Loyalty is earned, the saying goes, not in a day, but day by day.
Credit unions (CUs) have long enjoyed high approval ratings and loyalty from their members. But the numbers tell a tale, and recent stats in the March 2020 Credit Union Innovation Index show the need for CUs to step up their efforts to innovate.
Chuck Fagan, president and CEO at PSCU, a CU service organization, told Karen Webster in a recent interview that consumers’ demands are changing as members skew younger and prize the convenience they’ve found in everyday interactions, such as with peer-to-peer (P2P) payments or even voice assistants.
As detailed in the report, which surveyed the attitudes and perceptions of more than 3,900 U.S. consumers, the share of CU members who said they would be willing to leave their CUs if those financial institutions (FIs) failed to innovate was actually up from prior measurements, from 17.3 percent to a recent 21.9 percent. That number might represent a bit of caution for CUs that still enjoy high loyalty numbers at more than 88 percent.
Want another data point that offers food for thought? The share of members who say they are “very” or “extremely” satisfied with their CU providers fell by 3.5 percent from 2018 to 2019.
According to Fagan, those shifts come as “credit unions have done an effective job of getting younger consumers into their membership, but their expectations are clearly different.”
Incumbent and legacy FIs, as well as tech startups such as Apple, have made the financial lives of consumers more convenient, said Fagan.
And since their expectations of the banking experience differ from other demographics, CUs must address their interest in the digital offerings and newer payment tools that larger FIs have made readily available, he noted.
CUs need to move beyond payments, said Fagan, and embrace what he termed a “full-scale, full-service approach to innovation.” Moving toward a digital experience is all the more urgent as the coronavirus pandemic has forced more interactions online amid extraordinary circumstances.
Are CUs ready to embrace the digital transformation? Asked where the industry might stand on a scale of one to five, Fagan estimated that CUs are “in the threes, headed toward a four.”
There’s room for improvement, but the mindsets must shift, and timeframes for innovation have to shorten. The core platforms may be deployed with 20-year horizons in view, but digital banking has a five-year horizon, Fagan noted.
CU CEOs have recognized the importance of making shifts in a hurry, especially when it comes to competing with digital-only challenger banks.
Those challenger banks, said Fagan, have gained some critical mass rather quickly.
Consider the fact that it took decades for CUs to see several institutions reach $1 billion or more in deposits. Meanwhile, challenger banks have raced to that marquee number with breathtaking speed, relatively speaking.
Against that backdrop, CUs are still adding branches, although the pace is slowing. CUs are increasingly moving investments toward innovation and new technologies.
CUs have been successful in spurring electronic deposits and boosting the use of card-based products in lieu of cash (where consumers’ approval ratings for CUs are in the high 80-percent range for online transactions, said Fagan).
As COVID-19 continues to impact our daily lives, the embrace of contactless payments is real — and will be permanent, he maintained.
“What we’re seeing is more of a shift from credit unions,” Fagan noted. “They use their resources in a more universal manner, so that it’s pointed toward life-changing events, whether it’s a college education, buying a new home, wealth management or retirement.”
With a nod toward the current rocky economic environment, Fagan said it will be “interesting to see whether credit unions pull back or push on the accelerator” when it comes to innovation and competing against larger FIs.
“If credit unions are thinking that being fast followers is good enough, they’re probably mistaken,” he noted. “While they don’t need to be bleeding-edge, they do need to be cutting-edge.”