Reaching the Digital Generation: Credit Union Strategies for Growth

Despite their strong reputation for service, credit unions (CUs) may face frustration in overcoming certain other public perceptions. As we saw in the previous edition, one of these is the notion that CUs are less innovative than their bank or FinTech peers — an image that is rapidly growing obsolete as CUs make digital strides. Relatedly, younger consumers may not be getting a consistent message about how well CUs can serve their needs. According to research, the average CU member is in their mid-50s, and less than 20% of Americans under the age of 40 use a credit union. This aging membership base underscores the need for CUs to engage with younger demographics for long-term sustainability.

Attracting these younger members presents challenges and opportunities. Larger banks and FinTechs are already making inroads with this segment, so CUs will have to be agile competitors. This will mean pulling out all the stops when it comes to the modern, digital banking experiences that younger consumers expect. However, CUs already possess unique strengths for serving this demographic, including a personalized, member-centric approach. Captivating and engaging younger consumers will require CUs to increase public awareness of the singular benefits of CU membership for digital natives.

CUs’ Aging Member Base

Younger Consumers Have Different Banking Priorities

Innovating to Attract Digital Natives

Next Steps: Growing a Younger Membership Base

CUs’ Aging Member Base

CUs are seeing their average membership grow older as younger consumers gravitate toward banks and FinTechs instead.

Baby boomers make up the largest share of credit union members.

Baby boomers form the backbone of the CU member base — and this segment is only growing. A survey found that this generation comprises 39% of CU members, up from 28% in 2015, bringing the average member age to 53. Meanwhile, millennials’ share of CU membership has fallen from 24% in 2015 to 21% in 2023, while Generation Z has held steady at 10%. In addition, Generation X’s share fell by 9 percentage points at a time when these consumers are entering their prime earning years. If this trend continues, CUs could risk losing millennials’ and Gen Z’s prime earning years as well.

11%

of Generation Zers bank with credit unions, while 79% turn to large banks.

Many younger consumers are unfamiliar with CUs’ benefits.

Unfamiliarity with credit unions may be a key reason why young people are not joining them in the same proportions as their elders. PYMNTS Intelligence research found that millennials are 70% more likely than baby boomers to say they have not joined due to lack of familiarity with CUs as a banking option. At 18%, millennials are the most likely generation to say this is a barrier.

Lack of credit access could be another reason younger consumers may be shying away from credit unions. Gen Zers, for example, are four times more likely than baby boomers to cite restrictive credit or prohibitive rates as their reason for non-CU membership. Younger age groups, chiefly Gen Z, also show a stronger preference for self-service banking options and digital payments than older generations.

All these factors could be contributing to younger consumers’ relatively low CU membership. Only 11% of Gen Z consumers and 15% of millennials count among CUs’ member bases. Meanwhile, 79% and 69% of these generations, respectively, use larger banks. Credit unions will need to address these concerns head-on. However, CUs also offer unique benefits to appeal to this consumer segment.

Younger Consumers Have Different Banking Priorities

Younger consumers prioritize digital-first and self-service banking, so credit unions will need to match these services with their competitors’. However, digital natives are also uniquely willing to switch financial institutions (FIs) for personalization — an area where CUs excel.

Younger consumers prioritize digital-first and mobile banking.

8 in 10

millennial and Gen Z consumers say digital banking is core to their banking preferences.

Among younger consumers, modern digital banking technology is the most frequently cited factor for choosing an FI. Eighty percent of Gen Z and 81% of millennials report that digital banking is core to their banking preferences. Similarly, self-service options are vital to these generations. For example, 41% of Gen Z and 38% of millennials say it is essential to be able to open an account without having to visit a branch. PYMNTS Intelligence research confirms that CU members belonging to Gen Z are twice as likely as their baby boomer counterparts to want their CUs to innovate self-service banking solutions.

Mobile banking is another key priority for young consumers. For example, 66% of zillennials — the microgeneration bridging millennials and Gen Z — prefer mobile banking to all other channels. Compared to the average consumer, zillennials are 47% more likely to use mobile banking as their main method for accessing financial services. Their digital-first approach is evident, as 22% have not visited a physical bank branch at all in the past year.

This digital-first mindset makes security paramount.

With the preference for digital banking comes an expectation of robust security. A survey found that 60% of Generation Z and 54% of millennials consider security a top factor when choosing an FI. More than 80% of these generations say their FIs should invest more in cybersecurity. A similar share expect their FIs to use two-factor authentication.

This emphasis on security is driven by the desire for digital-first experiences. For example, the ability to open a new account without visiting a branch location requires advanced security measures to ensure that the account opener is the actual customer and not a fraudster.

Nevertheless, younger consumers want more than just technology.

Consistent with the above findings, 31% of Gen Z consumers say they would break up with their current banks if they failed to offer cutting-edge digital technologies. However, an even larger share of this generation — 47% — is open to switching from their current banks to credit unions. The reason appears to be a feature in which CUs specialize: personalization. Digital innovation on its own is proving inadequate to secure younger consumers’ loyalty, with 49% of Gen Z willing to change FIs for customized financial guidance. This represents an opportunity for credit unions to capture more of this generation by using the member-centric experience for which they are well known.

Innovating to Attract Digital Natives

CUs are kicking their innovation agendas into overdrive with new digital banking technologies to attract younger members.

Most CUs plan to boost their tech budgets this year.

With younger generations’ preferences driving the bulk of digital payment trends, more than three-quarters of CUs are planning to up their technology spending in 2024. Not surprisingly, consumer digital account opening systems top the list of technologies they plan to implement or upgrade, as well as mobile banking and peer-to-peer (P2P) payments. This increased investment is intended to help them compete against larger banks and FinTechs for younger, digital-native consumers. In addition, these investments will allow CUs to enhance technologies spanning mobile, online and in-branch services. These omnichannel developments will aim to provide a seamless, integrated experience that accommodates the diverse needs of a broad membership base.

76%

of credit unions plan to increase their technology spending in 2024.

Partnerships can be a key strategy for building younger membership.

Developing new financial technologies can be expensive and time-consuming, especially for smaller CUs with limited teams and resources. Partnering with other CUs and third-party technology firms can provide the expertise needed to develop and implement these features.

One collaborative resource is the Velera Innovation Alliance (VIA), which launched in September. Comprising 13 credit union executives, VIA aims to drive CUs’ competitiveness and improve their long-term sustainability within the digital financial ecosystem. Alliance executives take part in proof-of-concept planning and testing, as well as offer insights into criteria for partnering with FinTechs. Together, these initiatives provide critical support for CUs looking to develop technologies for attracting younger members.

Next Steps: Growing a Younger Membership Base

Credit unions increasingly recognize the need to deploy modern and digital banking services to attract millennial and Gen Z members. By offering robust mobile and online banking platforms, CUs can meet digital natives’ expectations and compete with larger banks and FinTechs that have already embraced digital transformation. At the same time, credit unions must strive to familiarize younger generations with long-established CU strengths, such as the ability to personalize and focus on each member’s banking experience.

For credit unions seeking to attract younger consumers for long-term growth, PYMNTS Intelligence recommends the following:

Innovating self-service banking features and digital solutions, including mobile check deposit; P2P payments; buy now, pay later (BNPL) options; personal financial management tools; and 24/7 account access

Integrating a seamless, omnichannel experience to appeal to members of every age group

Offering more accessible lending products as possible to cater to Gen Z’s credit needs

Increasing awareness of CU services among younger consumers with targeted marketing addressing Gen Z’s wish for customized service and financial advice

CUs that invest in these strategies can position themselves as forward-thinking institutions capable of meeting the evolving needs of their members. Additionally, enhanced digital services enable CUs to gather valuable data about their members’ financial behaviors. These insights allow for more personalized offerings and improved member engagement.

Now is the time for credit unions to evaluate their offerings and ensure they meet the needs of younger audiences with the tools they value on the channels they frequent. Leveraging data analytics to understand member preferences and behaviors is key to enabling personalized communication and product offerings. Equally important is providing younger generations, particularly Gen Z, with financial education and wellness tools, as research shows they are accumulating debt faster than any other generation.”

Tom Pierce
SVP, Chief Marketing & Communications Officer