Credit Unions Unite Behind Digital Banking

The Rochdale Society of Equitable Pioneers. The Shore Porters Society. Fenwick Weavers’ Society. These and other 19th-century proto-cooperatives were the forerunners of today’s credit union (CU) community. Early innovators managed cooperatives using the same founding principle that CUs use today: members-first finance in place of indifferent, legacy-style banking.

Though the sector is considered healthy and well-managed, credit unions and the CUSOs (credit union service organizations) that support them with tailored offerings face upheavals in the next couple of years. The PYMNTS December 2019 Credit Union Tracker looks at the changing topography of the CU space, as digital transformation challenges the “all for one, one for all” mentality that has undergirded their business model since the 1800s.

A Small Change It’s Not

Strong balance sheets in key areas like credit card debt ($64.4 billion), car loans ($382.9 billion) and mortgages find most credit unions on solid footing as 2020 begins. But change is in the air, and it’s the intoxicating scent of digital transformation. Specifically, the metamorphic impact of mobile open banking and instant payments has been the first real test of the trust bond that holds CUs together. With the possible exception of FinTechs that stand to gain from customer defections and perhaps some legacy banking competitors, no one is rooting against the CUs. Even so, they have decisions to make — and quickly, too.

That help is forthcoming, as in the case of the Central Bank of Ireland, which is changing regulations to favor more CU lending with higher limits. There is a sense, however, that CUs themselves bear responsibility for falling behind the digital banking trends that first took hold with consumers. FIs are not accustomed to customers telling them which products to offer, but in the mobile instant payments world driven by millennials and Gen Zers, that’s the deal — take it or leave it.

Digital Unison

The National Credit Union Administration (NCUA) trade group reported that net income for credit unions fell by 1.1 percent in Q3 2019, which is a concern for the entire sector. Continued downward pressure on interest rates explains much of the drop, and net interest (CUs’ primary income source) was also off for the quarter. There are encouraging signs, too, such as fee income rising more than 7 percent year over year (2018-19) and robust loan originations.

While their traditional services remain viable and profitable, the real action for CUs going forward is in digital. Any doubt about this was erased when the credit union service organization PSCU recently announced an overall $100 million investment in solutions and services, $35 million of which has been earmarked for Lumin Digital, the company’s digital banking platform, over the next three years. PSCU says it will focus on developing a new, customer-centric payments platform with a greatly improved CX. Machine learning and artificial intelligence (AI) have a place in the plan, too.

Improvements happening across the CU and CUSO spectrum indicate that they’ve gotten the message about digital banking, and they’re on it. But credit unions must remember that trust is their cornerstone. Card account security, fraud and seamless digital experiences — daunting tasks facing all FIs — are especially urgent for CUs and their partners. Expect to see more emotional marketing from the CU base as they leverage goodwill (and digital products) in 2020.