Credit Unions Have a Competitive Advantage in the Digital Arena

Digital technology has transformed the banking industry into a consumer-oriented marketplace with new products, expedited services and a more diverse use of data.

But progress in the space has been fragmented and slow, with smaller institutions feeling threatened by the advancements of larger banks and lenders.

Fintech startups have aggressively sought to integrate their services further into their customers’ lives, many by offering strong digital banking capabilities. Larger online banks have been successful at carving out niche markets to expand their customer base, identifying new overseas transactions, for example, to help define their brand.

Relationship building has become more critical to traditional banks trying to relieve pressure on product and price competition. Some have deviated from the norm with their own personalized recommendations, virtual assistants and other “humanized” technology.

This puts smaller brands without national coverage or advanced digital expertise at risk as they try to retain their competitive edge on a limited budget. Credit unions should not make the mistake, however, of thinking they can’t survive in this environment. They can also embrace the world of “user experience” features, and creative digital technology that engages consumers differently and heightens their brand awareness.

Credit unions are unique for their status as member-owned financial cooperatives. They are also known for being “community-oriented” and building loyal customer bases through a foundation of trust and personalized customer service, a selling point for large fintech companies looking for new partnerships.

Google announced recently that it had formed a partnership to offer “smart checking” accounts, available in 2020 and co-branded under the Google Pay branch, to be rolled out initially through Citigroup Inc. – and a small credit union, the Palo Alto, Calif.-based Stanford Federal Credit Union.

From a technology standpoint, Google will create the interface while the credit union will house the account itself. This move proves to be strategic as well, as many Google employees are members of the credit union.

Some credit unions have been partnering with fintechs to leverage new digital capabilities in the areas of payments, risk and security management, member analytics, loyalty programs, help and support. Fintechs have the potential to help credit unions’ digital banking platforms become more intuitive, while assuring security.

By adopting advanced technology systems, credit unions are also reshaping their branding, environment and corporate culture. Both Seattle Credit Union and the Austin, Texas-based Amplify Credit Union converted to using Fiserv DNA, an open account processing platform that provides flexibility and scalability in supporting new products and expanding business models.

The move allows the credit unions to work toward delivering a personalized experience to members. It allows members to have more of a voice, by removing traditional teller lines and creating a more meaningful space where members and tellers can collaborate. The platform allows credit unions to continue achieving community-orientated goals and to focus primarily on servicing people instead of profits.

As member-owned cooperatives, credit unions also engage with their members differently, allowing greater insights into their demands and preferences. With a more informed understanding of their members they are better positioned to cater services to their needs.

Some credit unions have taken initiative through other measures, such as by adding a marketing carousel on the mobile login screen, expanding functionality of the mobile alerts interface, or allowing members to add personalized elements by selecting account nicknames and colors. One offers a space where members can rate the mobile app in a lightbox.

Members who better understand their financial situation will likely discover more relevant products. With a simplified interaction and upgraded user experience, they may feel more informed and stay engaged longer. They may even emerge as more loyal members.

Credit unions should not think of a digital user experience as a surface change. The idea is to create a “native” experience and not simply digitize an existing function.

It’s not a matter of converting a manual application process to a digital one, but rethinking an application process entirely. That might mean expediting data delivery or acquiring an aggregation solution to allow data to be quickly pulled from multiple bank accounts or other external sources for more complex tasks such as applying for a mortgage.

Credit unions should avoid white-labeled digital platforms that ultimately make one credit union resemble the next, and instead look for ways to differentiate their brand through unique digital experience features.

There is fierce competition for market share in the banking industry. And expanding fintech startups, aggressive innovations and new bank AI technology might make the space feel daunting to credit unions and smaller banks.

They have an opportunity, however, to offer a more personalized experience and build customer loyalty, all while maximizing their potential to keep pace with the market.

But digital transformation is not a “one-size-fits-all” journey. Industry standards and consumer expectations evolve, and firms that want to survive must adapt.

Credit unions that want to remain competitive in the space, define their brand and amplify their voice, should not underestimate the power of a creative user experience or a new fintech partnership.

Chris Ward is a Lead Analyst at Informa Financial Intelligence in London, U.K.