Staying Relevant in a Changing World09.17.2018
From disruption through innovation in digital technology and increased mobile-first consumers, to shifting regulations and increased competition, credit unions face numerous challenges when it comes to keeping pace in the modern financial world. While some are rising to the task, many still find themselves struggling to adapt and connect with today’s consumers.
How do credit unions stay relevant? A good place to start is with a better understanding of your members, specifically the next up-and-coming demographic – Gen Z.
The Gen Z Impact
On pace to become the largest group of consumers by 2020, it is no surprise that more and more of today’s (and definitely) tomorrow’s members will likely be Gen Z. Though often lumped in with millennials, this group is establishing its own identity, and credit unions wishing to cater to these potential members should better understand their needs.
Gen Z are master multi-taskers that value immediacy. They process data and information faster than any other generation, having no problem using up to five screens at once to complete a task. Additionally, as natives born into an on-demand economy, they are completely at ease in the digital world. As a result, some research suggests that Gen Z has, on average, a shorter attention span than previous generations, and as a group, is quick to abandon a brand relationship if there is a perceived problem.
For credit unions, this means that having robust digital banking options is critical. A recent Raddon Research Insights survey found that 37 percent of the Gen Z respondents preferred to interact with their financial institutions solely through the digital channel. Having digital options is important, but ensuring the processes themselves are user-friendly and seamless is crucial, as this generation can be prone to abandoning a slow process if distracted.
While at home in the digital world, it is important to note that Gen Z actually also values the human element and in-person social interactions. Connecting with them in-branch and offering member service with a personal touch is key, and could provide future benefits. The Raddon survey also suggested that Gen Z credit union members have a high level of satisfaction, so attracting and maintaining these members could mean long-term growth opportunities.
Today’s Credit Union Culture – Trends and Insights
Most credit unions today recognize the need to adapt if they are to remain relevant, but making that leap can be difficult. Change is hard, but the rewards can definitely outweigh the risks because in this rapidly changing industry, standing still is basically the same as falling behind. Creating an environment that does not actively avoid all risk, no matter how manageable, but instead rewards calculated innovation is the first step toward shifting the culture.
Change can be especially hard when it comes to issues of compliance. Compliance teams may push processes that have been done a certain way for decades, with little more reason than “that is how it has always been done.” Like all areas, these processes should be reviewed regularly, as the regulations and guidance for them may (and likely will) change.
Credit union executives should also monitor other industries (and international markets), as well as their own. Areas such as blockchain, cloud computing, AI, real-time payments and emerging currencies could help many credit unions lower risk, improve service and reduce their overall costs.
Managing the External Industry Risks – and Opportunities
The hard reality is that big banks are currently winning the war for deposits and with a steady stream of new fintech competitors (whose investments are continually rising) and the growing rumors of entities like Amazon joining the landscape each day, credit unions need to work harder than ever to differentiate themselves.
As the economy grows and interest rates continue to rise, financial institutions can no longer compete on price alone. Value-added factors, such as exceptional service, can allow credit unions to offer a clearer differentiation. However, in the modern culture, service does not only mean friendly, helpful branch staff—it also extends to digital offerings as well. A strong digital presence can help build a strong deposit base and can offer a more cost effective method to pursue growth than building branches.
Another avenue many credit unions are exploring for growth opportunities is acquisition. The industry is seeing a current trend of small banks being purchased by credit unions, with recent data from Keefe, Bruyette & Woods and S&P Global Market Intelligence showing the number of banks agreeing to be sold to credit unions doubling over the past two years, and on track to rise again for 2018. These smaller banks (<$100MM) often struggle to find bank acquirers and the community culture many have tends to fit well with credit unions making it a good match.
Like other industries, credit unions often struggle to keep up with a constantly changing and disruptive marketplace. Continuous review and a better understanding of key factors such as how to appeal to new member demographics, cultural trends, and internal/external risk and opportunities can lead to more innovation and growth. Eschewing the habits of stagnation—fearing change, refusing to explore new ideas, falling behind on tech and tech skills, and failing to follow industry trends—can empower credit unions to achieve more today and ultimately stay relevant for years to come.
David Eads is the CEO of Atlanta-based Gro Solutions, which provides digital growth solutions for financial institutions.