How does web technology adoption affect the performance of Irish credit unions?

Irish credit unions are now entering a period of substantive structural change which will in part be based around technological improvements. One of the conditions of the EU/IMF/ECB financial support package for Ireland was the requirement that credit unions are restructured. A Credit Union Re-Structuring Board was established in 2012 to facilitate amalgamations and the creation of strong ‘anchor’ credit unions capable of developing more sophisticated and more sustainable business models. €250 million has been allocated for this process some of which will be used to enable ‘anchor’ credit unions upgrade their ICT systems.  It was against this back drop, in our forthcoming paper[1], that we assessed the performance implications of web technology adoption in Irish credit unions over the 2002-2010 period.

Here are some key excerpts from the paper.

Figure 1 illustrates a steady increase in web adoption over the period although in 2010 53% of credit unions still did not have a web-based facility.  Further survey evidence from 2010/2011 suggests that these adopters are relatively unsophisticated technological capabilities, with less than 10% offering ATM and or phone banking. This could be related to two factors.  The first is that Irish credit unions have been unable to create a sophisticated integrated technology solution across credit unions and secondly credit unions are constrained by legislation and the regulatory authorities in the range of services that they provide

Figure 1

webadoptionCUs

Figure 2 presents a preliminary visualisation of some performance and cost metrics grouped by whether the credit union has adopted a website or not. The graphical analysis reveals some distinct difference with web adopters experiencing lower spreads on average (driven it seems by lower average loans rates), a marginally higher pay-out ratio and higher average labour and capital expenditures. The latter finding is consistent with the initial encroachment on costs of the adoption of a new technology, while the former finding suggests that credit unions are passing any benefit accrued from this new technology to their membership. The graphical analysis suggests that both saving members and borrowing members benefit but that the majority of the benefit accrues to borrowers.

Figure 2

Adoptioneffects

That said, care must be taken when drawing any causal inference on the effect of adoption from these graphs as to do so infers that the non-adopters and adopters have no other differences other than the adoption of a website.  Using an exhaustive econometric panel data analysis to account for both observable and unobservable difference between adopters and non-adopters, we find consistent statistical evidence of a reduction in spread ( driven by a fall in the loan rate) due to the adoption of web technology.  This effect is persistent over a two and three year period and translates into a cost benefit for borrowing members.

Overall our study highlights that the adoption of a website, even with limited functionality, can provide cost reductions and performance enhancement. This points to the potential of additional benefits accruing from more sophisticated levels of technological advance.  We feel this paper provides timely and important evidence to the Irish credit union sector, which is now entering a period of substantial structural change which is partly base around technological improvement.

1. McKillop, Donal G., and Barry Quinn. 2015. “Web Adoption in Irish Credit unions:Performance Implications.” Annals of Public and Cooperative Economics 86(3).