Coronavirus could lead some credit union members to jump ship

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The reach of COVID-19 knows no bounds, and as we roll into the final third of the year, the credit union industry looks vastly different than it did when members rang in the new year. Not only that, their comfort levels around banking have also changed.

As with other large events in history, fear of the unknown resulted in members running to the branch to deposit cash, which some saw as a flight to safety, thus increasing liquidity at a time when lending was slowing. As institutions reduced on-site staffing to combat the spread of COVID-19, branches and members alike took to a more virtual form of banking to eliminate contact. While some branches were prepared for a quick pivot on business strategy, many were not.

Given the reduction in branch traffic, are we creating the perfect storm to support a market change toward branchless financial institutions? Challenger banks have leading-edge technology, but that may not be enough to convert credit union members.

Credit unions are known for having personalized service. They are members-first institutions, and are sought out and chosen with that in mind. When in-person interactions are eliminated, how can those same services be administered? With many moving to reduce in-branch operations, the curtain was pulled back as to what was prioritized. While many credit unions were already considering their long-term options for reducing a physical footprint, having to ramp up those plans was not on the 2020 road map for most.

Some credit unions had already jump-started the journey toward digital transformation, which in turn alleviated a lot of the pain associated with the pandemic. While this process is not quick, having technology already implemented that the branch could fast-track made this situation easier to navigate for larger financial institutions. Unfortunately, some of the smaller credit unions that did not have the budgets to take on an expensive process such as a digital transformation were left in the dark.

Some smaller credit unions did not have the technology to lean on, making these adjustments more difficult. This caused some to fear that smaller rural institutions may be forced to close their doors due to an inability to accommodate the changes and rising COVID cases. Thankfully, members ran back to traditional financial institutions nationwide in search of financial stability. But is that enough to keep challenger banks at bay?

Many credit unions took this as an opportunity to expand their business offerings, taking on SBA lending that previously had not offered. With the introduction of the Paycheck Protection Program there was a need unlike never before. With a business model focused so much around the “people helping people” philosophy, this move made sense. Some small regional credit unions were actually able to assist small Main Street businesses by taking on these types of claims.

While moving to a digital way of business adjusted some of the services credit unions were able to provide to their members, many still managed to come out on top and provide an overall adequate service level to their members. Challenger banks may have cutting-edge digital user experience that can top many credit unions who have not made digital transformations, but members still flock to traditional banking experiences in a time of crisis – including the 4 million consumers who joined credit unions in the year ending June 30, a 3.4% gain over the previous 12 months.

When the world is changing, people aren’t as willing to make drastic changes to their financial processes, and that worked in credit unions’ favor. On paper this type of situation would be an ideal time for challenger banks to outshine with their modern digital experiences and new technology. Yet credit unions had a strong network of members who were loyal and willing to ride out the highs and lows.

After the implications of the pandemic have gone, we will then be able to see just how big an effect it had. It’s already been noted that because of this, the way people bank has been adjusted. With the rise of digital services and capabilities, will members still want as many in-person services? Is this the push credit unions needed to see the desire and need for a digital presence?

While we currently don’t know, it is certainly paving the way for 2021 to be a year filled with change for credit unions. On top of that, with the increase in merger and acquisitions in the industry, next year will bring a brand-new banking landscape, and hopefully integrated technology and digital transformations both in the branch and digitally are featured to better serve members for the future.

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