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Are Credit Unions Missing A Big Opportunity?

By Andrea Fabbri

America’s first credit union opened in Manchester, NH, 110 years ago in 1909. By the end of the 1980s, there were more than 17,000 credit unions across the country. Today there are only about 6,000 credit unions left.

This drastic reduction in number would seem to indicate a loss of market relevance. But our research shows the opposite.

Opportunity ahead: The innovative credit union

A large portion of the market is still very much interested in the value proposition offered by credit unions centered on better rates and friendly, personal service. However, the traditional value must evolve to meet today’s customer expectations on digital, mobile and physical environments. Simply stated: Credit unions need to innovate their service, business and delivery model to continue to remain a thriving presence in the financial industry.

Rising costs of living, healthcare, and higher education make credit unions today an ideal organization for people and small business to access the capital they need at more favorable terms compared to what is offered by retail banks in order to advance in life and pursue their dreams. Moreover, people’s lingering distrust in large banks after the 2008 financial meltdown is still present; and the recent Wells Fargo debacle proved them right. Credit unions can continue to be trusted as stable organizations that focus on maximizing their members’ profits and being a growth engine for local small businesses.

To capture the opportunity credit unions need to act on three fronts:

1. Closing the digital and mobile experience gap

2. Recognizing the value of bank branches in a digital world

3. Positioning their brands beyond rate-centric narratives

Closing the digital and mobile experience gap

Digital and mobile technologies are dramatically changing and expanding the nature and meaning of the personal relationship, which is at the heart of the credit union brand. FinTech companies, such as Chime, Simple, N26 and Rocket Mortgage, build value through incredible digital and mobile experiences for their customers without any aid for human, friendly, personal interaction. This wave is not going to stop.

Credit unions are often unable to fully match today’s consumer expectations on digital and mobile channels due to their current technology infrastructure, which often lags behind. This is particularly true for younger generations to whom credit unions appear almost as prehistoric creatures of an ancient past. But the current limitations affect also older generations: people from all ages today expect the “Apple experience,” a seamless, simple, and convenient way to interact with their financial organizations.

Credit unions need to address the digital and mobile experience gap risking otherwise to progressively losing relevance in the market as the younger generations grow and enter their prime borrowing time. This is particularly important in light of another piece of data: the current national average age of a credit union member is 47, which means most members are past their prime borrowing years.

Credit unions don’t have the financial resources and talent to address the digital experience gap in-house. The good news here is that credit unions can leverage an increasing number of FinTech companies to improve the experience and address the gap. To address the gap effectively credit unions should take three basic steps:

  1. First design the digital and mobile experience of the future, thinking about usability, processes, and value provided at each interaction point. The step has to also consider the synergy with the branch channel and call center.
  2. Determine the optimal technology infrastructure that can support the improved digital and mobile experience.
  3. Develop and execute an implementation plan.

Recognizing the value of branches in a digital world.

Although addressing the digital and mobile gap is necessary, a recent Deloitte Insights report reveals that branches continue to remain the dominant channel for account opening and a central driver of customer satisfaction along with the call center. Most consumers still prefer branches to digital channels when opening simple and complex products such as mortgages.

To ensure branches continue to generate value for credit and work as a viable bridge into a new future, credit unions must consider several transformation activities:

  • Rethink the branch experience to integrate human interactions with technology solutions. Tellers can position themselves as experts and have time to focus on nurturing high-quality interactions with customers.
  • Upgrade the branch environment, which often looks dated and lacks the polished and contemporary feel of retail banks, to identify opportunities for new value creation.

Positioning brands beyond the rate-centric narrative

Credit unions have traditionally relied on rates to attract new members and remain competitive. However, the historical reliance, while justified, is exposing credit unions to the commodity trap. Members needing a loan, for example, might shop around and pick another organization that offers better rates and gives them what they need through modern and easy-to-use apps without the normal hassle. This potentially makes a credit union brand be seen as transactional and therefore easily replaceable.

The same FinTech companies that are reshaping the nature and meaning of personal relationships between credit unions and members are also producing another important secondary effect: they are challenging the very meaning of what a bank is. Take Simple, for example. This company gives its customers a free checking account and a debit card. That’s all they offer through an app downloaded on a smart phone and online or phone support.  This is a specialized solution that lives in a phone.

Credit unions need to reaffirm their relevance in the market by reintroducing themselves as vibrant and future-oriented organizations, This needs to happen by building a new member engagement model that builds value beyond rates and helps evolve the “personal and friendly service” tenet to the needs and characteristics of 21st century members.

Again, FinTech companies can lend a hand and help leapfrog private banks, which tend to innovate slowly as they are large, rigid organizations with a very strong (and understandable) focus on control. For example, the Toronto-based company Flybits, which currently has TD Bank and other large institutions as customers, can easily plug into a bank’s existing digital ecosystem and sources of internal data to deliver automated context-based, personalized communications on products, special offers, lifestyles, rewards and more.  So for example, a member might receive a weather update in the morning before rush hour, a text message about a special reward as he finds himself at a mall for some shopping or a loan product offer while reviewing online home-buying articles.

In essence, credit unions have the opportunity of establishing a new engagement model that facilitates conversations based on meaningful information to build long-term value and, ultimately, grow a mutually profitable relationship.

A roadmap to capture the opportunity

How do you evolve the member-based service model of credit unions to adapt to the demand of 21st century markets? What to retain of the old model and what to evolve? How to transform the brand experience, and what technology platforms can be used?

The answers to these fundamental questions vary depending on each credit union’s market characteristics, membership base, and resources. It is clear to us, however, that an investment in technology and overall brand experience is necessary.

Through our work with credit unions, we developed a staged approach designed for management to evolve the service model and establish their relevance in the market they serve.

Market orientation

Successful evolution and transformation of the credit union begins with a clear understanding and definition of the future market. Insightful, data-based evidence is essential to identify a value proposition that can drive business transformation and future growth.

  • Who are credit unions serving today and 10 years from now?
  • How are the segments of the future distributed across the territories served?
  • How do credit unions need to evolve their offering to appeal to their changing membership base?
  • What opportunities for new thinking and innovation around value creation are available at the local level?

The data gathered creates a shared and factual understanding of the opportunity, which creates consensus among management and helps executives move forward together.

Brand and banking experience orientation

The brand orientation phase allows us to define with clarity the promise and the banking experience the credit union needs to deliver to go after the market opportunity uncovered in the previous market phase.

  • What kind of brand do you need to be to attract and retain members as well as employees?
  • How do you evolve the brand experience across touch points and branches?
  • What new products can be created?
  • How to evolve the existing products?
  • How to evolve the branch environment?
  • How to connect the digital with the physical environment?
  • What is the new role of the teller?

Business alignment

Through this phase, we focus on evolving the operating model of the credit union so that it aligns with the strategy defined in the brand and branch experience phase.  This allows the credit union to deliver to its members what is promised by the brand.

Using the brand as a reference point, we develop a transformation roadmap to align products, technologies, systems, processes, skills, culture, and data management with the newly defined brand promise. The roadmap helps executives focus the activities, plans, and investments necessary to align the company to the trajectory set by the brand.

Change management

The overarching thread that unifies all phases of the credit union transformation is represented by change. A systematic approach to dealing with the transition or transformation of the credit union is essential for success, allowing the credit union to help employees and members alike to embrace change.

While each credit union differs in size, scope, resources, geography, and membership characteristics, the utilization of a staged approach allows management to identify a viable path to a new future, bringing the ‘provident purpose’ proclaimed by Roosevelt during credit unions’ early days into the economic and societal realities of the 21st century.

What’s your path ahead?