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

Small to mid-sized businesses (SMBs) have long trusted credit unions (CUs) for relationship-based service, but many are looking elsewhere. As digital competitors raise expectations, CUs risk losing business members to banks and FinTechs. This Tracker explores what’s driving that churn—and how innovation, digital tools and experience design can turn it around.

SMB Churn Is Rising as Loyalty Shifts

Innovation Readiness Defines Retention

Digital Tools Bridge the Experience Gap

Building Business Loyalty Through Digital Innovation

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SMB Churn Is Rising as Loyalty Shifts

Small businesses remain loyal only when their needs are met—and today’s digital gaps are putting that loyalty under strain.

SMBs are searching for other options.

The good news for credit unions is that more than six in 10 SMB CU members are “not at all” likely to leave their current institutions within the next 12 months, according to the PYMNTS Intelligence and Velera report “Credit Union Innovation Readiness: The Real Story Behind Member Churn.” The bad news is that leaves nearly four in 10 that are at least “slightly” likely to walk (38%), more than one in five at least “somewhat” likely to (22%), and nearly 12% that are “very” or “extremely” likely to head out the door. These figures make SMBs one of the highest-risk demographics for churn—second only to Gen Z.

22%

of SMBs are somewhat to extremely likely to leave their CUs within a year.

Among SMBs looking to leave, 75% say their next stop will likely be something other than another CU. Roughly six in 10 say they’re headed to a national, regional or local bank. Notably, the SMBs that switch do so for institutions with stronger digital capabilities. Among the top reasons for bolting is frustration with a lack of digital services from their current institutions, including the inability to complete all services online and fewer innovative and personalized digital tools.

SMB flight risk varies by location, but ‘rural’ doesn’t equal ‘more loyal.’

Although a smaller share of small-town SMBs (5%) say they are “very” or “extremely” likely to leave their CUs than those based in metropolitan areas (10%), this seeming loyalty is more than canceled out by a larger share of small-town SMBs (38%) than urban ones (24%) that are “slightly” or “somewhat” likely to bolt. This means that small-town SMBs have a greater overall likelihood of defecting. In fact, only 56% of small-town SMBs say they are “not at all” likely to leave their CUs, compared to 66% of urban SMBs.

This somewhat counterintuitive finding could reflect a lack of options. Rural areas tend to have fewer financial institutions (FIs) than cities do, potentially leaving SMBs open to switching on principle but without a clear alternative in mind. Meanwhile, greater competition among FIs in metropolitan areas means having more options—including staying with CUs that are under more pressure to implement the kinds of innovative digital tools that tend to keep SMBs loyal.

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Innovation Readiness Defines Retention

A broad offering of the digital products and services SMBs want—and being ready to implement new ones as member demands evolve—is what separates top CU performers from the rest of the pack.

SMBs want modern tools—and middle-tier CUs aren’t offering them yet.

90%

of top-tier CUs offer or plan to offer contactless credit and debit cards.

Innovation readiness is emerging as a key factor in predicting CU growth and retention. As we’ve seen, SMBs are at high risk of member churn—and this is in part because many CUs still lack the modern tools SMBs now consider table stakes. The PYMNTS Intelligence-Velera study “Credit Union Innovation Readiness: How Middle Performers Can Become Top Innovators” shows that middle-performing credit union innovators offer far fewer SMB-relevant products and digital features than top performers. It found, for instance, that fewer than half of middle-tier CUs (42%) offer contactless credit and debit cards—not exactly a new technology—while 90% of top performers offer them.

In fact, while top performers currently offer 49% of available financial products, middle performers offer only 36%. The gap is especially clear in capabilities SMBs prioritize, like small-business credit products, real-time payments and SMB payroll services. Top performers are significantly more likely to offer or plan to offer these capabilities, while middle-tier CUs lag by double-digit margins in nearly every category. The result is a widening mismatch between what SMBs expect and what many credit unions currently deliver. For example, ex-CU member SMBs are 117% more likely to be interested in small business credit and 173% more likely to want business payroll products than the average SMB.

Top performers win by building better systems and stronger partnerships.

What separates top-performing credit unions in serving SMBs is not simply product breadth—it’s the operational foundation that enables them to deliver modern digital capabilities more quickly and seamlessly. The PYMNTS Intelligence report finds that top performers rely heavily on third-party partners, with 84% citing consultants, vendors or credit union service organizations (CUSOs) as essential to their innovation strategy. Middle performers lag notably at 64%, while bottom-tier institutions fall to 50%. These partnerships allow top-tier CUs to adopt new features faster and overcome internal resource and system constraints.

Meanwhile, system limitations are a defining obstacle to innovation for middle-tier CUs. More than half report challenges related to system integration (57%), core system constraints (55%) and compliance burdens (59%)—all of which slow the rollout of digital tools that SMBs value, such as open banking connectivity and mobile credit card apps. For SMB members, innovation is how credit unions prove they understand their business members’ evolving needs.

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Digital Tools Bridge the Experience Gap

SMBs expect the same level of digital convenience from financial institutions as they do in their personal lives. Credit unions can close this experience gap by delivering seamless, self-service tools that make managing cash flow and accounts easier than ever.

SMBs signal strong demand for digital-first CU experiences.

SMBs are emerging as one of the most digitally demanding segments credit unions serve—and the PYMNTS Intelligence-Velera report “Credit Union Innovation Readiness: Closing Gaps, Winning Members” shows that many CUs are not keeping pace. While 51% of members overall still prefer in-person interactions, SMB switchers tell a different story: 70% of SMBs that left a credit union for another institution prefer online onboarding when applying for new products. This is one of the strongest digital preference indicators in the dataset: SMBs that defected are 111% more likely than average to expect digital onboarding, highlighting how essential seamless, mobile-first enrollment is for business users.

70%

of SMBs that left a CU for another FI prefer digital onboarding when applying for new products.

This expectation reflects a structural shift toward convenient self-service and anytime access to financial tools—similar to consumers’ everyday personal financial experiences. The report further finds that SMBs using a CU-issued card as their top-of-wallet method are 50% more likely to value loyalty programs, suggesting that SMBs reward institutions that pair high-tech with high-touch engagement. Taken together, these findings confirm that SMBs evaluate credit unions on the strength of their digital capabilities—and are willing to walk when those needs are unmet.

Innovation gaps are driving SMB churn—but also creating a roadmap for CU growth.

For credit unions aiming to deepen SMB relationships, the report identifies clear innovation gaps—and equally clear opportunities. SMBs that recently left their credit unions are 168% more likely than the average SMB to want open banking, 139% more likely to expect instant card issuance, and significantly more likely to want biometric authentication and card transaction management or alerts. These expectations align closely with the capabilities top-performing credit unions are already prioritizing. According to the Index, innovation leaders are far ahead in offering digital onboarding (63% vs. 25%), mobile credit card apps (48% vs. 7%), open banking (86% vs. 13%) and budgeting tools (53% vs. 27%) compared to bottom performers.

SMBs’ elevated expectations therefore act as a blueprint: Credit unions can reduce churn by aligning with the digital features bottom performers lack and top performers already deliver. The report emphasizes that innovation must be targeted, data-informed and member-aligned—not purely additive. For SMBs, that means digital ease, modern payment tools and integrated financial experiences. Institutions that bridge these capability gaps stand to convert SMB churn risk into long-term loyalty gains.

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Building Business Loyalty Through Digital Innovation

In the increasingly digital business landscape of today, SMB retention hinges on how effectively credit unions innovate. CUs must modernize digital touchpoints, integrate embedded finance capabilities and empower SMB members with real-time insights. To stay competitive, CUs need to act now—prioritizing digital experience, technology partnerships and strategic innovation roadmaps that turn at-risk relationships into long-term business loyalty.

PYMNTS Intelligence recommends the following actionable roadmap for CUs seeking to boost SMB engagement and retention through innovation:

Be prepared. Innovation readiness is the strongest predictor of SMB member satisfaction and long-term loyalty.

Don’t wait to innovate. SMBs’ expectations are evolving quickly. Staying ahead requires proactive investment in technology and partnerships.

Empower self-service. SMBs want control and convenience—seamless digital onboarding, anytime access to funds, and intuitive tools are must-haves.

By embedding digital innovation at the heart of their strategy, credit unions can transform at-risk relationships into enduring business partnerships and ensure their relevance in the modern financial landscape.

Small businesses are the backbone of local communities—and their needs are unique. Credit unions have an opportunity to prioritize investments in the digital innovation SMBs now consider essential for managing cash flow and driving growth. Looking ahead, success will hinge on making it easy for small business owners to engage digitally. By investing in these channels, credit unions can unlock growth, retention and profitability while strengthening the communities they serve.”

Ashley Dobbelmann
Vice President, Product Enablement, Velera