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  • Writer's pictureW.B. King

New Co-op Report Finds CUs are Losing Member Trust Over Substandard Payments Strategies

By W.B. King

The pandemic taught credit unions that being member-centric in 2022 and beyond requires multiple digital interactions every day. This was among the findings from Co-op Solutions’ latest white paper: Co-op CU Growth Outlook: Bridging member needs and payments strategy to deepen trust.

“Credit unions face a daunting set of challenges in maintaining and growing their member relationships, as well as enhancing their ability to reach a new generation of financial consumers,” the report, which surveyed 2,000 current credit union members and 1,000 prospects across the U.S., stated.

“Changing consumer expectations, accelerated in many cases by the COVID pandemic, are moving toward digital banking primacy, reducing the need for in-person, face-to-face interactions in a physical branch.”

Primary Financial Relationship

To better understand the credit union marketplace, including insights into challenges and opportunities for growth, Co-op Solutions partnered on the report with the global consulting firm EY (formerly Ernst & Young) and Filene Research Institute.

Disconcerting facts for credit unions include fintechs dominating payment products. For example, the report stated that since the pandemic, PayPal experienced five times relative growth in primary financial relationships (PFRs) and Chime showed 18 times growth. Robinhood and Mint quadrupled the number of respondents that identified them as their PFR.

“Sixty-six percent of consumers use some form of digital payments, yet only 16% report doing so directly with their credit union,” the report noted.

The report also found that 41% of respondents would consider leaving a credit union because the products don’t meet their current needs and 78% of respondents don’t expect their credit union to offer the digital payment options right for them.

“Delivering the right products and services to meet daily needs now rivals data protection, security and personal relationship as the most important factor when trusting a financial institution,” the report found.

Historically, credit unions’ leading advantage over competitors was the trust members placed in their credit unions. According to the report, this reputation has taken a hit.

“Consumers trust fintechs more than credit unions when it comes to serving their digital payment needs and wants. In fact, credit unions were the only primary financial relationship type to show statistically significant declines in the past year,” the report stated. “Credit unions’ primary payments relationships fell by 3%, while other providers, including national and international banks, regional banks, wealth and investment firms, and online banks and fintechs, either remained flat or showed growth.”

For credit unions to effectivity compete in the market place, the report stated that members shouldn’t want or need to look to third parties for financial fulfillment.

“Members should not be expected to have to leave the credit union’s ecosystem to meet all their financial needs, including payments, mortgage and loan applications, wealth advisory services, insurance and personal financial management, to name a few,” the report continued. “To maintain PFR status, the credit union must establish itself as the hub of their members’ entire financial lives.”

The Co-op report also found that credit union competitors are leveraging payments to gain daily relevance and increase wallet share.

“Thirty-four percent of respondents report looking outside their current financial relationships for products that meet their needs. And 44% of consumers would start a new relationship for a superior product value proposition,” the report stated. “In fact, respondents who use a digital payment product indicated they would increase the number of products they use by 60%.”

Why Payments Matter

Referencing a recent Accenture report, Co-op noted that “80% of people’s interactions with their financial institution are through payments. Payments represent the hub around which all other financial activities orbit — including deposits, transactions and lending.”

While the report found that credit unions are the preferred PFR for members who are in financial trouble or ready to retire, fintechs lead in the following segments: career starters, young families and “those looking to get ahead.”

One anonymous chief strategy officer of a $1 billion credit union noted in the report: “For decades [we’ve said that] we’re the cheap, low-cost provider of everything you want. Our vision document will change. What can we try that will be completely different?”

The solution offered in the report has three variables: Know your members like never before; be their choice for every moment; and embrace the power of connection.

“Credit unions should pursue a multi-dimensional segmentation strategy that considers traditional, demographic-based market segmentation (e.g., gender, age, wealth tier, marital status, geography), coupled with a needs-based segmentation that incorporates life events, lifestyles and a mix of solutions that address both,” the report noted. “The key lies in activating a strategy of ‘Lifestyle Enablement’ — creating active, daily engagement with your members aimed at serving their financial well-being.”

Future Proof

Competition for credit union member wallet share is not new as many credit unions have long battled regional and big banks for business. Fintechs that don’t necessarily subscribe to the “people helping people” ethos, however, are forcing credit unions to evolve or lose market share.

“The best way to activate daily engagement is by offering digital payment options, while creating financial transparency and helping members take control of their own financial lives. There is ample opportunity for credit unions to ‘future proof’ their economic and service models,” the report continued. “With the support of strategic industry partners with the expertise and ability to provide consultative advice and the right solution set, credit unions can design a modern member experience that will help them grow and maintain their member base while increasing operational efficiencies to propel credit union growth.”

Certain credit unions, the report offered, are taking proactive steps to ensure that they not only keep members but gain new ones.

The $493 million Jackson, Mich.-based American 1 Credit Union, for example, implemented its “Entrepreneurial Operating System” during the pandemic. This move allowed leadership to “practice agility and make quicker decisions about people, strategy, systems and processes.”

The report further stated: “The credit union of tomorrow will have personal relationships at the center, with compelling digital-branch services and products and strong data security and protection protocols built in.”

Credit unions, the report contended, already hold “strong incumbent advantages,” including that “they are their members’ most highly valued providers, offering outstanding service, trusted advice and secure banking solutions.”

By introducing market-leading digital technology and services, the report stated that “credit unions are well-positioned to offer the broader marketplace a value proposition that would serve as a compelling alternative to the digital-only brands.”

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