Credit Unions Innovate, But Stay Competitive With Credit Cards

Tried-and-true credit unions (CUs) have managed to keep pace with commercial banks, FinTechs and other financial institutions. According to the new Credit Union Tracker, as of March 2019 there were an estimated 5,572 CUs in operation and in the same month 324,000 consumers joined CUs.

Credit unions aren’t complacent with the status quo, though. Roughly one-third (35 percent) have made data analytics investments over the past three years, according to the Credit Union Innovation Playbook.

Data analytics can provide customer insights. Also, credit unions that focus on data analytics are more likely to pursue a wider range of innovations than those that do not. In the study, 91.7 percent of those focused on data analytics said they also focused on fraud management solutions in the previous three years, compared to only 60.6 percent of CUs that did not focus on data analytics.

This is particularly true for larger CUs. Credit unions with assets that range from $1 billion to more than $5 billion are more likely than others to make data analytics a top investment priority.

But smaller credit unions aren’t getting left behind. The two-location, 7,200-member River Valley Community Federal Credit Union (RVCFCU), recently started providing its members with mobile video banking. Accessible via personal devices, the new platform facilitates deposits, transactions, document approvals, applications, consultations and account management services.

PYMNTS spoke to Tony Hildesheim, chief information officer at Santa Rosa, California-based Redwood Credit Union, about how the credit union evaluates and utilizes collected information to improve its customer service, fraud detection and more.

He touched on the importance of integrating social data to get a fuller customer profile. “There’s this idea out there that there’s a wealth of data that you have as a financial institution, that you should somehow [have enough information] to be able to make decisions based on [members’] needs,” Hildesheim said.

Through using social data obtained from aggregation company Acxiom, the CU changed its preapproval for auto loans from every 24 months to nine months. It turned out that using a member’s credit score and assessing the last time they financed a vehicle wasn’t comprehensive enough.

Redwood uses a combination of automated fraud detection and human review, but this is a procedure that could be assisted with artificial intelligence (AI) in the future. Hildesheim mentioned that one of the stumbling blocks for smaller banks and credit unions is the large amount of data needed to make AI effective. “Most people woefully underestimate the amount of data you need to actually get a reasonable response,” he said.

Despite innovations like AI and mobile video banking — 59.9 percent of credit union members consider their FIs’ mobile app offerings to be “very” or “extremely” important — credit cards are often a differentiator among financial institutions. According to the Credit Union Tracker, 71 percent of customers consider credit card offerings when choosing their financial institutions. Approximately 60 percent of CUs currently offer some sort of credit card, but credit unions only held $61.5 billion in credit card debt as of March which is a drop in the bucket equaling 6.1 percent of the nation’s $1 trillion total credit card debt. In comparison, 89.8 percent of credit card debt held by banks.

Credit union-backed cards are often more appealing to consumers due to lower interest rates and annual fees. What’s good for the consumer, isn’t always good for the financial institution, however. Federal regulations cap the credit card interest that credit unions can offer and was restricted to 15 percent in 1980.

But the playing field might’ve become more level in May when the Loan Shark Protection Act was proposed. The bill caps the interest rate on all credit cards at 15 percent, enabling credit unions to be more competitive with banks.

Not everyone agrees with this interest rate cap, but according to the Federal Reserve Americans are currently paying the highest level ever on credit card interest rates — on average, 16.9 percent — which could affect consumer spending and growth.