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Adapt and Survive: Vital Lessons Credit Unions Can Learn from the Challenger Bank Revolution

Credit Unions are facing an identity crisis.

For decades, they have built their brand and reputation on strong member service and personalized financial products that fit the needs of their community. However, a recent survey from Cornerstone Advisors found that challenger banks are cutting into credit unions’ market share of user satisfaction. The report asked consumers to what extent their primary financial institution helps improve the performance and health of their financial life. While credit unions still had the highest percentage – 39% – challenger banks have closed the gap with 36% responding positively.

Why the high satisfaction with challenger banks? Is it because they’re free?Two reasons – personalization and ease of use. Challenger banks are using mobile-first technology to offer targeted financial solutions, and they can often offer them more quickly and more efficiently than community financial institutions can.

And these changes are here to stay. BAI, a financial services nonprofit organization, found in a 2020 study that more than half of consumers had increased their use of digital banking apps during the pandemic. Even more telling, 87% expected to maintain that higher level of use when the pandemic is over. In a follow up survey, BAI found that 54% of consumers across all generations indicated that they are willing to switch primary financial services organizations for better mobile banking and digital capabilities.

Whether it is accurate or not, the perception that credit unions cannot offer the same mobile-first products that challenger banks can is impacting growth. The Cornerstone research found between January 2020 and December 2020, challenger banks’ share of primary customers grew 7%, compared to a loss of 1.2% for credit unions.

The good news is that credit unions can still push back on these trends. By combining a few key lessons learned from the challenger banks with the unique benefits specific to credit unions, these organizations can continue to grow in the new banking landscape.

Members Want 24/7 Access to Personalized Financial Services

In BAI’s 2021 Banking Outlook survey, the top request from consumers is the ability to customize their own solutions, from products to the digital experience.This where challenger banks have excelled. They have rolled out customized features that appeal to what consumers want now, such as fully online onboarding, sub accounts, virtual cards and powered debit card features.

Chime is perfect example of this, as they have built a user base of 12 million customers by providing creative new features and products that fit their user base. A common reason consumers cite when asked why they switch to a challenger bank is that a mobile checking account best fits their lifestyle.

The Cornerstone report found that Chime did this by building around a handful of key features that are appealing to its target customer, which are predominantly low- to middle-income users that are often overlooked by traditional banks.They made easy onboarding a key to their success by making it simple for anyone to start an account with a simple app download.

For credit unions, the opportunity is there to also build new products that meet the needs of their community. For example, according to Trellance, the average age of a credit union member is 47. This is an age that would respond positively to teen digital banking products that combine mobile banking with financial education for their families. Virtual card and payment apps are in high demand, along with advanced payment features such as card controls or P2P payments.

Work Around the Core – Don’t Replace It

Ask many credit unions what holds them back, and the answer is often an out-of-date or inflexible core system. At the same time, a quarter of banks surveyed by the American Bankers Association (ABA) in September 2020 are thinking about eventually leaving their existing core provider when their contract expires in the coming years, and that number is likely similar for credit unions.

The good news for credit unions is that they have the capability to offer the same user experience that challenger banks do without changing cores.It’s increasingly possible to partner with fintech providers without having to make costly changes to the core platform. Instead, credit unions can build a marketplace of financial services products on top of their existing infrastructure or better to have a partner that has the complete set up to roll out new products quickly.

Nurture Existing Relationships

The Cornerstone findings on member perceptions of how credit unions impact their financial health should be a wakeup call. Credit Union have a wealth of data and knowledge about their members, and they should be first in line to offer new products based on life changes.

For example, a credit union offers more than just the checking account. They may also hold buy now pay later feature directly embedded in their banking app, early wage access, lending or long-term investments. They can be more in touch on changes that would indicate the right time to offer new products – children reaching certain ages, age of a car indicating a desire to buy a new one or new jobs are all milestones that might spur looking into new products.

It is not too late for credit unions, but the window to compete with challenger banks is narrowing. Now is the time to evaluate what new products would best bring growth, how to improve the member experience and take advantage of theirmember relationships. Credit Unions don’t need digital banking experience, they need today’s challenger bank strategy.

Arcady Lapiro is Founder and CEO of Agora Services, a provider of robust and customizable cloud-based offering that enables banking customers to utilize and manage accounts in real-time.

This content is for CU BUSINESS eMagazine , THE TEAM BUILDER (GROUP SUBSCRIPTION), and Special Deal: 2 websites members only.
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