IT modernization

After serving military families since 1933, the Navy Federal Credit Union is undergoing a modernization program to meet the needs of its new generation of customers. CIO JERRY HERMES tells Diana Milne what the organization has in store.

“Cloud computing raises big questions for us in terms of the fact that, while it can create a lot of efficiencies, it can also create a nightmare on the flip side.”
-John Quinones

There are few US financial institutions more rooted in traditional banking practices than the Navy Federal Credit Union, and the organization's CIO Jerry Hermes is the first to admit that Navy Federal is a little behind the times when it comes to the latest banking technologies. But he says it is crucial that the credit union, which serves retired and serving military personnel, is able to meet the needs of all its members - regardless of age. This, says Hermes, is one of the main aims of the organization's ongoing modernization program. "A key priority for 2010 is to be in year two of our major transformation of organizational structure and core system modernization which involves adapting our technologies to attract the Generation Y customer group where a multitude of our clientele are. If you look at our clientele, there is a really bimodal distribution.  There's a huge hump in the 20-30 age group and another huge hump in the over 50-age range. The over 50s, we've got nailed. To serve the 20-30 age group we have some modernization to do."

Modernizing methods

Catching up with its younger customers will not be easy, Hermes admits, given the Navy Federal Credit Union's traditional way of working. He says it has started by introducing mobile banking options and upgrading its online banking offering. "It's a huge job, I think, because we come from a traditional financial services model. Now we are into mobile banking. We are coming out with the second version of our home banking offering. The current version's been out there for about eight or nine years. It's a little tired and we want to refresh it. And from a business perspective, we want to make it easier to maintain."

Unlike most of its mainstream counterparts in the banking world, Hermes says the Navy Federal Credit Union has actually posted a profit in the past 18 months - a gain he attributes to the organization's risk averse approach to finance. "Credit unions in general are seen as a safer, more secure, less risky place to park money and we've seen about a 20 percent growth in assets over the last 18 months and a growth of membership of only about 10 percent, so we're seeing a lot more money come in per account than what we normally expect in the military families that we serve. But it's really heartening because last year, we extended mortgages, lending over $6 billion worth of new mortgages. This year, we have over $7 billion to lend and so we're very safe and sound." He goes on to say, however, that the downturn has affected his customers' spending habits with more of a focus on cash rather than credit card spending. "We're seeing more of a focus on paying cash, on families keeping higher cash balances than they have in the past, and, as a result, overall credit spend goes down."

Customer preferences

Keeping a close track of its customers' financial behavior is a key part of the Navy Federal Credit Union's customer relationship strategy. Naturally, he says, the needs of the military are different to those of the general population with the long absences of those serving overseas often leaving families in complex financial situations. "Our customers are divided between the active military and the retired. Once they're retired military, they look like the average population, so in that sense our membership is very much like that of any other financial institution. But within our active duty membership, we certainly are very knowledgeable about their stress points, what they want to accomplish and what their constraints are. When the military members are deployed for six or eight months, their families are left here. We have to look at what that does to them financially, especially if they're deployed to a remote foreign area where they're not going to be doing mobile banking."

Regardless of their military status, Hermes says the credit union's customers tend towards a preference for face to face or telephone banking - a "high touch" approach, rather than using online facilities. However, robust technology is still required to ensure call centers and customer contact centers are as efficient as possible, he maintains. "Most of our interaction with customers occurs at our branches and our call centre. Customers see us as a high touch environment and a credit union is generally seen as being more high touch than a bank. But that high touch capability is enabled by the technologies that allow the contact center to be rated one of the best and for us to have a world-class branch system. Our customers know that they have access to face-to-face contact when they need it. The phones are there 24 by 7, and if they [customers] just want to just get on with it, they can handle it all online."

Although he understands the need for the bank to modernize its systems and cater to the online banking generation, on a personal level, he is wary about the extent to which the younger generation is willing to interact online and maintains there must be a strong distinction made between approaches to consumer-orientated and enterprise computing. "The younger crowd is more apt to put their information out on the Internet and not understand the potential hazard. They're the ones who are interacting on social media more often than the older group. They have no concern about having most of that information out there, and they won't until they go for their first job interview and the Facebook party pictures come up in the interview. It's a constant education. The difference is between consumer-oriented computing and enterprise computing, and the rules are different. So what you do in your personal life you cannot necessarily do in your public life, and that's an important point to make."

Hermes says the credit union is currently working in partnership with an IT company, towards the building of a new IT strategy for the company and that his focus now is to move away from focusing on technology as an enabler of day to day working life at the bank to focusing on it as a means to achieve long term strategic goals. He says the company is working with an external IT solutions provider to achieve this. "We're going to be continuing the modernization programme and we are shifting our focus and shifting our resources away from keeping the lights on toward the strategic projects and the new things that we want to build. We're in a very tight partnership with a business on that. We have regular meetings with the other business units to ensure that we are seen as a strategic partner and that we're as concerned about the bottom line as they are. So as we move into voice over IP to all of our branches and to replace some of our older infrastructure, it's always with an ROI in mind, and they appreciate that."

Creating a case for investment in this new technology, particularly at a time when budgets are tight, means focusing on solutions that enable the credit union to meet its business objectives - a focus he feels well qualified to achieve. "I spend probably 15 percent of my time on the technology and the rest of it with the business. Risk management, security, business objectives, it helps that I've got a very business-orientated background and have run my own company and so it gives me the credibility to speak on that," says Hermes. "We've married the technology back to the business process better so that we can reduce our time to market." And luckily for Hermes he says he has the full support of his executive management team when it comes to making these investments to support business with technology. "They're clued in and I think that the President and the Chief Operating Officer both understand where we're trying to take the technology in support of the business objectives and they're very much backing that and making some investment available to us."

Biography

Jerry Hermes is the CIO for Navy Federal Credit Union, a position he has held since February 2009. Jerry boasts more than 25 years of experience working in integrating information and business processes, financial management and positioning professional services in the marketplace.