Categories: Credit Unions

Deep Dive: How CUs Are Rethinking Their Credit Solutions During The Pandemic

Credit unions of various sizes were eager to roll out credit card innovation plans before the COVID-19 pandemic’s onset. PYMNTS’ July Credit Union Innovation Playbook: Card Trends Edition revealed that 47 percent of CU executives expected credit card processing revenues to be more robust than those for debit cards, for example, and the smallest credit unions surveyed — those with less than $500 million in assets — were the most confident in this trend.

These expectations also drove CU executives’ innovation agendas, with 91 percent voicing serious interest in developing card product innovations. The report also revealed that 66.7 percent of the largest CUs — those with more than $5 billion in assets — were determined to develop virtual card offerings, while 41.7 percent planned to unveil mobile wallet-enabled cards.

Many CUs’ credit innovation plans ground to a halt when the health crisis began, however. More than 40 million U.S. consumers filed for jobless benefits between January and July, and even those who have remained employed are significantly altering their spending. Credit products often carry debt and fees, and consumers are generally less inclined to use such solutions when they are on uneven financial footing. The following Deep Dive examines how credit unions are innovating their credit offerings to meet members’ shifting financial needs during the pandemic.

Credit Innovation Planning Reset

CUs’ prepandemic innovation agendas reflected an overall rosy outlook on innovating card-issuing credit products. Seventy-two percent were highly interested in innovating products that offered digital management capabilities, for example, while 48 percent and 42 percent were highly interested in developing solutions that provided notifications and alerts and instant issuance to digital wallets, respectively. Credit unions’ reasons for wanting to innovate these products varied, too, but more than 70 percent said they aimed to do so to support the demands of potential new members.

The study also determined that among the credit union decision-makers who thought they would be rolling out an equal number of credit cards and debit cards over the next three years, 78.4 percent believed their financial performances would stay the same. Another 21.6 percent believed their performances would improve, and none believed they would decline.

However, none of these CUs could have foreseen the arrival of the pandemic and its dramatic effect on consumers’ finances. Restaurants shuttered, businesses folded and millions of Americans became unemployed, and these developments led many consumers to tighten their belts, causing U.S. expenditures to decline by $2.7 billion between January and April. Consumers are now leaning on financial products that can help them stay afloat during the health crisis, leading CUs and other financial institutions (FIs) to adjust their products and services accordingly.

Meeting Customers' Credit Needs

Many CUs are extending credit and financial aid to members who have been financially affected by the health crisis. San Diego-based California Coast Credit Union, for example, has instituted automatic loan deferral for its members, while Texas-based Border Federal Credit Union has aided members in filling out online applications for Paycheck Protection Program (PPP) loans.

Credit unions must firmly understand their members’ needs during the pandemic to create innovative credit products. California Coast Credit Union, for example, responded to the state’s stay-at-home order during the early days of the health crisis by instituting an automatic 90-day loan deferment policy and raising members’ credit limits across the board. Todd Lane, the credit union’s president, said the move reflected an overall decrease in the demand for certain credit products and that members have been especially interested in tapping mortgage lending products. The CU used the insights it gleaned from the program to inform its credit innovation strategy and assess which products members wanted most.

CUs are also facing a broader challenge in appealing to younger consumers as their membership bases age. Winning over younger generations has long been a top priority for credit unions, as these members can generate demand for lending, revenue building and digital banking opportunities. CUs are working to achieve this by offering services and solutions targeted to these audiences, with some launching sites that feature blogs, speaker events and advice for building positive credit scores.

Keeping tabs on consumers’ trends and monitoring members’ needs is key to enabling credit unions to craft innovative credit solutions. Those offering strategies that can help consumers weather the current economic slump are likely to win new members and retain their business for years to come.

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The How We Shop Report, a PYMNTS collaboration with PayPal, aims to understand how consumers of all ages and incomes are shifting to shopping and paying online in the midst of the COVID-19 pandemic. Our research builds on a series of studies conducted since March, surveying more than 16,000 consumers on how their shopping habits and payments preferences are changing as the crisis continues. This report focuses on our latest survey of 2,163 respondents and examines how their increased appetite for online commerce and digital touchless methods, such as QR codes, contactless cards and digital wallets, is poised to shape the post-pandemic economy.