By Todd Clark, President and CEO, CO-OP Financial Services
I talk to credit union CEOs almost every day. As we approach the other side of this pandemic many have accelerated their move to digital, understanding that their members’ priorities and service expectations have shifted, including a desire to interact more through mobile and less in-branch. These credit unions are taking a page from Fintech – providing faster and more personalized engagements to drive more frequent transactions. The biggest question I get is “Where do I begin?” CEOs are wondering what are the right strategic investment choices to ensure they keep their current members, attract new ones and deepen that engagement to create a more lasting, primary financial relationship?
To help our credit unions place the right bets, CO-OP commissioned consulting firm EY to survey 2,000 credit union members and 1,000 prospects across all regions of the U.S. on their preferred banking behaviors. We wanted to understand how changing consumer behaviors and needs – a trend that has only accelerated during the pandemic – are impacting member relationships. Specifically, what we found was primary financial relationships (PFRs) are becoming increasingly fragmented, with Fintechs emerging as credit unions’ biggest threat. Among the sample surveyed, 30% of respondents reported having their PFR with a Fintech firm, and 30% with a credit union.
Leading Fintechs like PayPal, Ally and Chime have gained consumers’ trust by demonstrating they care about their needs and could help them reach their financial goals. Surprisingly, our research found that PayPal ranked as the most trusted brand for 25% of credit union members, while credit unions landed in second place among their own members at 21%.
Payments are the key to Fintech’s remarkable rise, and our research found that 7 out of 10 respondents owned at least 1 payment product, and 50% would approach their PFR provider as the first place to shop for new digital payment products. Yet, among current credit union members, just 34% have contactless payments with their credit union, while 45% have it with a Fintech provider.
Between the insights from our research and my conversations with leaders throughout the movement, it is clear that credit unions must address these gaps to achieve relationship primacy with their current and prospective members. To accomplish this, we recommend a 3-pronged strategy:
- Lifestyle enablement: Banking institutions have long held that the needs of financial consumers start out simply and develop in complexity over time. Yet, our research shows that less than half of young people own the financial products they need to be fully prepared for a life event, and that on average, consumers own five banking relationships across different financial institutions.
Credit unions should pursue a multi-dimensional segmentation strategy that considers both traditional, demographic-based market segments like gender, age, wealth tier, marital status and geography, as well as a deeper dive into each demographic’s needs and motivations that incorporates life events, lifestyles and a mix of solutions that address both. It’s time to dig below the surface by mining the relationship-level data at your disposal to truly meet your members’ unique lifestyle needs.
- Pathway to relationship primacy: Credit unions must also evolve to offer members comprehensive, “lifestyle” financial products and services, with a particular emphasis on “active” solutions over traditional, “passive” offerings like deposit accounts and event-based loans. Whereas credit unions ranked highly in our survey for passive relationship products like loans, savings and checking accounts, Fintechs have achieved the top slot in active relationships. Payment products like contactless, P2P and mobile wallets drive more engagement, and form the heart of these active relationships.
Why? Because payments keep members within your credit union’s ecosystem, increasing the chances of them using more of your other products and services. To maintain PFR status, you must establish your credit union as the hub of your members’ entire financial lives.
- Digital ecosystem acceleration: Fintechs are beating credit unions on their own turf. How? By deploying innovative digital technology solutions to meet the evolving needs of today’s financial consumers. The pathway to primacy for credit unions will require accelerating investment in digital capabilities and bridging the gap between your digital and non-digital channels.
Our research shows that if credit unions invest in lifestyle banking product offerings, you can gain significant market share among both members and prospects. Without this investment, your current lead with members can be lost.
The credit union of tomorrow will have personal relationships at the center, with compelling digital payment offerings and strong data security and protection protocols built in. To maintain your primary financial relationships, take a page from Fintechs – by accelerating your move to digital and offering a range of solutions to members of various life stages and with different lifestyle needs.
For a deeper dive into CO-OP’s research on the importance of driving growth through payments and active member relationships, view our latest white paper, “CU PaymentsOutlook : How active member relationships drive long-term growth.”