Competing in the Age of the Amazon Effect & BNPL

New developments in payments technology, the continuous rollout of slick apps and the rise of fintechs has kept credit union leaders on their toes – and led to heightened consumer expectations. So how are credit unions really doing when it comes to competing with tech-focused financial services providers and offering the digital experiences consumers have come to expect?

Last week, Sean Ferguson, vice president of digital experiences for the Irvine, Calif.-based loan origination technology CUSO Origence, shared his thoughts with CU Times on credit unions’ digital experience challenges and opportunities, where they fit into the growing world of Buy Now, Pay Later (BNPL) and what they can offer that fintechs can’t. Responses have been edited for length and clarity.

CU Times: The Amazon Effect – the idea that consumers now expect their experience on any app, including a credit union’s mobile banking app, to be equivalent to what a company like Amazon offers – is taking credit unions by storm. How do you think credit unions are really doing when it comes to offering digital experiences that stack up to consumers’ expectations for things like speed, seamlessness and reducing friction?

Ferguson: In general, we’re seeing credit unions make a much bigger push in that space – more specifically around improving the member experience, and defining what that vision is. I certainly think as it relates to fintech competitors, that there’s a ways to go. But as I talk to credit union leaders now versus five, 10 years ago, we are seeing a lot more momentum and need within that.

The challenge is that a lot of credit unions are dependent on service and technology providers, so in a lot of ways they’re limited by their partners. So the credit unions that are doing their due diligence and research, and then going out and finding those partners that share the same kind of passion, vision and investment toward that member vision, are the credit unions that will likely succeed and win out on that Amazon Effect.

The Amazon analogy that we use is dependent on a few things. One is that Amazon is really good at knowing who we are as users. They don’t look at us as transactions. They remember information that we’ve entered in the past and give us the ability to make repeat purchases, or even better, offer recommendations. In addition, they make that purchase transaction and the fulfillment of that very quick. As credit unions look to find parallels within loan originations, deposits and things like that, there is room for them to grow. And credit unions would agree that they want to look at members as members, and more specifically, [embrace] that notion of “show me you know me” – reusing application data from historical transactions and bringing them forward, or even better yet, not even [requiring] a member to refill that application again.

The other opportunity within that is really encouraging the credit union industry [to recognize] the value of automated system decisioning. Members expect that Amazon-like transaction experience, so one of the opportunities for us in the credit union space is to encourage and educate on automated approvals and what they mean to members.

CU Times: When you look specifically at the digital lending process, what features should be in place for a credit union’s borrowers to ensure they have a top-notch experience?

Ferguson: I think about it in terms of channel – so, thinking about members who start in the branch and move to an online channel and vice versa – and how you connect those channels together and create an omnichannel experience. The reality of life is that oftentimes, even if we wanted to fill out all the information for a loan and get funded in five minutes, we get distracted, whether by the kids or having to do the dishes, and that pulls us out of the transaction. Our ability as credit unions and technology providers to remember that information that’s already been entered from previous sessions, and get the member caught up to where they left off from a previous session, is really important. And [so is] meeting the member in the channels where they want to be met. I mentioned in-branch versus online, but I’d extend beyond that to device. Recent data suggests that almost 70% of transactions happen through mobile phones now. So how do we create optimized member experiences through mobile channels, whether that’s using biometrics, facial recognition or thumbprint recognition, or signing contracts for a phone or SMS channel, for instance? We’re seeing a lot of credit unions engage with bilateral communication through text channels, or the ability to upload documents through text channels. Those are all strong indicators of credit unions that will be successful.

CU Times: There’s a lot of talk around BNPL – and debate over whether it’s even a financially healthy offering for those who are prone to debt. You noted recently that while the BNPL space tends to be focused on small retail transactions, there’s an opportunity for credit unions to look at longer-duration loans within the space. What did you mean by that, and what are the other implications of BNPL for credit unions?

Ferguson: We know BNPL is rapidly growing – I saw a recent study that said the industry was growing as fast as by a trillion dollars by 2026 – and I think we can acknowledge that its target customers tend to be the younger generations and lower-income [consumers]. From a credit union’s perspective, there are two approaches [to BNPL providers] – do you view them as competitors or partners?

Typically the BNPL transactions are for lower-ticket items, with average terms between six and 12 months. So as I put on my credit union CEO hat, to me it’s, where is there opportunity? And I think the big-ticket items that tend to have longer-duration loan terms is one area to start to position [my credit union] in.

But let’s also acknowledge that the BNPL providers have technology platforms that enable very quick transactions, so you’re seeing a lot of encouragement from credit unions through the competitive space, whether it’s fintech or BNPL, to really modernize their origination technology and processes, [and realize that] getting a loan funded in 30 to 45 days is not going to be successful. You have fintechs and BNPL options that are able to do this in less than a day. This goes back to things like one-tap approvals, same-day funding and electronic signatures that can be done through a phone. Those are all things that credit unions need to start investing in rather quickly before they get left behind. And instead of looking at [BNPL providers] as competition, [credit unions can look at] how they can partner directly with retailers with this modernized technology to make transactions easier for members.

The other thing is, when we think about what credit unions do well, it’s their immersion into the community; they go above and beyond to not look at transactions as transactions – they see the person behind it. Fintechs and BNPL providers don’t do that. So how do we take advantage of that in the credit union industry and really lean in toward the member? That could mean helping with financial education and literacy, or creating brand awareness around the credit union and optimizing alternative lending solutions.

CU Times: While fintechs may be gaining a competitive advantage over credit unions from a technology and product standpoint, there’s a consensus that credit unions can gain an advantage over fintechs by leveraging empathy. How can credit unions leverage this advantage?

Ferguson: Credit unions are very community- and member-focused, and those are two opportunities to lean into as they relate to leveraging empathy. Investing back into the community and local businesses, sponsoring charity events and offering after-work financial education programs, those are examples of reaching out to their member base empathetically.

Offering personalized service comes to mind as well. Sometimes you walk into a credit union or bank and think you need a certain loan product, but when done well, credit unions can take a moment to understand you as a person. What’s your background? What are you really looking for? What are your goals? What are your current assets? Maybe you own a home, and offering a HELOC is better than offering a credit card. That comes through that member interview process and empathetic understanding of who they are and what their goals are.

The other thing that comes to mind is transparent communication. One of the things credit unions do so well is they’re open about the financial products they’re offering. Lean in toward outlining the risks and benefits of each of these things, and make sure the member understands what the terms and conditions of a loan are. That’s an opportunity that the competitive space likes to brush under the rug.