Now is a perfect time for credit unions to re-examine their approach to credit. There is a significant opportunity to grow market share and build stronger member relationships. With the financial crisis in the rear view mirror, there is a strong renewed interest in consumer credit, which is expected to grow at twice the rate of debit between 2013 and 2015. Leveraging existing relationships to "graduate" members from debit to more profitable credit products can more than double revenue, according to Pulse Network and the Federal Reserve Bank.
Large retail banks and credit card issuers see this opportunity and continue to invest heavily in consumer-facing products. At the same time, financial technology disruptors and new players with different business models like crowdfunding are edging into the market with new solutions.
To compete and win, credit unions are going to have to execute better than ever on what they do best: Engage their members with outstanding service and differentiated products. When it comes to card solutions that are part of the arsenal, credit unions have to differentiate with a personalized experience that provides a distinct value to their membership. The last time consumers saw a major credit product evolution was during the introduction of reward programs, and that happened well over 10 years ago.
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Winning the top-of-wallet race requires innovation, nimbleness and flexibility, and that means credit unions have to start thinking like Silicon Valley startups. The Silicon Valley mindset is one of creating better solutions by testing assumptions, questioning the status quo, taking measured risks and iterating rapidly. Credit unions need to implement forward-thinking credit product ideas and new ways to engage consumers with better ways to manage their money. For those that act quickly, there is a great opportunity to differentiate with unique features and solutions tailored to the needs of today's small businesses and consumers who demand sophisticated digital capabilities. We see three key areas where innovative credit solutions can help credit unions offer more personalized experiences that give members more control over their finances:
- Budgeting and eliminating overspend. Cardholders can set budgets and spending limits with card controls available online or via a mobile app. For example, a member planning a trip overseas can turn on or off foreign currency limits and set limits on spending. Controls can even be set on merchant categories and locations, both in person and online. Smart consumer protection features like these can help transition budget-conscious members who typically use their debit cards to active credit card users.
- Reducing fraud. Easy-to-use card control and notification features allow cardholders to sign up online or via mobile banking apps. Members can receive real-time two-way mobile alerts via push SMS or an email warning of suspicious activity, empowering them to communicate with their credit union or community bank and take action right away. For the financial institution, involving the cardholder in the fraud detection ecosystem adds an additional layer of security.
- Improving member engagement. Today's payment technology enables more sophisticated engagement solutions that go beyond traditional loyalty programs. Modern payment processing solutions recognize important, contextual details about a consumer's individual commerce journey and can trigger actions such as special offers based on that information. This enables real-time upsell opportunities. For example, when a member uses her card to purchase a vacation package for her family, she can receive a promotional offer for travel insurance from her credit union.
Financial institutions have struggled to deliver innovative solutions suited for today's new market realities. But the right technology can level the playing field for credit unions, giving them the ability, agility and flexibility to deliver better credit solutions faster. The latest generation of credit payment processing technologies put the focus on the member cardholder experience, enabling credit unions to offer personalized products aligned with their core strength and value proposition of high-touch member service.
It's time for credit unions to start thinking like Silicon Valley startups and examine how they apply the latest technology to their credit strategies. The biggest risk to any business is not having a competitive product, and with the pace of advances in technologies that are proving to be disruptive, that risk only grows with time.
Amir Wain is founder and CEO of i2c Inc. He can be reached at 650-480-5282 or [email protected].
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