By Ray Birch
RANCHO CUCAMONGA, Calif.—Credit unions are not meeting the short- and long-term needs of consumers as well as are banks, according to a new study from Co-op Solutions that reveals CU members use more providers than do bank customers when it comes to addressing their financial requirements.
And the inability or perceived inability to meet those long-term needs is becoming a big issue for consumers, Co-op added.
“One interesting statistic we found is that credit union members on average have three more financial relationships than non-credit-union members,” explained Carrie Stapp, VP of integrated marketing and commercialization at Co-op.
Stapp told CUToday.info that finding is an indicator credit unions are not meeting the entire banking needs of their members as well as banks are and as a result they must look to other providers.
As CUToday.info has reported, in 2022 Co-op partnered with EY to conduct in-depth research around consumers’ financial behavior and how it ties to credit unions.
“This year’s study is a continuation of that work,” Stapp explained, adding the research will also assist Co-op in developing products and solutions aimed at meeting members’ needs and filling those gaps.
Evolving Nature of ‘Trust’
One point from the 2022 research cited by Stapp has to do with how trust in a financial institution has morphed from believing a financial institution has a consumer’s best interests at heart to instead being about whether the bank, credit union or fintech has the digital capabilities to meet daily needs.
“It's all about the daily tools that people need to manage their financial lives, and so knowing that we went a little bit deeper. And that's what we've done in 2023,” she said.
In the latest study Stapp said Co-op didn’t want to just ask questions about what types of products and services people need.
“We really did a psychological analysis of consumers and credit union members to understand how they think about their financial picture,” she said. “We wanted to connect the dots between what’s happening between your ability to manage your daily micro-financial needs and your long-term financial wellness—things like buying a home or saving for retirement.”
One Key Finding
A key finding from the new data, according to Stapp, is that consumers are saying they don't have the tools to manage how they’re paying for things in a “disaggregated world,” where so many financial services are being provided by so many different players, including fintechs.
“I've got PayPal over here. I’ve got bill pay over there. I’ve got… How do I easily manage all that is coming at me in my daily life,” said Stapp of the dilemma facing many consumers.
Wrestling with all those daily issues is now getting in the way of consumers’ longer-term financial goals, the Co-op data show.
Carrie Stapp
“I'm dealing with inflation. I'm dealing with interest rates rising. My take-home pay might not buy as much as it used to. How do I make adjustments with what I'm saving and spending every single day in this disaggregated world?” asked Stapp.
The Role for Credit Unions
Where credit unions must recognize their role is in helping members to not just deal with the daily financial challenges, but to further be a resource for addressing longer-term financial wellness.
“Consumers are forgoing those long-term decisions they feel are aspirational because they can't manage their day-to-day,” said Stapp. “The data show that things are getting so immediate we're getting decentralized and folks are losing focus on the future.”
In response, Stapp said Co-op plans to develop more tools and solutions to help credit unions assist members with both of those struggles.
“Consumers are saying they need more tools,” Stapp reported. “Maybe it is a tool where they enter their take-home pay…similar to a 401(k) calculator. If I'm saving 10%, what would 12% do for me? It is those types of things that we're starting to see is a growing need.”
Not Enough Paycheck
The Co-op study found approximately 80% of consumers’ paycheck allocation is going to immediate needs.
“I am not sure if this is a larger percentage than in the past, but what we do know it's more than what consumers desire,” said Stapp. “If 80% of your paycheck is going to your daily needs…you need to be closer to a 50-50 split with the longer term. Consumers say they want to do this but they don't know how to manage that.”
Stapp believes what’s making consumers feel little choice but to be focused on the near term given rising interest rates and inflation.
“But imagine a world where inflation's coming down and interest rates are coming down and now I maybe have some excess funds,” she said. “How do I now take the extra dollars and make sure I'm not spending more in my everyday life—that I am appropriately allocating to make sure that my long-term goals are being met?
“So, at Co-op, we’re taking all this information prioritizing which products we bring to market. What are the most important strategies? How can we be a strategic partner to credit unions, from the credit union's perspective,” continued Stapp.
Where to Begin
Stapp said credit unions’ path to solving the issues members are facing—better managing a disaggregated financial life and planning better for the future—in addition to getting the credit union back on track as a PFI that can provide for all of their banking needs, begins with payments.
“The main goal is to get daily engagement with every one of our members. So, how am I going to do that? Payments really is the answer from the credit union's perspective,” said Stapp. “It's opening so many doors for them. It literally helps them understand how their members are moving, using their products and services, and also how to be more available for members when they have a need.”