CUs Play To Win The Credit ‘Competition’ Against Larger FIs

When PYMNTS checked in with the credit union sector in late September 2020, its innovation agenda reflected an ambitious attitude regarding card-issuing credit products. As noted in the report, many CUs began 2020 expecting to do a brisk business in the credit arena, but the pandemic and its emphasis on frugality made debit a more in-demand product for their members. The debit pivot is, in part, a reaction from consumers who have been understandably shaken by the 2020 economic devastation.

But the pandemic has also accelerated credit unions’ digital progress. As Chuck Fagan, president and CEO of PSCU, told Karen Webster, there’s a new urgency behind credit — particularly as CUs compete with financial institutions (FIs) and FinTechs for lost share in credit products. As research conducted between PYMNTS and PSCU shows, more than half of CU members surveyed have relationships with other providers of credit — and those providers are not their primary credit unions.

“It’s a great opportunity for CUs,” Fagan said of launching new credit products. Certainly the greenfield is there: he noted that CUs have managed to bring credit card products to only 20 percent of their members.

Part of the lack of reach has simply been that the enterprises selling big-ticket items — think auto manufacturers and big banks — have been aggressive about offering financing directly to consumers, capturing some of the business that could have gone to the CUs.

At a high level, said Fagan, the CUs don’t have the massive budgets that traditional, larger FI competitors might have at their disposal to launch new credit offerings. CUs have been managing their budgets tightly through the pandemic, with returns on assets and investments among the key metrics most closely watched.

“The CUs have had to be dependent on pulling together best-of-breed partners and doing their best to integrate seamlessly for the member to receive that personalized relationship,” said Fagan.

Ideally, a personalized, customized relationship, he said, would be one where the consumer would think first about the credit union as a source to tap for credit — as opposed to utilizing a car manufacturer for the same financing. Cementing that sticky relationship, said Fagan, comes from educating consumers and making sure the solutions offered are what members actually want.

Staying Centered On The Member

The branch networks the credit unions have invested in and relied on have been highly effective for many years. But while it’s important to have a branch within proximity, CUs have found that it’s no longer the most important thing in the CU/member relationship.

“When a member walked into a branch, the system they connected with was the core platform,” said Fagan. “And now that they’re not in those branches as frequently, mobile banking and the digital footprint has become the CU’s core.”

There’s an edge that CUs have in their competitive arsenal, maintained Fagan, which should not be overlooked in creating a seamless digital experience: trusted relationships. At the same time, he noted that although individuals trust credit unions more than they do other FIs, CUs must leverage innovation in a way that makes younger users — like millennials and bridge millennials — feel that their financial lives are easier and more efficient.

Trust and innovation, said Fagan, can lead to a virtuous cycle: innovation and personalized services breed trust, while trust fosters a willingness to try new, innovative financial products and services.

As for innovation, a PYMNTS/PSCU research project recently found what consumers used to consider innovative, cutting-edge offerings — such as digital wallets — are now table stakes.

“If the credit union doesn’t have those digital wallets, the alerts and controls, and a lot of those basic features, they’re going to be in a world of hurt,” Fagan said. “Because it’s going to be really difficult to try and amass those offerings quickly.”

Thinking ahead, then, and planning for innovation — while being innovative at the same time — means leveraging data in the bid to deliver personalized offerings. Location services, for example, can alert an FI when a member is on a car lot, and extend a financing offer in the same visit.

Credit unions have been making progress on the personalization front, and have been forging the right partnerships in gathering and analyzing data.

“The investment doesn’t stop. It will only continue,” predicted Fagan, as CUs must remain current as they compete with larger FIs and FinTechs.

“As we come out of this pandemic, the thought process would be that debit survives, with a lot of that volume that shifted [away from credit],” he said, noting that consumers have been looking to lower their debt loads and spend with funds on hand. For the 60 percent of credit union members who are struggling financially, CUs offer everyday value by delivering products with lower fee structures and rates.

“One place where CUs have managed to shine is on the personalization side — to understand what the member is going through and develop repayment plans with them,” said Fagan.

PSCU has been readying buy now, pay later (BNPL) solutions that will be in pilot in the summer and available to CUs later in the year.

Looking ahead, at the point where BNPL options or other financing offers are extended, CUs have the option to tie in loyalty and rewards programs (a half a percentage point on an interest rate or lower mortgage rates). According to the latest Credit Union Innovation Study, 41 percent of members want their CUs to innovate their rewards programs.

As consumers return to stores and malls, credit unions need to equip their members with the right tools, contactless cards and digital capabilities. If they don’t, said Fagan, consumers will go elsewhere for their financial needs. When the pandemic is in the rearview mirror, it will be a hybrid world where consumers will experience digital and physical commerce in a variety of ways.

“I do think that financial institutions need to be thinking about themselves as a blank sheet of paper right now,” Fagan said. “We have an opportunity to rebuild and restructure the way we do business with our members. It’s not the right time for sticking to the same way we’ve done business.”