How the Demand for Tech Talent Complicates Succession Planning

Succession planning for credit unions has become more complex these days because of the rapidly evolving skills required to run a financial institution. The rise of fintechs has changed the competitive landscape, making investment in technology—and the talent required to oversee it—a core consideration that financial institutions cannot ignore.

Complicating the issue of filling technology positions is the unprecedented demand for top talent which has sent salary and compensation packages soaring. For a growing number of credit unions, hiring and retaining the text experts they need to compete effectively has become cost prohibitive.

What are these credit unions to do? The solution for many may come via merger—whether that means courting mergers with smaller or same-sized institutions to build the scale needed to afford tech talent or, alternatively, to present themselves as a merger partner to larger institutions that have staffing in place to develop the solutions their members need in an increasingly digital world.

More “Tech” Than “Fin”

The demand for technology talent at fintech firms is largely responsible for rising salaries and compensation packages in the financial services market. A 244-page report from the Centre for Finance, Technology and Entrepreneurship (CTFE) provides a thorough analysis of the fintech job market. The analysis revealed jobs in the fintech sector these days to be much more “tech” than “fin”—in other words, employees with tech competencies are taking precedence over those with financial backgrounds. So prevalent is this trend that it inspired the report’s title: “The Fintech Job Report: Technology is Eating Finance.”

Fintech’s share of the financial services market continues to grow, with CTFE defining it as equivalent to 38% of the banking sector in terms of market capitalization. The fintech industry is correspondingly becoming a more significant employer in the financial services sector, providing jobs to 300,000 people.

CTFE’s analysis of non-generic jobs in fintech found 70% to 90% to be jobs that would normally be found in tech firms. Finance jobs are much less plentiful in fintech. Thus, CTFE maintains that fintechs can be more accurately defined as technology companies than financial institutions.

“Although an understanding of finance is helpful in fintech, this is not the main requirement for fintech companies,” CTFE states in the report. “Digital skills, fintech understanding and an entrepreneur mindset tend to be more sought-after skills by recruiters.”

Specific job categories require highly specialized skills. For instance, candidates for IT and operations positions typically require hard skills like network administration and professional or project experience in software engineering. Data science candidates need hard skills like data analysis and visualization. Industry knowledge of artificial intelligence and machine learning is becoming more important across a broader variety of job titles.

The current job market for fintech professionals is strong, with the main fintech companies actively looking to hire 40,000 professionals in 14 job categories. With this type of competition, it’s difficult for small and midsized credit unions to compete for the talent.

The Implications for Credit Unions

The need to shore up technology capabilities will exacerbate a succession planning process that is already challenging for credit unions, as described in our recently published white paper, “Succession Planning with an Eye Toward Mergers as an Option.”

“[A]dopting a critical mindset about fintechs, maintaining a hyper-focus on innovation, and having a deep understanding of online member experience, analytics, and technology capabilities will be important characteristics of future leaders at successful credit unions,” writes Glenn Christensen, president/CEO of CEO Advisory Group and author of the white paper.

In a December 2021 article for The Financial Brand, author John Ginovsky notes how the distinction between fintech and traditional banking is blurring and is likely to disappear. Banks are becoming more like fintechs, Ginovsky contends, and to address this change, banks will need to adjust their hiring criteria to target people who are skilled in advanced technology as well as reskill current employees to strengthen their technology capabilities.

Will credit unions need to do the same? Without a doubt. “Various studies show that banks and credit unions understand that financial technology represents the key to not only their future growth but their very survival,” Ginovsky writes.

In a follow-up article for The Financial Brand in February 2022, Ginovsky observes that there is a growing realization among banks and credit unions that they will have to transform their recruiting and retention strategies to compete with fintechs for staff.

“Key to their success will be to identify new critical skills, expand potential recruitment areas and change the workforce culture,” Ginovsky writes. “Otherwise, fintechs with their revolutionary approach to staffing will leave traditional financial institutions in the dust.”

In our “Succession Planning” white paper, we suggest the idea of partnering with fintechs and other outside organizations as a pathway for credit unions to compete in an increasingly technology-driven market. Fintech partnerships are a viable way for credit unions to add capabilities that they otherwise would be unable to afford on their own. However, managing partnerships with multiple fintechs can, in and of itself, be a challenge that requires in-house oversight by talented executives who have the technology skillsets highlighted in the CTFE report.

Advice for Tech Talent Development

Our advice for credit unions is to prioritize technology capabilities in your succession planning process. As you build your strategy for the future, answer the following questions: How do you intend to stay on the leading edge of tech-based banking solutions? Do you have the talent in your organization that can develop and oversee the tech solutions you need to stay competitive? Do you have the budget to bring in new talent? Can you develop talent in-house? If not, what can you do to create a professional development process to build your homegrown talent?

In our “Succession Planning” white paper, we stress the need for credit unions to build scale to be in a competitive position to attract and retain talent. The rising cost of technology and tech talent has intensified the need for scale. If you cannot achieve enough scale from organic growth and market expansion, we recommend looking toward mergers (as the continuing or acquired credit union) to build your tech talent pipeline and secure your position in the future.