This past year has brought about some game-changing events for the financial services industry, and we will continue to see the impact of these moving forward. For credit unions, digital investments will continue to be a top priority; the branch’s role will continue to evolve; as will payments preferences among members.
While the financial service industry will continue to realize the effects of these changes, some trends should not be ignored as credit unions continue to set (and reset) their priorities for 2021 and beyond. Below, Strategic Resource Management (SRM) offers three observations and follow-up recommendations.
- Digital Investments Continue to Thrive
It is no secret that digital investments paid off in a big way for those credit unions with the foresight to have laid the groundwork before the pandemic. However, the task is far from complete. More and more credit unions are finding that digital banking extends well beyond selecting online and mobile solution providers.
Members now expect access to their finances 24/7, making features like single sign-on and biometric authentication key. Services such as predictive analytics to anticipate likely needs will play a growing role in the digital banking ecosystem, with open banking and API integration playing important roles in embedding such features into apps.
Additionally, there is a growing roster of financial institutions of all sizes joining Google’s co-branded digital initiative, Google Pay-linked checking accounts, as well as using the co-branded Apple card. Following suit, more credit unions will form fintech partnerships to leverage and neutralize big tech’s incursion into the marketplace – something that will ultimately help credit unions better scale and compete in the market.
- The Evolving Branch
As members continue recalibrating their banking habits away from branches and towards digital channels, credit unions will continue to factor these pandemic-related preferences in their budgets and strategic planning. Some credit unions have already figured out how to operate more efficiently with less reliance on their physical footprints. For example, many have adopted “by appointment only” models for their brick-and-mortar locations, channeling most traditional transactional activities to the drive-through window and remote apps.
These trends do not imply that the branch will vanish entirely, however. Many are transforming their branches to be more of a service, sales, and advice center. Envision a “doctor’s office” model for the branch of the future. Whether or not by appointment, members will visit less frequently but with more complex cases that require advanced consultation.
- Contactless Payments – The Way of the Future
A year ago, “contactless” was an obscure term typically associated with the new generation of debit and credit cards. Despite the convenience of the “tap and go” approach, it wasn’t until the pandemic hit that adoption of contactless payment methods began to rise significantly.
After March of 2020, heightened hygienic concerns drove a change in consumer payment behavior – consider how cash has now fallen out of favor, the new scrutiny about passing a plastic card between customer and clerk, or interacting with an unclean touch-screen handled by countless others. By the time the pandemic subsides, contactless payments will have become a habit for consumers, making this form of payment not likely to go by the wayside.
In addition to contactless payment adoption, card issuers will need to continue to cater to the Card Not Present (CNP) market or lose ground in share-of-wallet. As with contactless cards, consumers’ concern for their health is driving a marked increase in CNP transactions. CNP levels are unlikely to drop as the convenience of home delivery and online shopping continues to be the default choice for many consumers.
Adjusting to the Ongoing Economic Fluctuations
A return to the economy of late 2019 is unlikely for some time. Given this and what our experts have seen advising credit unions across the country through the ongoing economic fluctuations, here are a few balance sheet strategies we would suggest:
- Monitor trends in deposit activity. Many accounts are currently seeing strong in-flows, but this could reverse and requires ongoing attention;
- Assess client refinancing deals against their balance sheet capacity;
- Consider the influences of government stimulus funds on lending opportunities and the associated risks; and
- Pursue opportunities to reduce costs without impacting member experience – focused negotiations with third-party vendors often provide a valuable source of such savings or increased non-interest revenue.
While the industry has undoubtedly experienced large-scale changes this past year, it has shown an ability to adapt to new economic realities by investing in technology to strengthen efficiency and profitability. The credit unions that will adapt best have preparations in place for future market fluctuations to enable them to survive and thrive against the changes to come.