New research finds that credit unions continue to be laser-focused on boosting market share among millennials, with a recent study from Chicago-based credit information service TransUnion finding that 100% of CU respondents view that demographic as either "extremely" or "somewhat" important to institutional growth. Zero respondents viewed it as a non-issue.
As credit unions map out their strategic plans for 2017 and beyond, millennials continue to be a significant factor in their plans. Tremendous amounts of focus have been placed on the millennial market in all facets of the business world – and for credit unions, it seems to be working.
According to TransUnion, millennial memberships at credit unions have risen by five percentage points since 2013.
"Credit unions are significantly or somewhat more capable of competing with traditional banks than they were a year ago," the report stated. This is part of an overall trend in the industry as total memberships have grown 13% for CUs since 2010. According to the survey, 42% of respondents agree membership growth was well above 5% for the last 12 months.
The survey polled 96 CU executives to rank the top areas of growth, focus and opportunity within the industry. According to the results, 41% of those polled consider auto loans as the number one growth area, 80% of respondents reported it as at least within their top three. 22% of respondents think of mortgages as the primary focus, while 10% and 6% think of share draft accounts and credit cards as their primary focus, respectively.
Millennial Market Share
As of Q1 of this year, millennials make up 25% of total credit union memberships, according to TransUnion data, an increase of five percentage points from 2013. While that demographic also makes up 25% of banks' customer base, it's a strong showing for CUs, given that banks saw only an increase of only two percentage points among millennials during that same time period.
"I would say CUs are very well positioned with young consumers [and] growth with millennials," said Nidhi Verma, senior director of research and consulting at TransUnion. "These are the young consumers that have credit needs going forward." Nearly 90% of survey respondents believe millennials to be "extremely important" to a credit union's growth.
"Millennials are an important set of borrowers," added Verma. "Some of them are hitting the prime age of being young first-time home buyers."
Millennials are undoubtedly within credit unions' crosshairs. Young consumers are a hot commodity for financial institutions as they begin acquiring auto loans, their first home mortgages and other financial products that extend past a debit/savings account. Thirty-seven percent of survey respondents to the TransUnion survey said first time home buyers are extremely important to their CU's growth, while only 5% said it was not important.
Buying Cars and Homes
"There is a lot of conventional wisdom that millennials are not becoming first time home buyers." Verma said, she added CUs are poised to address their credit needs going forward.
Mike Long, EVP and chief credit officer at the University of Wisconsin Credit Union said historically, UWCU was "lucky" to have something around 5-8% of mortgage market share; now they compete at anywhere from 15-20%.
Long suggested the pace of home ownership has been on the rise, which in his opinion is a direct result of low interest rates. Traditionally, consumers expect a new home purchase to require 20% down and a FICO score somewhere around the 800 mark. UWCU has competitively offered a low-down payment of 3-5% for mortgages.
"The problem is, there are not enough houses for people to buy – that seems to be what is constraining [the market]," Long offered.
According to NCUA's most recent industry report, federally insured CUs have nearly $800 billion in total loan balances, 41% of those loans consist of first mortgage real estate – a $5.5-billion increase from December 2015 to March 2016, and nearly 7% in annualized growth. Auto lending has increased by nearly 12% annualized for both new and used vehicles – $7 billion in new auto loan originations have been reported as of March 2016, according to NCUA data.
TransUnion's Verma said that 49 CUs in 2010 were originating more than 10,000 auto loans or leases; in 2015 that number grew to 126 institutions. Long believes this is a result of credit unions having an expanded field of membership to potentially serve more members; removing barriers that resulted from membership qualification issues. "CUs have money to lend, while rates are ultra-low, certificate rates are non-existent…CUs have gotten aggressive in lending, [they] want to put member's assets to work," Long said.
The UWCU SVP told Credit Union Journal 53% of their 214,000 members are considered to be of the millennial generation. "They are not unlike serving baby boomers or generation X," Long said. "They just want access to more delivery channels – visiting branches, participating in online lending…serving that younger demographic doesn't really seem to change our approach on how we market." He suggested all consumers are interested in things like lower interest rates, impressive service and lower fees.
UWCU has targeted a few different areas that have contributed to the $2.2 billion CU's growth, including indirect auto lending and mortgages, both of which have been trending upward during the last two years, Long said. He also suggested there has been a lot of membership growth through private student lending, which he said naturally attracts a younger membership.
New Tech a Necessity
The strong push to acquire millennial members – who are just entering their prime borrowing years – has been most exemplified by the focus on enhancing technology through all aspects of credit union business. CUs throughout the nation are attempting to update their offerings by including social media, mobile applications and an enhanced web presence.
"I really think these new media channels are becoming the new battlefield for growth when it comes to financial services. The rules of engagement are completely different," said Joseariel Gomez-Ortigoza, CEO of Shastic, a financial technology company based out of Berkeley, Calif. Shastic was the first company to launch a lending tool for Facebook specifically designed for CUs, according to the CEO.
"We hear all the time that CUs are afraid of getting too many young people," Gomez-Ortigoza said. He suggested one of the biggest challenges CUs face with millennials is how to assess the risk of a younger generation.
Navy Federal Credit Union, $77 billion in assets, has taken a tech-forward approach to being more attractive to millennials while also being more accessible to their 6.1 million members. Representatives of the Vienna, Va.-based CU said their research has shown them millennials and generation X members rely on mobile banking the most.
According to Navy Federal's research, millennials check their financials multiple times throughout the day, while older generations tend to have more "sound finances," enabling them to check less frequently.
Credit Cards Untapped
The TransUnion survey also discovered a trend that hints at an untapped market ready to be tackled by the industry. According to the respondents, 70% of CU leaders reported more than half of their members do not have a credit card with their credit union; 14% were unaware how many members did not have a card through their institution.
"Credit unions are certainly excelling," Verma said, although she conceded areas like credit cards are untapped opportunities for the industry. According to Verma, 18 million members have a relationship with their CU that does not involve a credit card; instead they hold them through different institutions.
"We are knocking our heads on the desk thinking about how we can get credit cards to more of our members," UWCU's Long said. He described credit unions as a sort of "general store" that is competing with companies like Capital One or Discover who have significant focus and resources focusing on the credit card market.
"Forty-six percent of our adult members carry a credit card with us – to me that's 54% to have an opportunity with," Long said.
For millennials, Long believes the demographic is more likely to carry a balance and perhaps a low-rate card is the answer. "I don't know if we have cracked that code yet – it is very difficult to predict what direction from that standpoint."
Verma suggested that there are three main focus areas for credit card offerings that have worked well with CUs they have worked with previously: pricing/APR, product value proposition (rewards and related offers) and optimal credit lines.
"We would like to do as much as we can," said Long. "Delinquency rates are at all-time lows, charge offs low, credit quality high… credit cards can get 8-15% [yields]…We would love to do as much credit card business as we can."
