Members Will Stay Loyal When Credit Unions Stop Being Digital ‘Laggards’

For credit unions, short-changing innovation will have long-term, negative consequences.

PSCU CEO Chuck Fagan told Karen Webster that in order to keep members loyal, CUs are going to have to shed their status as tech “laggers.” For the last few years, CUs have tended to follow in the footsteps of their larger financial institution (FI) brethren in offering new products and services. Simply put, showing up as a “me too” player won’t keep consumers engaged.

CUs, warned Fagan, have their work cut out for them — and the executives themselves know this. Only 13% of CUs classify themselves as early launchers of new products, a drop of nearly one-third from the 19% of CUs that called themselves early launchers in the fourth quarter of 2021. More than 37% of CUs identify themselves as tech laggards — more than the 29% self-identified as such last year, per joint PYMNTS/PSCU research.

“If we’re laggards and don’t stay current with innovations, it will be very difficult to catch up,” Fagan said.

The money at hand to invest in new innovation is finite, of course. PSCU and PYMNTS’ joint research showed that credit unions are pulling funding out of innovation projects that otherwise would get their full attention and funding.

Playing a Game of Catch-Up

As to the negative impact to CUs that looms: “As we head toward any type of economic downturn, you’re not going to be able to accelerate out of it,” he said.

That means that CUs will be caught flat-footed as their larger peers, big banks in particular, have had the resources and willingness to use them to boost their own digital and omnichannel efforts. And they’ll take advantage of the fact that as the data showed, more than a quarter of CU members would be willing to switch providers in order to access more innovative financial offerings.

There’s benefit, then, in CUs taking advantage of the connection PSCU offers as a FinTech, as well as other providers, to streamline and speed up their own innovation efforts.

The roadmap to gaining back some lost ground is in place. Fagan noted that CUs have a strong presence in their communities — and now, more than ever, have a golden opportunity to help their members improve their financial well-being.

That’s becoming a critical focus for the consumers themselves, as liquidity is beginning to dry up. The savings cushions accumulated during the pandemic are not what they once were, and inflation has been biting deeply into purchasing power.

For the CUs, there’s pressure to emphasize different financial products and services. Demand for mortgage lending has been drying up. But credit cards remain a strong opportunity, particularly for middle-market consumers who are credit-worthy and want to borrow, even in today’s environment of rising interest rates.

“All financial institutions are probably anticipating a tick up in delinquencies as we go on, but the consumer’s still pretty healthy,” he said. “We’re still seeing about 70% activation on credit cards.”

There’s enough data and analytics in the mix for CUs to create cards that cater to different demographics and spending habits.

Looking ahead, the members themselves are signaling to the CUs what they want — and what it’ll take to keep them loyal. Roughly two-thirds of credit union customers want better digital payments capabilities — and there’s a telling stat in the mix.

Of the 27% of members who stated that they would switch from CUs to get better innovations, roughly 75% said they would expect to get better digital capabilities from their CU. The invitation is there, then, to meet those expectations, and to keep the member relationships intact.

A Call to Action

“This is a call to action,” Fagan said, adding that “consumers are sending a clear message — they are open to convenience.”

Tap-to-pay and other digital offerings continue to displace cash and are growing inexorably up and to the right, in a hockey-stick-like trajectory.

The embrace of digital is not confined simply to mobile devices. Customers now expect to have some digital activities carry over into the branch setting and vice versa in a virtuous cycle.

“For these financial institutions, getting the transactions out of the purely physical environment gets them to use electronic channels,” Fagan said.

That opens the door to craft personalized experiences that consumers value, tied to experiences that transcend simple transactions. A loyalty program, by way of example, can be used at the point of sale or online, he said. Giving individuals more control over accounts (with alerts, for example) also helps cement loyalty.

“The small print matters about how the member is treated, and credit unions should win in that market,” Fagan said.

Of the need for CUs to listen to consumers as they re-examine and re-accelerate their innovation playbooks, he told Webster: “If you build it, they might come. If you build it with them, they’re already there.”