Credit Unions Tackle Tech On Multiple Fronts

Credit unions (CUs) are shaking off the last vestiges of their image problem (in a word: outdated) by embracing digital-first products and services at an ever-more-brisk pace.

And not a moment too soon.

Big Tech is the interloper that pureplay financial services firms fear most, and FinTechs can be fickle. But it’s the sweeping digital transformation and modernization of legacy banks that CUs should keep an eye on – especially app-based challenger banks and neobanks looking for customers.

“Credit unions have competed with banks that offer similar products for years, but their strength has long remained in the value of member relationships and ownership in the credit union,” according to the July Credit Union Tracker®, done in collaboration with PSCU.

“New players in the financial services landscape are shaking that foundation with competitive digital offerings, and a new class of digital-only banks known as challenger banks and neobanks — which have taken hold in Europe and are beginning to make inroads in the U.S. — are also emerging as a threat,” the Tracker states.

Who’s Who?

The first neobanks, including startups like Atom Bank and Monzo, emerged about a decade ago. Then, in fairly rapid succession came Chime, Moven, N26, Revolut, Simple, Starling and Volt Bank, all looking to cash in on a projected compound annual growth rate (CAGR) of 46 percent worldwide over the next five years, according to the July Tracker.

Happily, a great many CUs had already gotten wise to digital transformation before anyone ever said “COVID” – and they are reaping the benefits of prescient preparedness.

“An increasing number of credit unions are beginning to offer alternative forms of payments, like contactless cards and mobile wallets that can be accessed on a number of devices, including wearables, allowing for faster, more secure transactions,” Denise Stevens, senior vice president and chief product officer for PSCU, told PYMNTS.

“Digital solutions allow credit unions to not only compete with other financial institutions that offer similar services, but also pave the way for them to showcase their dedication and commitment to the member experience, which sets them apart from other financial services providers and big banks,” Stevens said.

KYC: Know Your Competition

Nomenclature can be confusing in the alien terrain of thoroughly modern banking. Understanding new rivals is the first step in effective competition.

As defined by PYMNTS’ July Credit Union Tracker®, “Neobanks are digital-only banks that offer customers mobile and web-based banking services that are powered by a partnering bank, while challenger banks carry their own banking licenses and can offer a range of banking functions. Both types of FIs allow customers to quickly open accounts, use mobile apps and access around-the-clock support. The following Deep Dive explores the challenges these players pose and the steps CUs can take to remain competitive.”

Descriptions aside, CUs competing with the sleekness of digital-first and digital-only banking experiences have to offer their own version, as good or better than that of the FinTechs. And CUs have love on their side.

“Trust is another key factor that favors CUs, with 51.1 percent of CU members citing it as a reason for their lack of interest in challenger banks,” the Tracker states, adding that “CU members increasingly prefer digital tools while continuing to place a high value on being able to bank in person. This factor significantly plays into their perceptions of challenger banks. PYMNTS research found that 41.5 percent of CU members cite being unable to visit branches as a reason challenger banks would offer inferior service compared to their current CUs.”