Go digital or go bust: Today’s commandment for lasting credit union success

There is one, very loud message in a new report from Alkami – now it is digital that matters in banking … really matters.

Understand however: Alkami has not commandeered a soap box in the public square and simply begun to chant that. What it has in fact done is survey “over 1,500 U.S. participants who currently have a bank account and are active in digital banking (check accounts, transfer funds, pay bills online, etc.) and [are] weighted to the 2020 U.S. Census for age, region, gender, and ethnicity for a very low margin of error.”

What the surveyed 1500 said should scare almost all credit union executives.

Here is one of the frightening discoveries: “Regional and community FI account holders are less likely than all other financial provider cohorts to believe their financial relationship will grow over the next year.”

It gets worse: “Younger generations are up for grabs as nearly a quarter of them are unsure if their primary financial institution (PFI) will remain as such in the next year.”

You know the future of just about all credit unions is measured by the younger membership. They also, in many cases, are much more profitable, with credit card debt, debit card usage, maybe a car loan, possibly a home loan.

The older generation stashes money in the credit union and gets paid interest. The younger generation pays to borrow it. There, in brief, is the typical credit union business plan and it has worked for decades.

But now the younger generation is eyeing the exit doors.

Why? They are griping about the creaky digital tools on offer by most credit unions. Remember, the younger consumers may never have written or deposited a paper check. They don’t know what a check register is. Some don’t even much use paper money, preferring to pay for everything with a wave of their cellphone or maybe a swipe of a plastic card. For them, digital isn’t an occasional activity, it’s a way of life.

But, at many credit unions, the digital tools on offer have not significantly improved in 10 years. Sometimes longer. The prevailing credit union philosophy seems to be to treat the mobile banking app as rather like an ATM – well, of course it will be perfectly fine 10 years later … probably 20.

That is not good enough to keep these members. In fact Alkami reported that 48% of Gen Z and Millennials have had such a bad digital banking experience with a FI that they changed institutions.  Don’t be surprised. This is the 2022 version of changing FIs because of a bad interaction with a teller.

Where are they going? The Alkami numbers show only half of Gen Z turn to traditional FIs for their financial services. The other half are happy with online only institutions (Chime) or big tech companies (Apple) or fintechs (Venmo).

“When it comes to designing and offering a great digital experience, the urgency and importance have never been higher than right now,” warned Alkami.

Here is the scariest thought you will read in this piece: “The vast majority—nearly two-thirds—of today’s banking consumers have a clear vision that their primary bank will be completely online in five years. In addition, many think that the bank of the future will be a technology company.”

Could you be that FI? Sure. The key is beginning with the realization that nowadays it is digital first in determining a credit union’s future.

The cheering, optimistic news is that never before have there been so many good, future-oriented fintechs that are actively seeking to work with credit unions. Twenty years ago many fintechs curled their lips in disgust when credit unions were mentioned as possible customers. But today, many fintechs realize that credit unions are a terrific market opportunity.

The critical starting point in setting a credit union’s survival strategy: sit down with in-house staff, and perhaps a few outside consultants, and roadmap your credit union’s digital future. Be blunt. Acknowledge what tools need to be swapped out ASAP. But don’t be distracted by shiny objects. Today’s fintech marketplace is flooded with many “nice to have but not essential” tools (crypto tools are a case in point for most credit unions). Drill down to the basics – good online banking, better mobile banking, good P2P payments tools (which may mean not what your core vendor is offering), and possibly a Buy Now Pay Later (BNPL) tool (still trending with Gen Z).

Get the basic toolset working – test it on Gen Z and also on seniors (who have in fact increasingly grown to like digital tools).

Keep getting better. Tech today is in continual improvement. What worked last year probably isn’t good enough for next year. Always be progressing and getting better.

There is no other path to relevance.