Credit Unions Must Solve the Eligibility Issue for Consumers

Banks and fintechs present increasing competition in the financial services marketplace and credit unions must take steps to protect their existing market share – and expand their reach to more Americans. This shouldn’t be hard, as Americans want to join credit unions and every single consumer is eligible to join multiple credit unions. The problem is that credit unions’ fields of membership create obstacles and confusion that prevent consumers from easily joining them.

Consumers are ready and able to join credit unions. The average consumer can join a minimum of eight credit unions for free (and more than 100 if they are willing to pay $25 to join an association). Additionally, the credit union difference resonates with consumers. CUNA Awareness Initiative research demonstrated very strong positive responses from consumers on basic credit union characteristics, with 87% responding positively to credit unions’ ability to return earnings to members through lower loan rates and higher savings rates, 83% liking the fact credit unions are run by boards of elected members and 82% favoring their not-for-profit status.

Yet credit unions have more or less operated the same way since the early 1900s, and have failed to gain traction with American consumers as illustrated by their less than 10% market share. Moreover, according to CUNA’s research, 40% of consumers believe they cannot join a single credit union. Credit unions need to ask, why?

There are likely many contributing factors, but I believe credit unions’ fields of membership are the biggest culprit. Two major problems stem from credit unions’ fields of membership, which are further compounded by consumers’ increasing adoption of the internet as a way to both research and apply for financial products. If the industry does not address these problems, the situation will only worsen.

The first problem is, until now, it has been nearly impossible for anyone to determine all of the credit unions a consumer is eligible to join. As a result, consumers usually don’t even find credit union offers when they shop for financial products online. This is an enormous obstacle because the majority of consumers, and nearly three-quarters of consumers aged 18 to 24, find their financial products online. Credit unions can’t compete for consumers who shop online because websites like LendingTree, Credit Karma, Bankrate.com and NerdWallet, on which many perform their research, have no way of determining their eligibility. The former CEO of LendingTree referred to the problem in a 2014 interview with CU Times when he said, “I suspect it’s the limitations on who [credit unions] can serve that may have hampered many of them from becoming more involved with us.” Consumers who shop for financial services online, therefore, are never made aware of the superior products offered by credit unions for which they qualify and are eligible. The only area in which credit unions have been able to compete effectively is indirect auto lending because auto dealerships determine their customers’ membership eligibility. Credit unions will remain invisible to consumers in markets that do not solve the eligibility problem on the consumer’s behalf.

The second problem is that approximately only one in 10 applicants successfully obtain membership from credit unions through online applications, which reinforces the notion that credit unions are inaccessible. Only 16% of consumers who apply to join a credit union online complete their application. This percentage is abysmal because 71% of consumers who begin online applications to join credit unions are either ineligible, or find determining their eligibility too confusing and abandon their application. In addition, 30% of the consumers on average who do complete applications are denied membership based on their credit. The result: 89% of consumers who start online applications with credit unions fail to get the product they wanted. The situation is an industrywide nightmare because it means the vast majority of consumers’ first attempts to obtain a credit union’s assistance are unsuccessful, reinforcing the idea that credit unions are inaccessible and making it that much harder to convince the consumer to consider a credit union in the future.

To address the problem, individual credit unions and the industry as a whole must adopt technology that:

• Uses data consumers enter when searching and applying for financial products to prequalify or determine eligibility.
• Refers ineligible consumers and denials between credit unions to ensure consumers receive the product they are want.
• Structures the application workflow and presentation layer to reduce confusion and online abandonment.
• Educates consumers on the credit union difference with a conversational narrative embedded into online application workflows.

Addressing the problems created by fields of membership in this manner benefits both consumers and credit unions. Consumers would more easily find credit union products and services, and credit unions would attract more consumers. Additionally, a streamlined online application experience boosts a consumer’s ability to successfully obtain a product from a credit union and increases credit unions’ marketing return on investment. Most importantly, it helps eradicate the myth that credit union eligibility is limited and reveals that everyone can and should join a credit union.

Sam Brownell is the Founder of CUCollaborate. He can be reached at 276-477-5077 or sbrownell@cucollaborate.com.