Credit Unions Are Fine Being ‘Fast Followers’ Rather Than On Tech’s Bleeding Edge

Pre-pandemic, credit union (CU) members were unlikely to think of their financial institutions (FIs) as digital innovators, prizing them instead for their in-person — specifically in-branch — experience. The physical branch was an important element in building trust and sustaining member loyalty.

But it’s all different now. The pandemic has spurred a great digital transformation for CUs, which are in the middle of a rapidly shifting competitive landscape. On the one side are the tech-savvy, digital-only FinTechs, where valuations of some of the neobanks fetch tens of billions of dollars.

On the other side are the big banks — the “big five,” as they might be called (J.P. Morgan Chase, Bank of America and the like) — that have invested $11 billion in the past several months alone to upgrade their operations.

And yet, a wide-ranging discussion with CU executives and PYMNTS’ Karen Webster revealed that CUs are finding success by embracing technology in a way that enables them to deliver personalized omnichannel service while reimagining the branch experience in the connected economy.

Panelists included PSCU President and CEO Chuck Fagan; First Tech Federal Credit Union Chief Digital and Technology Officer Mike Upton; BECU Senior Vice President of Digital Mike Zell; PenFed Credit Union Vice President of Digital Transformation Brad Patterson; and Coast Capital Savings Vice President of Digital Banking Yana Melnichuk.

Behold the Fast Followers

CUs may not be bleeding edge, they said, nor cutting-edge — but they’ve found a successful berth as fast followers. That success, tied to investments that were already in place, is evident in PYMNTS data that show 80 percent of CU members are now highly satisfied with their CUs’ innovations, and 11 percent fewer CU members would switch FIs over innovation than those who would have a year ago.

Read more: Credit Unions’ Innovation Priorities Reflect FinTech Competitive Pressures

Those high satisfaction levels, said Zell — whose CU has a presence in Washington State and South Carolina — are notable as “we have seen more competition from the FinTechs and the challenger banks in the past year.” As the panelists noted, CUs have done a good job of helping less tech-savvy users get online with aplomb as they’ve navigated daily financial life and day-to-day banking.

Against that backdrop, said PenFed’s Patterson, the pursuit of the digital, frictionless channel — defined by mobile, web and even phone-based conduits (such as call centers), combined with branches — remains a key focus. The shift has been nimble, chimed in Upton, as CUs (including his own) have seen the bulk of their historical business (80 percent for First Tech Federal Credit Union) come from branches.

But as Upton said, “almost overnight, 80 percent of our new account openings came through the digital channels.”

At Melnichuk’s FI, which operates in Canada, several tools were launched digitally for retail and small business members within weeks as the pandemic hit home, and government support and payments had to be delivered (electronically) to individuals.

As Upton noted, “We are very comfortable to declare that we are a fast follower. We do not crave to be leading-edge or bleeding-edge. We don’t feel that serves our membership in the best way.”

He said leading-edge or bleeding-edge tech targets scale above other priorities, and fast followers are able to more judiciously target their offerings to unmet needs.

Fast followers, he explained, do not tackle “innovation for the sake of innovation. It has to show value to our membership and to our employees.”

The Role of the Branch

Part of the great shift rests on reimagining the branch experience, said Fagan, who added that CUs have been on a long path to reconfiguring the physical footprint and the services available therein. Indeed, 57 percent of respondents surveyed in a PYMNTS report said the branch setting remains important, but they rarely visit.

“It might look smaller in terms of square footage,” he said. “It might look smaller in terms of the number of people who are resourcing it, but the brand still serves a very important focus. It’ll be an evolution.”

Patterson said the branches will have a “consultative approach,” where bringing transactions from the digital to the physical worlds will be key in keeping consumers engaged.

According to Upton, “the branches remind us of the human connection, and the warmth that people may feel does not exist in digital.”

The Role of Partnerships

The panel noted that there’s leverage to be gained (and technological heavy lifting and massive capital investments to be avoided) in striking partnerships with FinTechs that might be considered leading-edge. As Melnichuk observed, the partnerships can help CUs make inroads into offering members new loyalty, personalization and anti-fraud services — with self-service as a guiding principle.

“We have a ‘co-opetition’ strategy that allows us to partner with many of the early-stage FinTechs,” said Upton. “We’ve published our own developer [application programming interface (API)] portal through our open banking platform in recognition that we are not going to build everything and be everything for everybody.”

Looking ahead, according to the interviewees, CUs will continue investing in digital tools — such as interactive tellers and artificial intelligence (AI) — and financial wellness. Meanwhile, there will be fewer paper checks (although they are proving to be stubborn stalwarts of financial services) and less foot traffic into branches.

According to Fagan, omnichannel strategies will dominate in the months and years ahead.

“Building across each of those channels to ensure that the consumer can enjoy a broad range of personalized experience — well, I think that will be the sweet spot for credit unions,” he said.