BOSTON—Credit unions are facing a generational challenge that could define their long-term relevance. According to new research from PYMNTS Intelligence and Velera, nearly 40% of Gen Z members say they are at least somewhat likely to leave their credit union within the next year—more than double the rate across all generations. And most say they’re headed to traditional banks.
The new report, “The Real Story Behind Member Churn,” surveyed over 15,700 consumers and nearly 2,000 small and mid-sized businesses (SMBs). The data reveal what motivates members to leave and outlines a roadmap for how credit unions can evolve to meet the needs of today’s digital-first members.
A Troubling Trend Among Gen Z
Just 23% of Gen Z consumers have credit union memberships at all, and only 14% consider a credit union their primary financial institution. Among those who are members, a full 37% say they are likely to leave in the next year—compared to just 15% of credit union members across all generations. And only 42% of Gen Z members say they are certain they’ll stay, the study shows.
It’s more than a youth issue, the report indicates. Gen Z represents the future of financial services. Their expectations are shaped by tech-savvy competitors, seamless app experiences, and 24/7 digital access. If credit unions can’t meet those demands, Gen Z won’t wait around.
What’s Driving The Departure?
The reasons Gen Z and others are leaving credit unions are clear: better technology, more convenience, and stronger financial tools at traditional institutions, the report shows.
Among all members considering a switch, two thirds say they’d choose a traditional bank over another credit union. Gen Z is even more decisive—82% of those planning to switch say they’d opt for a non-credit-union institution, with 39% favoring national banks.
The study suggests these younger consumers are not tied to the cooperative model or its values if the experience doesn't match up with what they expect elsewhere.
Gen Z respondents were especially likely to value:
- Stronger digital and mobile banking experiences
- Higher credit limits
- Lower fees and interest rates
- Fee-free ATM access
- Personalized customer service
These aren’t perks anymore—they’re baseline expectations, the report suggests.
Small Business Members Also Eyeing The Door
It’s not just Gen Z credit union members who are restless. SMBs are also weighing their options—and many are prepared to walk away. One in five SMBs using credit union consumer cards say they may leave within the next 12 months, and three-quarters of them are eyeing traditional banks, the report shows.
Interestingly, SMBs in small towns, often considered credit union strongholds, are among the most likely to express openness to switching. While rural institutions benefit from limited competition, they may also suffer from perceived stagnation and limited innovation.
Former SMB members expressed particularly strong demand for:
- Full-service digital tools
- Budgeting and card management apps
- Easier onboarding processes
- Personalization in services and tech offerings
The report found that SMBs who left credit unions were 131% more likely to want budgeting and card tools than the average SMB. That kind of demand signals a critical need for credit unions to modernize their business offerings.
Digital Onboarding: A Non-Negotiable
If there’s a single takeaway from the Velera/PYMNTS study, it’s that onboarding must be digital, seamless, and intuitive. Gen Z is 78% more likely than the average consumer to want digital onboarding, and former SMB members were 111% more likely to say the same.
That process—often the first impression a member has—can no longer involve paper forms, manual signatures, or extended wait times. The institutions that make it easy from the beginning are the ones that will win loyalty, the report suggests.
Building Loyalty: Top-Of-Wallet Strategy
One insight that could help credit unions retain at-risk members: engagement matters. Members who keep their credit union cards at the top of their wallets are among the least likely to consider leaving, the study shows.
The data also suggest that deeper usage leads to stronger ties. For SMBs, this also correlates with a greater desire for loyalty rewards—another opportunity for credit unions to strengthen bonds with members.
The Path Forward: Meet The Moment—Or Risk Obsolescence
The PYMNTS and Velera findings are clear: Credit unions that fail to adapt to digital expectations are likely to lose members—especially among the youngest and most vital demographics.
To remain competitive, the report recommends that credit unions:
- Invest heavily in digital banking experiences, especially mobile tools that rival traditional banks and fintechs
- Prioritize digital onboarding, making the process frictionless for new members
- Expand financial management tools—including budgeting, card management, and personalized financial insights
- Improve member engagement by targeting rewards and top-of-wallet strategies
- Tailor offerings to Gen Z’s financial needs, like higher credit limits and lower fees
- Address SMB needs with business-friendly features, especially in online and mobile banking