Impacts & Implications of the COVID-19 Crisis for Credit Unions

The public health, economic and social challenges occasioned by the coronavirus pandemic require a strategic reassessment and reset for financial services providers, including credit unions. Today, many credit unions are already beginning to lay the groundwork for the operational transformations that may be required as a result.

Of course, COVID-19 has created new, immediate needs for credit unions: Rapidly transitioning to remote work, serving members with reduced branch availability, reallocating branch staff to address increased call center traffic and supporting members in financial distress through deferments, emergency lending and more creative, tailored arrangements.

At the same time, the COVID-19 crisis has surfaced, accelerated and intensified many existing trends, too. As we have spoken with credit union leaders around the country, we are finding that many are doubling down on their existing strategic objectives, while sometimes altering their plans to achieve those objectives. As one leader told us, “If we have to change it entirely, our strategy probably wasn’t all that strategic to begin with.”

Nonetheless, as they seek to mitigate the effects of the pandemic for their members and adapt their business model, credit unions will also be challenged by continued uncertainty and a rapidly shifting environment. Many will need to make adjustments to more effectively deliver the right products and services via the right service delivery channels.

Filene Research Institute’s recent report on “Credit Unions and the Coronavirus” identified four key focus areas as credit unions map out their mid- and long-term plans: Supporting members today, making member financial well-being the primary value proposition, innovating and evolving digital service delivery, and improving operational efficiency while developing new revenue streams.

Supporting Members Today

Credit unions have not been bystanders during the crisis. Going forward, they must prepare to respond to continuing and potentially prolonged member financial distress. At the same time, there is opportunity: To showcase your organization’s commitment, shore up your trustworthiness, and build deep and enduring relationships with members.

The coronavirus pandemic has created economic and social hardship for many. Members have needed short-term support to meet liquidity needs and will need a more tailored suite of financial services going forward. For example, standard financial literacy programming offered by credit unions often assumes the member is employed, and that may no longer be the case. To enhance fit and impact, interactions between members and frontline employees must begin with a holistic understanding of members’ circumstances.

Making Member Financial Well-being the Primary Value Proposition

The crisis has returned financial well-being to the heart of consumer demand for financial services. This means credit unions must not only adapt their offerings but also the way they package, bundle and deliver those offerings. Access to credit is part of a broader set of personal financial challenges, from dealing with income and expense volatility, to saving, insurance, investment and wealth management. It is these challenges that motivate consumers to engage financial services providers. Credit unions would do well to reposition themselves as trusted partners who can provide for the many elements that contribute to financial well-being.

Start thinking beyond the transactional needs of members, to how you can center personal financial management and become a primary port of call to your members during and through their life transitions. This is relationship-first banking marked by personalized service delivery. Done well, this approach improves consumer financial well-being and deepens the relationship to your members by supporting different parts of their financial lives.

Innovating and Evolving Digital Service Delivery

The transformation of service delivery to accommodate remote or curbside financial services has entailed the acceleration of digital financial services and will result in the remaking of the branch and contact center. But credit unions should not try to go head-to-head in digital development with large commercial banks or fintech startups. Instead, now, more than ever, credit unions are being pushed to find a way to combine high-touch and high-tech. The trick is to scale up high-quality digital channels and support member adoption with the service excellence that sets credit unions apart.

Credit unions able to deliver positive experiences in digital and mobile channels today stand to gain loyalty, stickiness and market share in the long run. Start with an inventory of what services cannot be completed fully remotely and contrive stopgaps or workarounds until a permanent solution is ready. Be ready to make the investment now and into the future, as member experience is never one-and-done. Track and measure how members engage across channels and remedy pain points as they emerge.

Improving Operational Efficiency While Developing New Revenue Streams

Credit unions are seeing record deposit growth, and many are staying above water in lending through business lines such as mortgage refinancing and RV lending. But the depressed, low-rate economic environment that we will be facing into the future has important implications for credit union growth. Combined with lower fee income and an expected spike in credit losses and operating expenses, credit unions will need to find operational efficiencies and new revenue sources to grow and remain sustainable.

Remote work and the future of branches are two top-of-mind areas to begin re-thinking your operations. On the revenue side, members may not take well to new or re-introduced fees; instead, identify value-added products and services to offer in alignment with your financial well-being value proposition. Rethink your underwriting to take advantage of untapped markets and advance financial inclusion. There may be new revenue opportunities emerging in businesses services, especially the growing population of independent and precarious workers, and in the area of environmental sustainability, such as financing clean building or home energy retrofits. The key is to look for what is specific to your community – we’ve learned of credit unions doing fire truck financing, lending to build government office space and much more.

Think Forward: Invest in Members and Business Resiliency

Now is the time to re-focus on your people – your employees, members and community – and to invest in business resiliency. Born during the Great Depression, credit unions were built for moments such as these. Support your members and consider making financial well-being your primary value proposition. Invest in your digital and mobile service as a differentiator. Take a hard look and develop efficiencies in your organization, while innovating and building new revenue streams that fit your community and will further adapt your business model to our new economic and social conditions.

To dig deeper, download and read Part 1 and Part 2 of the Filene special report on “Credit Unions and the Coronavirus.” Part 3 – which will explore financial, political, social, cultural and occupational futures further afield – is due out later this summer.

Taylor C. Nelms is Senior Director of Research for Filene Research Institute in Madison, Wis.

Paul Dionne is Research Project Manager for Filene Research Institute in Madison, Wis.