Digital Transformation at Central 1

I chat with Arvind Sharma, Chief Digital and Payments Officer at Central 1 about his experience leading transformation initiatives, Credit Unions in Canada and his journey leading the evolution of Central 1

Transcript

Chris Whyte  0:00  

Today on digital pragmatic, we speak with Arvind Sharma, Chief Digital and payment Officer of Central one.

Chris Whyte  0:22  

In today's episode, we're speaking with Arvind Sharma of Central one. Central one's involvement in the Canadian financial industry began in the early 1940s. With the formation of the Ontario Credit Union League in 1941, and the BC central credit union in 1944. Central one itself was created in 2008. By the merger of those two organizations. Central one manages the liquidity of the BC Ontario credit union systems, providing them with a variety of funding programs and investment products. This combined with their commitment to responsible investment practices ensures they feel a strong, stable, and sustainable credit union system for the long term. Often, much of the attention in Canadian Financial Services is focused on the large banks. But the credit union movement is very strong in Canada and continues to gain momentum. Since the formation of Central one, Ontario credit union assets have increased by over 35 billion, while BC credit union assets have increased by over 34 billion, membership and credit unions in Ontario have increased by 19% and MBC. By 31%. in alignment with the core credit union values of cooperation and collaboration, central one also provides banking and technology services that enable participating institutions to benefit from the scale and capabilities provided by a larger platform. Over the past few years, central one has made significant investments in digital transformation to develop a modern market-leading financial services platform and at the same time has undertaken a significant payment modernization initiative. Join us as we discuss the vision challenges and progress of Central one's digital transformation journey.

Chris Whyte  2:17  

Hello, everyone, and welcome to season one, Episode Four of digital pragmatic. Today we're very pleased to have with us Arvind Sharma, Chief Digital and payment Officer of Central one. Welcome, Arvin.

Arvind Sharma  2:30  

Thank you, Chris.

Chris Whyte  2:32  

Now, just as background, I've had the good fortune to have known you and work with you several times over the past few years. But maybe for the listeners, can you give us a bit of a background on your journey? And what led you to your current role at Central one?

Arvind Sharma  2:45  

Sure. So, a little bit background on me, I started with an undergrad and an engineering degree went into business because I've always wanted to get involved in the business world. And then by about the time, it was funny, by the time I went to do my MBA, I already had five careers. And if you remember at that time, everybody used to say the world has changed, people in their lifetime are going to have five careers. Before I even went to do my MBA I was already at five. I spent a lot of time with a lot of different companies and that gives me a broad perspective on how organizations do processes and basically use the same kind of practices to solve different problems. And ultimately, I was doing a lot of startups. I think I did maybe about four or five startups but never really hit it out of the park with anyone. We did get offered several 100 million dollars for a company that had no customers had no technology and no revenue. But in our grand wisdom during the.com, boom, we decided to say no, because we thought we were going to build it and reach a several billion-dollar valuation. But anyway, my advice to anybody in that kind of situation if somebody offers you multi-million dollars for something that's just an idea, take the money and run. So ultimately, I wound up in a situation where I'm pretty good with technology and I’ve always wanted to really move into business but whenever a company struggled on the technology side, they always pushed me back. This current job is great because it so I moved from small startups into enterprise. Some of the larger companies like CIBC, Manulife, and eventually wound up in this position, which is a general manager role allow me to combine both technology and business.

Chris Whyte  4:26  

Awesome, I think it's a great, fit for your background and your skillset. Again, I've had the good fortune of being in the financial services industry and being familiar with central one and the role they play, particularly in the credit union system. But for the listeners who maybe aren't as familiar with central one, can you give us a bit of a background of the organization and the mandate? 

 Arvind Sharma  4:47  

It's amazing how many people work in banking in Canada and don't even appreciate that this thing exists. So right now, there's probably about 250 or so credit unions in Canada. Not counting the Quebec and affiliated credit unions like the Caisse Populaire in Quebec.  I think including Quebec, that's about 450 or so. So overall, there are a lot of financial institutions in Canada, right? It's a regulated industry. But everybody just talks about the top 10 or so. Outside the big banks, there are quite a few. The way it's set up is these credit unions are regulated on a provincial basis. Each province has its own Central. And the idea behind this central is they provide the capabilities for the other credit unions in the province. So, you have big ones, you have small ones, but by working together, the central makes it viable for everybody to get scale in their operations. There are a few Central's in Canada, central one was the amalgamation of the British Columbia and the Ontario credit unions. Our owners are the credit unions in British Columbia and Ontario. And over time, we provide services to all the credit unions in Canada. Those services include digital and payments. Then we also have Treasury services. But the Treasury services are primarily for the British Columbia and Ontario credit unions, but they've been growing nationally as well. The digital and payments businesses are under my purview.  Payments is a service we provide to credit unions and small Bank startups and FinTech’s.  We offer a full suite of payment products. So if somebody wants to come to the market and offer a checking, Bill Pay, transfers, any kind of payment service available in Canada, my organization provides those and we do about 300 million transactions a year.  We also provide digital services. In fact, we're probably going to wind up changing the name very shortly Think of it as banking, digital services. We provide mobile application to a credit union and small, financial institutions and they can rebrand it to their own branding, we provide online services, you log in, and you check your balance. And we provide public websites as well.  It's an interesting job from a technology perspective, in that if you think about an organization as you know, insurance at a major company, they might have a bunch of policy systems that have grown over acquisitions over the years. They might have like 10 policy systems, maybe 12, and a front end that supports that. My job is to support 200 credit union in the back end, each with their own back end systems and one front end system as white-labeled. It's a very different challenge that most IT organizations and CIOs have. And I think we do quite well, actually. I can't take credit for building it central one had it in place before I joined. But it's a pretty amazing FinTech capability.

Chris Whyte  8:00  

That's incredibly it sounds like a really interesting use of platform as a service to be able to enable a smaller institution to have the same toolkit and capabilities and customer opportunities that maybe a larger institution would have.

Arvind Sharma  8:17  

Absolutely. And yeah, I didn't mention everybody talks about it being in the cloud today. And moving to cloud native like this has been cloud-native since day one, right? I mean, it's using not Azure or AWS right now, but the new platform we're building does, but the traditional platform, it was in the cloud. And you know, credit unions could enable themselves as well as small banks, just by calling us and integrating in and we can actually launch a credit union on our new platform, depending on how their back-end system supports within two months, which is unheard of. And so those are the kinds of capabilities that exist in central one today.

Chris Whyte  8:58  

And just to clarify, so you're based on your history, your primary customers are credit unions, but are you limited to that or can you do more?  I'm thinking about the emergence of the Neo banks and the challenger banks? Would they potentially be people who could tap into your resources as well?

Arvind Sharma  9:15  

Absolutely. We recognize we're a scale game, the credit union system as a whole not counting again, Quebec are about the size of National Bank in Canada and national is what the fifth sixth largest bank in Canada, yeah, and I'm counting total assets. We as a combined system, to get scale and to compete against some of the larger banks have to work together. And so we as a system work together and they realize the more capability and the more volume we bring on board, the easier it is for us to kind of build the kinds of capabilities that the larger banks would have. And so we are open to small banks were open to FinTech’s. we’re opening to Neo banks to start up in Canada. In fact, a few of them have reached out. And we've been working with them on some of the payments capabilities that they would need.

Chris Whyte  10:12  

It sounds like maybe you even have a bit of a cultural advantage there as well. I know from my career, I've worked on a few things where some of the larger banks tried to collaborate and getting the big banks to collaborate on a common system is incredibly challenging. But that sort of community spirit and community backbone that's present in the credit union system has allowed them to sort of do these kinds of things and deliver that kind of leading platform.

 Arvind Sharma  10:36  

Yeah, absolutely. It is part of their DNA, right, almost by definition, credit union is collaborative, and they have to work together to get to the point and they're all, you know, you hear about Simon Sinek, and the why of business and so forth. The credit unions are there for probably sounds a bit cliche, but a higher purpose, right, it isn't so much about generating all this return for shareholders, it's making sure that they give the appropriate services to their members. And if you become a credit union customer, you actually become a member. And you get to vote for the board, you get to vote on various initiatives that they're driving during the year and so forth. I would say the credit unions and I would also say, you know, if you as a small business owner, or even an individual person who can't get loans from big banks, I think history has shown that the credit unions are still doing business the old-fashioned way. And once they get to know you, might be willing to offer you credit when the big banks may not be because they're sticking to a certain formula, whereas the credit unions tend to get to know you and, you know, lend on traditional basis.

Chris Whyte  11:47  

I love the approach. And I see lots of opportunity for growth in the in the credit union space over time for exactly that reason. Now, one of the things that we've discussed with previous guests on the show is how they might approach digital transformation. You know, what's the motivation? There has been different approaches sort of thrown out there, process efficiency, being a strategic driver, customer experience, economic efficiency, you know, cost reduction, that sort of thing? What's your view? And how does Central one approach that and what are the key leading drivers of that?

Arvind Sharma  12:25  

So I'm going to cheat a little bit, Chris? And it's a great question, but I'm going to cheat a little bit and say, I wouldn't start with any of those. I would start with what is it that you're trying to accomplish? Right and put to the end first, what like, what are the kinds of things that you as an organization, and what your strategy dictate that you have to be really, really good about? Once you've figured that out, then the other elements that you've pointed out may be useful to get you to, transform your organization and accomplish the kinds of things that you need to to be very good at. Let me give you a sense of that. I've been in about three or four digital transformations. This is probably my fourth one. And I've been involved in my career in a whole number of transformations. Overall, some of those started in the earliest days and the work on process engineering. But you know, the most recently has been all about agile, what's interesting is, organizations show up and most of them engage in significant consulting projects and consulting organizations to help them think it through and try and determine what they want to accomplish and why they want to accomplish it. And I see nonstop slides from consulting firms that basically indicate, you know, if you do an agile transformation, you'll get X percent improvement in customer set y percent improvement in your cost base, Zed percent improvement and your overall time to market capability. That's all really good stuff. But what you really must think and important for business, the challenge is, as leaders, you have to think about how are your people going to take those messages? And how are your people when faced with a choice of doing a or b? How are they going to decide? The only way they're going to really be able to decide easily is if you've been very clear that the thing you want to accomplish is this. And if it's customer side, when your employees because they're the ones that are the critical to the transformation, when they're faced with a decision of saying I'm going to go down a path in a fork in the road, I'm going to go down this the path to the left or the path to the right. They need to know that the most important thing to the organization is customer set or reducing costs or Time to market. Once they're that clear on what the outcome is, they can then say, based on these two choices that I'm faced with, I'm going to do this. Otherwise, you wind up in a situation a, there's sub-optimizing, but B, you get, you know, you get people in the organization that are leaning more towards a certain outcome than others. And they play off those ideas against each other to choose a path that they want to choose. And so to choose a path that's best for the company, you have to become very, very clear about what it is that you're trying to accomplish. What I would say is, look, process engineering works, all those elements work. But first and foremost, be clear about what you're trying to accomplish. And then you can pull those components in to try and get there.

Chris Whyte  15:47  

I would think that would also work as a bit of a lightning rod throughout the course and life of the project that every time you had to make a decision, you'd go back to that key focus and deliverable and say, does this decision impact that?

Arvind Sharma  16:00  

Absolutely. Absolutely. It's used for everything, right. It's used for new initiatives, then it's used for correcting course, on projects that might be going sideways, it just becomes the approach that everybody can get their head around.

Chris Whyte  16:13  

Well, I had the opposite experience once where we had a change in leadership at an organization. And we sat down and did the strategic planning exercise. And we came up with a list of 67 top priorities. Yeah. So that the net result was that what I learned from that experience was if you have 67, top priorities, you have no top priority

Arvind Sharma  16:40  

I think leaders at my level and other levels get it, right, I mean, most would probably tell you that they really want to focus on one thing, and then you know, you're working through and you wind up with a list of three or so and business is always fluctuating. So, it's very hard to focus on one thing, but if you can get there, I think it's just such a sharp focuser. I don't know if that's the right word. It’s a sharp mechanism that allows you to focus that you can be very successful and powerful that way.

Chris Whyte  17:13  

Now, given that, I would argue that you are, in a bit of a unique and perhaps more difficult situation. Given the structure of your organization, you have a very large, diverse group of stakeholders, owners, and customers. So how do you as an organization and an individual, how do you rally around that and try and get that focus when you have to take into consideration such a diverse, list of priorities or perspectives,

Arvind Sharma  17:41  

I will tell you, it's hard. My job is it's well, it's hurting cats. Significantly, right. But what I would say is, it's all about building trust. The first and foremost is getting out there, helping your customers appreciate that you are in it to make their lives better. So A is trust. B is interested, help them understand that you're there to make their lives better. B is put the mechanisms in place that allow you to collate their views and make sure they see in what you're doing their views, expressed back. Let them know that you're listening. And then I would say try and create mechanisms and processes that help them appreciate that we can't do everything. And, you know, most organizations have a list of things that they want to get accomplished, that are significantly more than any capability that they or any of the partners will have. And so they recognize that that's the case, and then work together to prune down the list into the few priorities that everybody agrees you need to work on. And not everybody is going to be happy. And in which case, we create a mechanism or capability that helps them if they want to do it themselves.  Part of what we're doing with our new platform is giving our credit unions the ability to create an ecosystem and build for themselves. And so they can build FinTech, , bring fintech to the table, or even build capabilities themselves and launch. They don't have to wait for central one to do it all for them, which was one of the problems we have in the previous platform, but they might be able to get a coalition of the willing or even if they have the wherewithal themselves to build it themselves. I would say those are the things so create a process by which if they want to work with central one, they can launch the projects and the timelines that they want, if they want to do it themselves, enable that as well. So those are, I would say the high-level things of how to how we're tackling it moving forward.

Chris Whyte  19:53  

That makes a ton of sense. So it's really about communication and gathering the information across the whole platform, but also in your design, designing the flexibility that if a particular individual institution has a priority that's outside of the broader group that the system accommodates them kind of tying in their own unique solution.

Arvind Sharma  20:15  

Exactly, exactly. One of the things that, you know, we heard loud and clear when I took over this position is that in the past, you guys have never listened to us, you sort of do these projects on the side, or that you went with a small credit unions views when it was clear that the larger ones wanted something that was a bit different. I can't dwell on the past. But moving forward, we're trying to make it very clear and transparent as to how we decide and what we do, and frankly, including them in the decisioning. It’s, it's early days, but we're finding that they're warming up to that approach.

Chris Whyte  20:55  

Something that comes up in a lot of our discussions is really around the rapid change of technology and the amount of investment that goes into building out a new platform or digitally transforming elements of your process is pretty significant. You want that investment to last as long as you can. Is there anything that you've seen that people do to help sort of future proof their investments so that the platform can grow with changes without having to continually feed that large scale investment?

Arvind Sharma  21:25  

Absolutely. So I'm a few years looking at these kinds of capabilities, right, one of the organizations I've worked at, we had a system that had his 50th birthday, the year I was there, it was funny, it was like the global CEO, back that we had a system with its 50th birthday, but think about right, I mean, I think it was acquired at one point in a merger. And we've got a whole bunch of logic built in there went through y2k, nobody wants to touch it, because it's just like, nobody, nobody's around anymore, that knows what was in there. And so what we realized was, we don't have to go and touch the whole system, what we have to do is understand it goes back to this organization strategy, how is the strategy of the organization allowing them to compete? And then how does technology enable that. And then what you do is you look at a system like that and say, Okay, we're competing on price, we're competing on changing price, we're competing on price flexibility. So you don't need to change that whole system, what you need to do is change pricing on an ongoing basis. And so what we did was we extracted the modules out of that system that allowed us to more frequently change pricing, and put it into a more modern system. So part of the analysis that we've been going through is what are the kinds of things in these systems that change frequently and are critical to competing? And how do we abstract those out so that we can change them frequently? And so with that, thinking in mind, what we've been doing in the various projects, and going forward is trying to enable the credit unions in such a way that if they think they need to compete on bringing a lot of capability to market that we would enable them to bring a lot of FinTech’s into our platform if another credit union wants to build stuff themselves, we would, and they believe that they're going to develop the secret sauce doing it themselves, then we would help them, you know, by basically opening up the kimono for them to develop themselves. And so that's, that's what we're trying to do. And what we're trying to do is you've touched it, we're trying to build a platform that allows these components to intermingle and, and sort of live together. The challenge with all that is, it's funny, right? You see these organizations that want to compete with a particular product and come to market because they think they have a secret sauce, but then you talk to five of them together, and they all have the same secret sauce. Guys, get together build this together, or work together with that FinTech, you know, you always find that the secret sauce isn't as secret as everybody thinks. It's the execution that I think will win the day. And so that's something that we're sort of working towards, but credit unions are really successful in being local and working really well with their communities. And so that is something that I always encourage them to think about, figure out what it is about you working in that community that sets you apart, and then really work to do that. Whereas leaving the scale business to other folks like central one.

Chris Whyte  24:46  

Right? What are you so really thinking deeply about? What are you competing on? Are you competing on your ability to serve your local customers? Are you competing on the technology in your website?

Arvind Sharma  24:57  

Exactly, exactly. Right. And you know, trying to compete with an RBC on technology that's going to be tough in Canada, like, I don't care who you are. And so I suspect

Chris Whyte  25:07  

They could stroke a pretty large check every day to outspend you if they wanted to.

Unknown Speaker  25:12  

Absolutely right. And you know what is amazing. I mean, the number of people that go to them/ they see the deal flow, that's the other thing, they get to choose the best of the deals that go through their doors because everybody wants to work with them. And so that's another advantage that people don't think about that at the end of the day, they just see the best of the best because everybody wants them as a client. And so that's something that you have to think about as well. So one of the things that we just don't have the resources, so one of the things that I'm really pushing for is when we do something, we have to really do it well. But also do it in such a way that the ecosystem comes along for the journey.

Chris Whyte  25:57  

So, Arvind, you've had the opportunity now to be through now four major transformation projects, what in your experience has been key lessons learned that you would apply in future opportunities?

Arvind Sharma  26:09  

Okay, I've sort of hinted at this in the various conversations that I've been through. But let me try to be very precise, be very aware of what you're trying to accomplish a, b, make sure the changes that you drive are in alignment with that and see, don't go crazy. I've seen organizations where they're like, we're going to become agile, and we're going to match FinTech’s capability because if we don't do it, we're going to lose, I have experienced firsthand that if you try and do all of that the number of changes become sometimes self-colliding. And you wind up in a situation where it's very hard to actually course adjust. So let me try and be a bit more specific about that. Any change that you do, you're going to drive what's called unintended consequences, unless you have a ridiculously good appreciation for everything that your business is doing and how it is doing it. So if you make a change, you know that change is going to drive a certain outcome. And you can manage that. But there's always an unintended consequence. And you expect that and what you do is you do a project and your change management process adjust for the unintended consequences, and you bring back to what you were trying to change. If you do two changes, the number of unintended consequences is going to be more, but each project is going to drive its own unintended consequences and the unintended consequences are going to intermingle and create some more. If you do three, that you got even more if you got four, you got, even more, the challenges, sometimes your unintended consequences are hard to fix. Because there's so much other change going on, it's hard to actually understand how those things intermingle. So that's my fundamental hypothesis. And I think network theory probably best describes that, right? The number of nodes you have, if you have two changes, there's one, one line between the two, if you have three, you've suddenly created like six, and so forth. To minimize the amount of change, do it in a controlled fashion. And you might get there faster, ultimately, and you probably get there with a lot less, let's call it just heartache for the organization. So the biggest thing that I would say is do it in a very controlled fashion one step at a time, recognizing that it'll probably, in the long run, get you there faster, with less cost and less unintended consequences that you have to pull back from. And you know, I think that the data would bear this out, right? I think if you went and looked at the stats on digital transformation and agile transformation, I'm going to hypothesize because I've seen some of the numbers 75% 80% of them fail. Organizations have been doing agile for the last five years at least. And I just saw, you know, on LinkedIn, a brand-new book about doing it right, or something along those lines, right. So clearly, people are still struggling with doing it. What I would advocate is just be very precise about what you're doing and doing it and doing it in a stepped and controlled approach.

Chris Whyte 29:21  

I want to tie back to something you said earlier as well about you know, really being sharp around that core deliverable and relate a story from my experience. So a few years ago, I was involved in an initiative where we were looking to transform the mortgage approval process at a financial institution. In the end, the benchmark that was set is that we need to have a fulsome committed mortgage approval back to a customer within four hours. Somebody picked that that benchmark of four hours was the number to hit. So an enormous amount of effort was expended to create a process that would deliver that in four hours. And I know you have some knowledge of that system and that process. But the amount of money involved to get to that four hours was enormous. So before that got kicked off, we actually suggested we now go back and maybe do some customer primary research. And what we found from the customers was, they were really looking for an answer within a 24 to 48-hour window, they did not value answers in any less than 24 hours.

Arvind Sharma  30:33  

So the enormous amount of money spent to get to that artificial four-hour threshold was actually not valued by the targeted customer. Yeah.

Arvind Sharma  30:43  

And so you touched on a very important element, which I glossed over, when you determine your metric, make sure that is what I mean. I said it aligns your strategy, but make sure your 

customers are going to value it because what you just said is you blew whatever, millions of dollars on a project. And you probably got to a point where your customers may not have cared, right? I would always balance that with what Steve Jobs said if he had asked his customers for the advice, it's not clear that they would have ever built the iPhone, right? So you have to balance those two. But if you're just trying to turn a 24-hour turnaround metric down for be very, very careful. That's actually what will make you win in the marketplace.

Chris Whyte  31:30  

Well, thank you very much, Arvind, it was always interesting and fun to talk to you and get your perspective on things. really enjoy the opportunity. And if anybody wanted to reach out to you, are you available at Central one? Is there a place to contact you?

Arvind Sharma  31:45  

Oh, yeah, absolutely. So I'm pretty sure my bio is up on the web. And Arvind Sharma at Central one dot com.  Feel free to reach me

Chris Whyte  31:55  

Perfect. Thanks so much.

Arvind Sharma  31:57  

Thank you, Chris, and thanks for the opportunity to talk to you.

Chris Whyte  32:01  

Thanks for listening and, thanks to my guest Arvind Sharma. If you're enjoying the podcast, please consider subscribing and leaving us a review. If you've got any questions or thoughts about future episodes, please drop me a line at Chris at Freestone group.ca and join us next time on digital pragmatic. Spread the word by leaving a rating and review on iTunes

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