The financial and banking landscape is shaped by one primary driving force: consumer expectations. With more and more people moving toward a digital life, online and mobile banking are now more relevant than ever, and staying in the loop is no longer a matter of choice but a necessity.
In recent years, credit unions have been increasingly perceived as offering something traditional banks fail to provide. Most credit unions are more socially oriented and aligned with consumers’ communities or workplaces, placing emphasis on in-person interactions and personal relationships. But even if those features are enough to bring in new clients, customer retention depends largely on remaining relevant in a field that is incredibly competitive and growing at a steady rate. Credit unions need to offer the same range of digital financial services other financial institutions do.
According to the 2016 Global Consumer Banking survey conducted by Ernst & Young, slightly more than 60 percent of those using financial services prefer to use multiple channels to interact with their financial institution. At the same time, while 82 percent of global banking customers go online to educate themselves about new products, 60 percent also find visiting a physical location or calling to speak in person with a bank representative to be valuable. These figures only serve to highlight how consumer demands have shifted, and for credit unions to be successful, they must learn to cater to these new expectations. Customers are comfortable with digital access to financial institutions, but have become rapidly more sophisticated. A 2011 Intuit survey showed that 65 percent of respondents were primarily interested merely in tracking account balances, a need which today seems almost quaint when considering the myriad options and apps available to today’s consumer.
Sure enough, digital banking would make managing one’s finances easier, but is it really necessary for credit unions to make the shift?
Accenture studied millennials’ attitudes toward banking in 2014 and found that nearly 40 percent of 18-34 year olds would consider switching to a purely digital financial institution. Adopting a digital-first perspective can help credit unions not only bring in new clients but keep existing ones too.
According to experts participating in the Pymnts.com Innovation Project 2017 conference at Harvard, the digital revolution is closer than ever. As CO-OP Financial Services aims to enable participating credit unions to implement Zelle capabilities, credit unions will be able to send and receive P2P payments faster than ever, as well as process credit check deposits and bill payments from smartphones and through online platforms. This will create personalized user experiences and provide credit unions with the opportunity to support innovative technologies.
Core challenges
Financial experts argue that embracing a digital-first view of banking is of the essence, but credit unions are expected to run into certain challenges before being able to implement such a mindset. Most credit unions, for instance, rely on obsolete legacy core-banking and loan-decision engines. Modernizing the non-flexible, non-customizable systems with long release cycles can be expensive and time-consuming but it’s critical to ensure client satisfaction. Budgeting is also a primary concern, with nearly 80 percent of the IT budget at many credit unions being spent on compliance, risk and security improvements, which only leaves about 24 percent of the total amount to power the digital transformation.
But adopting a digital-first view of banking can produce fast results and benefits for credit unions. A recent study from MagnifyMoney showed that credit unions with high digital adoption scores (over 75 on a 100-point scale) demonstrated an increase in assets by 3.85 percent, compared to credit unions with a medium score, who only grew their assets by around 0.23 percent. And lastly, credit unions who failed to adopt a digital-first view actually saw a decline in assets by over 1 percent.
This is certainly a cautionary tale about the importance of staying relevant and catering to the shifting demands of banking customers. The digital transformation is no longer a matter of choice but a crucial necessity for financial institutions – and credit unions – to remain competitive.
David Mitchell is president of NYMBUS, the core banking modernization company.
