Credit Unions Outpace Digital Banks in Top-of-Wallet Conversion Battle

The battle for the small and medium-sized business (SMB) share of wallet is heating up.

While larger national and regional banks often leverage vast resources and extensive product suites, credit unions (CUs) possess unique strengths that position them as powerful contenders, particularly in specific segments of the SMB market.

Understanding these advantages and strategically enhancing their offerings can enable CUs not only to attract new SMB relationships but, critically, to retain their coveted “top-of-wallet” status, ensuring their cards are the first choice for business owners.

PYMNTS Intelligence, in collaboration with Velera (formerly PSCU/Co-op Solutions), recently explored the factors influencing consumer and SMB card choices in the report titled “Credit Union Innovation Readiness Index: The Path to Top-of-Wallet Conversion.”

Moving Toward Higher Conversion Rates

The report draws on insights from surveys of over 12,000 consumers and 2,000 U.S. SMBs conducted in late 2024. It highlights that CUs demonstrate strong top-of-wallet conversion rates among select business segments.

Among SMBs overall, credit unions achieve a 53% top-of-wallet conversion rate, outpacing digital-only banks which convert 42% of their cardholders.

CUs are particularly effective in converting SMB cardholders in small towns and rural areas, reaching a significant 71% rate. They also perform well among micro-SMBs with annual revenue below $250,000, showing a 68% conversion rate across geographies.

Appeal for the Newest Firms

Furthermore, newer businesses, operating for fewer than five years, exhibit the highest top-of-wallet conversion rate with CUs at 60%. These findings underscore CUs’ existing foothold and opportunity for growth within specific SMB niches.

While economic incentives like rewards, lower interest rates or fees are often the primary drivers for top-of-wallet card choice across financial institutions, the sources reveal a nuanced picture for credit union cardholders. Among SMBs who primarily use a card from a CU, 44% cite economic incentives as a key driver.

However, spending control and tracking features are a powerful motivator for 20% of these SMBs, making them the second-most important feature behind rewards. This is comparable to or slightly higher than the importance placed on these features by SMBs using cards from national or digital-only banks.

How They Use the Cards

The report also sheds light on how SMBs use their CU cards. For SMBs with primary accounts at a CU, 23% most often use their CU-issued card to cover basic operating costs. This differs from SMBs favoring national banks, who more frequently cite inventory purchases (26%) as their most common expense. This reinforces the role of credit union cards as financial lifelines for managing core business operations.

To attract new top-of-wallet relationships and retain existing ones, CUs should consider strategic enhancements to their SMB card programs. Acknowledging that SMBs often prioritize economic incentives, credit unions should refine their rewards programs to be competitive with national and regional banks. Introducing targeted rewards or discounts specifically on essential business expenses, such as inventory, could significantly increase SMB engagement and boost top-of-wallet status, particularly given that inventory purchases are a common expense type.

Beyond rewards, the strong preference for spending control and tracking tools among current CU cardholders presents a key retention opportunity. Prioritizing advanced features like real-time transaction alerts, customizable spending limits and dedicated mobile card management apps resonates strongly with credit union cardholders and can differentiate CU offerings in the market.

The path forward involves a dual strategy: refining competitive financial incentives, potentially targeting rewards to common business expenses like inventory, while simultaneously doubling down on the spending control and tracking features that deeply resonate with their existing SMB base.