It’s a critical time for credit unions as the risk of members pursuing enticing offers and better terms from competing financial institutions is very real.
According to PYMNTS’ August 2021 Credit Union Innovation Playbook: Portfolio Leakage Edition, 55% of members currently use at least one other product or service from a competing financial institution. Even more troubling is the finding that just 45 percent of credit unions expressed a willingness to innovate on new business credit products to try and stop that migration from happening.
Dean Young, chief experience officer at PSCU, told PYMNTS in an interview that, as surprising as that may seem, the simple fact is that many credit unions choose not to do so because it’s not something their member wants.
“Innovating on business credit services to further diversify their products isn’t something that always aligns perfectly with every member’s interests and evolving preferences,” Young said.
In addition, Young said some credit unions say they don’t have the demand from their members for those kinds of solutions, despite the portfolio leakage they’re seeing. There’s also the issue of limited resources, which handicaps the ability of some credit unions to innovate in the first place, especially those located in more rural areas.
“Business school 101 teaches us that when you try to be everything to everyone, it’s nearly impossible to be great at everything,” Young said. “So, for credit unions with limited resources, the focus for them is to work out what they need to be great at. They have to focus on the areas that are really important to the needs of their members.”
The Low Rate Bait
One of the most compelling reasons credit unions members look to other financial institutions is the offered lower rates of their loan products, as cited by a third of respondents in the latest playbook. Another 16% said the fees are lower, while a quarter said other lenders could offer plans for specific purchases.
Young admitted that it could be challenging for credit unions to compete with the lower rates offered by banks and new FinTech startups and neobanks that also have the advantage of reducing friction.
“On top of that, many credit unions are focused on direct and indirect auto loans and they’re seeing car manufacturers sometimes offer 0% on loans through their own financing arms,” Young said.
Therefore, he said, credit unions need to play to their advantages, the biggest of which is their close relationship with their members.
According to Young, it is more important than ever for credit unions to maintain an open dialogue with their members to help shift the focus away from just rates. One of the most important things to bear in mind is that no one wants to be declined when applying for a loan. Although credit union approval rates aren’t always better than their competitors, they do have a willingness to go above and beyond to help find solutions for their members.
“Credit unions [are member-centric]; they’re always looking for [ways] to help their members … So that can be a tremendous asset,” Young said.
A statistic that is perhaps concerning for credit unions comes from the American Customer Satisfaction Index, which shows traditional banks have surpassed credit unions in terms of the overall level of satisfaction they provide.
Closing the Digital Gap
Young said that’s an almost blasphemous finding for credit unions and one of the reasons it happened is they failed to provide that personal touch in the same way as banks did during the initial months of the coronavirus pandemic.
“Banks may have done a better job initially than credit unions at leveraging their digital enablement and engagement channels,” he said. “But most credit unions have responded and we’ve seen significant acceleration of digital transformation, which will certainly help over the next 12 to 18 months. For credit unions that weren’t prioritizing [their innovation strategies, they have now kicked them into high gear.]”
PSCU has responded in a similar way, too, stepping up its investment in its cloud-native digital banking company, Lumin Digital. The company will invest $54 million in Lumin Digital over the next three to five years to help it elevate its platform with more advanced capabilities such as online account opening. The additional investment will also help Lumin scale product implementation and support capacity for higher than anticipated market demand and growth.
Read more: PSCU Invests $54M In Lumin Digital
Through that investment, Young said PSCU would be better able to help credit unions implement new digital solutions in a cost-effective, convenient and secure way and help them retain members.
“At the end of the day, consumer behaviors have changed,” Young said. “Credit union members’ primary interests lies in innovative payment solutions and offerings that are personalized, simple and secure. They want to choose how and when they transact. So, all things digital is a [strategic] focus for both PSCU and our [credit unions], and that’s a fantastic alignment.”