Why Credit Unions Can’t Take Member Trust For Granted

There’s an old saying in business, often attributed to Warren Buffett: It takes 20 years to build a reputation, and five minutes to destroy that same hard-earned reputation.

We’ll use that Buffett-ism as a jumping-off point to reflect on the fact that credit unions (CUs) have built strong reputations over decades. However, CUs — which now number roughly 5,300 in the U.S. — face pressure to step up technological advances, where inexorable movement toward digital and consumer-focused services can foster a disconnect that, left unaddressed, will turn loyalists fickle.

Consider the fact that 49 percent of members want their financial institutions (FIs) to focus on loyalty and rewards programs, yet only 29 percent of CUs said they had focused on loyalty and rewards in the past few years.

In the latest Data Drivers, PSCU CEO Charles E. (Chuck) Fagan weighed in on the sense of community CUs wield as a competitive advantage.

That’s reflected in data (this is Data Drivers, after all) from the Credit Union Innovation Index, a joint effort between PSCU and PYMNTS. The Index shows that roughly 59 percent of consumers reported being “extremely satisfied” with their CUs, a tally that far outpaces the 45 percent of consumers who reported the same level of satisfaction with other types of financial institutions.

As a result, 61 percent of CU members would not leave a credit union for another financial institution. If they did leave, they’d opt to settle down (so to speak) with another credit union.

The Trust Factor

Clearly, the model has its appeal. When Webster asked what lies behind such loyalty, Fagan said the CUs have, in the past, focused their clientele outreach on select employee groups or individual employers, and — over an evolutionary period — have come to focus on specific communities.

“The local ties that credit unions have built over the years have built trust [among members], and an ‘I can count on you’ mentality,” he told Webster. That trust factor, continued Fagan, is “absolutely what the credit union mission is all about. It goes to the roots of a credit union being member-owned, and a cooperative and structured [way] that they are governed by the members themselves.”

Thus, when it comes to tech-powered innovations and new services, Fagan noted that such offerings are going to be “pointed directly at the consumers who want them,” those who are the driving forces, and the owners, behind the CUs themselves.

Avoiding Complacency

Innovation remains desired by the respondents of the Index — but perhaps not to the overwhelming degree one might expect in a world where FinTech and digital wallets, and all manner of mobile banking, seem to make daily headlines. PYMNTS and PSCU found that 59 percent of credit union members said they want innovation, though it wouldn’t necessarily sway them to choose one CU over another.

That figure should not lull CU executives to a comfortable complacency. As Fagan said, “I don’t know that it gets [CUs] a complete ‘hall pass’ from being in the game as it relates to innovative solutions.”

Noting the breadth and depth of services and consumer experiences that CUs have delivered through traditional channels, Fagan added that “they’re going to have to build those solutions that replicate those experiences online, and, in so many cases, it’s difficult for a credit union to do that individually.” This demands collaboration, and is where enterprises like PSCU come into play, drawing on the collective experience of 900-plus credit unions.

In a world where 77 percent of CUs consider FinTech firms to be among the most important service providers, but 75 percent of FinTech firms would opt to sell directly to CU members, scale matters — and so do partnerships. In fact, he said, partnerships at scale (and through, say, PSCU) can fill gaps, offering distribution to FinTech firms into the credit union marketplace that might otherwise be tough sledding, and giving CUs a way to build out new services.

By way of example, Fagan noted that with the “pays” (Apple Pay, Google Pay and Samsung Pay), if those firms tried to go individually to several thousand credit unions, the effort would be a struggle.

“When you look at our industry as a whole, I think one of the greatest assets we have is collaboration,” he told Webster — especially attractive, given the 100 million members and more than $1 trillion in assets that are the hallmark of credit unions in the U.S.

Giving Them What They Really Want

Drilling into the data a bit more, and which services and offerings are coveted by members, Fagan noted that fraud management is at the top of CUs’ tech agendas, while consumers want ease of use in loyalty and rewards programs. Webster wondered whether there might be a disconnect here.

Not necessarily, said Fagan, who said that credit unions’ earliest card offerings focused almost exclusively on price, then evolved into offering rewards — and now focuses on what he called the “point-of-sale experience.” Uber and other firms have “pushed payments to be such a frictionless experience, it’s translating over to all these other pieces” of financial services. For users, being able to use points accumulated at the point of sale, with ease, can be a game-changer, cementing loyalty for cards.

He added, though, that security remains the number-one reason why members choose a particular card.

Brick-And-Mortar Important, Too

There is also importance placed on the physical branch, noted Webster, which may seem at odds with the shrinking branch count highlighted by banks during earnings season. As much as 30 percent of credit union members would leave their CUs — or indeed have left — if they were not able to connect and transact at a physical branch location.

“It’s a comfort factor” on offer, even if consumers seldom visit their branches, stated Fagan. When the time comes for a life-changing transaction, such as a home purchase or taking out a car loan, for example, the personal touch is a valuable one, where “it’s tough [to] create some of that in a purely digital environment.”

His Advice

Thus, in the balancing act of providing innovation and cementing loyalty, “You may not need to be bleeding edge, but I’m not sure [being a] fast follower is strong enough anymore,” he told Webster. He noted that millennials have expectations when it comes to digital services that need to be considered when forming alliances and enhancing customer experiences.

“Credit unions are going to have to invest, and they’re going to have to lean on partners like PSCU to extend their operations and use collaborative assets that can enable them to compete with the big guys,” he told Webster, adding that, ultimately, “credit unions are going to win on that local theme and that trust factor.”