Innovation Is Key to Credit Union Survival

Credit union (CU) members are known for loyalty to these financial affinity groups, but that loyalty is being tested. The 2020 Credit Union Innovation Index, conducted in partnership with PSCU, found that over 20 percent of members would drop their current CU over lack of innovation. It’s an unprecedented finding, and one that the sector isn’t taking lightly.

“The share of CU members reporting they were willing to change primary FIs over insufficient innovation increased by 4.6 percentage points between 2018 and 2019 — from 17.3 percent to 21.9 percent,” the report states. “This shift hints at a broader decline in members’ overall CU satisfaction. CU satisfaction rates are still high (88.5 percent), but the share of members who are ‘very’ or ‘extremely’ satisfied with their CUs fell 3.5 percent between 2018 and 2019.”

That drop is in no way insignificant, and many CUs are rallying around member-centric innovations like instant money lines and other in-demand services to reverse the trend.

Competitive Threats

The annual benchmarking study conducted by PYMNTS combines a survey of nearly 4,000 U.S. consumers with over 200 CU and FinTech executives. In the 2020 update, we learn that consumer sentiment driving adoption of things like Peer-to-Peer (P2P) transfers is taken seriously by CUs, who understand the value of loyalty — and they have every reason for it.

As the report states, “CU members are still far more satisfied with their CUs than other consumers are with their FIs. Our research shows that just 80.8 percent of non-CU members felt ‘very’ or ‘extremely’ satisfied with their FIs, meaning CU members have significantly more confidence in their FIs than others do.”

Even so, CUs have never faced the level of competition that’s arrayed against them at present. The 2020 Credit Union Innovation Index notes that CU members have become very curious about many new digital options for their banking and payments needs — maybe too curious.

PYMNTS’ latest research shows that nearly 20 percent of CU members are interested in challenger banks, for example, with almost 2 percent using one now. What CUs should take note of is how members’ loyalty shows through even when they’re thinking of leaving.

“[CU members] are also more likely to switch to CU-owned-and-operated challenger banks than those operated by non-CU FIs or technology firms. Our study shows that 42.1 percent of CU members would be interested in challenger banks if the FIs were backed by other CUs,” the report states. “Only 13.4 percent of CU members would consider using challenger banks if they were operated by national banks, and 16.4 percent would consider using hypothetical options operated by technology giants like Google or Apple.” The one for CUs to watch is PayPal, as 30.9 percent of CU members and 36.4 percent of non-CU members say they’d “consider banking with a theoretical PayPal-branded challenger bank.”

Challengers vs. CUs

Leaders at America’s credit unions know they have great customers, but they’re also fiscal realists who comprehend the consumer attraction to the new and different.

For example, nearly 42 percent of CU executives say challenger banks will pose a major threat to their business within the next three years, primarily because neobanks move faster.

“80.5 percent of CU executives in our study believe that challenger banks are significant competitors and share this concern,” the report states. “Other common concerns include the fear that challenger banks may be able to offer better apps (58.5 percent), better products (56.1 percent) or more convenience (43.9 percent). CUs’ fears about challenger banks, therefore, center on innovation.”