Episode 2 – Thomas Novak, Chief Digital Officer at Visions Federal Credit Union
In this episode, Ron and Tom discuss the results Visions has seen as a result of their fintech partnerships and how they’re going about building their partnership ecosystem.
Watch the full episode here.
Ron Shevlin:
Hi. Welcome to Tapping into the Potential of Embedded Finance, sponsored by Q2. I'm your host, Ron Shevlin, Director of Research at Cornerstone Advisors and senior contributor at Forbes, where I'm the author of the Fintech Snark Tank Blog. My guest today is Tom Novak, Chief Digital Officer at Visions Federal Credit Union, a $5 billion credit union headquartered in Endicott, New York. Tom's been there a little over 10 years, having previously spent some time on the banking side with M&T and PNC. Tom and I actually have something in common. We're both Binghamton University graduates, although, Tom, they didn't call it Binghamton University back in my days, it was still SUNY Binghamton back then. I don't know if you remember those days at all, but thanks a lot for being here.
Tom Novak:
It's a pleasure. Thanks for having me, Ron.
Ron Shevlin:
Great. Hey, so to get into the conversation, first off, I want to congratulate you and the credit union for being named a winner in the 2021 IDC Fintech Real Results Awards for Innovation Platform to Improve Digital Experiences. What exactly is Visions' innovation platform and how did it come into being?
Tom Novak:
It really starts with a partnership mentality. We realized that our core competencies didn't go into the fintech space, didn't necessarily reach into the innovation sphere, and we needed to make sure we were partnering with key providers to help us accelerate that innovation and start to take advantage of what fintech was bringing to the financial services space. That's where Q2 came in. Their Innovation Studio is really that platform we're referring to when we talk about that. That helped power us to not only that award but to get us to the vision statement that we have for digital transformation at Visions, which is to be a digital-first organization, empowering our members towards financial independence. I think that's where that real results component came from is that we're not looking for fintech partnerships or new technology for technology's sake, we're looking to keep our core values the same and align to that mission, which is focused on our members, and utilize and leverage technology to help make their lives easier to help demystify the financial services space for them.
Ron Shevlin:
Tom, I tend to think of the relationship you have with Q2 as more of a vendor relationship than a partnership relationship, but not to get too deep into that, what other partnerships or other external relationships have you developed as a result of being able to leverage the Q2 platform?
Tom Novak:
A key component of that is how we're building that partner ecosystem. Right before getting into the actual partners, I think it's worth noting it's not just wordplay, it's not just vendor/client relationship versus partner. There's really authenticity behind that. When we're in this partner relationship, there's only a handful of providers that we would consider in that category, and then, of course, we have a lot of vendor relationships, but when we get to that partnership level, we're actually co-creating together. The partner is bringing maybe the foundational component to the table and we're adding our expertise to that to make something come to life.
To answer your question, a few of those partners would be what we're doing with Visa DPS. I also oversee payments and how we're blending the payment space and that digital banking space together, those are really adjacent services, adjacent experiences that we want to be really seamless. Q2 is helping us bring another key partner in Visa DPS into the digital banking environment and accelerate payments and improve those experiences.
Another key one is DocuSign. DocuSign is a huge partner of ours. We put them on that same level. Because of what we're doing with DocuSign and Q2, we're able to take something that was a very manual process or a paper-based process and not just simply digitize it but also accelerate and scale that, so we're doing things at a volume and a pace that we weren't experienced with before. Our loan skip-a-payment is an example of that where COVID came about, we had to quickly pivot and change that from a single skip-a-payment functionality for our members once every six months to now being able to offer that to just about all of our members three skip-a-payments in a row. DocuSign and Q2 were central to making that come together.
Ron Shevlin:
The IDC award, as you alluded to, is called the Real Results Award. What kind of real results has Vision achieved with the platform?
Tom Novak:
Mm-hmm. Specifically, it's with an adjacent innovation that I think you've written about, which is starting to bring in services that make a lot of sense to banking, but maybe a customer or member wouldn't inherently think of getting from their credit union or bank. In this particular case, credit monitoring and ID theft protection was one of those adjacent innovations that turned into the Real Results Award, so we've only had that live. It's an Experian solution.
Another partner of ours, their IDnotify product, or service that I should say, and that's already garnered over 5,000 enrollees, but the key part about that is we were able to co-create a business model that wasn't necessarily something out of the box. As it first came to be, and we had worked with Q2 on this for a while, at one point, we thought we were going to partner with LifeLock, turned out we ended up moving and going with Experian, which actually turns out to be a whole lot better for various reasons, but the model at first was to say, "You can go in and you can undercut the market. You can offer this to your members at a lower price point than LifeLock or some of the other providers out there."
Q2 was open and wanted to partner with us and said, "What do you think about that?" We came in and said, "Well, if we're really trying to empower people towards financial independence, we want to offer this to our members at no charge." The research that we've done said that the primary reason people don't adopt digital banking is because they have security concerns. They think their ID is going to be lost, their money is going to be moved out of their account, unbeknownst to them, so what better way than to offer this service, a premium service, at no charge to our members, and also double down on the whole credit union mission of people helping people? Those real results in just a few months turned into over 5,000 enrollees in the service. We're continuing to expand that and we've got some other adjacent innovations on the horizon by the end of the year that we're going to take a similar approach.
Ron Shevlin:
Yeah, Tom, this is really interesting. You're listing a whole bunch of partners that you're working with. It's a very impressive list. One of the things that strikes me as just somewhat surprising is I completed a study recently of about 250, 260 financial institutions and asked them about their financial partnership efforts, and specifically, I asked them about their internal competencies, not around delivering services, but around partnering in the first place. I was amazed at how few dedicated personnel most financial institutions have to partnerships and wonder if there's real competency. Not even looking at this from the technology perspective, but from the internal competency perspective, how does Visions approach and deliver partnerships? Do you have dedicated people? Where do they report into the organization? How do you focus their efforts? Can you talk about this from the internal Visions perspective?
Tom Novak:
Absolutely. The first thing I would say is I believe your research and your intuition is correct, that a lot of community financial institutions and credit unions, even large credit unions, larger than Visions, do not have a dedicated resource or team that's focused on partnerships. We throw that term around a lot and we don't really get to the core of what it means and how it can benefit all parties involved. In terms of Visions, I've kind of been thrust into that position because I oversee digital, I oversee payments. Fintech is at the heart of a lot of that, and so just out of a need, it was birthed to create this partnership model here at Visions, so myself and my team are the defacto partnership providers or partnership creators with the providers that we're looking to have a relationship with. You see that here and there throughout the rest of the organization, but there really isn't a dedicated officer or department that's specifically focused on procurement of partnerships.
I think as we mature throughout the process and we realize that everything we do is laced with technology, is underpinned by technology, we'll see the greater need for those partnerships because the competency we have today is more focused on community partnerships: Which chamber of commerce are we going to have a relationship with so that we can share best practices of growing our business in the community? Which trade associations are we going to have a partnership with so that we're in the know when regulatory changes come about? But the true business-to-business partnership, I believe, and based on the peer conversations that I have, is being naturally born out of the digital area within an organization, that they're the ones spurring that change upon, but it hasn't been codified in the way I think it should be.
Ron Shevlin:
Yeah. One of my favorite quotes is from a buddy of mine, Brett King, who written, of course, Bank 2.0, 3.0, 4.0, and is a great speaker in a lot of different events. He talks about his experience with Moven, the neobank that he had created about 10 years ago, and he once told me, he said his biggest challenge was companies' procurement departments who treat them like little IBMs or Oracles with severe service-level agreements. He said, "If we had to follow those, we never would've survived," so is procurement and purchasing a cultural barrier that you have to overcome from a fintech partnership perspective?
Tom Novak:
That is certainly part of it. There's an inherent risk aversion from financial institutions, and especially credit unions when it comes to fintechs. Some of it is the unknown. Some of it is what they see in past news articles and such, that there was this competition, and now it's shifting to more cooperation and partnership, and it's challenging the conventional wisdom of a typical risk-averse financial institution. For instance, we have a fintech collaboration framework that we've created with the senior management team. It was a trial-and-error process. We didn't have some template that we went off of and it felt uncomfortable a lot of the times trying to hammer out the ideas and how the framework would actually operate.
Then once that occurred, it was even more uncomfortable to start to act on that and talk to our risk mitigation department and our vendor management department and ask them to grow with us as we were starting to partner with organizations that might not have a 100-page due diligence package, that they're moving faster than that, they're mitigating things in a very clever and sophisticated way, even though they don't have an entire legal team to back it up, so we're all asking ourselves to grow a little bit more, go out of our comfort zones to do this.
But I think the key part of that, to add on to what Brett was alluding to, is that, and I almost shudder to use this phrase, because I think it takes it in a different direction, but somebody needs to know enough and be that connective tissue that they can evangelize this process. If somebody is simply just a figurehead or simply just procuring great relationships without understanding the business need, the member need, or how this is all going to come together, it does not resonate and it does not work. Somebody has to go ahead and make sure all those dots are connected and have enough know-how of all the various parts of the business to include how the fintech is going to make something better or the vendor partner to move that forward. If it's just rote and part of a plan or a document, it doesn't work.
Ron Shevlin:
Talk a little more, if you would, Tom, about your fintech partnership framework. What is it? How does it help you make decisions? What's it comprised of?
Tom Novak:
Mm-hmm. We took a very people-centered approach at first. It comes from this phrase, I believe this even might come from the Steve Jobs and Apple days, but don't quote me, which is: "The true innovation is the team. It's not just some new technology or innovation lab, it is that team working together to solve problems in the best way possible." A lot of times to solve those problems today, we have to do it through technology, so the senior management team came together and we had to do the hard work, the critical thinking to understand, "Why do we even want to partner with fintechs?" Once we decide that, what are we looking to do with it? What value are we looking to extract?
On that note, we needed help. We actually partnered with somebody, it's a group that we actually still to this day consider a partner, which is Extractable. Extractable is a digital transformation organization based out of San Francisco. Craig McLaughlin is their CEO and Mark Ryan, their Chief Analytics Officer, and they really know financial services and fintech and how you can bridge that gap between a leadership team and where we need to go in terms of digital transformation.
After we did all of that hard work, we then started to say, "Let's take it a level deeper." If we are identifying these gaps in our business, KYC, as a for instance, our digital account opening experience, is very clunky. We're asking out-of-wallet questions. People are abandoning the application. We're really not providing a best-in-class experience and if we want more of our volume to come from the digital channel, it's just not going to work this way. Fintech, we realize they were doing some cutting edge things in the KYC, AML, and CIP space, and that led to a partnership with Alloy, Alloy being a fintech partner of ours as of just a few months ago. Now, we're going to go ahead and take that digital account-opening experience, which if it went perfectly, was about 10 to 15 minutes, we're going to take that down to less than four minutes and start to strengthen our fraud mitigation posture because of that fintech partner.
Really, the antithesis of what our risk team was concerned about, bringing in all this risk, we're actually looking to mitigate the risk and be more sophisticated, but do it in a way that is ease of use for the member and the staff, so we went through that process to find some of those fintechs, and now we're executing on the plan. The great part about it is success begets success, so as we're building this network and explaining to these oncoming partners, "This is the type of relationship we want to have." We're taking the time to go ahead and explain that. That is opening so many doors. It's opening doors to other fintech partners. It's helping to attract more like-minded organizations that want to move digital transformation forward, and now, we're starting to accelerate at a pace that we did not anticipate.
Ron Shevlin:
Tom, great story. You talk about a lot of different things. What I can't help but wondering is as you approached your efforts towards both core and digital modernization, what I find is that a lot of financial institutions find it very daunting and don't know where to start. How did you determine where to start, what the path was, what the game plan was?
Tom Novak:
It started with conversations. We had to get initial-
Ron Shevlin:
No, no, no, not... How did you lay out the project? How did you know which pr duct or service to go after first and then figure out what was the next one? What was the first step in the actual transformation? I'm sure you had a lot of discussion, but ultimately, how did you determine what the right initiative to start with was?
Tom Novak:
We ended up co-creating, for lack of a better phrase, a prioritization matrix with Extractable because one of the biggest hurdles we had is we couldn't get people to agree, we couldn't get people to understand maybe the value of doing something first or doing it now because the market might be moving so quickly. There's this first-mover advantage that we were losing out on, so we ended up creating a prioritization matrix with Extractable. Essentially, it's just a spreadsheet, and we go through and everybody has a voice, but not everyone necessarily has a vote. We have to put those pieces together and vie for the idea, but then really pick it apart to understand, why would this come before something else? That really helped give us clarity to say, "We need to move forward on the digital account-opening experience now, we need to move forward on IDnotify now, and these are how we're going to prioritize those."
It is not a perfect system. We come across opportunities all the time that what the prioritization matrix allows us to do is then foster the conversation to say, "You know what? We had this ranked higher. Because this opportunity has presented itself, we're going to deprioritize it," so it adds a lot of transparency to the process, so all of that blocking and tackling that used to get us tripped up so much and then it spurred inaction, we just didn't do anything because we didn't know how to block and tackle, we've now cleared that out of the way, so we can start to run these plays and figure out, "Well, even if it wasn't the right play and we prioritize that incorrectly, we're at least learning, and we're going to take those lessons into the next decision."
A key example would be the opportunity to offer a Bitcoin exchange through digital banking to our members. That was not something on our roadmap. We didn't put that through the prioritization matrix. We were researching cryptocurrency and blockchain, but we didn't know how to manifest it in a way that would benefit our members, but in comes this opportunity with Q2 and NYDIG, and now we have a value proposition that aligns with our mission to empower people towards financial independence, so offering a Bitcoin exchange in a more secure fashion to our members than they would've got it from, let's say, a Coinbase, offering it to them at a better price point than they would've got from some of the competition, and then being able to grow that relationship from there as we look at other strategic objectives like offering Bitcoin as a form of rewards on your cards and so forth, so that's one thing where we said, "Hey, we didn't have that on the plan. Because we now have this visibility and transparency with our prioritization matrix, we're going to bump that into the top and deprioritize something else."
Ron Shevlin:
Got it. As you look out over the next couple of years, what new products and services do you plan on adding to the platform?
Tom Novak:
One of the short-term things is digital donations. We find that our members, we want them to be in the Visions ecosystem. I think one of your colleagues, Alex Johnson, has wrote some articles around modular banking, and that very much, I think, fits with embedded fintech and embedded finance, how this is working, that Visions Federal Credit Union and credit unions and community financial institutions like us are realizing that if we want to be able to punch above our weight class, we cannot do it all ourselves. Even if we have the will to go ahead and build some of these competencies internally, it's a multi-year journey. If we want to go farther, we have to go together, and that's where these partnerships come into play.
Modular banking and embedded fintech, although different concepts, we think of them somewhat similarly, where we're going to start curating best-of-breed partners so that we can get those services out to our members. Digital donations is just one of them. More end-to-end card controls, greater functionality with card controls is yet another. The Bitcoin exchange is probably the most flashy one that's coming right down the pike.
But you mentioned Brett King a little bit earlier and you mentioned Moven. What we'd really like to see... All right, I couch that statement, Ron. What I personally would like to see, but it's going to take some time, is I'd like us to start up a digital financial institution to run in parallel with Visions Federal Credit Union and Moven and Q2 are two key partners that can help us do that. You're seeing that happen across the space. It's not necessarily a new concept, but there's so much learning, there's so much iteration, and at speed and scale that we could potentially do with that, that even if the digital FI didn't succeed in the long run, the learnings that would pass through to the main organization, I think, would be invaluable, so we're keeping an eye on things that Moven and Q2, specifically their CorePro offering, is bringing to the table, because what's going to happen when we start running at a certain pace, as we anticipate to be in 2022 and 2023, the next logical step is that.
Ron Shevlin:
Tom Novak, Chief Digital Officer of Visions Federal Credit Union in Endicott, New York. Thanks so much for being with us, Tom. For everybody joining us today, thanks a lot. I hope you'll join us for the next episode of The Potential of Embedded Finance. Thanks a lot.
Tom Novak:
Thanks, Ron.
Ron Shevlin:
And we're done.
