Credit Unions Compete as Small Businesses Redefine the Banking Relationship

Throughout the banking history of the United States, credit unions have played a distinctive role in providing financial services to their local small- to medium-sized businesses ( SMBs ).

Rooted in regional communities and built around a member-owned model, credit unions earned trust by offering relationships that felt personal, aligned and durable, something that larger institutions often struggled to provide.

That legacy still matters. In an era of economic uncertainty and rapid technological change, trust is not an obsolete asset.

However, the operating environment for SMBs has changed. Today’s business owner manages payroll in the cloud, invoices customers digitally, monitors cash flow in real time, and expects financial tools to integrate seamlessly with accounting and operations software. Speed and visibility are no longer conveniences. They are table stakes.

PYMNTS Intelligence November Credit Union Tracker® Series , a collaboration with Velera , found that credit unions that offer a broader suite of digital products and services, such as contactless cards, self-service mobile tools, real-time payments and digital onboarding, are better positioned to retain and attract SMB members.

Small businesses remain loyal when their needs are met. The report revealed that 22% of SMBs are somewhat to extremely likely to leave their credit union within a year.

Digital Interactions Are the New Banking Relationship

There is a broader shift underway that reframes the entire conversation around credit union relevance. For many SMBs, especially younger and digitally native owners, the relationship with a financial institution is no longer defined by branch visits or periodic calls. It is defined by daily interactions with digital tools.

From the SMB’s perspective, these experiences are not technology features. They are signals of whether an institution understands how modern businesses actually function. When those signals are consistently weak, even a strong legacy of trust struggles to compensate.

When experience gaps persist, credit unions risk becoming trusted, but not preferred, a subtle but dangerous position. Traditional retention metrics can often fail to capture the risk. An SMB that keeps an account open but routes payments, cards and deposits through another provider is, functionally, already gone.

Forward-thinking credit unions are already responding by reframing how they approach modernization. Rather than treating digital transformation as a monolithic core-replacement exercise, they are adopting a more modular mindset.

The institutions making real progress share a common shift in mindset. They stop trying to build everything themselves. Platform thinking reframes the problem. Instead of asking, “How do we modernize our core?” the question becomes, “How do we assemble the best experience for SMBs using modular capabilities?”

Read the report: Business at Risk: How Credit Unions Can Attract—and Keep—SMB Members

APIs, SaaS partners and FinTech ecosystems make this possible. Digital onboarding, real-time payments, expense management, card controls and cash flow tools can be layered onto existing infrastructure without waiting for full core replacement.

What SMBs consistently cite as sources of frustration are operational frictions, including slow or paper-heavy onboarding, limited self-service capabilities, lack of real-time visibility, and digital tools that feel designed for a different era. These are not abstract complaints. They affect how businesses manage time, cash and risk.

In practice, SMBs rarely compare rates across institutions that they already find cumbersome to use. Experience acts as the primary filter. Pricing becomes relevant only among institutions that pass that initial test.

This distinction is critical. Competing on rates without addressing experience is not just ineffective; it misdiagnoses the problem.

On the other hand, however, SMBs that engage deeply with digital tools tend to consolidate deposits, use business cards more frequently, and interact more consistently with lending and treasury products. That engagement generates data, and that data enables better risk assessment, more relevant offers and more proactive support.

SMBs are not asking credit unions to become FinTechs. They are asking them to meet modern standards of usability and responsiveness while retaining the human values that made them trusted partners in the first place.

The institutions that succeed will be those that modernize how their purpose is delivered, not those that abandon it.