How credit unions can play offense against FinTechs and other rivals

Many credit unions remain focused on a traditional set of services focusing on savings, loans and checking, which remain crucial but deliver infrequent interactions and fewer opportunities to help members achieve their financial goals on their terms. Pivoting to everyday payment solutions offers one large opportunity for credit unions to enhance their value proposition.

How can credit unions keep capitalizing on what makes them unique while reinventing themselves for the future? Are they positioned to appeal equally to those starting their careers and those preparing to retire, and to those who prefer apps and those who visit branches? These are the questions that CO-OP Financial Services needs to resolve as it provides payments solutions and other services to the thousands of credit unions in its network across the nation. And while these credit unions typically have had capital to deploy for investments, the CEOs needed a shift in mindset to move toward a different approach.

“Credit unions have traditionally focused on delivering value through product-centric, life-stage solutions like low-rate loans, high-yield savings and personalized branch-driven service,” said Samantha Paxson, CO-OP’s chief experience officer. “However, consumers are needing Financial Services that are embedded into their daily lifestyle. They expect personalized transactional solutions to be available to them where, when and how they need them. We need to help our credit union clients determine the highest-impact solutions to deepen their relationship with their members and grow market share.”

The future of credit unions is the future of CO-OP’s business, and to help imagine that future — and make the case to their CEOs in its network — the company turned to those already making a case for change in the market: EY professionals.

As part of the global EY network specifically focused on serving Financial Services clients, EY professionals are equipped with insights into how digital disruption is impacting customer experiences and how upstart competitors in the sector are rushing to meet changing expectations.

Our NextWave survey, conducted annually in the US since 2019, caught the attention of CO-OP and provided the initial foundation for our work together — along with the opportunity to “go brain to brain with really good thinkers,” Samantha said. CO-OP has turned to EY professionals for insights and perspectives to make a case for change to the credit unions in its network to help accelerate their transformation.  The first step was an assessment tool completed by over 90 credit unions, which provided insights into strategic goals, such as digital enablement.

And the need for change is enormous. For instance, this year’s NextWave survey, conducted in early 2021, found that 31% of respondents named a FinTech as their primary financial relationship (PFR), a jump from 6% just two years ago — a reflection of how more tech-focused companies are rapidly gaining the trust once reserved for financial institutions and are responding more deftly to new preferences. The survey also explored how payment behaviors correlate to different lifestyles, opening a window into how members make financial decisions.

To further demonstrate the need for change to reluctant executives, CO-OP and EY teams collaborated late last year on a survey of 2,000 members and 1,000 prospective members, pinning down their evolving preferences on banking behaviors, digital services, impacts from the pandemic and more. The results highlighted the need for:

New value propositions that leverage digital payments as an anchor.

What credit unions are taking to market needs to be refreshed in an evolving digital world. For example, offering products like a debit card only is a missed opportunity when contactless payments are increasingly the norm. More credit union members said they used a FinTech (45%) than their credit union (34%) for these transactions.

Needs-based solutions and hyper-personalized experiences centered on lifestyle.

Today, most credit unions rely on traditional demographic information to understand their members. But fulfilling their needs and better personalizing their experiences require seeing members through a lifestyle lens — as in, you may know their level of wealth but not what they want to do with it. As a result, gaps between what financial products people say they need but don’t own range from 27% to over 50% across areas such as advisor-managed accounts and automated investment accounts. If their primary financial relationship (PFR) offered more benefits and personalized features, 36% say they would move more financial assets in that direction — and 30% say that a FinTech is their PFR, the same percentage who give that designation to their credit union.

Hyper-converged channel engagement adapting to the member journey.

Branches remain important, but 32% visit a branch less often than monthly, while 73% interact online or through mobile, and 88% of respondents are digitally engaged on some level. It is critical that credit unions identify the preferred channels of their members by focusing on the points of interaction and converge these channels so that the engagement is consistent and seamless.

In response, the EY team used these results to develop a strategy with CO-OP Financial Services:

Activate passive members.

Move past passive relationships with infrequent interactions to prioritize active solutions in mobile wallet, peer-to-peer and contactless payment methods, coupled with features such as fraud and security monitoring and easy-to-use apps. Credit unions should explore new payment workflows such as Buy Now Pay Later (BNPL) and social media payments that might matter to members either today or in the future. This is needed for credit unions to embed themselves into their members’ financial lives and take away an advantage from FinTechs.

Take a deeper look at members.

Segment members beyond traditional vectors such as age and wealth tier. Understand their needs and create solution bundles that we call “lifestyle banking” for them. Credit unions must enable lifestyle banking through a holistic approach to data: combining people’s demographic information with insight into their ambitions and life events. The EY team defined five personas based on lifestyle banking clusters to focus on immediately, such as people who are just beginning in their careers but want to explore and enjoy themselves now without needing to visit physical branches.