Guest Editorial by Craig McLaughlin, Co-Founder and CEO, Finalytics.ai
The digital experience has evolved and so have consumer expectations, penetrating all aspects of financial services. Convenience, immediacy, and relevance are what consumers are priorities, and with something as personal as money, they need to trust that their unique financial needs will be addressed. If these expectations are not met, consumers are not afraid to walk away from their primary financial institution, especially since there are plenty of alternative options to choose from.
While fintechs have been on the rise over the last decade, reinventing digital banking and setting new standards for customer experience, it has only been in the last two years that they have gained enough traction to trigger a decline in loyalty for traditional banking. Even the largest financial institutions have seen an impact.
According to Cornerstone, nearly 3 million Americans currently use a fintech as their primary checking account provider. This “flight to quality” combined with the issues some megabanks had providing relief to those in need of it during the pandemic, has added increased the tendencies of consumers to turn toward companies like Chime and Rocket Mortgage who were eager to provide quick and easy financial aid.
So, where do credit unions sit in this market shift?
Credit unions present an interesting case study in this context. The secret sauce of these organizations has long been their emphasis on the relational rather than the transactional. In the current conditions, maintaining focus on this distinction would be especially advantageous for these organizations. They have the opportunity to position themselves as the trusted advisors that their members need especially in the now normal.However, as the financial services industry becomes increasingly digitalized and the number of branches continues to dwindle, credit unions will have to embrace new technologies that will help them continue to deliver their secret sauce to members at scale through digital channels.
Consumers see value in banking with community financial institutions, especially credit unions, due to their community-first approach and non-for-profit status. However, they are often let down by their product offerings. According to a survey conducted by The Harris Poll, 56% of respondents said they would prefer banking with community financial institutions, but their digital offerings did not meet their needs. This dissatisfaction is what ultimately drives consumers to open additional accounts with alternative banking providers, like digital banks, that offer a more seamless and personally relevant experience through digital channels.
Certain types of artificial intelligence can play a central role in supporting and extending the central role credit unions play in communities across the country. Combined with data that can help clarify a member’s or prospective member’s unique needs, AI becomes a competitive advantage and countermeasure to the attributes offered by neobanks. The data sources available for powering this competitive differentiator include credit unions’ own member data, consumer behavioral data, and a number of third-party public data sources.
Combining AI with these multi-faceted data sources gives credit unions the power to anticipate if a member wants to buy a house in a particular city, select the most suitable mortgage loan, and offer it on the online banking app before the member ever searches for loans on their own. This technology can also predict prospective members’ needs from the actions they take the first time they visit a credit union’s web page. This provides a credit union with the opportunity to establish a level of relevance few of the largest financial institutions can claim today. Imagine planning to buy a car, browsing a credit union’s homepage for the first time, and seeing relevant auto loan offers for cars in your area code. This level of relevance engenders a level of loyalty that has previously only existed in the customer bases of savvy online retailers.
Digital banks are taking a similar approach and winning consumers —primarily Gen Z and Millennials—by providing unique product offerings for various segments of the market based on factors like lifestyle, location, cause-related activity, etc. For instance, a digital bank for the LGTBQ community may offer the option to sign up for a checking account with their preferred name and gender regardless of their legal identification. Armed with AI technologies credit unions can do the same, pulling content based on the user’s profile, digital activity, behavior, age, location, gender, and more, to create deeply relevant digital experiences that speak specifically to their consumers’ needs at a particular moment in time.
Credit unions’ relational focus has always been their differentiator in the market. However, as the world becomes increasingly digitalized and consumers’ expectations continue to be defined by their last “wow” experience online, business-as-usual just does not work anymore. To keep their primary role in communities and strengthen their standings against larger players, especially as the post-pandemic economy continues to expand, credit unions should apply modern technologies that will help them deliver services that go well beyond the existing personalization paradigm. This approach will build deeper relationships than megabanks and fintechs currently offer, ultimately improving retention metrics, driving more consumer acquisition, and growing wallet share.