Credit unions are hitting an innovation wall, and partnering may be the best way to clear it.
At a time when consumers, and credit union (CU) members particularly, are seeking more product innovation from these financial institutions, budget constraints and a yearlong macroeconomic beating find CUs cutting back on in-house development efforts.
According to the study “Credit Union Innovation: Product Development Slowdown Tests Member Loyalty,” a PYMNTS and PSCU collaboration based on surveys of nearly 4,300 consumers, 100 CU executives and 50 executives from FinTechs that provide products and services to CUs, the innovation pullback is ill-timed — and being poorly perceived.
Among findings from the survey is the disquieting fact that over one-quarter (27%) of CU members would switch FIs to get more advanced financial products. That discontent has been rising for years: In 2018, just 17% of CU members said they’d switch due to innovation.
What are these innovations? Primarily, it centers on digital payments. Per the study, 64% of members want better digital payment experiences from CUs to which they’ve been loyal.
Access to credit is high on the list of wants for CU members, mirroring demand from non-members who also desire more and ideally easier ways of accessing credit products.
Credit applications have spiked by 71% in the past year among CUs.
“CUs, in turn, are moving aggressively to speed up the loan approval process: 53% of CU executives say they are making very or extremely significant steps to reduce the time to set up a loan for a borrower, and the remaining 47% say they are making slightly significant or somewhat significant steps to speed up the process,” the survey found.
Dangers of Being a Lagger
CU members have historically chosen these organizations over banks to have more of a relationship with their financial institution. Under that heading also comes access to new and better financial products, especially at a time when more consumers are struggling financially and need a friend in the business, as it were.
With more CUs allocating fewer resources to innovating in certain areas, like personalized credit products, the propensity for members to drop their CU for a deep-pocketed FI or even an inventive FinTech offering is reaching alarming levels for CUs.
“The share of CU members willing to switch their primary financial institution to find innovative products is at an all-time high,” the study found. “PYMNTS’ data finds that CU members are willing to take their business elsewhere if their CU does not give them the innovative products they want, but internal frictions and economic constraints limit CUs’ ability to respond through new product developments.”
And members aren’t mistaken about CUs’ lack of creativity as of late. The study found that “the share of CUs self-identifying as laggers rose to 37% in Q4 2022 from 29% in Q4 2021.”
The path out of this situation for many is greater use of credit union service organizations (CUSOs), whose primary mandate includes pursuing the innovation that individual member CUs don’t have the resources or staff to attempt on their own.
Per the study, “Many CUs are responding by seeking partners to help them develop products, and more than half are partnering with industry consultants and credit union service organizations (CUSOs) to roll out the products that members say they want.”
Get the study: Credit Union Innovation: Product Development Slowdown Tests Member Loyalty