Data: Credit Union’s Most Underutilized Asset

Data is where it’s at, and more credit unions (CUs) are waking up to the fact that without sophisticated analysis of customer data, they risk being left behind as financial institutions continue to adopt innovative digital technologies to please the modern consumer. The proper use of that data by CUs, in fact, can result in much stronger ties with their members.

That was one of the main messages from a PYMNTS podcast in which Karen Webster and PSCU SVP, Advisors Plus Glynn Frechette discussed the innovations taking place in the world of CUs. They also talked about how those efforts will impact that part of the financial services world over the next few years. The two of them dug into data from the latest PYMNTS Credit Union Tracker to highlight the main CU trends that will play major roles for the foreseeable future.

Investment Trends

Among the most significant findings?

More than one-third — 35 percent — of CUs have made data analytics investments over the past three years. Frechette traced that trend back to consumer preferences that have been set by the increasing pace of online and mobile commerce and payments — not just by Amazon, but pretty much any major or successful player that has employed data to gain a better, much deeper understanding of their customers.

“Members have come to expect that their financial institutions know them extremely well,” Frechette told Webster.

Specifically, that means having a CU know the channels through which members want to be contacted — for example, text, email or even snail mail (some people still like getting letters). More broadly, making a smart investment in data analytics enables a CU to offer ever more personalized services and offers, as well as forecast what that consumer might want down the road.

“The credit union industry is not immune to what’s happening in the rest of the world,” Frechette said. “Personalization has to be spot-on if you expect a credit union member to demonstrate any amount of allegiance or loyalty.”

Credit Cards

For some CU members, those personalized offers might include credit cards from those specific, usually locally-focused bank competitors. In fact, the PYMNTS research found that about 60 percent of CUs currently offer some sort of credit card, an increase of 8.1 percent from the year prior. The reason behind that growth is complex, according to Frechette.

First, the number of CUs in existence has been shrinking, and that holds especially true for the tiny ones, many of which have been bought by larger CU operations. And during the financial collapse of 2007-2008, he said, a lot of CUs sold their credit card portfolios. Now that the economy is thriving again, Frechette said, many CUs are getting back into the credit card game, even though that part of the payments world is nothing if not fiercely competitive.

“The change in composition has resulted in the increase that’s being reported,” Frechette told Webster.

To find success with credit cards, Frechette said, CUs have to focus smartly on rewards programs for cardholders. That’s easier said than done, and probably not achievable unless CUs employ the help of outside consultants to set the right rewards mix, he said.

For instance, while many members will prefer cash-back rewards, some will want travel miles. The consumer and other data that CUs can collect and analyze provide a way to know what breakdown is proper for the specific area or membership bases served by a particular CU. But the opportunity is real. The PYMNTS research found that 71 percent of customers consider credit card offerings when choosing their financial institutions.

As all PYMNTS readers know, however, credit cards are hardly the only tool for modern payments. Besides, as the research found, 89.8 percent of credit card debt is held by banks — meaning CUs need a broader focus when it comes to the services and digital tools they offer members. Digital wallets and other mobile and online payment options are also key — and the data analysis done by CUs can help them decide on their own particular paths toward innovation.

So, what else does the future — the 2020s — hold for CUs? After all, they compete in a world dominated by banks, which tend to have more resources and expertise when it comes to innovation.

As Frechette told it, CUs need to collaborate and cooperate on data and data-analysis efforts. That is vital to helping to dull that edge that is held by banks, at least generally speaking.

“Credit unions don’t view one another as competitors,” he said. “Banks historically have been able to deliver outstanding tools, but credit unions are inching up.”

That, too, stood as another main message from this new PYMNTS podcast: CUs might still be perceived as a sleepy section of the financial services ecosystem. But that is changing — and change can sometimes come more quickly than assumed.