48% of Credit Union Members Get Business Lines of Credit From Other Financial Institutions

More credit union (CU) members are sourcing financial services from CUs’ competitors now than in 2020.

For example, the share of CU members seeking business lines of credit through other financial institutions (FIs) has risen 16% over 2020 levels, with 48% of members who use financial products from other FIs now citing business lines of credit as one of those products. That’s up from 42% in 2020, according to the “Credit Union Innovation Playbook,” a PYMNTS and PSCU collaboration.

Get the report: Credit Union Innovation Playbook

Business lines of credit are among the most profitable financial products for CUs, meaning that portfolio leakage in this key area could strike a harsh blow to CUs’ profitability.

Mitigating the Financial Impact of Portfolio Leakage

While most members may be banking with one or several institutions in addition to their primary CUs, this isn’t necessarily by choice. Forty-five percent of members said that, all things being equal, they would prefer to get all their financial products from the same FI.

What’s more, 66% of members who currently have business lines of credit with FIs other than their primary CUs said they would be willing to drop those business credit lines if their CUs could offer more innovative alternatives.

Members’ preference for obtaining all their financial products from one FI presents a major opportunity for CUs. Innovation can help win members over.

Read more: Credit Unions Mix New Tech and Trust to Keep Members From Switching

But many members would just as soon leave their CUs to bank with competitors that could offer them all the products they wanted as they would leave their secondary FIs to bank with their CUs exclusively.

Choosing the Right Innovations

PYMNTS research showed that CUs are growing more aware of this portfolio leakage problem. Sixty-four percent of CU executives said members obtain business lines of credit from other FIs, while only 52% said so in 2020.

In addition, 51% of CU decision makers said they believe portfolio leakage on business lines of credit would have “very large” or “extreme” impacts on their revenues.

Choosing the right innovations is therefore critical to gaining and retaining members. Many CUs are hoping that innovation can help curb this problem, but innovating requires them to have a firm understanding of what draws their members to bank with competitors in the first place.

The real driver of portfolio leakage is not CUs’ lack of product offerings but rather the fact that their products are often more expensive than those of their competitors.

CUs must be able to innovate products that meet members’ needs for cost-effective, convenient, easy-to-use and secure financial services at all points across the member life cycle. Only then can CUs fully address the risk of portfolio leakage.