How to stop the flight of credit union member deposits: The investments solution

Fact: Credit union deposits are declining and will continue to decline.

Why? Fintechs and neobanks attract members with financial products centered around investment and growing wealth. Those are products most credit unions lack.

You will read NCUA statistics showing growth in credit union assets. They are accurate. What they omit is that assets at banks are growing much faster – Chase alone has total deposits that rival all the deposits in all federally insured credit unions.

Add in money in uninsured alternative investment vehicles offered by the big banks and wealth tech startups and the gap gets ever bigger.

Face reality: Millennials and Gen Z won’t shovel their money into your savings account even if it offers 4%. Their expectations are much higher now. Credit unions that want to stay relevant must introduce new wealth management and investment products.

How to do this? Our suggestion is to leverage our industry’s greatest asset, the members’ trust in their credit union, to identify and collaborate with third-party partners to provide world-class, engaging investment products.

What members want

There’s no need to guess about what members want: Access to true diversification of their investment portfolio beyond stocks, bonds, and ETFs. Members know how the wealthy 1% invest and want access to alternatives such as real estate, crypto, art, and collectibles.

Your members also want – need – flexible investment minimums and fractional investment opportunities for those who want to start small. This is especially appealing to younger members, Millennials and Gen Z, whose wallets are not as full as their investment dreams are.

These members also are the ones most likely to shift deposits out of their credit union and into alternatives.

Credit unions don’t offer investment products that members want

Competitors for members’ deposits make it easy for funds to flow out via ACH:

  1. To open brokerage accounts (Fidelity, E-trade)
  2. To make fractional stock and other investments (Acorns, Betterment)
  3. To make alternative investments in crypto, real estate and other exotic investments (Coinbase, FundRise and Concreit)
  4. To move money faster and with less friction (Venmo, Paypal)
  5. To budget and pay bills in a modern digital way (Mint, RocketMoney)
  6. To bank with a debit / prepaid card (GreenDot, Chime)

The solution

Credit unions face a future of rapidly dwindling relevance – but there is a way to win the hearts, minds and wallets of even more members.

How? Identify an emerging product category, for instance fractional alternative investments — such as real estate — and form an industry wide license to accelerate adoption and partnership.

In this way, credit unions will leverage the existing trust members have with their credit unions into non-insured investment products that they could get from fintech companies but prefer to get from their credit union.

Members will also get better credit union branch and call center service experience since the product is supported by the credit unions that pride themselves on member service.

History – the last wealth migration

Remember, we’ve seen this movie before. The last Digital Wealth Migration was stocks; trillions moved from bank and credit union insured deposit accounts to brokerage accounts starting 40 years ago.

In 1999, Congress repealed Glass-Steagall, a 1933 act that prohibited banks from many financial activities. Suddenly we were all in the Wild West. Merger mania erupted spurred by large banks acquiring brokerage firms (Chase, B of A, Wells, Citibank).

Where were credit unions in this? On the sidelines. Almost none offered self-directed investment services opportunities. Banks that offer brokerage accounts have $2 in assets under management for every $1 in insured deposits. Deposits flew out from the credit unions, as $4 trillion in assets moved into brokerage accounts. If we don’t take decisive actions now, it will continue at an ever-faster pace.

The first step

We have been searching for first investment vehicles that will satisfy member desires for higher returns on their invested dollars but also are easy to understand and use: that is, investments that are Millennial and Gen Z friendly.

Know that, especially for Millennials and Gen Z, real estate is an especially attractive investment. The drawback: individual purchase requires significant cash on hand and, when financing is involved, a strong credit score.

Fractional real estate investment is different. Investments can be as little as $10 and there’s no credit check.

For instance, one fractional real estate investment app is Concreit, which says that in five minutes a user can identify and invest in a diversified real estate portfolio. Its mission is to democratize real estate investment – which is aligned with the credit union mission.

At its end, Concreit enables Real Estate 3.0. It provides the regulatory framework and chooses the real estate – the emphasis is on single family homes at this point – and it manages the properties in the portfolio.

For the credit union, a plus of this is that the credit union earns non-interest income in the form of finder’s fees when members invest in Concreit.

Members who invest with Concreit through a credit union will be advised that their fractional real estate investments are not insured by NCUA.

However, NCUA has indicated that investment apps such as Concreit are similar to affiliate relationships with brokerage services offered by credit unions, and thereby are permitted.

Bring them on

Very probably most credit unions over time will want to offer their members other, different alternative investment vehicles, everything from fractional shares of stocks to crypto currencies.

As new asset classes emerge – and meet with regulatory approval – they can be blended into the credit union’s offerings. We envision credit unions needing a flexible platform that can continually be updated to meet evolving member interests. That’s the beauty of this approach: it’s utterly flexible. But that’s for tomorrow. Right now, starting with a fractional real estate investment tool will be a big step towards putting the brakes on the flight of member money out of credit unions.


Co-author: Robert McGarvey

Paul Fiore

Paul Fiore

Paul Fiore is a fintech entrepreneur, founder of Digital Insight and CU Wallet. He presently is an advisor to multiple fintechs. Details