Data and Digital Services Help Credit Unions Keep Competitive Edge

No matter where you look, financial service firms had quite a year in 2021.

In some cases, that year was a banner year, marked by swelling account balances, soaring debit activity, heady paces of home buying and, by extension, mortgage originations.

Todd Clark, CEO and president of CO-OP Financial Services, told Karen Webster that credit unions (CUs) did well, too — but where there lies success, competitors sense opportunity.

“The credit unions are thriving, but they’re in a fight,” Clark said.

Both Big Tech firms and FinTechs seek to peel bits of what might be likened to a financial services “onion” from the CUs — stripping off layers of business that have traditionally been the bulwarks of credit unions.

Some of the changes wrought by the pandemic have benefited all players. We’re still seeing the rapid acceleration toward digital banking preferences, and in the U.S., we’re starting to see a rapid uptake of buy now, pay later (BNPL) model — providing a new source of liquidity for credit union members and a source of income for credit unions.

Consumer confidence is improving, and card spend is also trending back up. Some of the excess money that has bulked up deposit activity is starting to leave members’ accounts, particularly with the holiday shopping season.

Clark said that also there’s been a marked rise in entrepreneurship, which, in turn, should lead CO-OP’s CU members to introduce new small business-focused products in the months ahead and well into 2023.

Now and in the future, CUs make sure their end members’ expectations are met — no matter if the interactions are done digitally, across contact centers or in brick-and-mortar branches.

The urgency is there, as digital-first and digital-only firms are gaining significant traction. Clark pointed to Chime as a key example, which started less than a decade ago and now has more than 13 million active debit cards out in the field. By way of contrast, he said, many CUs in the U.S. been around for the better part of century and are still striving to break the million-card mark.

Gunning for the Primary Relationship

Chime’s key?

“Chime did it with a great user experience,” said Clark. One of Chime’s offerings that has consumer allure is the ability to process direct deposit checks a few days early. Not surprisingly, that functionality is especially valuable to paycheck-to-paycheck consumers and, as Clark and Webster agreed, might be an impetus for many individuals to choose Chime as their primary bank.

“I would expect to see Chime expand into credit offerings,” said Clark, “and I would expect to see Robinhood, for another example, expand into debit cards. It’s the ‘land and expand’ strategy.”

Credit unions already have a strong line of defense, he told Webster. Their deep familiarity with members isn’t all that different from, say, Amazon Prime’s or Netflix’ fine-grained understanding. They can also leverage advanced tech and Big Data to anticipate and recommend products and services that can make those members’ lives better.

In the meantime, Clark said that there are several avenues to pursue to help CUs gain new members, and that CUs need to make the onboarding experience intuitive, streamlined, and digital. He also noted that the CO-OP shared branching network means that members have a uniform set of experiences no matter where they are geographically, or what channels they are using.

Those far-flung networks and seamless continuities shape what Clark termed “invisible banking,” and they can help CUs recapture some ground they’ve lost in terms of consumer perceptions of customer service.

There’s particular opportunity, too, in helping customers avoid overdrafts and eliminate fees. Clark told Webster that one product CO-OP has in beta allows consumers to sift through past transactions and break them into installments payable over several months.

In turn, that helps them skirt overdrafts and can make big-ticket items, or even bills, more affordable. That option also allows the credit union to charge interest on that loan and capture an additional revenue stream from that transaction simultaneously.

What Lies Ahead

Looking ahead, Clark said, CO-OP and its member institutions are keeping an eye on crypto as a possible avenue for further development — though he told Webster he remains a skeptic, quipping that without crypto, there would be no ransomware.

No matter what services or products being developed, fraud remains top of mind. He told Webster that CO-OP recently added a “fraud score” to its COOPER platform that contextualizes individuals buying behavior with the aid artificial intelligence (AI) to more accurately detect fraud.

In the year ahead, he said, “we’re still going to be pushing very hard down the path into AI and machine learning. We think it’s the future,” especially as CUs seek to personalize their experiences and extend offers and promotions in real time.

As he told Webster, “there’s a lot of work for credit unions to do, to make sure that their digital models are up to speed. And, and obviously we’re here to help.”