Top four trends in the credit union industry in 2023
The financial services industry sees continuous changes year-round, and financial institutions need to constantly innovate to stay ahead of sector trends and emerging technologies. But despite record growth in the credit union industry in 2022, there is still uncertainty surrounding the market with a potential recession looming.
We saw a lot of changes in 2022, including inflation skyrocketing to record highs, transaction volumes slowing as real wages for the consumer shrinks, equity markets tumbled and borrowing rates rapidly increased. As we continue into the second quarter of 2023, it’s time to focus on the latest credit union trends that could continue to affect the industry for the remainder of the year.
According to James Frankeberger, chief financial officer at Neighborhood Credit Union, a not-for-profit, metop mber-owned, volunteer-directed financial cooperative that provides fiscally sound and economically creative banking solutions, he anticipates the economic uncertainty will drive a number of trending issues in the credit union industry this year including:
Interest rate risks – We remain very competitive with interest rates for deposit and investment services, along with our all-inclusive consumer loan product offerings. With rates continuously increasing, it becomes extremely important to price all these products in line with market rates to not negatively impact the credit union’s economic value.
Liquidity contingencies – The culmination of inflation and rising rates has caused a strain on liquidity at financial institutions. Therefore, there will be an increase in credit unions needing to borrow or wanting to sell their earning assets to shore up liquidity. A sound liquidity contingency plan is important to draw upon at these times. Various strategies should be evaluated accordingly. These same principles apply to consumers. It is important that consumers have some “backstops” in the event of emergency situations, crises management, recession, inflation, etc. Proper planning is key and establishing an emergency “backstop” fund is critical to long-term success in riding out these challenging times. It’s important to be cautious in rising rates environments since borrowing costs become much more expensive.
Mergers and acquisitions – Ever increasing regulatory rules continue to burden smaller credit unions, forcing them to make difficult decisions about merging with larger organizations. Staying on top of the regulatory changes is crucial and expensive, and for the larger credit unions looking to make an acquisition, be sure to perform diligent cost-benefit analysis on potential targets. And do not be afraid to pass on what might appear to be good opportunities at first, but due diligence proves otherwise. Overall, you want to make the best decision that will benefit your organization and your members.
Strategic partnerships – For both large and small credit unions, strategic partnerships will be crucial to stay competitive in the current landscape. Identifying short-comings or weaknesses is the first step to beginning exploration of partnerships. It is important to select partners that will benefit your business while keeping members top of mind. Such relationships may resolve speed bumps and short-comings to processes. In some cases, these partnerships can also lower expenses and potentially attract a younger demographic, which ultimately impacts your bottom line. For example, partnering with a fintech company that enhances your digital-based lending options could appeal to the millennial and Gen Z generations, who typically don’t consider credit unions for their banking services. Additionally, technology companies can help you stay ahead of the curve while looking for ways to continue to educate employees, which in turn enhances your recruiting efforts.
Credit unions have a strong opportunity in 2023 to focus on the areas and initiatives that will most directly support their members and communities. Learn more by visiting myncu.com
