The financial crisis was arguably the best thing to ever happen to credit unions. Many customers of big banks, fed up by the “too big to fail” bailouts, left to become credit union members and take advantage of more personalized, tailored financial services.
In the years since, the majority of those customers have stayed with credit unions. According to the 2018 FIS Performance Against Customer Expectations study, credit union members are far happier than customers of other banking providers, with 92 percent of members either “very satisfied” or “extremely satisfied.”
But, despite the last decade of member growth, credit unions are now facing a glaring demographic problem.
Half of credit union members are now age 53 and older. These are members who for the most part have gone through their home-buying and wealth-building phases and are approaching the slow draw down of assets in retirement, if not there already. While 31 percent of members are Generation X, a higher proportion than at other banking providers, they are the defectors who joined in the Great Recession and are likely sated more by credit unions’ not-for-profit ethos than by their strong performance.
Right now, just 24 percent of members are millennials, while 40 percent of customers at digital-first direct banks and 34 percent of customers at the top 50 global bank are millennials. Credit unions are losing the battle for the youth.
But here's the real problem: The U.S. economy is in good shape, as is the broader banking industry. Without a major systemic shock like the 2008 financial crisis — something none of us should ever wish for — there is little impetus to push millennials toward member-owned credit unions.
Credit unions instead must woo millennials away from big banks, and that’s going to require much more than having shared social values. They have to offer consumers want they want most and, contrary to popular belief, it’s not just digital banking.
Four key areas
Credit unions are not banks and they shouldn’t strive to become banks, but they do need to compete on more than just message and values. To win over the next generation of consumers, credit unions must invest in and strive for parity with banks in several areas.
Enabling do-it-yourself account servicing is the first part. Human interaction within the banking experience, even if highly personalized, is not a big differentiator to younger consumers.
In fact, millennials want to avoid human interaction, if possible. According to PACE, millennials ages 18 to 26 rank digital self-service as the most important attribute in their banking relationships — far ahead of trust, amazingly.
Credit unions need to quickly embrace the current industry push toward mobile 2.0 banking capabilities, which allows for social interaction such as voice banking and next-level functions such as card controls, account opening and even loan origination. Taking advantage of open application programming interface (API) integrations into credit unions’ core banking systems is the most efficient and effective way to add self-service features.
Secondly, credit unions must stop Ignoring person-to-person payments. Credit unions always question whether a new banking product is what their members want. Roughly half of members — that’s current members, who are primarily Generation X and baby boomers—regularly use outside P2P apps to split the dinner bill or pay friends
Joining Zelle, the most popular P2P option, requires upfront investment and ongoing transactional costs but the levels of engagement and brand affinity generated cannot be overstated. P2P payments are now table stakes for millennials and Gen X.
Credit unions need to follow the broader banking trend of offering their members a variety of payment options, including P2P services, mobile wallets and bill pay. Not doing so is the equivalent of putting your head in the sand.
Third, teaching millennials how to bank is another important strategy. Compared with older generations, millennials are less confident about personal finance and investing, but are extremely eager to learn. They scour a myriad of websites, blogs and media outlets for advice on how to improve their finances.
While credit unions are renowned for providing financial education to their members, they now need to take on a modern “show, not tell” approach tailored to the needs of millennials and Generation Z. As such, this education needs to be delivered in a range of modalities and forums, from social media to their website to events in the community to dedicated personal financial management tools.
Finally, recognizing members is a must. Everyone gets a participation trophy, right? It may seem superfluous expense, but recognition goes a long way these days. The PACE study found credit unions notably underperformed in terms of rewarding their members for their business, with 45 percent of members reporting dissatisfaction in this area.
A strong rewards program helps cement loyalty and reduce attrition for credit unions by delivering a memorable, engaging experience for members through surprise and delight moments.
The economy is good. Millennials have jobs, are buying cars and homes, and they’re likely banking with institutions they dislike. Credit unions have enjoyed a decade of member growth, but it’s been primarily driven by older generations seeking local, traditional service.
Credit unions have a lot of strengths to build on – most notably, a highly satisfied member base. The social consciousness and smaller-is-better mindset of younger generations also plays well to credit unions.
By focusing on these four areas, credit unions can better compete with bigger banking providers and win over millennials and younger consumers.
