MADISON, Wis.-Those young potential members every credit union is chasing may never show up. At least not physically, and that's a reality credit unions are going to need to adapt to, according to a new study.
Instead, those young potential members are doing all of their business online.
"That's a pretty important bit of critical business intelligence for most financial institutions," said Rob Rubin, author of the new study from the Filene Research Institute. "Credit unions that fail to win over young consumers are doomed. The times are changing.e_SDRq
The Filene study is based upon a survey of 1,400 people and several CU executives seeking to understand how consumers' banking attitudes and behaviors have changed.
According to the study, many institutions need to attract a younger crowd. "While older consumers continue to be loyal to small banks and credit unions, by 2020, Gen Y will dominate the workforce, comprising 40% of all workers-all of them in an important borrowing phase of their lives," the study offers. "Without winning e-centric members today, local institutions like credit unions will perish."
Among the study's findings:
• A significant 22% of Gen Y use an online bank as their primary banking institution.
• 40% of Gen Y respondents surveyed say a recommendation from friends or family played a role in their opening an account.
• Gen Y places a premium on account features and interest rates in the immediate term.
• Online bank customers say they feel that they have the best combination of features and fees (68%) and that online services suit them best (68%). These opinions far surpass those offered by community bank customers, credit union members and big bank customers, and the strength of these opinions shows that "personal" service really means "suitable" service; often, that service is best given online, the study said.
• Convenience is an extremely important driver of retention. Paired with the difficulty of switching over existing accounts, it keeps a majority of consumers in place.
• "Painful fees and uncompetitive interest rates" turn off customers of big banks, but these factors are unlikely by themselves to drive many consumers out of the bank.
• The research found that online banks enjoy the highest rate of recommendations compared with other types of institutions. Not surprisingly, more than half of the under-30 set indicate that the reputation of their online bank was a key motivator in opening the account, and over 40% say a recommendation from a friend or family member played a role in their decision.
• Interestingly, of every six CU members or community banks customers and 17 big bank customers that want a "do-over"-switching to a new institution without pain or penalty-there's only one online bank customer that wants to switch.
"The things that attract Gen Y are often the things that need the most work," Rubin argues. "For example, some credit union websites are more like "sales-prevention tools," and it won't make sense to invest heavily in social media or tout your online offerings until your online storefront is attractive and effective.
The study suggests CUs scrap plans for the new branch and build a "virtual" branch for Gen Y. All of the capital and human resource costs of a new branch would be better spent on the website, remote deposit capture (because 90% of teller transactions involve check deposits), and rebating foreign ATM fees.
