A new age in digital banking has emerged. For some credit unions, that might sound like just another wave of technology investment, more competition from digital challengers, and the threat of falling further behind.
The new age of digital, though, isn’t about technology alone, it’s about growth, and that’s good news for credit unions. The answer to today’s growth challenge is niche banking, which is rooted in what credit unions have always done well: build and maintain relationships with people they understand.
First, Get Comfortable with Speed
Speed to market will be critical for successful growth. Banking alternatives, from mobile payment apps to disintermediation by peer-to-peer lending marketplaces and PayPal to new financing programs by global brands like Google and Amazon, are already moving at the speed of digital. They are quickly and exponentially increasing the options consumers have for storing and accessing their money.
Credit unions must go to market quickly with digital experiences that forge deeper engagement by integrating these revenue drivers into digital strategies:
- Data and insights. Banking transactions are data-rich. By leveraging the data, insights, and analytics of millions of member interactions, credit unions can craft personalized, value-added experiences. This is a significant opportunity to build loyalty and help solve real problems.
- Greater value. Get creative to find ways to differentiate in a sea of sameness by developing new revenue streams that deliver true customer value and meet the unmet needs of specific target markets.
- Expanded reach. Digital breaks through the barriers of geography and expands reach by identifying new niche segments and going to market with solutions designed to meet specific and unique needs.
Niche Is the New Local for Credit Unions
The fertile ground for driving growth is offering very specific, differentiated value to niche markets through personalized experiences, particularly to markets previously underserved and overlooked by traditional banks.
Fintechs and challengers have made huge strides here by uncovering and quickly responding to new opportunities. They’re providing flexible application and onboarding, low-cost products, and supportive services that improve financial well-being.
Credit unions can do this too, and better, by combining human insights and customer relationships with digital capabilities to offer experiences that meet needs and solve problems for niche groups. This expands reach beyond local geographical boundaries and creates new communities. The new age of digital banking reimagines the idea of community.
Here’s how challengers and some traditional financial institutions are doing it:
- Sable offers a full suite of products that makes credit available to immigrants even before they have social security numbers.
- PayActiv is working with employers to extend lower-wage employees payday advances as an alternative to financially crippling traditional payday lending products.
- Esquire Bank helps attorneys finance case costs with rates and fees lower than typical financing through non-bank alternatives.
- BankMD targets recent medical school graduates saddled with education loans.
A niche focus has an added operational benefit because hyper-relevant is hyper-efficient. You limit marketing waste and maximize growth potential by getting the most value from limited resources, including money, time and talent. You focus your content distribution on the relevant channels most likely to touch the people in your niche.
With niche banking, there’s also the opportunity to expand sales channels by partnering with other brands serving the same niche markets. Word of mouth travels quickly within these segments and builds long-term value and loyalty.
How to Execute for Growth
There are many ways to structure digital bank capabilities for growth while maintaining operational efficiency—a stand-alone innovation lab, a distinct digital line of business or integrating innovation into all new and existing operations.
Coastal Community Bank in Everett, Washington, operates a traditional banking division and a CCBX business unit focused on Banking-as-a-Service and fintech partnerships, sharing fixed infrastructure costs to eliminate redundancy but dedicating distinct teams to structure partnerships, manage implementation and lead program management. Still a small percentage of overall earnings, CCBX is the fastest-growing, most profitable division for Coastal Community Bank and a key driver of a market valuation that is significantly higher than its peers. When digital efforts are managed as distinct units, it enables clear insight into performance and allows institutions to analyze results quickly and adjust as needed to increase revenue and profitability.
The barrier to entry for digital is also lower now, which is especially good news for smaller credit unions. There are many more technology partners to work with beyond the big three core providers, and APIs have opened possibilities to test and learn without the burden of core conversions and large, fixed-project expenses. Some providers are even offering to forgo up-front expenses and structure agreements contingent on outcomes and shared success, dramatically reducing risk.
Digital Alone Is Not a Growth Strategy
To achieve next-generation growth and expand reach, credit unions must leverage the power of digital for new, differentiated products, services, delivery and business models focused on niche markets and their specific needs. It will require leaning into innovative new approaches to delivering personalized solutions and dynamic experiences. But it’s rooted in a very familiar approach.
Challengers don’t own digital, and digital alone is not a growth strategy. It must be paired with people, processes, technology, and go-to-market segmentation strategies. As credit unions face intensified competition from progressive challengers, they must create better, personalized digital experiences, not simply more digital transactions.