MADISON, Wis. – Approximately half of all credit unions are at risk of dying, according to one forecast that also offered six strategies CUs should deploy in order to head off that fate.
In an address to CUNA Mutual’s Group’s sixth annual Discovery Conference, Steven Rick, chief economist with the company, noted that “Although, total credit union membership is increasing, nearly half of all credit unions are actually losing members, which means they’re not growing. If they’re not growing, then they’re dying and being disrupted. Credit unions must learn to adopt strategies and capabilities of innovative, disruptive financial institutions and become disruptive credit unions themselves.”
According to NCUA data, 46% of credit unions reported membership declines between 2010 and 2014, with this percentage jumping to nearly 70% for the smallest of credit unions with assets less than $20 million, noted Rick. He attributed these declines to competition moving forward faster than the pace of change at traditional credit unions. New, innovative products and services are luring members away from traditional credit unions without much resistance, he said.
“Disruption doesn’t happen overnight. It’s a slow process; it takes time, but venture capitalists are pouring money into financial technology startups with the intent to unbundle traditional products and services offered at traditional financial institutions,” said Rick. “Eventually these investments will be felt, but today credit unions should be more concerned with losing members to the innovative, disruptive financial institutions next door, not the financial technology startups on the rise in Silicon Valley.”
Disruptive financial institutions recognize the dangers posed by financial technology startups that offer alternatives to traditional banking accounts, lending, insurance and investment products. They are not being passive like traditional credit unions. Instead, disruptive financial institutions are “fighting fire with fire” through new, innovative products and services, said Rick. These actions may be hard to see, but the effect is being felt.
During his presentation, Rick examined three types of disruptive financial institutions: disruption enablers, challengers and progressive incumbents. He assessed their strategies, capabilities and business models to help credit unions protect themselves against this new competition.
“Imitation is the greatest form of flattery. Do what they do. Stay ahead of the digital wave. Find ways to increase member value by increasing perceived member benefits while simultaneously decreasing perceived sacrifices,” said Rick.
How to Respond
To create more member value, credit unions need to:
- Embrace Member Centricity. Offer the best overall solution for members, not the best product. Focus on identifying and filling new needs for members, and manage their experiences.
- Provide Robust, Consistent Multi-Channel Experiences. Deliver enhanced functionality, frictionless movement and a consistent member experience from one channel to the next.
- Optimize Branch Networks. Use interactive teller machines, deploy temporary branches, move to small format branches and sell under-performing branches.
- Become Analytical. Gain member insight to enhance member acquisition, retention and cross-selling to align with member needs and life situations.
- Actively Engage and Support Experimentation. Develop a willingness to fail in small and low-risk ways to develop cutting-edge, state-of-the-art products and services.
- Make Strategic Build, Buy, Partner and Collaboration Decisions. Invest, acquire or engage in strategic partnerships with firms that help deliver greater value to members.
Credit unions can learn more about moving beyond disruption by viewing Rick’s Discovery Conference keynote address on-demand at cunamutual.com/registerondemand.