Credit unions face more competition than ever before. But unlike past decades, the real threats don’t seem to be from other depository institutions. In every sector of credit union product offerings, new competitors are using new business models to get to consumers quicker and in more targeted ways.
In the May 2019 edition of the Harvard Business Review, the feature article was titled “The Age of Continuous Connection,” and the basic premise was that new technologies have made 24/7 customer relationships possible and that it’s time to change business models accordingly.
This seems especially true in financial services. I recently came across a chart that lays out basic financial needs from a consumer’s perspective. There are three categories:
- We need to pay someone.
- There are times when we need more money.
- We want to protect our surplus.
Credit unions seem to do very well in the first two categories, but they struggle to compete in the third. And with many larger credit unions low on liquidity, this category of helping members save and invest seems to be a big challenge right now.
Lining these categories up with credit union product offerings helps leaders to understand current and future competition and how credit unions need to respond. Obviously, the traditional areas of payments include checking accounts, credit and debit cards and ACH transfers. In the new competitive world, P2P money transfers via Venmo or Zelle are the new frontier as well as bill pay services through mobile banking.
When it comes to the need for money, the traditional areas that credit unions focus on are mortgages, credit cards, lines of credit and secured loans for autos, boats, RVs, etc. But in the new competitive landscape, members are bombarded with offers from Quicken Loans, large credit card issuers, retailers—including Amazon and now Apple, who have their own affinity credit cards—point of purchase financing for big-ticket purchases and even payday lenders for quick, short-term loans.
In that third category of protecting our surplus, the traditional competition used to be other banks’ CD rates and savings accounts, but lower interest rates, the evolution of investment platforms and new neo-banks’ reloadable debit cards, the competition for savings dollars and investable funds is fierce with the likes of E-Trade, Acorns, Greendot and others.
As the current 10-year economic expansion continues in 2019, it will become the longest economic expansion without a recession in U.S. history. And credit unions’ balance sheets are much different than they were coming out of the recession that ended in 2009. According to the 2018 year-end call report data, U.S. credit unions’ loan/savings ratio stood at 86 percent, and credit unions with over $1 billion in assets were at 90 percent, with many at a ratio well over 100 percent.
Most credit union leaders understand that the critical product relationship with members is the checking account tied to a debit card for the first category of banking: paying someone. But in today’s environment, the huge wealth management companies like E-Trade and Ameritrade have their own checking accounts that easily sweep money between investments and the checking account. In the case of disruptors like Chime and Greendot, simple, multi-feature reloadable debit cards are offering millennials and others a fast, easy alternative to traditional checking accounts.
In today’s economic cycle, most credit unions may need to focus more effectively on the two categories of payment relevance and wealth management, as opposed to lending. This cycle will surely change as we near the next inevitable recession, but for now, the race is on to retain and grow transaction accounts, increase CDs to fuel loan growth and, relatedly, helping members with the protection of their surplus of savings and investments.
Going back to the Harvard Business Review article, I think of my own experience with my credit union and with what I perceive to be the case for many credit unions. That is, I wonder why credit unions don’t more effectively sell their products in these areas.
I am like many other consumers who maintain multiple relationships with financial services providers. I tend to use my credit union for checking/debit, and for auto/boat and home loans. I am courted to affinity credit cards for travel rewards, and I use E-Trade for its easy-to-use investment services. And of course, I use insurance companies for home, auto and life insurance.
But my excellent credit union is not unlike what I believe to be the norm for other credit unions. They know that they have me for the checking/debit relationship and for the occasional loan. But they don’t attempt to sell me on their wealth management services, or their savings and investment products, and yet I know that the credit union is 80 percent loaned out, and many of their members like me are prime targets for savings and investment dollars.
The Harvard Business Review article suggests that there are four basic “connected strategies” that businesses should use in this age of Continuous Connection. They are:
1)Respond to desire
Most credit unions operate in the first category. They do some advertising but wait for the member to come to them based on a perceived service need. They then try to be fast and efficient and hope that the member is knowledgeable about what they are looking for. And this works best when members want to control their data and be in control.
The HBR article suggests that the disruptors are better at getting to the latter three categories that start with customized or curated offers, making good personal recommendations to targeted members who don’t mind giving up some data to receive such offers.
I started thinking about this and realized that I am among many existing credit union members who would like an email or text or even a phone call from my credit union to let me know why I should save more with them or use their investment services. Or even better, I would welcome an unsolicited customized pitch for how my saving and investment needs could be met at least partially by the credit union.
Of course the holy grail in any service industry is to get to the category of coaching behavior or automatic execution where, based on an a data-driven understanding of member needs, the credit union is able to nudge the member toward a product or service and even enable self-service through web, mobile or call center channels.
Competing in this new hyper-mobile world of financial services will require that credit unions have high-quality, mobile-first offerings. But they also need to get better at selling their services to members who may only be using them in one or two of the three categories that I mentioned. This will require better data strategies, but, in reality, it can start with a commitment to a better targeted sales culture that shows members the credit union has the right products and truly wants the members’ business, especially in the categories of payments and wealth management.