​What isn’t the problem? ​

  • Is the information sufficient? Or is it insufficient? Or redundant? Or contradictory? ​

  • Should you draw a diagram of the problem? ​

  • Where are the boundaries of the problem? ​

  • Can you separate the various parts of the problem? Can you write them down?

  • What are the relationships of the parts of the problem?

  • What are the constants of the problem? ​

  • Have you seen this problem before? ​

  • Have you seen this problem in a slightly different form?

  • Do you know a related problem? ​

  • Can you think of a familiar problem having the same or a similar unknown? ​

  • Suppose you find a problem related to yours that has already been solved. Can you use it? Can you use its method? ​

  • Can you restate your problem? How many different ways can you restate it? More general? More specific?

  • Can the rules be changed? ​

  • What are the best, worst, and most probable cases you can imagine?

Where To Find Problems

It seems odd to go out looking for problems but problems are the genesis of innovation. If you are short of problems, take a look at Trustpilot or Yelp! and look at the negative reviews. Another useful tool is TestFreaks.

Your customer service team is also a wonderful resource. Spend as much time with them as possible. They are the most valuable people in your organization. Don’t rely on bad news finding its way to you. The further up the tree you sit, the longer it takes.

Customer complaints are the best thing that can happen to you. There is always room for improvement. It’s when you have no complaints then you should worry. That means they are telling other people instead of you.

Here are some examples of real problems faced by credit unions:

  • It takes too long for a customer to open an account. Why? What are the steps involved?

  • Customers are denied credit. Why? How can we help them?

  • Customers default on credit obligations. Why? How can we help them?

  • Customers just focus on price. Why? How can we differentiate our brand offering?

  • Customers choose competitor products. Why? Is it really just price?

  • Customers feel we don’t communicate with them enough. What causes the communication gap?

  • Extremely difficult to get through to on the phone (customer waited up to 2 hours each time) and incompetent and uncaring operatives. Are we even aware of this problem?

  • Bank card refused / online transaction blocked. How can we integrate the experience of third party providers?

  • Members feel they are just a number. Why is this a common complaint in an industry that prides itself on being a local partner?

  • Customer was told she would have to come in to branch rather than handle by mail. What’s our process?

Step 2 - Ideation

One of the best known and perhaps misunderstood ideation techniques is brainstorming. I’m sure we have all experienced brainstorming meetings with differing outcomes. The most common mistake is that the meetings don’t start with an agreed-on problem by the group or an identified structure. That’s we have ideation as the second step of the innovation process after problem discovery.

A simple 4 step to brainstorming (after problem discovery) is:

  1. Gather the right team and the available data

  2. Go for as many (quantity) ideas as possible

  3. Don’t criticize as ideas are proposed (however, we must criticize ideas to subject them to scrutiny, just not now as we want to encourage ideas. Shooting down an idea in front of the group as they are proposed is a great way to kill ideation!)

  4. Combine several ideas to create an amazing new idea using the SCAMPER framework

The SCAMPER Framework

The acronym stands for (S)ubstitute, (C)ombine, (A)dapt, (M)aximize or minimize, (P)ut to other uses, (E)liminate, and (R)earrange or reverse:

  • Substitute: What elements of this product or service can we substitute? ​Combine: How can we combine this product/service with other products or services?

  • Adapt: What idea from elsewhere can we alter or adapt? ​

  • Maximize or Minimize: How can we greatly enlarge or greatly reduce any component? ​Put to Other Uses: What completely different use can we have for our product? ​

  • Eliminate: What elements of the product or service can be eliminated? ​

  • Rearrange or Reverse: How can we rearrange the product or reverse the process?

Step 3 - Idea Evaluation

Depending on the number of ideas you produce you will want to attempt to rank them for testing. You can do this against some simple criteria like alignment with vision and strategy of the company, company objectives, complexity (start simple) and size (start small).

Another option, recommended by Marty Cagan, is an opportunity assessment. The idea is to answer four key questions about the proposal:

  1. What business objective is this work intended to address?

  2. How will you know if you've succeeded?

  3. What problem will this solve for our customers?

  4. What type of customer are we focused on?

The key here is to prioritize based on business results, rather than the product ideas themselves. We want to focus on solving business problems rather than building features.

Step 4 - Testing

The overarching purpose of any form of prototype is to learn something at a much lower cost in terms of time and effort than building out a product. It also makes you think through a problem at a substantially deeper level than if we just talk about it.

Unfortunately, this is typically where companies make mistakes. The two most common mistakes are that they take too long and spend too much money. This happens because they build too much before exposing what they have built to potential users/customers.

As Alberto Savoia explains:

Most people fall in love with their idea and assume it will be successful, so they just start building it. They presume to know what people will want. They assume that if they build it right, people will want it. In most cases, these presumptions and assumptions turn out to be both wrong and costly.

Pretotype, Prototype and MVP

You might be wondering why I can’t spell prototype? No, it’s not a weird English spelling. It’s a word coined by Alberto Savoia to describe the stage before we create a prototype.

There are three terms that are used almost interchangeably in the context of product development, but they have important differences:

  • Pretotype

  • Prototype

  • Minimum Viable Product (MVP)

Pretotyping as a way to test an idea quickly and inexpensively by creating extremely simplified, mocked or virtual versions of that product to help validate the premise that "If we build it, they will use it."

Prototypes are a necessary and incredibly useful tool that can and should be used to answer many questions about a potential product, such as:

  • Can we build it?

  • Will it work at all?

  • Will it work as intended?

  • How small/big can we make it?

  • How much would it cost to produce?

  • How long will the batteries last?

  • How will people use it?

  • What will people use it for?

Pretotyping, on the other hand, focuses on answering one – very basic and very important – question: Is this the right thing to build? Once that question is answered positively, then it makes sense to move from pretotyping to prototyping.

Minimum Viable Product (a term most widely used in start up circles) suggests something tangible and functional. In fact, it is a product that works but with the most essential features to make it viable. That sounds attractive of course, but again it takes too long and costs too much money.

Remember that most ideas fail, but that we don’t know which will fail until we test them. That means we need to test lots of ideas. The only way to that is to do so quickly and cheaply.

One of the most common misconceptions about preto/prototyping is that it only needs to be done once or twice at the end of the design process. You should prototype every possible iteration of your design—even your first, most basic idea.

Prototypes aren’t simply beta tests that have the look of the final version; they are any version of your product that can be used for testing. Let’s look at some common approaches to preto/prototyping.

Types of Pretotypes

Sketches and Diagrams

Sketching is one of the earliest forms of prototyping you can use. It requires very little effort and does not necessarily rely on artistic levels of drawing skill to prove useful, and therein lies its value. Use sketches to illustrate your ideas and launch them into the real world — even the simplest and crudest of sketches can easily achieve that.

You can also sketch diagrams and mind maps in order to illustrate a system, process, or the structure of your ideas

Paper Prototyping

A practice that existed well before the Internet, paper prototyping works best in the early stages of design, mainly for testing product ideas.

It’s as straightforward as it sounds—simple screens are drawn on paper and configured to mimic a digital interaction. A common practice for testing these prototypes is to have one person play “the product,” switching the sketches according to how the user behaves.


Telling stories is an excellent way of guiding people through a user experience. Storyboarding, a technique derived from the film industry, is something you can use for early prototyping to allow yourself to visualize the user’s journey or how users would experience a problem or product. When you draw storyboards, try to imagine the complete user experience, and then capture it in a series of images or sketches.

This is the technique employed by Pixar Animation Studios (the Academy Award–winning studio behind Coco, Inside Out, and Toy Story) and is described by Pixar’s Co-Founder Ed Catmull in his book Creativity, Inc.: Overcoming the Unseen Forces That Stand in the Way of True Inspiration.


Role-playing, or experiential prototyping, is a method that allows your design team to explore scenarios within the system you are targeting physically. This one of my favorite methods and I used it a lot as a CEO to understand how the bank’s processes impacted our customers. It’s also an incredibly powerful training tool for improving the customer experience.

By re-enacting scenes and situations you are attempting to improve, your team can get a better sense of what the experience may actually feel like and where you need to concentrate your main focus on improvement. You can also remember the experience more vividly when you physically experience it, rather than draw it out in a storyboard, for instance.

Physical product

When the end result is a physical product, you can use a wide range of materials to build mock-ups for testing. You can use rough materials, such as paper, cardboard, clay, or foam, and you can also repurpose existing objects you find around you in order to build physical models.

The purpose of a physical model is to bring an intangible idea, or two-dimensional sketch, into a physical, three-dimensional plane. This allows for much better testing with users, and it can spark discussions about the form factor of the solution.

The Palm Pilot was designed this way. It used a wooden block now on display at the Computer History Museum.

Digital Prototyping

Digital prototypes are the most common form of prototyping, and are realistic enough to accurately test most interface elements, They are also much easier to produce than HTML prototypes.

Digital prototypes can be built using apps and software made specifically for prototyping. Invision is probably the best known and has a free version. However, any new tool takes time to learn, and as speed is important, I justed used PowerPoint to behin with.

If a picture is worth a thousand words, a prototype is worth a 1000 meetings

Who Should be Involved?

A common question is who should be involved in the innovation process. There’s no strict rule to this but I’d suggest three guidelines.

Diversity - bring together a diverse team. People from different parts of the organization, different levels of seniority and different ways of thinking.

Proximity to the problem - look for people who witness or experience the problem. Customer service staff are great for this. They will provide amazing insights.

Create psychological safety - psychological safety is a belief that one will not be punished or humiliated for speaking up with ideas, questions, concerns or mistakes. Because innovation requires failure, it’s almost impossible to innovate if the team doesn’t feel safe. Let others speak first - a mistake I often made was speaking first. You want to avoid sucking out the creative oxygen of the room.

Final thoughts

Innovation really is in reach of your team. Creation is really just a design process in which you find and arrange different components in a way that solves a problem in an improved way.

As inherently small organizations, credit unions have an in-built potential for innovation. You don’t need to relocate to Silicon Valley or write a single line of code. When combined with the highly fragmented nature of the Fintech sector, what you have is a ready-made list of ingredients that is at your disposal to give your credit union an ever improving competitive advantage.

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