Credit Unions’ Small Business Opportunity

Credit unions (CUs) have a growing opportunity to capture and keep their member customers, but only if they’re able to elevate their offerings to the levels seen with large banks and FinTechs.

That’s according to PYMNTS’ latest Credit Union Tracker, which pointed to consumers’ rising demands for mobile-friendly platforms and faster payments services.

“Advanced technology is raising the stakes of how CUs should operate, with members now demanding the instant payments and slick mobile interfaces that large banks and FinTechs have made standard,” the Tracker stated.

Small businesses, too, have heightened their expectations from their financial service providers, and credit unions are no exception. As CUs address the need for high-tech and more personalized services, their opportunities with SMBs are similarly vast.

Favorable Regulations

Take the legal hemp and marijuana market, for example. With financial institutions continuing to explore how to service small businesses operating in this industry without running afoul of federal law, credit unions, along with community banks, have worked to fill in the finserv gap as larger financial institutions back away, according to Politico.

Reports noted that Congress this week is acting on the proposed SAFE Banking Act, which would enable financial institutions to legally extend their services to marijuana businesses. According to the publication, the passage of SAFE won’t necessarily mean big banks will suddenly step in to service these small businesses; rather, reports said, it’s likely to result in “more community banks and credit unions deciding to serve marijuana businesses.

“This could lower costs, increase security, make the cannabis black market even less appealing, and create new customers for community banks, credit unions and [minority-depository institutions] (MDIs),” it added.

This month’s Credit Union Tracker also highlighted the recent issuance of new guidance from the National Credit Union Administration to service legal hemp farmers in the U.S. after the industry pressed for regulatory guidance on the matter.

The SMB Loan Opportunity

There are other areas in which credit unions stand to effectively compete with banks and FinTechs in the small business finserv space as well. One of the largest opportunities is in small business lending.

This can be to legal marijuana businesses and hemp farmers that large banks might be unwilling to touch even after regulatory reform. But it can also be in the broader small business community.

Recent Biz2Credit analysis found that 40 percent of small business loans were approved by credit unions in August, slightly up from the record-low SMB loan approval levels among CUs in July. According to Biz2Credit CEO Rohit Arora, regulations capping credit union lending activity at 12.25 percent of their assets certainly doesn’t help, but some CUs may also be standing in their own way when it comes to expanding small business lending.

“The inability of many credit unions to process online loan applications has significantly hindered credit union lending to small businesses,” he said in a statement.

Separate reports in American Banker highlighted the widening market for credit unions, not just banks, to collaborate with FinTechs to expand their small business lending operations, too.

Velocity Credit Union, based in Texas, is one industry player that recently invested in technology to enhance offerings for SMBs. The company recently struck a partnership with Fiserv to elevate and diversify its product offering, and according to Fiserv’s Credit Union Solutions president Vincent Brennan, it’s a reflection of the industry’s growing focus on SMBs.

“Growth-oriented credit unions are increasingly focused on improving offerings for small businesses and entrepreneurial members, in no small part because these areas drive growth and retention across the member base,” he said.

The latest Credit Union Tracker highlights CUs’ opportunity to enhance their technology offerings for consumers to compete with banks and FinTechs. Small businesses, too, have the possibility of becoming a key competitive advantage for the credit unions that are able to enhance their digital services, particularly as regulations make it easier for CUs to compete in the SMB lending and banking space (especially in the legal marijuana and hemp market).

But unless credit unions are willing to invest in the technology — either through automated and digital SMB loan processes, or by collaborating with FinTechs and alternative SMB lenders — credit unions also stand to lose out on the small business customer base.