How Credit Unions Can Turn Third-Party Risk Management into a Member Service Advantage
Third-party risk management (TPRM) represents a critical function for credit unions that extends beyond regulatory compliance to directly impact member service and trust. Recent high-profile incidents at several credit unions—where system failures and vendor issues rapidly escalated into member service crises—underscore this reality.
While credit unions recognize that vendors are essential for growth, competitiveness, and relevance in today's environment, they must also acknowledge that leveraging third parties introduces significant risks requiring careful management. Forward-thinking credit unions are transforming this necessary risk management function into a strategic advantage that enhances their member value proposition.
Small Teams, Big Responsibilities
Known for their commitment to service, credit unions are accountable to their members. When vendor relationships falter, the impact extends beyond operational disruption to potentially damaging the foundational trust members place in their credit union.
Our recent 2025 Third-Party Risk Management Survey reveals a concerning resource gap affecting many financial institutions, particularly credit unions. Approximately 73% of financial institutions operate with just two or fewer full-time employees handling vendor risk, despite more than half overseeing 300 vendors or more.
For credit unions under $1 billion in assets, the disparity is even more pronounced – 30% report having no staff fully dedicated to vendor management. Nevertheless, these same institutions typically manage between 101-300 vendors, creating a significant operational challenge.
Third-Party Cyber Threat Is Real
In reviewing the top vendor threats, cyber incidents are a rising challenge. Nearly half of survey respondents (49%) experienced a third-party cyber incident within the past year. For credit unions, these incidents can be particularly damaging, affecting essential services from online banking access to loan processing. Ultimately, the member feels the threat.
At the same time, there are direct costs. Recent reports show that credit unions face an average cost of $283,000 per data breach incident, with third-party breaches representing an increasing percentage of total incidents. These are substantial costs that could otherwise be directed toward member services and benefits.
Recovery timelines vary significantly, with 66% of institutions requiring less than 60 days to recover, but 8% needing more than 90 days. For credit unions operating with limited margins, extended recovery periods can strain both resources and member relationships.
The AI Revolution Comes to Credit Unions
Artificial intelligence ranks as the second-highest vendor risk concern heading into 2025, according to the survey. This trend should be prioritized by credit unions as vendors increasingly incorporate AI into their solutions, from member service chatbots to fraud detection systems.
However, only 20% of smaller, community financial institutions are sending AI-specific questionnaires to vendors, compared to 56% of institutions with greater than $10 billion in assets. This disparity suggests smaller credit unions may be falling behind in formalizing AI oversight, potentially exposing themselves to emerging risks.
Turning TPRM into a Member Advantage
The silver lining? The majority (85%) of institutions report moderate to high returns from investing in TPRM. Beyond regulatory compliance, effective vendor management delivers enhanced cybersecurity, cost savings, and stronger vendor oversight – all of which ultimately benefit members.
For credit unions looking to strengthen their TPRM programs, consider these member-centric approaches:
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