By Ray Birch
RANCHO CUCAMONGA, Calif.—There’s a “splintering” of member relationships taking place right now, according to one analyst who stresses if many credit unions don’t change their focus they will be left behind as members move on.
Bruce Dragt, chief product officer for CO-OP Financial Services, told CUToday.info that multiple factors, including open banking, the surging fintech sector and the quick shift to digital brought on the pandemic, demand that credit unions move away from their traditional product focus and instead refocus on members’ lifestyles. Otherwise, theya re going to struggle moving forward.
“The pandemic accelerated that comfort and scaled digital fintech usage across demographics and use cases at a speed we’ve never seen,” said Dragt. “Now is the time for credit unions to rethink their value proposition, leaning into the humanity of financial services while leveraging technology to meet members right where they are across the day-to-day moments that solidify primary financial relationships. Credit union members are more empowered than ever, curating their own suite of solutions from multiple providers to meet their everyday financial needs, directly from their devices,”
As CUToday.info has reported, CO-OP commissioned an EY study among credit unions that revealed members are now looking at other financial institution offerings and fintech products, often choosing not to remain with just one financial institution. Financial management tools, open banking, and the basic digital skills many consumers have developed have made it much easier to look outside the credit union, Dragt noted.
The Fintech Effect
Fintechs are responsible for much of the growth in the number of members parsing out their relationships, Dragt said.
“That is the area in which we saw a great deal of member interest,” said Dragt. “And this is largely being driven by the advancement of digital services.”
Dragt pointed out credit unions and banks for years have built their offerings around being very product centric.
“Meaning, would you like to sign up for a term loan. You deposit your money into a checking or savings account…,” explained Dragt. “But members and consumers don't think in those terms anymore. It's like, ‘Hey I've got some money coming in. I want to get paid. I want to be able to buy things. I want to be able to pay my bills…’”
‘You Follow My Rules’
All of that has led to a simultaneous change in mindsets around how consumers want to interact with any financial services provider.
“This is all about lifestyle, they want banking services to better reflect how they live their daily lives,” Dragt said. “Consumers are becoming less willing to engage with traditional banking institutions that have a product centric business model. It is now about my product, how I describe it, and you follow my rules.
“For example, I just bought seven things and I am not sure I can pay for them all. I really want to finance things more,” said Dragt, referring to the rapid growth of buy now, pay later (BNPL) solutions.
Another growing lifestyle need are solutions that allow consumers to get their paycheck two days faster, Dragt noted. Several credit unions have recently announced new offerings giving members early access to their take-home pay.
“All of this is splintering relationships,” Dragt said.
The good news from the CO-OP/EY study, according to Dragt, is if members can get the credit union to meet them with offerings that match their lifestyle, they prefer to remain with the CU for most of their financial services.
“The study shows members still prefer to work with someone they know and trust,” continued Dragt. “But there is a dividing line. They will leave if they can't partner effectively with their credit union to meet their lifestyle needs. Apparently, the study shows their lifestyle is more important to them than their allegiance to their credit union.”
What to Do?
What do credit unions need to do?
“It is really important that credit unions understand their digital engagement with their members,” said Dragt. “The path for most members into this digital experience is all about payments. Can the credit union take payments and offer members a simple and meaningful digital experience?
“For example—I need a credit card and can I sign up for that online and I can use that card immediately. Can I use that card across all my transactions. Is there a way for me to manage that account, turning it on turning it off to handle any type of problems?” he continued. “So, a complete digital experience. When it comes to digital the member can’t start something online and finish it in the branch. The digital experience cannot come with hoops to jump through.”
At its core, said Dragt, is the need for a change in strategies.
“Today, we're all very product-centric and we need to be consumer-centric—meaning think about your member and think about what's important to them.”
New Solutions on the Way
CO-OP said it is working to assist credit unions in this shift. Among the new products the CUSO said it will introduce next year to address lifestyle needs:
- A Family Card Issuance Solution. “This service allows credit or debit primary account holders to digitally issue cards on their existing account to family members. These cards feature controls and alerts—including spending limits, where to spend and when to spend—that the account owner can put into place and manage within the primary account holder’s online banking experience,” said Dragt.
- CO-OP Pay-Over-Time Transactions, expanded beyond credit to include debit, and Travel Alerts enhancements to intelligently detect travel and eliminate the need for credit unions to exempt cardholders from fraud rule sets, “creating a seamless and safe cardholder experience,” Dragt said.