By W.B. King
The 2021 “ask” from banking consumers: We want enhanced digital engagements. The “answer” from fintechs: We hear you loud and clear. Credit unions, however, have fallen behind fintechs in this all-important category and members are speaking out. This is among important findings in Co-op Solutions research paper, Co-op CU Growth Outlook: Bridging Member Needs and Payments Strategies to Deepen Trust.
The report, co-sponsored with EY (formerly Ernst & Young) and Filene Research Institute, surveyed 2,000 credit union members and 1,000 prospective members and found that consumers don’t believe that credit unions can offer the digital payment solutions they seek. Sixty-six percent of respondents, for instance, use some form of digital payments, but only 16% do so via their credit union.
“Capturing member trust is about so much more than profitability,” said Samantha Paxson, chief experience officer for Co-op Solutions. “The competitors out there offering digital payments rarely have the financial wellness of their users in mind. Member-centricity comes down to meeting members where they are so we can get them where they’re going – faster, safer and in a more holistically healthy way. Fintechs, big banks and data-ravenous tech giants are not the answer; but members seek them out when they can’t get what they need from their credit union.”
The news gets worse for credit unions. The report also found that 78% of respondents don’t expect their credit union to offer preferred digital payment options. Forty-one percent of respondents would consider leaving a credit union because their products do not meet their current needs. Thirty-four percent said they were looking outside their current financial relationships for products that meet their needs. And whereas credit unions were number one in passive member relationships, fintechs have achieved the same designation in active relationships.
“For credit unions, which have long enjoyed high levels of trust with their members, the time has come to redefine what trust means,” the report stated. “To put it another way – credit unions need to reexamine what it now means to be member-centric.”
The report noted that in 2021, credit unions fell behind banks in consumer satisfaction for the third year in a row. And in 2022, the gap has grown larger.
“The pressures of digital transformation and a changing competitive landscape are shaking financial services — and the traditional banking model — to its core. Banking has been transformed by high levels of product commoditization,” the report continued. “The ability for credit unions and community banks to provide highly personalized, one- to-one service is becoming increasingly difficult as digital channels become the primary mode of interaction. The result is that the banking relationship has become increasingly transactional and fragmented, leading to an erosion of consumer loyalty to traditional financial institutions.”
Focus on Member-Centricity
If credit unions are to combat fintechs, the report finds this goal will likely be achieved by addressing members’ evolving expectations, especially as related to digital payment options and financial literacy.
“We now know that robust and relevant digital payment options are objectively the best way to activate daily engagement,” said Paxson. “Layering financial transparency and member control on top of those digital payments tools is how credit unions will maintain the trust and, ultimately, the business of modern members.”
According to the Accenture report, Five Big Bets for Retail Payments in North America, 80% of consumer’s interactions with their financial institution are through payments (i.e., lending and repayment, deposits and transactions).
“Payments represent the single most productive source of the transactional data needed for comprehensive member behavioral analysis. The credit union executives surveyed desire increased access to transactional data to help them make better decisions and segment their market more effectively,” the Co-op report found. “Payments represent the best — and perhaps only — way to obtain a real-time, detailed look at members’ behavior: how they spend, where they spend their time, and what their priorities are.”
Credit union leaders, the Co-op report implored, need to approach member relationships in a new manner, one that doesn’t take their loyalty for granted.
“Traditional banking presumes increased financial needs and complexity over time,” the report noted. “However, this approach no longer meets members’ needs, as evidenced by the fact that less than 50% of young people own the financial products they need to be fully prepared for a life event, and that, on average, consumers own five banking relationships across different financial institutions.”
For credit unions to compete against fintechs in the digital payments race, the report offered that the credit union must be the singular choice every time a member makes a banking transaction.
“Some leading fintechs have already achieved market-leading growth through this ‘lifestyle enablement’ approach. Chime has effectively broken down its segmentation strategy to a ‘customer of one,’” the report noted. “They have accomplished this by incorporating artificial intelligence and analyzing non-standard, alternative data points to develop a fuller, more complex picture of their target customer.”
What is clear from the report is that "consumer behavior and desires are trending toward digital tools,” which improve financial well-being.
“Daily movement and management of money behaviors lead consumer preferences and reinforce the need for active relationships with members,” the report continued. “One-third of respondents, especially younger demographics, report needing any form of digital payment to be prepared for relevant life events. All respondents ranked spending behaviors, viewing personal trends and cross management of payment/financial sources as the top insights they are looking to obtain to manage their daily finances.”
While the report provides a sobering message for credit union executives, it also offers hope to those leaders taking a proactive stand against digital banking competition.
“If credit unions embrace this strategy of placing payments at the center of the relationship, while delivering financial well-being through digital tools, it can drive 4.9 million in incremental member acquisition opportunity,” the report noted. “The opportunity for growth for credit unions is there — if they can bridge the gap between current state offerings and what consumers expect and demand.”
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