By Ray Birch
ST. PETERSBURG, Fla.—When it comes to addressing the liquidity shortage, a number of credit unions are making the wrong moves at the wrong time, and in doing so are putting longer-term earnings at risk, asserts Brian Scott, who added the industry could be on the precipice of a “really big problem.”
Scott, chief growth officer at PSCU, told CUToday.info that many credit unions strapped for dollars to loan out are trimming tech budgets in response, while at the same time not doing enough to drive new deposits.
“We just did a study around innovation, and we found that partly because credit unions need extra money now they are pulling back on investing in technology,” explained Scott. “They are pulling back on technology expenditures at the wrong time.”
Scott said that reducing tech spend is almost always a questionable move for the future of any financial services organization, especially in a highly digital landscape. But making that budget decision today is even more risky, given what national consumer data show.
“Studies show that over a third of credit union members say they would switch financial institutions for a better digital experience,” said Scott, noting research also reveals consumers are making that decision regardless of product and service offerings—making the move based simply on service.
The Agony of Self-Defeat
Then there’s the self-defeating sword of a challenge around cutting technology expenditures in order to fund loans at the same time there is greater demand for loans through the digital channel, as well as more competition in the arena from fintechs.
“I think it's somewhat of an odd kind of shift that’s happening at some credit unions—at a time when they actually need to do more digitally to attract more loans,” Scott agreed.
Scott said he isn’t calling such decisions to cut back short-sighted, but they are risky. As CUToday.info has extensively reported, members are moving their money out of CUs for higher-paying instruments, and checking balances are falling as inflation eats away at household reserves.
What a Difference a Year Makes
“Go back to this same time last year. At CUNA’s GAC in 2022 everybody was talking about what to do with all the extra money they had. Everybody was flush with cash. That’s a positive thing. Credit unions were looking for investment vehicles. They were spending money on innovation. But now, as there's been more demand for loans, they are starting to pull back on technology spending,” Scott reiterated.
With the perception of credit union service sliding below banks for four consecutive years in the American Consumer Satisfaction Index study, largely due to perceptions by consumers that banks offer better digital service, and with the percentage of CUs losing members growing, Scott said there is yet another reason not to tighten the purse strings.
“Data show that 25% of credit unions under a billion dollars in assets are losing members; that’s not a model for long-term viability,” he said. “It is really the time to double-down on technology that will help credit unions attract more loans and members.”
Topping the List
At the top of the list, according to Scott, are those digital solutions that can make the online lending process seamless and faster. He pointed out, as have a number of analysts, that credit union digital lending, account opening, and membership enrollment have too many points of friction that slow down service and reduce consumer satisfaction.
Brian Scott
“It’s amazing how many credit unions make you take 12 steps to open a membership,” Scott noted.
He also believes more technology investments should be made to evolve the very business model of credit unions in order to compete more effectively with fintechs. He cited the example of CUs that still keep their original identity but also develop a digital brand, such as Bank Dora, which is a CUSO owned by multiple credit union.
“Savvy credit unions have started creating alternative brands,” he said.
Grabbing Deposits
Digital tools should not only be upgraded to improve online account opening and lending, they should also make it much easier to grab deposits, Scott said.
“How many credit unions right now are actively advertising for deposits, outside of just rate? They're not,” Scott said. “Digital account opening solutions are so important right now.
“I think we are on the precipice of a really big problem right now,” he continued. “If credit unions aren't making those investments, and we are still sitting in the same position next year…”
Scott said PSCU is focused on helping credit unions streamline their online solutions via its Lumin Digital arm, partnership with Amount, and its Linked Analysis fraud solution.