3 Challenges Credit Unions Should Focus On in 2023
Does the near future hold challenges to overcome, or opportunities to leverage? The answer is “both.”
Budgeting Season is Here
Does the near future hold challenges to overcome, or opportunities to leverage? The answer is “both.” Success, however, comes from tackling both quickly. For that, resources (humans, technology), focus, and budgets are required.
For credit unions, there may be unfavorable conditions and forecasts to tackle, but opportunities are growing with each new innovation, too. This two-part blog post will discuss seven dynamics that banking professionals should consider when entering the 2023 budget season.
Part One of this post will address three banking budget challenges to meet in 2023. Next week’s entry will outline the opportunities for retail financial services in the coming year. In both posts, we will briefly describe the issues and offer actionable takeaways to consider.
Did You Budget for These?
Though life has returned to something approximating normal (relatively speaking), the impacts of the pandemic abide. Inflation is a concern. War in Europe is a reality again. Many residents of Earth have also enjoyed record-breaking heatwaves, wildfires, and floods this summer.
The once-darling tech sector has lost its shine with Wall Street even while consumers continue to adopt digital devices that further virtualize their lives at a rate that would make the Borg (see Star Trek) smile. Also, there is the fact that while we are all very “tired” of the pandemic, it is not tired of us. COVID has even invited friends to the party, most notably the newly re-named “MPX.”
There is no magic bullet, no one is coming to save us, and we will likely endure. What in the world should a credit union be thinking about in such conditions?
1. Rejuvenate Consumer Satisfaction
Some say that credit unions compete with banks by providing better customer service. Yet, recent numbers show they are losing ground against digital trends.
As measured by the American Customer Satisfaction Index (ACSI), credit union member satisfaction has been declining since 2017. The largest decline in the number of credit unions in seven years (since 2015) has occurred in 2022 – and the year is not over. Credit unions’ ACSI score now sits at 77, far below its zenith of 87 in 2011.
The loss of members that see their credit union as their primary financial institution tells a similar story. Credit unions were the primary institutions for 21% of Americans in 2018; in 2020, that number had declined to 12%.
Most of this change is driven by younger demographic segments, which might like the credit union industry’s value proposition but not its digital offerings. While fees are the most commonly highlighted drivers in deciding on a financial institution, mobile banking remains a strong second.
Takeaway: Credit unions have not been able to digitize the very characteristics on which their uniqueness is built. (For further validation, visit The Credit Union Value Proposition is Under Fire .)
Action: Budget to support a strategy that will help successfully transition a credit union’s unique service culture from the branch/call center to digital.
2. Boost Flagging Account Growth
In 2020, credit union memberships rose 3.2% – the slowest pace since 2014, according to a CUNA Mutual trends report. The membership growth rate for credit unions has fallen for two years after a banner year in 2018.
Ron Shevlin at Cornerstone Advisors notes in a blog post that credit unions and megabanks lost market share in 2020 while community and digital-only banks increased their slice of the pie.
By optimizing their digital storefronts, these competitors make it much easier for credit union members and consumers to switch banking providers.
Two areas in particular are being leveraged by the winners to attract more consumers – digital account opening and online loans. These organizations are leveraging faster, smarter, and more convenient digital channels with consumers. In many cases, these institutions’ digital account opening and loan processes are simpler and faster than what consumers experience in the branch. This level of digital experience represents a minimum requirement for any credit union wishing to buck the above trends.
Takeaway: Credit unions’ competitors are not playing around with their digital-first acquisition strategies. The trending data is to be taken seriously.
Action: Build a plan and a budget that offers every product and service in a fully digital mode. Every product and service. That is the “getting serious” part.
3. Stock Up on Digital Transformation
This quote by Kirk Drake from his Ongoing Operations blog says it all:
“Trend adoption — or technology adoption — in the ‘real world’ is a bit faster than with credit unions. If it were a city, Credit Unionville would be downright quaint and wholesome by comparison.”
Drake’s research shows credit unions lagging in technology areas such as AI, cloud, fintech, digital transformation, and marketing automation compared to other players in the financial services industry.
However, according to a PSCU and PYMNTS.com study [PDF], “Credit unions took a more proactive approach to innovation in 2020 than they did in 2019.” By their estimation, 12% of CUs say they launched new products and services before their competitors in 2020, and 46% say they were quick to innovate new solutions after observing market trends.
Unfortunately, the same report notes: “CUs appear to have a very different idea than do their members about what constitutes ‘innovative’ products and services. Many credit union members do not consider the technologies their CUs developed in 2020 to be innovative at all.”
Takeaway: The real judge for innovation is not sitting on your board or coordinating a management team. Members are voting with their feet by moving toward relationships with financial institutions that make managing their money more convenient.
Action: Budget for new technology that can help you provide a digital experience that the member, especially the younger members, recognize as innovative. The CEO’s opinion is important but second in this equation, and a skillful CEO knows that.
In summary, rejuvenating consumer satisfaction, boosting flagging account growth, and stocking up on digital transformation are the three challenges that credit unions and other banking professionals must face going into this year’s budget season.
In the next blog post, we will catalog specific opportunities to consider when budgeting for 2023.
For details on how Finalytics.ai optimizes new account openings and loans for credit unions, schedule a demo with us. For a use case on this topic, read 10 Steps to Increase Product Applications with the MeridianLink LoansPQ API.
Knowledge is power but staying informed has never been more challenging as consumers decide the shape of the future for banks and credit unions. Keep pace with our Insights offering.
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