Credit Unions Are an Anchor in a Recessionary Storm

Americans are navigating the stormiest period since 2007 to 2009, living their lives under seemingly unending waves of challenging economic forces. After consumers spent two years dealing with losing jobs to pandemic lockdowns and rising home and grocery prices, they now grapple with continuing inflation, higher interest rates and a recession that is already motivating employers to slow hiring.

Credit union members have an advantage in these stormy times. As organizations whose charters align them to members rather than shareholders, credit unions have an outsized opportunity and ability to help smaller communities weather the recession. Let’s look at the ways doing business with credit unions can help to solve financial problems in harrowing economic times.

CUs Are Untapped Resources for Borrowers During Recessions

The Federal Reserve’s aggressive rate hikes make borrowing much more expensive for home and automobile buyers. However, borrowers can turn to credit unions to get home or auto loans with more competitive rates. Historically, credit unions grant more loans than banks during recessions. Between September 2019 and September 2020, during the height of the pandemic, credit unions’ loan portfolio growth outpaced banks by 6.6% to 4.9%.

Credit unions offer more variety in their loan products, often at more favorable terms than banks. As of June 2022, the average new auto loan at a bank was 4.8% while only 3% at credit unions. Credit unions were offering credit cards at a full percentage point less than banks. Consumers also came out ahead with deposits, since credit unions offer better rates on CDs, money markets and savings accounts.

The Right Model for Challenging Times

Credit unions prioritized member service and engagement before it was the trend. Their nonprofit business model makes them fundamentally different, since their express mission is to nurture the financial health of their local members and communities. As such, credit unions are well positioned to serve up more personalized member experiences – in line with today’s consumer expectations. JD Power’s 2022 survey revealed that only 44% of customers felt supported by their banks in tough economic times. With no shareholders to answer to, credit unions are on their members’ side, so they can take a long-term view of their members’ financial well-being. Such trying times create an opportunity to capture big bank customers aggrieved by intransigent lending practices, annoying fees and poor customer experience. Credit unions also fill the gaps left in banking deserts for communities with no brick-and-mortar retail banking options – communities that may feel the sting of recession more sharply. They offer personalized assistance in many ways, including creating new and unique products and services specifically designed to help members through the worst of the crisis.

Technology for Member Convenience and Connectivity

The reality – and challenge – for credit unions in 2022 is that consumers expect this support and care for their financial well-being to be available in seamless digital journeys. Consumers expect mobile and online banking app options, and they expect the user experience to be self-service, easy and fast. While credit unions may have previously felt constrained relative to much larger banks, these seamless digital experiences are now within reach. Credit unions long accustomed to cultivating rich member experiences can now embark on digital transformation as a complementary addition to their excellent personal service. Technology allows for greater connectivity and convenience for members and nurtures the loyalty that is critical to building lifelong member relationships.

Downturns Are a Good Time to Upgrade Tech

Further, a recession can often be a beneficial time to adopt technologies, since the opportunity cost is lower than in good economic times and digital tools can help cut costs in the long run. Additionally, having proper technology in place allows credit unions to utilize the data they have collected on their consumers to offer more personalized touchpoints and recommendations – improving overall financial literacy. Integrating new technology can be an imposing prospect, but the availability of quick-deploying banking platforms with unified architecture that touches every line of business makes it entirely accessible and a huge benefit for both employees and customers. Numerous credit unions such as SchoolsFirst Federal Credit Union ($27.6 billion, Tustin, Calif.), Navy Federal Credit Union ($156.5 billion, Vienna, Va.) and Ent Credit Union ($9.5 billion, Colorado Springs, Colo.) have moved to a single unified platform to future-proof innovation, leveraging an out-of-the-box customer engagement layer on top of their legacy systems. Turning to an engagement banking platform has enabled these credit unions to keep up with the demands of their members, even during difficult times.

An Anchor in Turbulent Economic Waters

Credit unions have always proven to be a stable anchor during turbulence. Today, about 128 million members rely on their credit unions. This amounts to approximately 30% of the U.S. population, which makes up only 7.5% of the financial services market, demonstrating credit unions’ more inclusive mission. Credit unions are recording record growth in 2022, and may grow even larger since they inhabit a unique place in the ecosystem to help everyday people be resilient in tough times. All of this bodes well for households seeking to weather this economic storm.

Mike Fife is Vice President, Customer Success for the digital engagement banking platform provider Backbase in Salt Lake City, Utah.