As the year draws to a close, we gathered the team here to reflect on what we are seeing out there in terms of challenges and opportunities for Credit Unions.
2019 brought lots of activity - various conferences, numerous meetings and calls, and many opportunities to work together with amazing clients and partners. We read hundreds, thousands of blogs, reports, tweets. What have we learned? Which facts and data we are choosing, and how are we interpreting them?
For this end-of-year post, rather than something new, I wanted something useful: a clear picture for ourselves and our credit union clients, confirming our north. We are seeing something actionable and compelling, and as CEO of Prisma I want to share it with you.
The first thing that comes to mind is a feeling that the future is already here, and we are excited to be part of it. There are more and more inspiring stories of credit unions adopting and leveraging technology to remain competitive and relevant. Modern productivity, customer engagement tools, and omnichannel tracking platforms are no longer just for big banks.
Then, there's the challenge ahead. Without scaling up, many credit unions that rely on the traditional business model could disappear through merger or liquidation, according to the Digital Banking Report, 2018. Credit unions are facing the challenge of 1) balancing the investment in embracing modern techniques for managing customer data, 2) extending their customer base and 3) offering a wider range of services. All of that without altering their principal objectives: staying service orientated, member-owned and non-profit.
Scale up to where? And with whom?
Data and research point three populations CUs can target to maintain and grow their customer base while leveraging its traditional advantages, without invading the territory of commercial banks.
According to the study Performance Against Customer Expectations, PACE, 92% of credit union members were either satisfied or extremely satisfied with their credit union services. How will you keep those satisfied members from switching to commercial banks once they acquire a certain level of social mobility and wealth? That first target population requires a retaining strategy like offering services that mimic those provided by the commercial banks plus all the advantages of a CU.
The other two populations are currently unserved or under-served, who tend to turn to fintechs and unregulated solutions for the help they require, in the form they require it. The first group is that of younger people. Currently, nearly half of credit union members are in their mid-fifties or older. 31% of CU members are what is called Generation X who are barely embarking on their careers, often burdened with student debt and pressured on all sides by commercial offers. Millennials themselves make up about 24% of CU customers. Are the younger customers even interested in the ethos behind credit unions? The Credit Union Journal, writing in October 2018, thinks that the younger generations showed both social consciousness and a smaller-is-better mindset and that these make credit unions more attractive. But the Journal also indicated four main areas which it felt CUs had to improve to attract and retain these younger people.
- The first was do-it-yourself account servicing. According to the PACE study, people ages 18 to 26 rank digital self-service as the most critical aspect of their banking relationships.
- Another requirement of the younger generation is person-to-person payments, principally to split bills, and share expenses.
- People ages 18 to 26 beg for assistance with budgeting and finance management, using a vast array of fintechs, websites, blogs, and media outlets that give that advice.
- Finally, younger people expect and demand rewards. They like perks and engaging experiences.
The other unserved and under-served population is that of the unbanked who make up 25% of US households, an enormous number who cash checks at Walmart or shops, take pay-day loans, use pawnshops, and other services, which are invariably expensive. The unbanked, according to an FDIC study, include lower -and irregular- income families, many of whom are recent immigrants, Afro-Americans or Hispanics, aged or disabled. They avoid banks and CUs for one of these reasons.
- They believe they do not have enough money to open and maintain an account.
- They believe bank fees to be too high even though the services they do use are far more expensive.
- They have previously had credit or ID problems.
- They do not trust banks.
Traditionally, commercial banks, the mistrust was mutual. Banks have avoided this socio-economic group because they were regarded as too much work (especially before digital transformation) for too little ROI and perceived as less reliable than traditional bank customers. However, the experience of microfinance institutions (MFIs) in the US, as well as developing countries, provides a different perspective. It shows that, despite their "risky" profile, with the right level of support and education, microfinance beneficiaries consistently repay at a much higher rate, up to 98%, higher commercial bank customers.
Digital services appeal to the unbanked because they are fast, simple, and cheaper. To expand their services to the unbanked, FIs need to not only go digital in all their services, but also become an active part of the cross-sector ecosystem that currently provides services, support and education for this population. What can your CU do to strengthen its relationship with local and national government services, development institutions, NGOs, micro-finance institutions, telecom service providers, mobile network operators, non-bank finance providers such as retailers, fintechs, etc?
In addition to that, to scale up, CUs need to be able to deliver personalization at scale to a larger number and variety of members, tailoring the services to the individual and personal needs, possibly of socio-economic groups who previously were not served by either banks or credit unions. Investing in digital technologies and advanced personalization such as Prisma Campaigns omnichannel marketing solutions designed especially for credit unions is one of the ways of achieving that.
Supporting the financial inclusion of a large population is not a once-only effort. It requires constant analysis and constant innovation supported by technology, tailored to take full advantage of opening up this vast new market. As far as the risks of extending services to these groups, they need to be mitigated by the support and educational services. The good news is that existing mainstream clients are also demanding such services in ever-increasing numbers, making this effort twice as valuable and needed.
The opportunities and challenges are clear. The actions are clear too. So what's the next step? For us, it's figuring out what are your resources and who can you work with to improve your capabilities. It's choosing which initiatives and investments will pay off - by not only bringing in results but also making your life easier. At Prisma, our product expertise is at the service of our vocation to work collaboratively with Credit Unions. We are more than happy to talk about features, but we think it makes sense first to understand scenarios, priorities, and goals.
Each client for us is different, and we take pride in understanding that. Personalization for us is not just a buzzword. It's a way of creating relevant, intimate relationships at scale. And of course, it's not easy. But then, we wouldn't be having as much fun otherwise.!
Are you looking forward to continuing this conversation? Read more or reach out to us.