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  • Writer's pictureFred Kelly

Innovation - a Low Risk Approach for Credit Unions

Credit unions are in the risk business. The whole organization is geared around managing the risks inherent in balance sheet alchemy. This is understandable as credit unions are entrusted with their members’ savings. That’s a huge responsibility and is the primary reason credit unions are subject to intense regulatory scrutiny.

It’s natural then, that credit unions are risk averse. This normally helps keep them safe. However, the rapid emergence of fintech has introduced rapid change. Now, the aversion to risk displayed by credit unions is becoming a risk in itself. As Mark Zuckerberg once said, “The biggest risk is not taking any risk.”

But we all know that telling credit union boards they need to take more risk is a non-starter. There’s a lot of hype around innovation and risk-taking.

It’s well-known that Steve Jobs took on some huge bets at Apple and Pixar. Of course, like any gamble, we tend to hear of the wins rather than the losses. And losses there are aplenty.

Credit unions risk becoming as obsolete as a BlackBerry but can’t afford to bet the farm on a radical transformation. So how do we square the circle?

How to De-Risk Innovation

Innovation will never take off in credit unions unless we can reduce the risk to within their risk appetite. Rather than taking big, bold bets, de-risking the process is the single biggest contributor to success.

Managing risk is something that credit unions are normally very good at. We can borrow from the way credit unions manage risk in their loan books. There is inherent risk in every loan but still credit unions know they have to make loans to ensure the viability of their business. Ensuring there is a high degree of granularity in the loan book, credit unions can diversify their risk.

This is the same fundamental approach that works for innovation.

Credit unions need to innovate to survive, and by creating an innovation portfolio they can manage risk and ensure future income streams.

The trick lies in doing this cost-effectively.

Innovation’s uncomfortable truth is that nobody knows for certain what will be successful. Of course, there are plenty of opinions about what will work, but until a feature or a product is actually put in front of customers, these are just opinions. Innovation relies on trial-and-error.

That means we need ways to test ideas quickly and cheaply. That’s where “pretotyping” comes into the picture.

From Prototyping to Pretotyping

Most of us are familiar with protoypes, an early test version of a product, but you may not have heard of pretotypes.

Pretotyping, a term coined by Google's first engineering director, Alberto Savoia, in his book The Right It: Why So Many Ideas Fail and How to Make Sure Yours Succeed, is a very basic expression of your idea that focuses on answering the most critical question: Is this the right thing to create?

That differs from the purpose of a prototype which answers the question, “Can we build this?”—a secondary question. If your members don’t value your idea, there is little point in proving you can build it.

This is important because, as we know, most ideas fail. From your portfolio of ideas, you want to de-risk your innovation process by only focusing on those ideas that can provide positive evidence of demand from your target audience.

In this regard, pretotyping has three key advantages:

  • It’s quick. A pretotype can be created and deployed in a week or less.

  • It’s economical. You should budget $100 or less for your pretotype.

  • It informs your decisions. When put in front of the ultimate arbiters, your members, it will generate valuable data about your concept that will help inform your decision about whether to proceed further with the idea and in what form.

So how do we do this in practice?

Pretotyping Techniques

There are many approaches to pretotyping, and you shouldn’t limit yourself. But here are a few to start with. The thing worth remembering is that pretotyping should always be quick and economical. Avoid the temptation to overengineer or succumb to perfectionism. The way to reach toward perfection is to have many iterations of your concept, each informed by exposure to your target audience.

  • Sketches and diagrams. Use sketches to illustrate your ideas and launch them into the real world.

  • Paper. Paper pretotyping works best in the early stages of design, mainly for testing product ideas.

  • Storyboards. This is the technique employed by Pixar Animation Studios (the Academy Award–winning studio behind Coco, Inside Out and Toy Story).

  • Role-playing. A method that allows your design team to explore scenarios within the system you are targeting physically.

  • Physical product. When the end result is a physical product, you can use a wide range of materials to build mock-ups for testing.

  • Digital product. Digital pretotypes are cheap and easy to do when you want to test a digital interface.

Example of a Wireframe Pretotype

Overcoming Internal Hurdles

This all sounds fine in theory but perhaps the biggest challenge you will encounter is internal resistance. Innovation is iterative rather than a big bang process. It involves exposing very early versions of your idea to external scrutiny. This can be uncomfortable. Here are some likely points of resistance:

  • Criticism. When someone points out flaws in your pet idea, try not to take it personally. Criticism is valuable. Try to get to the bottom of the criticism to unearth useful insights. However, not all criticism is equal. The criticism you should listen to most is that of your target audience—the people who will pay for your product or service.

  • Compliance. As regulated institutions, credit unions will have controls relating to financial promotions and should also have a new product process in place. Bring your risk and compliance team into the innovation process right from the beginning. Avoid surprising them after the fact!

  • Perfectionism. As a credit union, there will undoubtedly be concern about putting an imperfect product in front of members. Aiming for excellence is laudable. The most effective way to achieve that is through many iterations of your idea.

The most important thing is to get started. As the Chinese proverb goes, "The best time to plant a tree was 20 years ago. The second-best time is now."

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