Over the past few years neobanks and challenger banks have gained momentum with no end in sight. What drives these new types of banks is their digitally driven agenda that piques the interest of current and futures banking customers, especially as a result of the worldwide health pandemic.
While neobanks and challenger banks are gaining attraction and banks are following suit, there is a noticeable absence from credit unions. According to PitchBook, neobanks led the charge of the 3.6 billion in venture capital funding for consumer fintech startups in 2020. Additionally, estimates point to neobanks surpassing 145 million customers in North America and Europe by 2024. Credit unions striving to remain viable should begin to embrace digital-first solutions to improve their internal and external operations.
Studies show that credit unions are slower to adopt digital services, as less than 5 percent of those in the U.S. had mobile banking apps in 2019. As member preferences continue to evolve, digital solutions have the potential to replace credit unions that remain complacent with traditional banking methods.
Streamlining Internal Operations
Traditionally, financial institutions have resorted to utilizing disparate systems when implementing new banking services. These disconnected systems can be hard to maintain, forcing financial institutions to spend their budget on staffing for maintenance instead of technology.
Now, financial institutions are looking to streamline these systems by implementing a modern core platform into their operations. A modernized core creates a central location for all banking services, eliminating the need for credit unions to pay heavy fees in software and staffing. This allows credit unions to spend their budget on technology innovation and customer satisfaction, ultimately increasing the likelihood of attracting new members. In addition to improving internal operations, digital-first solutions enhance a credit union’s overall member experience. Banks and credit unions understand that the landscape has changed and is now investing in innovative technologies like cloud native, API ready and mobile first solutions.
Enhancing the Member Experience
Consumers expect a seamless digital experience in almost every aspect of their lives.According to The Financial Brand, 62% of consumers expect businesses to adapt based on their actions and behavior.
Furthermore, only 47% percent of surveyors felt that they were currently receiving this level of personalization. This gap represents a significant opportunity for credit unions to improve their members’ experience by offering customized, digital-first solutions. The biggest challenge being faced by the industry is the changing customer expectation. A typical millennial does not want to visit a bank and wants all banking services on their smartphone. So traditional financial services players are required to power all banking activities such as fund transfer, loan application, opening an account and other activities digitally.
Digital banking provides consumers with the opportunity to choose their level of assistance when banking. Members have the option to serve themselves or utilize a chatbot, expediting the banking task at hand.
While COVID-19 may have served as a catalyst for this evolution, research shows that digital banking is the future of the financial industry. Looking ahead, credit unions with outdated technologies are likely to lose potential or existing members to competing services, especially considering the rise of neo banks and challenger banks.
For many financial institutions, implementing digital-first solutions will be the determining factor between success and failure. Credit unions should use this period of disruption to implement digital banking methods that can adapt to the evolving needs of their members.