Credit Unions

The $500B Consumer Lifestyle Opportunity Credit Unions Are Missing

Credit unions (CUs) have a bit of asymmetry in their relationships with their customers. On one hand, as PYMNTS data shows, customers very much like their credit unions, and are loyal to them. PYMNTS found that 65 percent of members chose their CUs because they trusted them, 58.4 percent reported being “extremely” satisfied with them and 60.8 percent said they would not leave their CUs for different financial institutions (FIs).

The problem is that while customers might be perfectly satisfied with their credit unions, they are still stepping out on them – the majority of members say that their primary relationship is with another financial services provider.

And that is an indication that it’s time for credit unions to start thinking differently, Samantha Paxson, chief experience officer at CO-OP Financial Services, told Karen Webster in the latest edition of the PYMNTS Masterclass Series. As she pointed out, they need to think differently about payments, about digitization and about how they are actively building to meet their customers’ needs and expectations.

“The future is in understanding your customer, what they are trying to do, and then designing solutions for the day-to-day member lifestyle – because that is how you create greater engagement,” Paxson told Webster.

Centralizing The Payments Experience

The historical focus of credit unions has been consumer lending, with a focus on providing the lowest rates to customers. That’s a perfectly good bedrock upon which to build their mission, Paxson said – but what CUs have been slower to understand is that in the intersection between lending and day-to-day lifestyle connections, there lies a payments opportunity.

As a result, she said, although credit unions are offering credit card products, they aren’t a central focus. At best, they are often relegated to the status of a sideline revenue channel. That is evident in the difference between the top three banks, where credit cards represent roughly 26 percent of loan volume, and credit unions, where they represent a little over 6 percent.

“There is a massive tendency toward ‘setting it and forgetting it’ somewhere on the side, despite the fact that it is both an important strategic growth driver and an engagement,” said Paxson.

Today, that means leaving $500 billion in incremental revenue on the table, she noted – a figure that will swell to north of $1 trillion before the end of the decade. And perhaps more important than the dollars-and-cents revenue loss is the missed opportunity to make daily connections with customers. Like most working people, Paxson told Webster, by 9:35 in the morning, she has already used her payment card six separate times in a mix of in-person, mobile and web-based transactions. Among the best places for an FI to gain insight into its customer base is in those spending patterns – enabling them to offer a card that becomes the customer’s go-to, top-of-wallet offering.

Those transactions aren’t just generating revenue, Paxson noted – they are also building insight that can inform every part of the bank’s offerings.

But top-of-wallet is a status for which many issuers are competing. Making it to the top of the pile is about more than making an offering, she said: “It’s about building the right one – and making sure consumers know it’s there to capitalize on.”

Building The Right Offerings 

There is no silver bullet offering that credit unions can create when it comes to building a competitive card product, but it is becoming increasingly clear where the table stakes lie. Consumers want easy onboarding processes that leave them with a product that works more or less ready to roll the minute they are approved. Apple, Paxon pointed out, has its cards provisioned into its mobile wallet within minutes – and the expectation for speedy, smooth function is something anyone building a digital payment offering must consider.

The experience has to be rewarding, she said – but credit unions also have to get more creative about building out those rewards in terms. It’s not just about throwing out some points, but about matching the rewards to particular customers. CO-OP has a San Francisco client, for example, who has set one of its rewards offerings so that the cash back goes directly to their customers’ student loans.

“Payment products offer an opportunity to live their mission through their portfolio of products,” Paxson said. “The big overall question is how are we using our payments to meet the needs of our customers to help them manage their financial lives, as well as all the things they are cobbling together on their phones today.”

Consumers are comfortable doing that, she said, because the emergence of smartphones has made it relatively easy and straightforward. If they can also do more of that from a hub via their relationship with their credit union, they will – but the offering has to be there, correctly constructed and properly managed.

Getting Started 

Because there are many right answers depending on a credit union’s specific goals, the place to start is with the data they already have, Paxson said – an inventory of the solutions they already offer and an idea of the growth opportunity they are targeting. When a CU has a clear handle on those three things, it can start building out and measuring results. From there, Paxson noted, it is a lot of data management and following – and then designing from where it leads.

“What we know is that consumers want to be able to move and manage money, they want transparency and control, they want to be rewarded for their behavior and they want the design to be instant and invisible,” she said. “When you’ve built your systems out and are measuring against those things, you’re doing the right thing.”

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